Archive for the ‘DDTC’ Category

State/DDTC Relaunches “Company Visit Program”

Tuesday, August 9th, 2016 by Danielle McClellan

(Source: State/DDTC) [Excerpts.]

What is the Company Visit Program?

The Company Visit Program (CVP) entails visits by Directorate of Defense Trade Controls (DDTC) officials to U.S. entities registered with DDTC as manufacturers, exporters, or brokers of defense articles and defense services, as well as others involved in ITAR-regulated activities, to include foreign companies and foreign governments. The CVP is administered by the Office of Defense Trade Controls Compliance (DTCC); however, representatives from DDTC’s Licensing and Policy offices, or other entities in the Department or elsewhere in the U.S. government, may also participate in the visits.

What is the purpose of the Company Visit Program?

The CVP has several purposes. First, the CVP ensures DTCC understands how compliance programs are implemented in accordance with the International Traffic in Arms Regulations (ITAR). Second, the program enables DDTC to gather information to support the Directorate’s development of regulatory policy and practice. Finally, DTCC uses site visits to glean, assess, and disseminate industry best practices, provide feedback to individual companies on their compliance programs, and share information on compliance programs industry-wide. Note that the CVP includes two (2) types of visits:

  1. CVP-Outreach (“CVP-O”) is an extension of DDTC’s outreach activities, e.g., speaking at conferences. These visits are intended to be a learning exercise for both parties, and provide an opportunity to discuss challenges (such as adapting to changes associated with Export Control Reform) and offer suggestions or best practices. CVP-O site visits are unrelated to specific compliance matters. The purpose of the visit is to understand how companies implement ITAR compliance requirements, not to evaluate compliance failures or violations.
  2. CVP-Compliance (“CVP-C”) visits are designed for DTCC oversight activities, for example as part of consent agreement monitoring. These visits may include a more in-depth look at a company’s compliance program.

Is a CVP visit considered an audit or inspection? What is DDTC looking for during a CVP visit?

Both CVP-O and CVP-C type visits are neither an audit nor an inspection. Visits do not produce a grade or pass/fail assessment for internal or external use, and generally do not include review of transactional records. DDTC will request information from the company to gain a better understanding of their compliance program. CVP-C visits may require a more in-depth look at a company’s compliance program because the visits are focused on overseeing compliance matters already known to DTCC.

How is the visit not an audit if DDTC provides recommendations for improvements to our program?

DDTC may provide recommendations for improvements to a company’s compliance program during both CVP-O and CVP-C type visits. If we make recommendations, it is an effort to offer assistance, help prevent violations and share best practices. The CVP is intended to serve as a learning tool for both parties.

What happens if the DDTC team discovers or learns of a violation during the visit?

DTCC will recommend that the company review the issue and submit a disclosure, if appropriate.

How many companies does DDTC plan to visit each year?

DDTC plans visits for each quarter based on other engagements requiring travel and available resources. Generally, DDTC aims to conduct between two and four CVP visits per quarter. In 2015, DTCC conducted eight company visits under CVP auspices; three of those visits were pursuant to consent agreement monitoring.

How are companies selected for a CVP visit?

DTCC selects companies based on its CVP goals. DTCC considers a variety of factors when selecting companies to visit, including proximity to other activities DDTC is participating in, registration status, volume of licensed activity, experience conducting ITAR activities, nature of business, type and sensitivity of technology, geographic location, monitoring of an existing consent agreement, and value to ongoing work within the Directorate.

How is the DDTC team staffed for each CVP visit?

A CVP team typically consists of two or more staff from DTCC, depending on the size of the individual company/site being visited and number of companies/facilities visited per trip. On some CVP visits, staff members from the Offices of Defense Trade Controls Licensing and Policy, or other relevant agencies, may participate. One DTCC team member serves as team lead and primary point of contact with the company. This primary contact is responsible for coordinating the site visit with the company.

How is a CVP visit conducted and what should a company expect?

  • Once a company is selected for a potential CVP visit, DTCC contacts the company. The company can elect not to participate in the visit. If the company would like to participate, DTCC will propose visit dates and begin planning with the company.
  • Once visit dates are finalized, DTCC sends the company a formal visit notification letter outlining the visit. DTCC may request pre-visit materials from the company for review and preparation purposes. Before the visit, DTCC will work with the company to finalize the agenda.
  • At the visit’s opening, DTCC meets with senior management to explain the visit’s purpose and the agenda. The company should provide an overview of its operations and export activity during opening discussions. Visits generally last one to two days, depending on the purpose, and occur on the company’s premises in offices and conference rooms, and through tours of business operations within the facility (e.g., business development, contracts, procurement, design, manufacture, security, IT, personnel, and shipping).
  • At the visit’s conclusion, the DDTC team briefs company senior management and export control staff to share information the team gathered. DDTC invites the company to provide feedback, ask questions, or raise concerns for follow-up.
  • The DDTC team returns to the Department and generates an internal report. The team also follows up on company feedback. DTCC will send a formal close-out letter to the company. Close-out letters summarize the visit, indicate best practices, recommend areas for improvement or suggest best practices, and address feedback, questions, or concerns raised by the company. DTCC also requests feedback on the visit’s quality and usefulness and suggestions for improving the program.

State also published a slideshow overview of the program, which can be found here.

The Expired DSP-83 is Back

Tuesday, July 12th, 2016 by Danielle McClellan

By: Danielle McClellan

Effective immediately an expired DSP-83 forms that the DDTC receives will be processed.

The notice published on the State Department website on May 6, 2016 is rescinded.  If you received a proviso directly an upload of the new DS-83 form in accordance with the rescinded Notice can hereby disregard the proviso by citing this revised notice.

