State Dept Proposes to Revise Brokers/Activities, Etc. in ITAR Reg Revamp

Written comments on the proposed rule are due by February 17, 2012.

Proposed Broadening of Definition of "Broker"

The proposed rule would broaden the definition of "broker" in 22 CFR 129.2 to mean any person (natural person or corporation, partnership, etc.) who engages in brokering activities.

(The current definition is any person who acts an an agent of others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or consideration.)

Proposed Revisions to Definition of Brokering Activities

The proposed revision to the definition of "brokering activities" in 22 CFR 129.2 would more closely track its statutory definition in the Arms Export Control Act (AECA).The proposed revisions would also clearly indicate when a foreign person’s brokering activities are subject to the ITAR.

Definition. "Brokering activities" would be redefined as any action to facilitate the manufacture, export, reexport, import, transfer, or retransfer of a defense article or defense service. Such action includes, but is not limited to:

• Financing, insuring, transporting, or freight forwarding defense articles and defense services, or
• Soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service.

(Engaging in the business of brokering activities requires only one action as described above.)

By whom. Brokering activities could be conducted: (1) by any U.S. person wherever located; (2) by any foreign person located in the United States; (3) by any foreign person located outside the United States involving a U.S.-origin defense article or defense service; (4) by any foreign person located outside the United States involving the import into the United States of any defense article or defense service; or (5) by any foreign person located outside the United States acting on behalf of a U.S. person.

Exclusions. Exclusions from brokering activities would include (1) Activities by a U.S. person in the U.S. that are limited exclusively to U.S. domestic sales or transfers (e.g., not for export, which includes transfer in the U.S. to a foreign person); (2) Activities by employees of the U.S. Government acting in an official capacity; or (3) Activities that do not extend beyond administrative services, such as providing or arranging office space and equipment, hospitality, advertising, or clerical, visa, or translation services, or activities by an attorney that do not extend beyond providing legal advice to a broker.

(Brokering activities is currently defined to mean acting as a broker, and includes the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import or a defense article or defense service, irrespective of its origin. For example, this includes, but is not limited to, activities by U.S. persons who are located inside or outside of the United States or foreign persons subject to U.S. jurisdiction involving defense articles or defense services of U.S. or foreign origin which are located inside or outside of the United States. But, this does not include activities by U.S. persons that are limited exclusively to U.S. domestic sales or transfers (e.g., not for export or re-transfer in the United States or to a foreign person. Engaging in the business of brokering activities requires only one action as described above.)

Revisions Proposed to Freight Forwarding Exemption

Under the proposed rule, 22 CFR 129.3 would continue to list an exemption from registration for persons exclusively in the business of freight forwarding or transporting, stating that the exemption would be for such persons if their activities do not extend beyond freight forwarding or transporting. For example, air carriers or other freight forwarders who merely transport or arrange transportation for licensed USML items are not required to register. The proposed rule would newly state that such persons would also not be subject to the prior approval requirement for brokering activities or the reporting and recordkeeping requirements.

(In light of the proposed broadening of the definition of broker and other proposed changes, one trade source noted that the State Department may want to specifically list Customs brokers as exempt too.)

Proposed Rule Would also Exempt Mere End-Users, Etc.

The proposed rule would consolidate most broker registration requirements into 22 CFR Part 129 (from Part 122 and Part 129) and make technical and editorial revisions. In addition, a new paragraph would exempt from registration those whose activities do not extend beyond acting as an end-user of a defense article or defense service exported pursuant to a license or approval, or subsequently acting as a reexporter or retransferor of such article or service. Such persons would also be exempt from the prior approval requirement for brokering activities.

Propose Revisions to DS-2032 Form, Annual Report, Approval Application

The State Department is also proposing changes to the DS--2032, Statement of Registration, that follow the proposed changes to ITAR Part 129, in order to allow manufacturers/exporters to register as brokers on the same form, with one registration fee. In addition, the form will ask for more information regarding company structure, specifically for information on intermediary parents, if applicable. Finally, the form will have a separate statement of certification for those registering as brokers.

In addition, the proposed rule would provide that the Annual Brokering Report collection be submitted with the DS--2032, as an attachment. New information proposed to be required on the report includes the following: brokering registration code; signature and certification of the report by an empowered official; identification of all parties involved in the brokering transaction (currently, the regulations require only the identification of purchasers and recipients); and identification of the source of any consideration paid for the brokering transaction.

Clarification of the requirements for obtaining Brokering Prior Approval will result in the applicant providing additional information, to include the following: Categorization of the types of defense articles and services to be brokered, including whether the items are significant military equipment; identification of the type of sale that is to be brokered (commercial or under the Foreign Military Sales program); listing of any consideration expected to be received; and signature of an empowered official certifying the information provided is complete and accurate.

(According to the State Department, the export, temporary import, temporary export and brokering of defense articles, defense services and related technical data are licensed by the Directorate of Defense Trade Controls in accordance with the ITAR and Section 38 of AECA. Those of the public who manufacture or export defense articles, defense services, and related technical data, or the brokering thereof, must register with the Department of State. Persons desiring to engage in brokering activities must submit an application or written request to conduct the transaction to the Department to obtain a decision whether it is in the interests of U.S. foreign policy and national security to approve the transaction. Also, registered brokers must submit annual reports regarding all brokering activity that was transacted, and registered manufacturers and exporter must maintain records of defense trade activities for five years.)

State Dept contact: Daniel L. Cook (202) 632-2871