Archive for the ‘DDTC’ Category

IT Problems Slow DDTC Commodity Jurisdiction Responses

Wednesday, July 16th, 2014 by Brooke Driver

By: Brooke Driver

Even the government has to deal with IT problems, people. The State Department recently announced that those submitting Commodity Jurisdictions should be advised that, while the DDTC has not stopped accepting CJs for processing, there may be a delay in response due to “ongoing information technology assessments.” Here’s to hoping that “ongoing” doesn’t “go on” for long.

State Department Clarifies Recent Press Release Regarding Tokenization and Cloud Computing

Wednesday, July 16th, 2014 by Brooke Driver

By: Brooke Driver

The Department of State’s Directorate of Defense Trade Controls recently issued minor clarifications to the postings on the Perspecsys, Inc. website relating to an advisory opinion on the secure transfer of technical data via the internet. The advisory opinion is stated below:

“In accordance with [ITAR] § 125.4(b)(9), tokenization may be used to process controlled technical data using cloud computing applications without a license even if the cloud computing provider moved tokenized data to servers located outside the U.S., provided sufficient means are taken to ensure the technical data may only be received and used by U.S. persons who are employees of the U.S. government or are directly employed by a U.S. corporation and not by a foreign subsidiary throughout all phases of the transfer, including but not limited to transmission, storage, and receipt. Inclusions of transfers to foreign persons would require the appropriate authorization from the Directorate of Defense Trade Controls.”

“Additionally, in all cases the technical data must be sent by a U.S. person who is an employee of a U.S. corporation or a U.S. government agency. Transmission of classified information through this means if sent or taken outside of the United States must be accomplished in accordance with the requirements of the Department of Defense National Industrial Security Program Operating Manual.”

The DDTC claims that the advisory opinion is not intended to imply that “sufficient means” to accomplish the requisite assurance levels exist today technologically, nor that tokenization by itself could achieve that end. In addition, the DDTC insists that the advisory opinion states that the use of cloud computing applications (even through tokenization) is limited to receipt and use of unclassified technical data by U.S. entities; transfer to a foreign entity would require separate authorization.
Finally, the DDTC asks readers to remember that advisory opinions are released in response to individual submissions and particular to individual situations, and therefore should not be considered reliable guidance or precedence for the general audience.

Inadequate Compliance Procedures Net $20 Million Penalty for Esterline

Tuesday, May 6th, 2014 by Brooke Driver

By: Brooke Driver

After an extensive compliance review conducted by the DDTC, Esterline Technologies corporation has agreed to a $20 million dollar fine. Why such a hefty amount? The settlement addresses Esterline’s hundreds of apparent civil violations of the AECA and ITAR that took place over the course of many years. Due to a severely inadequate compliance program, Esterline and its affiliates apparently violated the AECA and ITAR by repeatedly executing unauthorized exports of defense articles, including technical data and defense services and unauthorized temporary imports of defense articles. The company also directly violated terms and conditions of licenses it did obtain—by exporting defense articles in higher quantities and values than approved amounts, for instance.

Alleged violations also include counts of incorrectly documented AES entries and failure to file completely. One would think that Esterline’s high number of violations indicates a conscious intent to evade US law; however, the DDTC determined that most of the violations were a result of ineffectual determination of jurisdiction over the company’s defense articles and technical data, negligence in regards to the administration of licenses and agreements and shoddy recordkeeping.

According to the terms of the settlement, Esterline will pay $10,000,000 over the course of a three year period, with the other half of the $20 settlement amount to be suspended and waived assuming that the company exhibits significant effort to improve its faulty compliance program, including performing two audits, hiring a Special Compliance Official, providing training for employees and building a successful export compliance program.

Due to Esterline’s cooperation with the Department’s investigation, disclosure of its violations and timely remedial actions, the DDTC has decided that debarment is not necessary at this time.

Esterline President & CEO Curtis Reusser said, “We accept responsibility for the actions leading to these penalties and we are cooperating with the Department of State to address the issues and strengthen our systems going forward.  This process has given us the opportunity to focus on making our entire compliance program better, and we’ve already independently begun the improvement process with more to come. …  Esterline has proactively invested more than $5 million to strengthen our compliance infrastructure over the past two years, including additions to staff, voluntary compliance audits, IT system enhancements, and employee training. Now, with the terms of this agreement, Esterline will further accelerate its improvements.  We will invest in skilled people, implement the right processes, and provide effective oversight to ensure best practices.”

US Implements Third Set of Export Control Reform List Shifts

Thursday, January 30th, 2014 by Brooke Driver

By: John Black

In the January 2, 2014 Federal Register the departments of Commerce and State published notices shifting export control jurisdiction over certain military items and technologies in the US Munitions List (USML) in the International Traffic in Arms Regulations (ITAR) to the Commerce Control List (CCL) in the Export Administration Regulations (EAR).  This is the third group of items that has undergone the shift from the USML to the CCL as part of the US Export Control Reform initiative.  The changes published on January 2, 2014 do not enter into force until July 1, 2014.