The State Department has updated its policy regarding the DSP-83, although it cannot mandate the use of the expired form, an individual or entity may voluntarily submit the form and it can be processed as long as it contains all of the information and certifications required by the current, unexpired form. At this point, the DSP-83 has not been substantially amended so DDTC will continue to accept the expired form.

DDTC is strongly urging that entities and individuals that do not use the current DSP-83 form provided by the them to implement the new form no later than October 1, 2016 to avoid confusion during the future revisions.

Link to Notice: http://pmddtc.state.gov/documents/DSP83_WebNotice2.pdf

DDTC Company Visit Program Frequently Asked Questions

Tuesday, July 12th, 2016 by Danielle McClellan

(Source: State/DDTC)

Question:  What is the Company Visit Program?

Answer:  The Company Visit Program (CVP) is administered by the Compliance and Registration Division (CRD) Office of Defense Trade Controls Compliance. The program involves visits by Department of State officials to U.S. companies that are registered with DDTC as manufacturers, exporters or brokers of defense articles and defense services.
Question:  What is the purpose of the Company Visit Program?

Answer:  The purpose of the program is several-fold. First is to learn how companies establish an overall defense trade control program. Second, is to understand how those programs are implemented and comply with the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). Third, is to gather information for the Department to determine whether we are properly exercising our regulatory responsibility in licensing and compliance. Fourth, is to use the information gathered from visits to adjust or revise our regulations and practices accordingly. Fifth, is to provide direct feedback to companies that we visit, and to learn and disseminate industry best practices.

 

Question:  Is a visit considered an audit or inspection?

Answer:   A visit is neither an audit nor an inspection. DDTC uses the program as a learning tool to provide information on how companies comply with the law and regulations and how DDTC can better do its job as regulator thereof. In visiting companies, DDTC is also exercising its responsibility under recordkeeping requirements detailed in Section 122.5(b) of the ITAR.

 

Question:  How are companies selected for a visit?

Answer:  Companies are selected for a variety of reasons, including: registration status, volume of licensed activity, experience conducting ITAR activities, nature of business, type and sensitivity of technology, geographic location, follow-up to a disclosure of an ITAR violation, or monitoring of a consent agreement.

 

Question:  How is a visit conducted and what should a company expect?

Answer:

  • The company is sent a visit notification letter approximately 6-8 weeks in advance of the visit.
  • The visit letter outlines material that the company is to provide in advance of the team’s visit (e.g., export compliance manual, export compliance policies and procedures, organizational chart, and an overview of ITAR controlled programs at the facility).
  • In consultation with the company, the CVP team establishes an agenda for the one or two day visit.
  • The visit occurs on the company’s premises in offices, conference rooms and tours of business operations within the facility (e.g., business development, contracts, procurement, design, manufacture, security, IT, personnel, shipping, etc.).
  • At the conclusion of the visit, the team conducts a post-visit briefing with senior management and export control staff sharing information the team has gathered.
  • The team returns to the Department and will generate a report for DTCC management. The team will send a formal letter to the company, which records the matters raised in the post-visit briefing.
  • The letter should address any recommendations for improvement and provide feedback on any company best practices.

 

Question:  How is the team staffed?

Answer:  The visit team normally consists of two to four staff from the DTCC, depending upon the size of the company being visited, and number of companies/facilities visited per trip. The team includes civil servants and contract personnel. On some visits, staff members from the Office of Defense Trade Controls Licensing and Policy may participate.

 

Question:  How many companies have been visited?

Answer:  More than 60 companies have been visited since the program’s inception in October 2005. The results overall have been positive for companies and for DDTC. Companies have benefited from meeting DDTC officials, explaining their defense trade control program, discussing best practices and identifying areas for improvement. DDTC has benefited from learning first-hand how companies control and comply and using the results to better inform our regulatory practices.

Court of Appeals Judges Question Justice Department on ITAR Prior Restraint Against Speech at Libraries, the Internet, and other Public Forums

Tuesday, July 12th, 2016 by Danielle McClellan

By: Matthew A. Goldstein, Esq., matthew@goldsteinpllc.com, 202-550-0040

Originally filed in the U.S. Federal District Court for the Western District of Texas in Austin under Case No. 1:15-cv-00372, the case of Defense Distributed and the Second Amendment Foundation against the U.S. Department of State and other government defendants seeks to prevent application of the International Traffic in Arms Regulations [FN/1] (“ITAR”) as a prior restraint against public speech.

Following the District Court’s denial of the plaintiffs’ request for a preliminary injunction against the State Department, the plaintiff’s appealed to the United States Court of Appeals for the Fifth Circuit.

At last week’s oral argument before the Court of Appeals, a panel of judges questioned the Justice Department on the scope of the State Department’s prior restraint.  The Justice Department’s responses were inconsistent with prior State Department positions in the case and contrary to the State Department’s June 13, 2015 notice of proposed rulemaking that announced the government’s sudden application of the ITAR as a prior restraint on public speech. [FN/2]

 

Has the State Department Previously Enforced the Prior Restraint?

Considering how the regulations have been in effect for 60 years, the Court asked the Justice Department to provide examples of when the State Department previously regulated prepublication of information about guns.  The Justice Department responded that it did not know of any examples, “but there certainly aren’t a lot…” [FN/3]

 

The Justice Department’s representation that “there certainly aren’t a lot” of examples is unclear, but seems to assume there is at least one.  Yet, the State Department has not cited a single case of enforcement in its briefs filed with the court.

