Wednesday, July 28, 2010

Using the International Traffic in Arms Regulation for Export Compliance

International Traffic In Arms Regulation

Several years ago while serving as a defense contractor’s export compliance officer, I was approached by a business development manager. She stated that the company was pursuing a contract with a foreign country to provide a defense material. The material had both military and civilian application. In this case, they were pursuing a contract for the material with a civil application. She rationalized that since the transaction would not be a defense article, the company should not need to seek an export license.

Though there is guidance for what and how to export, many exports issues are unique and may not be fully understood by defense contractors. As examples, recently a company was fined for violating an export law by shipping a controlled chemical. In another case, a company was charged with providing technical drawings to a foreign country. A few years ago, Chinese officials downloaded technical information from an American defense contractor employee’s computer without his knowledge. The employee faced charges even though he did not willingly provide the data. He had brought the computer and technical information to China without approval. Lack of understanding in the above cases did not provide a good defense. The lesson is that though the US Government values international business, US companies must understand export laws and operate within them.

In the above cases, the individuals involved could have prevented violations had they understood how to identify technical data under export controls. Such information is available in the International Traffic in Arms Regulation (ITAR). The ITAR contains the United States Munitions List (USML). The USML is a listing and explanation of export controlled defense items and services. Also, those involved in the above offenses may not have understood the definition of export. An export can be defined as providing technical data to a non-US person. This can be done by shipping items, oral and written communications, messenger service and etc. It also includes bringing a technical item or service to another country, providing information on a paper and through multi-media presentations. Exports can also be made by a non US person viewing controlled information on an unattended computer screen. In all situations, US Persons should protect and control the defense products and services according to the ITAR.

The ITAR states, “Any person who engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services is required to register...”. This direct wording does not leave much room for any other interpretation. All US persons or organizations involved with making Defense articles or providing defense services must register with the State Department’s Directorate of Defense Trade Controls (DDTC).

Additionally, the Defense Federal Acquisitions Regulation (DFAR) states, “It is the contractor’s responsibility to comply with all applicable laws and regulations regarding export-controlled items.” It is in the company’s best interest to understand export laws and how it applies to the organization’s mission. The responsibility to identify export controlled information and provide proper protection falls exclusively on the organization. The company should provide due diligence and know when and how to seek export approval

Some defense contractors may not immediately understand these responsibilities. The primary resource for guidance concerning the export of defense goods and services is the ITAR. The ITAR walks a defense contractor through their responsibilities including:

Which defense contractors should register with the DDTC?

Which defense commodities require export licenses?

Which defense services require export licenses?

What are corporate and government export responsibilities?

What constitutes an export?

How does one apply for a license or technical assistance agreement?

Fortunately, I was able to refer the ITAR while consulting our business development manager. I was able to demonstrate that the item had a dual use application. Once use was civil and the other was military. In such situations, the State Department has jurisdiction. We were able to request and receive proper authorization to export the item. Export situations are unique. Always refer to the source (ITAR) and consider employing knowledgeable export compliance officers, attorney’s or consultants experienced in export of defense articles and services.