The Directorate of Defense Trade Controls revised the USML so that this list shift applies primarily to four categories in the USML.  Those categories and the highlights of the changes are:

Category IV,  Launch Vehicles, Missiles Rockets, Torpedoes, Bombs and Mines

DDTC clarified the scope of Category IV by enumerating the items controlled in paragraphs (a) and (b).  DDTC also shifted demolition blocks, blasting caps and military explosive excavating devices to the CCL in the EAR (for example, ECCN 0A604.b for military explosive excavating devices).  DDTC also moved ablative materials from paragraph (f) to Category XIII(d).

The new IV(h) controls specified systems, subsystems, components, parts, accessories, attachments and associated equipment.  IV(h) controls certain items using the “specially designed” approach and other items using an enumerated approach.  IV(h)(28) enumerates controls on pneumatic, hydraulic, mechanical, electro-optical or electromechanical flight control systems (including fly-by-wire systems) and attitude control equipment for rockets and missiles—interestingly, IV(h)(28) does not specify attitude control equipment for teenagers as such items are not known to exist.  If attitude control equipment for teenagers were developed, I would expect the US Government would apply a 0y521 control to it.

Category V: Explosives, Energetic Materials, Propellants, Incendiaries

A significant change here is that DDTC enumerated specific controlled items and replaced the former catch-all approach in Category V.  As a result certain spherical aluminum powder and hydrazine and its derivatives shift to the CCL.

Category IX: Military Training Equipment

DDTC’s objective in Category IX is to establish a bright line between the items the USML controls and the items the CCL controls.  The newly enumerated paragraph (a) identifies training equipment, including, for example, towed targets and models or mockups used for maintenance or ordinance disposal training.  The new paragraph (b) identifies simulators including system simulators that replicate the operation of an individual crew station, a mission systems or a weapon of a controlled end-item, and simulation software.

Category X: Personal Protective Equipment

DDTC’s objective in Category X is to establish a bright line between the items the USML controls and the items the CCL controls.  Protective shelters shifted from the USML to the EAR in ECCN 1A613.  Anti-gravity suits, pressure suits and atmosphere diving suits also shifted to the EAR.  Equipment for producing Category X items shifted to EAR ECCN 1B613.  Finally, DDTC clearly narrowed the scope of Category X controls on parts and components to focus on things such as ceramic or composite body armor plates, laser protective lenses and other items.

Category XVI:  Nuclear Weapons Materials

DDTC clarified that neither the ITAR nor Category XVI apply to most of the items described in Category XVI prior to this notice because those items and technologies are under the jurisdiction of the Nuclear Regulatory Commission or the Department of Energy.  This category will continue to control tools that model or simulate the environments generated by nuclear detonations.

In addition to the changes described for the individual categories above, DDTC, as it has done with past list shift rules, added a new paragraph (x) to each category, which will be used to identify CCL controlled items on DDTC license applications.

EAR/CCL Changes

The 31-page Commerce Department notice created many detailed, new ECCNs and revised existing ECCNs.  In addition, Commerce revised License Exception TMP in EAR 740.9(a)(11) and License Exception BAG in EAR 740.14(h) to authorize exports, reexports and transfers of personal protective equipment classified under 1A613.c or d. in a fashion similar to the existing ITAR exemption for exports of personal protective equipment.

These new and revised ECCNs require careful review, especially if you are involved in the areas shifted off the USML.  The following summary is not a substitute for analyzing the new EAR controls, but it may be a useful road map.

Commerce created new 600 series ECCNs to receive the items shifted off the USML.  New ECCNs 0A604, 0B604, 0D604, 0E604 9A604, 9B604, 9D604, 9E604 control items shifted off USML Categories IV and V, with the new ECCNs in Category 0 controlling the shifted explosives/propellant-type stuff and related items and the new ECCNs in Category 9 controlling the items related to missiles and launch vehicles. Commerce created ECCNs 0A614, 0B614, 0D614 and 0E614 to receive military training equipment and related items.  ECCN0A614.a controls equipment specially designed for military training that is not controlled by Category IX.  0A614.x controls specially designed parts and components in the standard 600 series fashion. Interestingly, there is no y. paragraph in 0A614.

Commerce revised existing ECCN 1A005 for body armor and added several new 1Axxx ECCNs to control devices to initiate charges, devices containing energetic materials, charges, and other armored and protective equipment.  Corresponding changes were made to ECCNs in sub-categories B, C, D, and E in Category 1.

Finally, Commerce made revisions and conforming changes to many existing ECCNs.


