Navigating ITAR: Let’s Do Business! By Deitra Crawley Bryant

These days, the perception within the international community is business with U.S. companies who engage in exporting and tempo

Issue 20

What is ITAR?

The International Traffic in Arms Regulations (ITAR) is the primary U.S. regulation that controls the export or temporarily import of defense articles and defense services on the United States Munitions List (USML) to foreign persons. It is the implementing authority that requires U.S. persons to be compliant with U.S. export controls laws and regulations.

The U.S. Government views the sale, export, and re-transfer of defense articles and defense services as an integral part of safeguarding U.S. national security and furthering U.S. foreign policy objectives. The U.S. Department of State is tasked with being the U.S. Government agency that interprets, administers, and enforces ITAR.

The Reach of ITAR

Under ITAR U.S. exporters of defense articles, defense services, and technical data are responsible for registering with the State Department, and, subsequently, obtaining the proper licenses and/or exemptions from the State Department and other applicable U.S. Government agencies prior to exporting to a foreign person. The general rule is only U.S. persons are eligible to receive controlled items, information or software. This essentially means that where non-U.S. persons are engaged in business deals with a U.S. defense company, ITAR is triggered, and either a license or exemption is required. ITAR allows limited exceptional exemptions for NATO countries and nationals where NATO countries (the government or non-government entities in NATO countries) are the end-users.

Where an approved license is required for exporting or transferring technical data and permanent hardware and/or where U.S. companies provide a defense service to a foreign person, the U.S. exporter must obtain the signature of the foreign person – either foreign government, foreign company, or both – before the export or transfer takes place. Where there is only a permanent transfer of hardware, the foreign end-user must issue an end-use statement prior to exporting the hardware. Furthermore, where Significant Military Equipment (SME) and/or classified articles are exported, the foreign government must certify in a non-transfer and end-use statement that the foreign government will not re-transfer the technology to an unknown end-user, again, before the U.S. exporter is permitted to release the article. Moreover, the U.S. Department of Defense (DoD) demands export controls by contractually obligating U.S. defense contractors to comply with U.S. export regulations. These contractual obligations include mandatory flow-down provisions from the U.S. prime contractor/exporter to subcontractors under DoD contracts. Violations of these export controls regulations can lead to significant civil and criminal penalties for the U.S. exporter.

The reach of ITAR, however, is not limited to U.S. companies who are defense contractors exporting and/or temporarily importing defense articles, defense services, and/or technical data. Its reach extends to all U.S. manufacturers of which all are required to register with the State Department. It obligates U.S. subsidiaries of foreign-owned parent companies to attain export compliance. It reaches into the merger and acquisition due diligence process, imposing successor liability upon the acquiring company if violations occurred within the acquired company over the last five (5) years.

Furthermore, in addition to the State Department and DoD serving as regulatory authorities mandating export controls, other U.S. Government agencies that oversee some aspect of export controls are the U.S. Department of Commerce, the U.S. Department of Treasury, the U.S. Customs & Border Protection, U.S. Justice Department, the U.S. Department of Energy, the U.S. Nuclear Regulatory Commission, to name a few. Hence, knowledge of U.S. export laws is essential. Knowing the regulations, having an understanding of how all of the U.S. Government agencies play a part in export controls, and understanding the process all lead to doing business in the U.S.

Reform Efforts in US Export Controls

The Obama Administration, U.S. businesses, and practitioners all recognize the need for reform of the export controls regime within the U.S. Government. In August, 2009, President Obama called for a revamp of all U.S. export laws in an effort “to consider reforms…to enhance national security, foreign policy and economic interests of the United States,” according to a White House statement issued August 13, 2009. U.S. businesses and practitioners are encouraged by President Obama’s efforts, and believe that the Obama Administration offers real hope for change.

President Obama’s call for reform includes plans to draw on recommendations from a private-sector study marshaled by the National Academies of Sciences (NAS) and co-chaired by Brent N. Scowcroft, President and Founder of The Scowcroft Group, and John Hennessey, President of Stanford University. In its report released January 8, 2009, titled, Beyond Fortress America: National Security Controls on Science & Technology in a Globalized World, the study issued strong recommendations for overhauling the current framework and highlighted the aspect of having one U.S. Government agency serving as the umbrella organization for all export controls matters.

Let’s Do Business

The effectiveness of ITAR is most apparent when U.S. defense technology and technical data are exchanged between U.S. defense companies and foreign entities with enforceable and efficiently managed export controls that advances foreign military sales, protects national security, promotes regional stability, and prevents the proliferation of weapons and technologies, including weapons of mass destruction, to problem end-users.

Although an arduous process, navigating the ITAR is the solution for doing business successfully with U.S. companies. It fosters innovation, leads to better trade opportunities with U.S. exporters, develops business partnerships between U.S. companies and the international community, produces robust economies of trade, creates lasting relationships with the U.S. Government and businesses, and achieves successful military technologies and information exchange. In order to successfully navigate the ITAR,

1. Read the regulations.

2. Know the exemptions.

3. Know the business.

4. Know what you are buying.

5. Identify all applicable regulations, statutes, and cases on export controls.

6. Know the players: all of the U.S. Government agencies administering exports controls as well as the multilateral regimes.

7. Negotiate the teaming agreements and contracts with the U.S. entity with a full understanding of U.S. export laws.

8. Develop an export compliance program that draws upon U.S. export laws and multilateral regimes.

9. Integrate export controls into business processes.

10. Hire your own legal counsel to be your advocate and to render advice.

This article is presented for informational purposes only and is not intended to provide legal advice.