The Justice Department claim there “aren’t not a lot” of examples also conflicts with a Justice Department representation to the court that followed its original response, where it concedes the State Department has not previously regulated information about handguns. [FN/4]

 

Is Exposing Technical Data to a Foreign Person Controlled?

The Justice Department told the Court that exposing technical data to a foreign is not the relevant standard. [FN/5]  However, the State Department’s June 3, 2016 proposed rule discussing the prior restraint states: “‘technical data’ may not be made available to the public without authorization.” [FN/6]

 

Does the Prior Restraint Apply to Scientific Information?

The Justice Department told the court that it did not think that anybody could read the prior restraint to apply to scientific exchanges. [FN/7]  However, the ITAR U.S. Munitions List (“USML”) designates a vast amount of scientific information as technical data and the State Department’s rule does not provide any across-the-board exclusion from the prior restraint for exchanges of scientific information.

There is a limited exclusion for information that arises or results from “fundamental research,” but the State Department takes a very narrow interpretation of the scope of this exclusion-to the point that it does not exist in reality. This is because the fundamental research exclusion, codified at 120.11(a)(8), is nested within the ITAR definition of public domain at 120.11(a) [FN/8]-and is therefore under the shadow of the State Department’s prepublication approval requirement.  Here, the State Department warns universities: “The only part of fundamental research that is not controlled by the ITAR is the published information that meets the definition of public domain.” [FN/9]

 

Does the Prior Restraint Apply to Information on Guns?

The Justice Department told the court the ITAR does not prohibit the dissemination of information about guns for a number of reasons and claimed that a lot of that information is already in the public domain. [FN/10]

Of course, the ITAR definition of “technical data” includes information on any article listed on the ITAR USML, not just guns.  But it most definitely controls “information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification” of guns listed on the USML. [FN/11]

Moreover, the State Department’s June 3, 2015 proposed rule prevents reliance on the public domain exclusion for the vast majority of information on the Internet, public libraries, and other public forums where it states:

“‘Technical data’ and software that is made publicly available without proper authorization remains ‘technical data’ or software and therefore remains subject to the ITAR.” [FN/12]

Considering how the State Department has not publicly enforced its prepublication approval requirement against anyone other than Defense Distributed, most, if not all, persons who previously posted technical data to the Internet, at libraries, and other public forums had no reason to know that the State Department required prior U.S. government authorization for public speech.  As a result, the vast majority of publicly available technical data on guns is not “already in the public domain” because the publishers did not obtain U.S. government authorization before publication.

 

Does the Prior Restraint Criminalize Placing Books at Libraries?

The Court asked the Justice Department whether the State Department restricts placing books at public libraries. [FN/13]  The Justice Department did not clearly answer “yes” or “no.”  Instead, it argued that the State Department has not faced the issue and that upholding the State Department’s prior restraint in the present case would not impact the issue. [FN/14]

However, the State Department’s June 3, 2015 proposed rule claims that prior government authorization is required for any transmission of technical data into the public domain, regardless of the means of transmission.  As announced by the Stated Department in its proposed rule:

Prior to making available ”technical data” or software subject to the ITAR, the U.S. government must approve the release through one of the following: (1) The Department; (2) the Department of Defense’s Office of Security Review; (3) a relevant U.S. government contracting authority with authority to allow the ”technical data” or software to be made available to the public, if one exists; or (4) another U.S. government official with authority to allow the ”technical data” or software to be made available to the public. [FN/15]

There is no carve-out for technical data in books placed at public libraries.  To the contrary, the proposed rule states the ITAR prior restraint applies to a release of technical data by publishing in a book as much as publishing on the Internet:

The requirements of paragraph (b) are not new. Rather, they are a more explicit statement of the ITAR’s requirement that one must seek and receive a license or other authorization from the Department or other cognizant U.S. government authority to release ITAR controlled ”technical data,” as defined in § 120.10. A release of ”technical data” may occur by disseminating ”technical data” at a public conference or trade show, publishing ”technical data” in a book or journal article, or posting ”technical data” to the Internet. [FN/16]

Accordingly, if the Court of Appeals rules in favor of the State Department, the Court will indeed be upholding a broad prior restraint on the placing of books at public libraries, as well as releases of technical data at public conferences, and any other public forum.

Moreover, same as the exclusion for fundamental research discussed above, because the exclusion for information that is available at “libraries open to the public”, as codified at 120.11(a)(4), is nested within the ITAR definition of public domain at 120.11(a) [FN/17]-it is subsumed within the State Department’s prepublication approval requirement-as are the other public forums nested below 120.11(a) (i.e., through sales at newsstands and bookstores, subscriptions, second class mailing privileges, etc.)-which are all subject to the State Department’s prior restraint.

 

Does the ITAR Restrict Republications of Information?

The Justice Department told the court that republication of technical data that was made available without government authorization is a violation under the State Department’s proposed rule if made with “knowledge that it was put out originally in violation of the regulations…” [FN/18]  But the Justice Department did not explain what it means by “knowledge”-a legal term of art that can include actual knowledge of a fact or constructive knowledge of a fact.

Are suspicious circumstances enough for prosecution?

Is it sufficient that a speaker knows or should know the facts indicate technical data or software was made publicly available without an authorization?

What, if any, actions constitute sufficient due diligence to guard against imputation of such knowledge?

These questions are particularly relevant considering how the government has not publicly enforced the prior restraint, which means the public is on constructive notice that the vast majority of all technical data in the public domain was placed there without U.S. government authorization.

For instance, under the proposed rule, it is unclear whether a person can be held liable for reposting technical data if they do not actually know whether the original poster of technical data had permission from the government, but circumstances exist indicating a lack of such approval (i.e., no indication that government approval was obtained, technology of a nature that the government is unlikely to approve, etc.).

