Reminder: ITAR Exemption for Intra-Co Transfers to 3rd-Country Nat'ls Effective Aug 15
The State Department’s final rule amending Parts 124 and 126 of the International Traffic in Arms Regulations to exempt from approval requirements, under certain conditions, intra-company, intra-government, and intra-organization transfers of defense articles to dual or third-country national employees, takes effect on August 15, 2011.
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The following are highlights of the regulatory changes in the final rule (see ITT’s Online Archives or 05/16/11 news, 11051619, for full BP summary of the final rule):
No DDTC Approval Needed for Dual/3rd-Country National Employees, If Regs Met
The final rule adds new section 22 CFR 126.18 to provide exemptions to dual or third-country national employees:
No DDTC approval needed. Paragraph (a) of this section states that, subject to certain conditions, no approval is needed from the Directorate of Defense Trade Controls (DDTC) for the transfer of unclassified defense articles, which includes technical data (see 22 CFR 120.61), to or within a foreign business entity, foreign governmental entity, or international organization that is an authorized end-user or consignee (including approved sub-licensees) for those defense articles, including the transfer to dual nationals or third-country nationals who are bona fide regular employees2, directly employed by the foreign consignee or end-user.
Transfer must take place in end-user country. Paragraph (a) of new 22 CFR 126.18 also states that the transfer of defense articles must take place completely within the physical territory of the country where the end-user is located, where the governmental entity or international organization conducts official business, or where the consignee operates. Additionally, the transfer of defense articles must be within the scope of an approved export license, other export authorization, or license exemption.
End-User Must Have Procedures to Prevent Diversion of Defense Articles
Paragraph (b) of new 22 CFR 126.18 states that as a condition for any foreign business entity, foreign governmental entity, or international organization to transfer any defense article to foreign employees, there must be effective procedures to prevent diversion to destinations, entities, or for purposes other than those authorized by the applicable export license or other authorization (e.g., written approval or exemption) in order to comply with the applicable provisions of the Arms Export Control Act and the ITAR.
End-user/consignee requirements. The end-user or consignee may satisfy this condition, prior to transferring defense articles, by requiring the following:
- Approved security clearance. A security clearance approved by the host nation government for its employees.
- Process to screen employees. Have in place a process to screen its employees. The end-user or consignee must screen its employees for substantive contacts with restricted or prohibited countries listed in 22 CFR 126.13. Substantive contacts include regular travel to such countries, recent or continuing contact with agents, brokers, and nationals of such countries, etc. Although nationality does not, in and of itself, prohibit access to defense articles, an employee who has substantive contacts with persons from countries listed in 22 CFR 126.1(a) shall be presumed to raise a risk of diversion, unless DDTC determines otherwise.
- Maintain tech security/clearance plan. End-users and consignees must maintain a technology security/clearance plan that includes procedures for screening employees for such substantive contacts and maintain records of such screening for five years. The technology security/clearance plan and screening records shall be made available to DDTC or its agents for civil and criminal law enforcement purposes upon request.
- Non-disclosure agreement. Have executed a Non-Disclosure Agreement that provides assurances that the employee will not transfer any defense articles to persons or entities unless specifically authorized by the consignee or end-user.
Any Person Granted Approval is Responsible for Acts of Employees, Etc.
Paragraph (b) of new 22 CFR 126.18 references 22 CFR 127.1(b) on violations, to state that any person who is granted a license or other approval is responsible for the acts of employees, agents, and all authorized persons to whom possession of the licensed defense article or technical data has been entrusted regarding the operation, use, possession, transportation, and handling of such defense article or technical data abroad.
1Defense article means any item or technical data designated in the U.S. Munitions List (22 CFR 121.1). The term "defense articles" includes technical data recorded or stored in any physical form, models, mockups or other items that reveal technical data directly relating to items designated in the U.S. Munitions List but does not include basic marketing information on function or purpose or general system descriptions.
2The final rule also adds a new definition of "regular employee" in new section 22 CFR 120.39 to expand the ITAR exemption to workers who have long term employment relationships with licensed end-users. (See final rule for definition.)
3The U.S. denies licenses and other approvals for exports or imports of defense articles and defense services, destined for or originating in Belarus, Cuba, Eritrea, Iran, North Korea, Syria, Venezuela, Burma, China, Liberia, Sudan, Cote d'Ivoire, Democratic Republic of Congo, Iraq, Lebanon, Sierra Leone, Somalia, Afghanistan, Haiti, Vietnam, and Sri Lanka.
(See ITT's Online Archives or 10/08/10 news, 10100817, for BP summary of a former DDTC Director criticizing this exemption.)