By: Danielle McClellan
The Department of State wants to clarify requirements for the licensing and registration of US person providing defense services while in the employ of foreign persons. They also want to clarify when these same persons may be covered under existing DDT C authorizations previously issued to their employers and affiliates, and when they are instead obligated to apply for their own license or agreement prior to engaging in the provisions of the defense service.
Comments regarding the following proposed rules will be accepted until July 27, 2015
FOR FURTHER INFORMATION CONTACT: Mr. C. Edward Peartree, Director, Office of Defense Trade Controls Policy, Department of State, telephone (202) 663-1282; email DDTCResponseTeam@state.gov. ATTN: Regulatory Change, U.S. Persons Employed by Foreign Persons.
The Department of State’s full plan can be accessed here.
For the reasons set forth above, Title 22, Chapter I, Subchapter M, parts 120, 122, 124, 125 and 126 are proposed to be amended as follows:
PART 120–PURPOSE AND DEFINITIONS
1. The authority citation for part 120 continues to read as follows: . . . .
2. Section 120.39 is amended by revising paragraph (a)(2) to read as follows:
Sec. 120.39 Regular employee.
(a) * * *
(2) An individual in a long term (i.e., 1 year or longer) contractual relationship with the company where the individual:
(i) Works at the company’s facilities;
(ii) Works under the company’s direction and control;
(iii) Works full time and exclusively for the company;
(iv) Executes nondisclosure certifications for the company; and
(v) Where the staffing agency that has seconded the individual (if applicable) has no role in the work the individual performs (other than providing that individual for that work) and does not have access to any controlled technology (other than where specifically authorized by a license).
3. Section 120.40 is amended by removing the Note and adding Note 1 and Note 2 to read as follows:
Sec. 120.40 Affiliate.
Note 1 to Sec. 120.40: For purposes of this section, “control” means having the authority or ability to establish or direct the policies or operations of the firm with respect to compliance with this subchapter. Control is rebuttably presumed to exist where there is ownership of 25 percent or more of the outstanding voting securities if no other person controls an equal or larger percentage.
Note 2 to Sec. 120.40: A registrant may establish a control relationship with another entity via written agreement such that the entity then becomes an affiliate in accordance with section. The registrant may include such an affiliate on its registration, in accordance with this subchapter and subject to DDTC’s disallowance. If an affiliate listed on a registration ceases to meet the requirements of this section, the registrant must immediately remove the affiliate from its registration and notify DDTC pursuant to Sec. 122.4(a) of this subchapter.
4. Section 120.43 is added to read as follows:
Sec. 120.43 Natural person.
Natural person means an individual human being, as distinguished from a corporation, business association, partnership, society, trust, or any other entity, organization or group.
PART 122–REGISTRATION OF MANUFACTURERS AND EXPORTERS
5. The authority citation for part 122 continues to read as follows:…
6. Section 122.1 is amended by revising paragraph (a) and adding a note to paragraph (a) to read as follows:
Sec. 122.1 Registration requirements.
(a) Any person who engages in the United States in the business of manufacturing, exporting, or temporarily importing defense articles or furnishing defense services; and any U.S. person who engages in the business of furnishing defense services wherever located, is required to register with the Directorate of Defense Trade Controls under Sec. 122.2. For the purpose of this subchapter, engaging in such a business requires only one occasion of manufacturing or exporting or temporarily importing a defense article or furnishing a defense service. A manufacturer who does not engage in exporting must nevertheless register. (See part 129 of this subchapter for requirements for registration of persons who engage in brokering activities.)
Note to paragraph (a): Any natural person directly employed by a DDTC-registered person, or by a person listed on the registration as a subsidiary or affiliate of a DDTC-registered U.S. person, is deemed to be registered.
Sec. 122.2 [Amended]
7. Section 122.2(a) is amended by adding a comma between the words “registrant” and “or” in the third sentence.
8. Section 122.4 is amended by revising paragraph (a)(2)(v) to read as follows:
Sec. 122.4 Notification of changes in information furnished by registrants.