Action Items

Even though the rules do not enter into force until July 1, 2014, export compliance personnel should find time soon to take a look at the changes to the USML and CCL.  After an initial review, you may find that you will need to work with technical experts to make specific decisions as to how the changes impact the export control classifications of your products and technologies.  This is an important, and, in some cases, difficult task.  The bad news is that, based on my initial analysis, this export control list shift does not seem to offer the benefit of moving as many items into EAR No License Required (NLR) eligibility as was the case for past changes for aircraft, gas turbine engines, land vehicles, surface vessels and submersible vessels.

As with past reform changes, after you determine how this impacts  your classifications, you need to decide your strategy for using existing ITAR approvals, transitioning to EAR approvals, and determining what type of EAR approvals you will need.  In addition, if your EAR expertise is not at the level of your ITAR expertise, you need to increase your EAR knowledge.

July 1 will be here before you know it.

DDTC Updates Part 130 Guidelines

Thursday, January 30th, 2014 by Brooke Driver

By: Brooke Driver

The State Department has updated its written guidelines on its ITAR Part 130 rules for payment and reporting of political contributions, fees and commissions.  These guidelines are a hand reference guide that help exporters sort through the complex Part 130 rules.  Here is a quick look at the guidelines.

The revised Part 130 guidelines say that license applications for exports of defense services or articles valuing $500,000 or more to or for the use of foreign military forces must inform the DDTC as to whether they or their vendors have paid, offered or agreed to pay political contributions of $5,000 or more or fees and commissions of $100,000 or more. The applicant must obtain the same information from any party that provided the applicant with more than $500,000 worth of defense articles or services for the application.

In addition, the reporting requirement does not end with the submission of the application.  Applicants are required to provide supplementary reports detailing any related substantial political contributions ($2,500 or more) or fees and commissions ($50,000 or more) agreed upon or paid after the initial license is submitted (within 30 days, to be exact).

Part 130 reports must contain:

  • The total contract price of the sale to the foreign purchaser. Contract name and/or description of the export should be incorporated into the Subject header. Subject should also include agreement number, if applicable, and license number at a minimum.
  • The name, nationality, address and principal place of business of the applicant or supplier. Note, all four items must be provided. Additionally, if the name of the applicant/supplier’s employer differs from the above, then this information, as well as the employer’s title must be provided.
  • The name, nationality, address and principal place of business for each foreign purchaser, to include the ultimate end-user (to be identified as such). Again, if the name of the employer for any of these parties differs from the party itself, then this information, as well as the employer’s title must be provided.

Supplementary reports should contain:

  • The amount of each payment, offer, or payment agreed upon. These entries should reflect the individual transactions, and not total or aggregate figures.
  • The date or dates on which each reported amount was paid, or offered or agreed to be paid. This requirement applies to each entry made in response to the previous paragraph.
  • The recipient of each such amount paid, or intended recipient if not yet paid. Reference item (b)(2) below for additional requirements.
  • The person who paid, or offered or agreed to pay such amount.
  • The aggregate amounts of political contributions and of fees or commission.
  • With respect to each payment reported, state whether such payment was in cash or in kind. If in kind, it must include a description and valuation thereof. In the example matrix provided below, these data have been combined with the “Amount Paid or to be Paid” figure. Should a transaction be input as “paid in kind,” then the related description and valuation data should appear immediately following the entry.

With respect to each recipient, state its name, nationality, address and principal place of business, its employer and title, and its relationship, if any, to the applicant, supplier, or vendor, and to any foreign purchaser or end-user. For reasons of efficiency, these data may be merged with the response to (a)(4)(iii) above.

DDTC Updates DS-2032 Statement of Registration Form: Older Versions No Longer Accepted

Wednesday, December 4th, 2013 by Brooke Driver

By: Brooke Driver

As of October 25, the State Department has introduced version 4.0 of the DS-2032 form. Be advised that older versions of the form are no longer valid. You may submit the new form electronically, through EFS, or through the mail until December 31, 2013. As of New Year’s Day, however, the form will only be accepted electronically. The changes to the form include the ability for U.S. persons to consolidate manufacturer, exporter and broker registrations, updates to ITAR USML Categories, disclosure of intermediate through ultimate parents, a certification regarding debarred or subsequently reinstated parties and a certification on violations involving any U.S. criminal studies, as well as clarification on foreign ownership.