The republication requirement will also violate the First Amendment under the Supreme Court’s holding in Bartnicki v. Vopper Williams, 532 U.S. 514 (2001). In Bartnicki the Supreme Court addressed the question: “Where the publisher has lawfully obtained information from a source who obtained it unlawfully, may the government punish the ensuing publication based on the defect in a chain?” [FN/19]

 

The Supreme Court concluded that, under the statutory language at issue in the case, a person speaking on matters of public concern could not be prohibited from publishing the contents of an electronic communication, even where he or she knows or has reason to know that the information was obtained through an illegal interception. The Supreme Court noted:

“It would be quite remarkable to hold that speech by a law-abiding possessor of information can be suppressed in order to deter conduct by a non-law-abiding third party.” [FN/20]

Equally important to note, the Supreme Court has held that government bans on the republication of information does not meaningfully advance any legitimate government interest. [FN/21]

 

What Happens Next?

As explained in the plaintiffs’ briefings to the Court, the State Department’s prior restraint is unconstitutional under the First Amendment and for a variety of other reasons.  However, much more than protection of the First Amendment and other fundamental rights are at stake in the upcoming Court of Appeals decision.

 

A Dangerous Precedent

A decision in favor of the State Department will establish a dangerous precedent wherein the government is allowed to maintain a list of topics that citizens cannot discuss publicly without a license from some unnamed government official (or contractors working for the State Department).

Although the case concerns information about guns and other topics listed on the USML, future lists can include virtually any topic that some unnamed government official or contractor decides to “designate” or otherwise place on a list-unless the prospective speaker has the time and money to hire a team of attorneys, file a lawsuit, and eventually wins in court.

 

Adversely Impact Innovation

The ITAR controls many developmental electronics, aeronautics, and other technologies. [FN/22]  It even controls emerging technologies not yet enumerated on the USML. [FN/23]  Although it is important to protect these technologies, the development of advanced and innovative technologies through open research and development is the key to U.S. National Security.  The State Department’s proposed prepublication approval requirement will defeat this important government interest by creating increased caution and restraint in the scientific community that will inhibit the free exchange of information necessary to innovation.

 

Chilling Effect on Speech

The prior restraint’s impact will be far-reaching because a prepublication review requirement will necessarily subject a wide range of technical information to review. Most persons publishing information in books, newspapers, magazines, journals, and on the Internet are not generally knowledgeable about export controls. Because of this, they are unlikely to recognize the proper scope of ITAR controls and will likely refrain from participating on exchanges for fear of inadvertently violating the regulations.

 

Changes Contrary to Stated ECR Goals

The prior restraint is contrary to the stated goal of the President’s Export Control Reform (“ECR”).  The primary ECR goal is a system where “higher walls are placed around fewer, more critical items” that focuses agency resources on license reviews of critical technologies that matter. The proposed prepublication approval requirement is contrary to this stated goal because it will require the devotion of significant agency resources to reviews of unclassified, non-proprietary information, which does not generally describe the state of art technology or implicate military critical technologies.

 

Ineffective and Waste of Taxpayer Dollars

Considering the annual volume of academic and professional publications and the sheer volume of daily publications on the Internet that may contain technical data, the costs of adding more staff with the technical expertise required to administer the proposed prepublication review requirement will no doubt exceed existing DDTC capacities.  In the meantime, further lawsuits by newspapers, magazines, academic journals, and other would-be publishers will further burden agency resources and waste taxpayer dollars.

—————

[FN/1] 22 C.F.R. Part 120 et seq.

[FN/2] See 80 Fed. Reg. 31,525 (June 13, 2015).

[FN/3] June 6, 2016 Hearing Record (hereinafter “06/06/16 H.R.”) at 23:32-25:40.

[FN/4] 06/06/16 H.R. at 24:21-25:17.

[FN/5] 06/16/16 H.R. at 30:48-31:26 (Justice Department stating, inter alia, that “exposed to a foreigner is not the standard”).

[FN/6] 80 Fed. Reg. at 31,528.

[FN/7] 06/06/16 H.R. at 28:09-28:47; See also 24:11-25:40.

[FN/8]  22 C.F.R. § 120.11   Public domain.

(a) Public domain means information which is published and which is generally accessible or available to the public:

(1) Through sales at newsstands and bookstores;

(2) Through subscriptions which are available without restriction to any individual who desires to obtain or purchase the published information;

(3) Through second class mailing privileges granted by the U.S. Government;

(4) At libraries open to the public or from which the public can obtain documents;

(5) Through patents available at any patent office;

(6) Through unlimited distribution at a conference, meeting, seminar, trade show or exhibition, generally accessible to the public, in the United States;

(7) Through public release (i.e., unlimited distribution) in any form (e.g., not necessarily in published form) after approval by the cognizant U.S. government department or agency (see also §125.4(b)(13) of this subchapter);

(8) Through fundamental research in science and engineering at accredited institutions of higher learning in the U.S. where the resulting information is ordinarily published and shared broadly in the scientific community. Fundamental research is defined to mean basic and applied research in science and engineering where the resulting information is ordinarily published and shared broadly within the scientific community, as distinguished from research the results of which are restricted for proprietary reasons or specific U.S. Government access and dissemination controls…

[FN/9] (emphasis in original) See here.

The State Department also advised that the fundamental research exclusion does not apply to the provision of information to foreign parties during the performance of research involving technical data or a defense article because the provision of such information constitutes a defense service that requires DDTC authorization under ITAR sections 120.9(1) and 124.1(a). Under this DDTC interpretation of the exclusion, the provision of information to foreign parties in the course of research, regardless of if in the public domain or otherwise falling under any other ITAR exclusion, requires DDTC authorization if the research involves ITAR-controlled technical data or a defense article.