(a) * * *
(2) * * *
(v) The establishment, acquisition, or divestment of a U.S. or foreign subsidiary or other affiliate who is engaged in manufacturing defense articles, exporting defense articles or defense services, or the inability of an affiliate listed on the registration to continue meeting the requirements in Sec. 120.40 of this subchapter;
PART 124–AGREEMENTS, OFF-SHORE PROCUREMENT, AND OTHER DEFENSE SERVICES
9. The authority citation for part 124 continues to read as follows: . . . .
10. Section 124.1 is amended as follows:
a. Add two sentences at the end of paragraph (a).
b. Revise paragraph (b).
The addition and revision read as follows: Sec. 124.1 Manufacturing license agreements and technical assistance agreements.
(a) * * * The provision of defense services by a natural U.S. person may be authorized on a Form DSP-5. Natural U.S. persons employed as regular employees of a foreign subsidiary or affiliate listed on the registration of a U.S. person may receive authorization to provide defense services via an agreement between the registered U.S. person and the foreign subsidiary or affiliate, provided the registered U.S. person accepts responsibility for, and demonstrates ability to ensure, the natural U.S. person’s compliance with the provisions of this subchapter.
(b) Classified Articles. Copies of approved agreements involving the release of classified defense articles will be forwarded by the applicant to the Defense Security Service of the Department of Defense.
11. Section 124.17 is added to read as follows:
Sec. 124.17 Exemption for natural U.S. persons employed by foreign persons.
(a) A natural U.S. person employed by a foreign person may furnish defense services to and on behalf of the foreign person employer without a license if all of the following conditions are met:
(1) The employer is located within a NATO or EU country, Australia, Japan, New Zealand, and/or Switzerland, and the defense services are provided only in these countries;
(2) The end user(s) of the associated defense article(s) are located within NATO, EU, Australia, Japan, New Zealand, and/or Switzerland;
(3) No U.S.-origin defense articles, to include technical data, are transferred from the U.S. persons to the employer without separate authorization;
(4) No classified, SME, or MT technical data is transferred (even if separately authorized) in connection with the furnishing of defense services; and
(5) The U.S. person furnishing the defense services maintains records of such activities and complies with registration requirements in accordance with part 122 of this subchapter.
PART 125–LICENSES FOR THE EXPORT OF TECHNICAL DATA AND CLASSIFIED DEFENSE ARTICLES
12. The authority citation for part 125 continues to read as follows: . . . .
Sec. 125.4 [Amended]
13. Section 125.4 is amended by removing and reserving paragraphs (b)(2) and (b)(12).
PART 126–GENERAL POLICIES AND PROVISIONS
14. The authority citation for part 126 continues to read as follows: . . . .
15. Section 126.6 is amended by revising paragraph (c) introductory text and adding paragraph (c)(7) to read as follows:
Sec. 126.6 Foreign-owned military aircraft and naval vessels, and the Foreign Military Sales program.
(c) Foreign Military Sales Program. A license from the Directorate of Defense Trade Controls is not required if the classified or unclassified defense article or defense service to be transferred was sold, leased, or loaned by the Department of Defense to a foreign country or international organization under the Foreign Military Sales (FMS) Program of the Arms Export Control Act pursuant to a Letter of Offer and Acceptance (LOA) authorizing such transfer (permanent or temporary), which meets the criteria stated below:
(7) Natural U.S. persons employed by foreign persons may provide defense services to and on behalf of their employers without a license if all of the following conditions are met:
(i) The defense services are provided in support of an active FMS contract and are identified in an executed LOA;
(ii) No U.S.-origin defense articles are transferred from the U.S. person to the employer, without separate authorization;
(iii) The provision of defense services is not to a country identified in Sec. 126.1;
(iv) No classified or SME technical data is disclosed (even if separately authorized) in connection with the furnishing of defense services; and
(v) The U.S. person furnishing the defense services maintains records of such activities and complies with registration requirements in accordance with part 122 of this subchapter.