Owner of Allied Components Faces 20 Years Behind Bars for Lying to the Department of Defense and Sharing Military Submarine Component Information with India

Wednesday, December 4th, 2013 by Brooke Driver

By: Brooke Driver

Mama always told you that lying never pays, and Robert Luba would certainly agree. The 47-year-old owner and general manager of the New Jersey-based company Allied Components LLC admitted in court on October 23 to illegally emailing information to India about a component of a nuclear-powered U.S. submarine and providing faulty aircraft parts to the U.S. Defense Department.  Allied Components had been contracted by the Department of Defense to manufacture a wing-pin product for an F-15 fighter jet, but chose to slack and ordered the product from an Indian-based company—and did not even do that well. The Indian-made wing-pins did not match the specifications for the aircraft, putting its potential pilots and passengers in danger. Prosecuting attorney Paul Fishman articulated the gravity of Luba’s corner-cutting in a released statement:

“The conduct admitted by Luba shows a callous disregard for the safety of our armed forces…By recklessly providing sub-standard parts for sophisticated weapons systems and sharing sensitive information with a foreign state, Luba not only jeopardized the lives of men and women on the front lines of our national defense, he put all Americans at risk, all in the name of making a buck.”

Luba has already agreed to pay the defense department $173,000, a large chunk of which will go to repairs for the dysfunctional F-15s, but he will suffer a much higher price on his sentencing date, February 19. At this time, the presiding judge can choose to demand that Luba pay up to $1,250,000 and serve up to 25 years in prison for his combined violations.

DTrade2 Updates: Reform and New Digital Certificate Requirements

Friday, October 25th, 2013 by Brooke Driver

By: John Black

DDTC has a notice on its website telling exporters that DTrade2 had been upgraded and new version 7.1 DSP application forms 5, 6, 61, 62, 73, and 74 are available for you to download and use. DDTC also has important guidance explaining that users must purchase and register a new SHA-256 digital certificate by December 31, 2013. For more information go to:

DDTC Updates Procedures for General Correspondence Requests Concerning Amendments to Current ITAR Authorizations

Tuesday, September 3rd, 2013 by Brooke Driver

By: Brooke Driver

The Directorate of Defense Trade Controls has published an update of the June 21, 2011 description of procedures for filing General Correspondence requests for the amendment of existing ITAR authorizations due to U.S. Entity Name/Address and/or Registration Code Changes. The new procedures supposedly simplify the authorization matrix/spreadsheets by adding a time restriction for amending the GC and clarifying who may submit the GC.

Details available at:

Aeroflex’s Inaccurate Classifications Caused Others’ Violations and Cost it $8 Million

Tuesday, September 3rd, 2013 by Brooke Driver

By: John Black and Brooke Driver

DDTC described Aeroflex Inc. as having a “Corporate-wide failure to properly determine export control jurisdiction. Despite the fact that in 2006, DDTC issued to Aeroflex a Commodity Jurisdiction determination showing how DDTC considers Aeroflex’s product to be on the U.S. Munitions List, Aeroflex failed to apply that rationale while classifying other products and failed to share that information broadly among all units of the company.

Certainly, two obvious practical lessons are 1) If a CJ shows you how DDTC wants you to classify your products, you should use that as clear guidelines to follow to classify products.  2)  If one part of your company gets that CJ guidance, DDTC considers that your whole company received the guidance, so you should make sure you share important government classification rulings broadly within your company, because the government will hold everybody in your company responsible for knowing, even if many people were never told.

The technical aspects of the wrong classifications are an interesting read and relate to certain electronic components with performance capabilities that make them particularly useful in space applications. In short, Aeroflex argued that since an electronic component did not meet the five hardening criteria in USML Category XV(d), the electronic component was not on the USML. DDTC countered with the argument that the components are not in XV(d), but their performance characteristics mean they are specifically designed for space applications, so they are controlled in Category XV(e).

An interesting aspect of this case is that many of Aeroflex’s charges were based on Aeroflex causing other parties to illegally export or reexport its components, because the company told those parties that the components were not on the USML. As a result, many of the sensitive components ended up going to sensitive users and sensitive countries—yes, China. So we see that inaccurate classifications not only can cause you to export or reexport illegally; they can give you violations, because inaccurate classifications cause you to cause others to export or reexport illegally.

Aeroflex has agreed to settle with the State Department concerning its whopping 158 alleged ITAR violations, occurring between the years of 1999 and 2009. Throughout this time period, Aeroflex business units disclosed hundreds of ITAR violations, mainly due to a failure to correctly establish jurisdiction over defense articles and technical data.

While the two-year Consent Agreement technically states that Aeroflex will pay a civil penalty of $8 million, DDTC has agreed to suspend $4 million if Aeroflex uses that amount to improve its compliance program, including extensive improvement of compliance policies and procedures, the engagement of an Internal Special Compliance Official, two audits of its compliance program during the two-year Agreement term and compliance training for staff and principals. DDTC said that debarment was unnecessary at this time, because:

  • Aeroflex disclosed most of its violations
  • Cooperated with Department reviews
  • Implemented or planned extensive remedial measures since 2008

It seems that Aeroflex has learned its (expensive) lesson, and although the price is high, the Department’s relative leniency proves that, in this case, Aeroflex made the right decision by choosing to own up to its mistakes.