[FN/10] 06/06/16 H.R. at 18:51-19:47; 21:45-22:39.

[FN/11] 22 C.F.R. § 120.10.

[FN/12] 80 Fed. Reg. 31,528 (June 3, 3015) (“‘Technical data’ and software that is made publicly available without proper authorization remains ‘technical data’ or software and therefore remains subject to the ITAR.”).

[FN/13] 06/06/16 H.R. at 25:39-27:13.

[FN/14] 06/06/16 H.R. at 26:27-27:13.

[FN/15] 80 Fed. Reg. at 31,528.

[FN/16] Id.

[FN/17] 22 C.F.R. § 120.11 (“(a) Public domain means information which is published and which is generally accessible or available to the public… (4) At libraries open to the public or from which the public can obtain documents…”)

[FN/18] 06/06/16 H.R. at 31:26-33:00.

[FN/19] Id. at 528.

[FN/20] Bartnicki at 529-530.

[FN/21] Florida Star v. B.J.F., 491 U.S. 524, 535 (1989) (“punishing the press for its dissemination of information which is already publicly available is relatively unlikely to advance the interests in the service of which the State seeks to act.”).

[FN/22] See e.g., USML at 22 C.F.R. § 121.1 paragraphs VI(c), VIII(f), X(f), XI(a)(7), and XX(a)(8).

[FN/23] See e.g., USML Category XXI-Articles, Technical Data, and Defense Services Not Otherwise Enumerated

*(a) Any article not enumerated on the U.S. Munitions List may be included in this category until such time as the appropriate U.S. Munitions List category is amended. The decision on whether any article may be included in this category, and the designation of the defense article as not Significant Military Equipment (see §120.7 of this subchapter), shall be made by the Director, Office of Defense Trade Controls Policy.

(b) Technical data (see §120.10 of this subchapter) and defense services (see §120.9 of this subchapter) directly related to the defense articles covered in paragraph (a) of this category.

Export Control Reform Is Not Dead

Friday, May 27th, 2016 by Danielle McClellan

By: John Black

Maybe you were beginning to feel comfortable with the sweeping changes to US export controls resulting from the Obama Administration’s Export Control Reform Initiative.   Well, the regulatory change party isn’t over.  Get out your reading glasses and free up some time in your calendar because it won’t be long before the EAR-ITAR definitions clean-up regulations hit the street.  In 2015, DDTC and BIS published proposed, so-called harmonization rules to harmonize EAR and ITAR definitions of terms such as export, publicly available/public domain and others.  At first glance I thought the proposed EAR and ITAR rules were not harmonization because they proposed to have different definitions of many key terms.  Then the musicians in my family reminded me that when two people sing harmony they do not sing the same note at the same time but they sing different notes at the same time.  So I guess the proposal to have definitions in harmony was musically correct because the definitions were not the same.

It’s easier for me to talk about the rules as definitions clean up, updates or clarifications, or perhaps just changes.  In any event, putting aside the name I prefer to use, this is a high level overview of what I/we should expect:

  • Clarifications of the EAR definitions of export (something leaves the US), reexport (something goes from one foreign country to another) and retransfer (change in end-use or end-user).
  • Stating in the EAR that a person’s country status under the EAR deemed export rule is the most recent country of citizenship or permanent resident status.
  • If technical data, technology or software is electronically transmitted or moved using end-to-end encryption, and is not intended for storage in the most sensitive export control countries such as China, Russia, and arms-embargoed countries, it is not an unauthorized export if electronic transmissions transit countries for which the a license would be required for the content of the transmission.
  • The EAR will include provisions to apply the ITAR 126.18 and 124.16 concepts to EAR deemed reexports of technology or source code.  Deemed reexports from Country Group A:5 STA eligible countries to nationals of any of those A:5 countries will be authorized.  Deemed EAR reexports involving other countries and nationals will be authorized along the lines of ITAR 126.18 which means the deemed reexporter has an NDA from the recipient, a compliance procedure to vet/control the deemed reexport and there is no substantive contact with problem countries.
  • The EAR will include provisions to apply ITAR special arrangements involving countries such as Canada, the UK and Australia to EAR issues.
  • The EAR will require that the license applicant inform all other parties in the license of the license scope and conditions.
  • The EAR will clarify that technology that is an input into a fundamental research is not fundamental research.

To a large extent, the definition changes will merely clarify that the definitions mean what you thought they meant, which will increase your confidence in your understanding of the regulations and, hopefully, make it easier for you to explain and apply the rules in your organization, and perhaps help you to sleep better at night.  Clarification, even without hope for changes to the restrictions and requirements, is something I always appreciate because for me it is always better to understand the rules than to agree with them.

In any event, once the new changes are out, it will be time to join me as I print out the Federal Register notices, get some small sticky notes and a couple highlighter pens, pour yourself a big cup of coffee, and start to read the notices, including the preamble text, and study the new rules.  I am looking forward to it, and I hope you are too.

Congress Throws Political Barbs on Export Control Reform for Guns & Ammo

Tuesday, March 29th, 2016 by Danielle McClellan

(Source: House video recording)

The House Small Business Committee held a hearing yesterday, 11 February, 2016, on the Export Control Reform (ECR) initiative, with testimony from the State Department’s Deputy Assistant Secretary for Defense Trade Controls (DDTC) Brian Nilsson and the Commerce Department’s Assistant Secretary of Commerce for Export Administration Kevin Wolf. The video recording of the full hearing is available here. The following is a transcript of a portion of that hearing containing the remarks of Rep. Tim Huelskamp (R-Kansas), Assistant Secretary Brian Nilsson, and Committee Chair Steven J. Chabot (R-Ohio), which focused on the reasons for the delay in publication of proposed rules to transfer export licensing jurisdiction for our industry’s products (USML Categories I [Firearms, Close Assault Weapons, and Combat Shotguns], II [Guns and Armament], and III [Ammunition/Ordinance]) to BIS from DDTC before the end of the year.

Rep. Huelskamp (to Mr. Nilsson): What is taking so long with Categories I, II, and III? I see from the government website absolutely no efforts reported on that. That would be the firearms, guns, and ammunition categories. I will note that you completed [names other categories], but for some reason, Categories I, II, and III have been sitting out there for two, three, or four years. I don’t know who would answer that and explain the reason for the delay.
Mr. Nilsson: I own those categories, so I’ll answer the question. The prioritization of the categories was based on the remarks of Secretary of Defense Gates when we did the roll-out in April of 2010. Sec Def’s view was that we needed to prioritize, based on interoperability with allies. So the categories that we’ve been doing have been based on providing the best benefits of interoperability with our key allies, and so, and we’ve been systematically working through those. And so we haven’t come to Categories I, II, and III yet. We’ve done some preliminary work on them, but we’re committed to finalizing all the categories this year.

Rep. Huelskamp: Is there an interagency group that recommended that you move forward on that?
Mr. Nilsson: Yes. It’s the same seven departments that have been working on all the categories. And so we’ve already done some, we’ve done work on all twenty-one categories from the out-start, so we’re just not quite there yet for publishing the proposed rules.

Rep. Huelskamp: But exactly why are those categories not making progress, and when will we make progress?
Mr. Nilsson: Well, we’re committed to publishing, to finishing the initial review and having those categories done this year. The primary reason is that —

Rep. Huelskamp: This year?
Mr. Nilsson: Yes, 2016.

Rep. Huelskamp: But this year, you’re going to run out of time. Again, there is absolutely no progress. You’ve got propose rules in 2011, five years ago for, like, Category VIII, and, it’s going – – I just don’t understand why those three have had absolutely no progress, in terms of this sheet [holding up USML category ECR progress status list], even though there have been recommendations from the interagency group that you move forward. When was that recommendation made?
Mr. Nilsson: We were working on rules in 2012, and so, on all twenty-one categories, and it’s been a prioritization of those twenty-one categories, and sort of meeting the Secretary of Defense priorities for those that contribute to the interoperability, and the firearms categories – –

Rep. Huelskamp: Again, it’s been with the Secretary of Defense for a while now, but my question is that I still don’t understand why these three categories don’t have any progress on them.
Mr. Nilsson: Primarily because, by prioritizing those that are key for interoperability of allies, and our firearms categories, that category warrants reform just as all the other categories, but over 90% of what I control in that category are not being exported to governments or militaries, and so there is not an interoperability issue with regard to those. But that begs the question that they certainly warrant going through reform, just as all other sectors warrant going through reform, so for the industries that have not yet benefitted going through reform, that’s firearms, that’s the large manufacturers of things like howitzers, its people who do toxicological agents, do chemicals, and so we, we will finish – –

Rep. Huelskamp: Categories I through III?
Mr. Nilsson: Those are all in categories that have not been deployed in final.

Rep. Huelskamp: But some of those are not in I, II, or III, obviously, but you’ve made a proposed rule on a number of those already. My question is on Categories I, II, and III. When can I expect – –
Mr. Nilsson: This year.

Rep. Huelskamp: This year? This Administration?
Mr. Nilsson: We will finish — we are going to finish the USML this year.

Rep. Huelskamp: Haven’t the rules been approved all the way up the chain and proposed those?
Mr. Nilsson: They haven’t been finalized yet, so – –

Rep. Huelskamp: Who hasn’t signed off on them yet?
Mr. Nilsson: The seven departments haven’t signed off on those for what the rules would propose, but we’re committed to doing the proposed rules on those categories, as all other categories.

Rep. Huelskamp: There are firms that are waiting on this, and have been waiting for years trying to fix – –
Mr. Nilsson: I agree.

Rep. Huelskamp: And you were given, I think you were, $10 million additional to finish some of these things, in the current fiscal year. So are you going to get it done in the current fiscal year, or are you talking about the next fiscal year before you would get it done? You say current year. I just – –
Mr. Nilsson: We need to go through, the way the process works is, we do proposed rules, then we digest the public comments on those to see what adjustments we need to make, then at that point, we would draft final rules, then we publish final rules, and then there is a delay in the effective date, to allow each affected industry to be able to have time to transition to the new rules, and so that’s the process for every category. So that process will run for Categories I, II, and III, just as we’re in the midst of Categories XII, XIV, and XVIII.

Rep. Chabot: The gentleman’s time has expired. [Side remarks omitted.] The Chair would just note that there is considerable, I think, suspicion by many members, at least probably half the members on this committee, that this Administration, because it is not considered to be a friend of guns or ammo, that this is sort of a willful neglect in part at least, and the irony is that it is because of this attitude towards, and concern about the Administration’s attitude toward guns, that there has been a boom in sales of guns and ammo during this Administration, so I think that’s probably the underlying sentiment of my colleague’s questioning there.

[Remainder of hearing omitted.]

House Video Recording: https://www.youtube.com/watch?v=9uRZEXrmoss&feature=youtu.be

BIS & DDTC Release Another Set of Proposed Rules on Military Aircraft

Tuesday, March 29th, 2016 by Danielle McClellan

By: Danielle McClellan

BIS and Department of State simultaneously released proposed rules based on a review of Categories VII and XIX as well as ECCNs 9A610, 9A619, 9C610, 9C619, and 9E619.

BIS Revisions would be as follows:

Changes to ECCN 9A610

  • This proposed rule would remove text currently in the “Control(s)” table that excludes paragraphs .t, .u, .v and .w from national security controls. Although the text of those paragraphs is taken from the Missile Technology Control Regime Annex, the commodities that they control are unmanned aerial vehicle parts, components or associated equipment that also are subject to category ML10 on the Munitions List of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies. The addition of the national security controls would not increase the number of destinations to which a license is required for the commodities controlled by these paragraphs as those paragraphs already have missile technology and regional stability controls. …

Changes to ECCN 9A619

  • This rule would make three additions to the “Related Controls” paragraph. The first would state explicitly the historical practice of controlling 501-D22 gas turbine engines in ECCN 9A991.d, which is the classification that has been used for many years. The second would add a reference to USML Category XIX(f) to alert readers that some aircraft parts and components are enumerated in that paragraph. Finally, a note would be added reminding readers that the commodities enumerated in paragraph .y are subject to the controls in that paragraph rather than the broader controls elsewhere in this ECCN. …

Changes to ECCN 9C610

  • ECCN 9C610 would be revised by adding references to USML Category VIII in both the heading and in paragraph .a, to make clear that materials specially designed for commodities enumerated or otherwise described in that category are controlled in ECCN 9C610.

Changes to ECCN 9C619

  • ECCN 9C619 would be revised by adding references to USML Category XIX in both the heading and in paragraph .a, to make clear that materials specially designed for commodities enumerated or otherwise described in that category are controlled in ECCN 9C619.

Change to ECCN 9E619

  • The related controls paragraph in ECCN 9E619 would be amended by removing the sentence that reads “Technology described in ECCN 9E003 is controlled by that ECCN.” Although true, the placement of the sentence in a 600 series ECCN could mislead readers into thinking that the order of review does not apply in this instance.

Comments must be received by BIS by March 25, 2016. You may submit comments by any of the following methods:

  • Federal eRulemaking Portal: http://www.regulations.gov. Search for this rule using its regulations.gov docket number: BIS-2016-0009.
  • By email directly to publiccomments@bis.doc.gov. Include RIN 0694-AG76 in the subject line.
  • By mail or delivery to Regulatory Policy Division, Bureau of Industry and Security, U.S. Department of Commerce, Room 2099B, 14th Street and Pennsylvania Avenue NW., Washington, DC 20230. Refer to RIN 0694-AG76.
  • FOR FURTHER INFORMATION CONTACT: Thomas DeFee or Jeffrey Leitz in the Office of Strategic Industries and Economic Security, Munitions Control Division by telephone at (202) 482-4506 or by email at Thomas.DeFee@bis.doc.gov or Jeffrey.Leitz@bis.doc.gov.

Department of State Revisions would be as follows:

Revision of Category VIII

This proposed rule revises USML Category VIII, covering aircraft and related articles, to describe more precisely the articles warranting control on the USML.

  • Paragraph (a) is revised to clarify that the controls for all paragraphs are applicable “whether manned, unmanned, remotely piloted, or optionally piloted,” by modifying paragraph (a)(5) to clarify the features meriting USML control, and by deleting paragraph (a)(6) and placing it into reserve, because the relevant control would be subsumed by paragraph (a)(5).
  • Paragraphs (a)(7) and (a)(8) are modified to clarify the features meriting USML control.
  • Paragraphs (a)(11) and (a)(13) are deleted and placed into reserve.
  • Paragraph (a)(14) is modified to exclude L-100 aircraft manufactured prior to 2013 from the scope of control.
  • The Note to paragraph (a) is revised to incorporate technical corrections.
  • Paragraph (d) is modified to delete the “ship-based” control parameter and to clarify the intent and scope of the control.
  • Notes 1 and 3 to paragraph (f) are modified to incorporate clarifying language. …

Revision of Category XIX

This proposed rule revises USML Category XIX, covering gas turbine engines and associated equipment, to describe more precisely the articles warranting control on the USML.

  • Paragraph (a) is modified to clarify the scope of controlled engines and to incorporate technical corrections.
  • Paragraph (b) is revised to provide additional technical parameters to clarify the scope of controlled engines. With respect to paragraph (b)(1), public comment is requested on whether any commercial models exceed the capability described in this paragraph. In any public comment submitted in reply to this request, please provide specific examples of the commercial models at issue.
  • Paragraph (c) is modified to incorporate conforming changes and to make clear that the paragraph applies only to gas turbine engines, while paragraph (d) is modified to update the list of subject engines.
  • The Note to paragraph (e) is modified to incorporate a conforming change.

The Department of State will accept comments on this proposed rule until March 25, 2016. Interested parties may submit comments within 45 days of the date of publication by one of the following methods:

  • Email: DDTCPublicComments@state.gov with the subject line, “ITAR Amendment–Categories VIII and XIX.”
  • Internet: At www.regulations.gov, search for this notice by using this rule’s RIN (1400-AD89).
  • Comments received after that date will be considered if feasible, but consideration cannot be assured. Those submitting comments should not include any personally identifying information they do not wish to be made public or information for which a claim of confidentiality is asserted, because those comments and/or transmittal emails will be made available for public inspection and copying after the close of the comment period via the Directorate of Defense Trade Controls Web site at www.pmddtc.state.gov. Parties who wish to comment anonymously may do so by submitting their comments via www.regulations.gov, leaving the fields that would identify the commenter blank and including no identifying information in the comment itself. Comments submitted via www.regulations.gov are immediately available for public inspection.
  • FOR FURTHER INFORMATION CONTACT: Mr. C. Edward Peartree, Director, Office of Defense Trade Controls Policy, Department of State, telephone (202) 663-2792; email DDTCPublicComments@state.gov. ATTN: ITAR Amendment–USML Categories VIII and XIX.

Military Importers and Exporters Beware: State Department Modifies Sanctions against Rosoboronexport

Tuesday, January 19th, 2016 by Danielle McClellan

By: Danielle McClellan

It is the significance of the target, Rosoboronexport, that makes this a noteworthy development.   According to its own website:

The Joint Stock Company Rosoboronexport, part of the Russian Technologies State Corporation, is the sole Russian state intermediary agency responsible for import/export of the full range of defense and dual-use end products, technologies and services.

Rosoboronexport was set up by RF President’s Decree 1834 of 4 November 2000 as a federal state unitary enterprise tasked to implement the national policy in the area of military-technical cooperation between Russia and foreign countries. Since 1 July 2011 Rosoboronexport has been operating as an open joint stock company.
Rosoboronexport operates under the strict supervision of the Russian President, the Russian Government, and in full conformity with the UN arms control treaties and the relevant international agreements.
Only Rosoboronexport has the right to supply the world market with a full range of arms and military equipment manufactured by Russia’s defense industrial complex and approved to be exported. Rosoboronexport accounts for more than 85% of Russia’s arms exports.
Rosoboronexport is among the major operators in the world market for arms and military equipment. Rosoboronexport cooperates with more than 70 countries.

The official status of the exclusive state intermediary agency gives Rosoboronexport unique opportunities to expand long-term mutually beneficial cooperation with foreign partners, provide guaranteed state support of all export-import operations, and strengthen Russia’s leadership in the world arms market.

On September 2, 2015 the US Government  released the following notice: ‘No department or agency of the United States Government may procure or enter into any contract for the procurement of any goods, technology, or services from [Rosoboronexport (ROE) (Russia) and any successor, sub-unit, or subsidiary thereof], except to the extent that the Secretary of State otherwise may determine .  .  .  .’’

The Department of State has now released (November 19, 2015) the following modification to the September notice: “The United States Government has decided to modify the measure described above against ROE and any successor, sub-unit, or subsidiary thereof as follows. The measure described above shall not apply to subcontracts at any tier with ROE and any successor, sub-unit, or subsidiary thereof made on behalf of the United States Government for goods, technology, and services for the maintenance, repair, overhaul, or sustainment of Mi-17 helicopters for the purpose of providing assistance to the security forces of Afghanistan, as well as for the purpose of combating terrorism and violent extremism globally.”

This modification includes subcontracts for the purchase of spare parts, supplies, and related services for these purposes and can be applied retroactively as of the effective dates of the sanctions (they will remain in place for 2 years unless otherwise determined by the US Government).

This change does not apply to any other measures imposed pursuant to INKSNA.

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2015-11-25/pdf/2015-30058.pdf

Intelligence Analytics Software is on the USML…In Case You Read it Wrong

Tuesday, January 19th, 2016 by Danielle McClellan

By: Danielle McClellan
This notice, while it impacts few exporters, should be clear reminder that as DDTC starts the results of the wide ranging changing changes to the US Munitions List over the past few years, we are bound to see adjustments.   DDTC tends to call these changes to the USML something like clarifications of current policy, instead of changes to the USML.  Regardless of what they are called, exporters should be constantly on the lookout for clarifications or changes to various aspects of the USML and CCL changes made during Export Control Reform.

In this case, the State Department revised paragraph (b) of Category XI after determining that the current language may lead exporters to determine that certain intelligence analytics software is no longer controlled on the USML, when in fact it still is.

On July 1, 2014 DDTC published a final rule amending Category XI of the USML (effective December 30, 2014). This temporary revision clarifies that the scope of control is in existence prior to December 30, 2014 for USML paragraph (b) and directly related software in paragraph (d) remains in effect. This rule inserts the words, “analyze and produce information from” and by adding software description of items controlled.

On July 2, 2015 a final rule was published that temporarily modified Category XI(b) until December 29, 2015. This rule extends the July 2, 2015 modification to August 30, 2017 to allow DDTC more time to consider the controls in Category XI(b).

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2015-12-16/pdf/2015-31528.pdf

“Living in a Licensing Wonderland,” DDTC Posts License Process Times for November 2015

Tuesday, January 19th, 2016 by Danielle McClellan

DDTC Source (lyrics by John Black)
Licensing officers sing, are you listening?
In the cue, licenses glistening!
A button to press, it’s licensing success!
Living in a licensing wonderland!

In order to provide greater transparency and predictability for US defense firms in planning munitions license submissions, the Directorate of Defense Trade Controls will provides monthly update of the Directorate’s processing times. The timelines are expressed in averages across all case activity. For electronic cases, the average is based on the date the case was signed by the applicant until the date of final action. For hardcopy cases, the processing times are determined by the date the case entered the Directorate until the time the case is signed out of the Directorate. Processing numbers include all case types except Commodity Jurisdictions (CJs), Government Jurisdictions (GJs), and Electronic Rejections.

Month and Year  Jun ’15 Jul ’15 Aug ’15 Sep ’15 Oct ’15 Nov ’15
Cases Received 4,171 3,972 3,607 3,509 3,670 3,117
Cases Closed 4,102 4,020 3,777 3,570 3,861 3,185
Cases Open at
End of Month
3,336 3,307 3,175 3,134 2,968 2,928
Average Processing
Time
(in Calendar Days)
24 27 26 28 26 28