01.10.2012 Proposed ITAR Brokering Regulations Would Impose More Requirements on More Companies

The U.S. State Department has proposed a major overhaul of the brokering provisions in the International Traffic in Arms Regulations (ITAR).  The proposed changes include: revising the definitions of broker and brokering activities; clarifying when the requirements apply to foreign persons; modifying the exemptions for both registration and prior approval; eliminating the prior notification requirement; and amending the reporting and other procedural requirements.  These changes, if adopted, could result in more companies being subjected to the requirements of the ITAR brokering regulations.   


The most significant of the proposed changes is to the definitions of the terms “broker” and “brokering activities.”  Currently a broker is any person who “acts as an agent for others” in arranging sales of defense articles in return for a fee, commission, or other consideration.  The new proposed rule defines a “broker” simply as someone who engages in brokering activities, and removes the requirement that the person be acting as an agent and receive some form of consideration.  This is a significant expansion of the definition, and would subject many more companies to the brokering provisions of the ITAR.  


The proposed definition of “brokering activities” is the key to understanding who may be considered a broker and subject to these provisions.  Under the current regulation, any action that “facilitates” the manufacture, export, or import of a defense article or service is considered a brokering activity.  The proposed rule provides a list that, although not exhaustive, provides greater specificity as to which activities are included and which are excluded.  “Brokering activities” would include financing, transportation, freight forwarding, insuring defense articles or defense services, and soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service.  Among the exclusions are activities by a U.S. person in the United States that are limited exclusively to U.S. domestic sales or transfers, activities by employees of the U.S. Government acting in an official capacity, and activities that do not extend beyond administrative services (e.g., 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).  


The revised provisions would also more clearly indicate when brokering activities may be subject to the ITAR.  Any brokering activities by a U.S. person, wherever located, will be subject to the ITAR.  A foreign person engaging in brokering activity will be subject to part 129 if the foreign person is located in the United States, is located outside the United States but the activity involves a U.S. origin defense article or service, is located outside the United States but the activity involves the import into the United States of any defense article or service, or is located outside the United States but acting on behalf of a U.S. person.


The Department also made significant changes to the registration and prior approval provisions.  Many of the registration requirements will be consolidated and revised.  Manufacturers and exporters will no longer be required to submit a separate brokering registration form.  In addition, there will no longer be a requirement to submit a separate transmittal letter, but registrants will be required to make certain certifications via the Statement of Registration.  Several exemptions from registration have been added.  The new provisions would exempt from registration persons exclusively in the business of insuring, as well as certain persons who are merely end-users of a defense article or service exported pursuant to an ITAR license or other ITAR approval, or who are acting subsequently as a reexporter or retransferor of such article or service under such license or approval or pursuant to an approval under §123.9.  


The procedures for obtaining prior approval would also be revised and clarified.   The Department proposes to eliminate the prior notification requirement in its entirety.  Prior approval will be required for any brokering activity carried out by a person who is required to register as a broker unless the brokering activity is eligible for one of the exemptions.  


The proposed exemptions will include:


  • certain brokering activities undertaken for a U.S. government agency
  • brokering activities within and exclusively for NATO member countries, Australia, Japan, New Zealand or the Republic of Korea
  • brokering activities that involve U.S. origin defense articles that are not significant military equipment and the end use is limited to foreign government and international organization end users. 


However, the department is greatly expanding the list of defense articles and services that are not eligible for these exemptions.  Brokering activities related to any of the following items, which were previously eligible for exemptions from prior approval, would no longer be eligible for the exemptions:


  • Firearms and other weapons (ITAR Category I(a)-(d), II(a)-(d), III(a))
  • Rockets, bombs, grenades, launchers, launch vehicles, and missile and anti-missile systems (ITAR Category IV(a)-(b))
  • Night vision-related defense articles and inertial platform, sensor, and guidance-related systems (ITAR Category XII(c)-(d)
  • Chemical agents and precursors (ITAR Category XIV(a), (c), (e))
  • Biological agents and biologically derived substances (ITAR Category XIV(b))
  • Chemical and biological agent dissemination equipment (ITAR Category XIV(f)) 
  • Spacecraft that are designated Significant Military Equipment (ITAR Category XV)  
  • Directed energy weapons (ITAR Category XVIII)
  • Submersible vessels and oceanographic and associated equipment (ITAR Category XX)
  • Any “miscellaneous” article described by ITAR Category XXI
  • Certain foreign defense articles and services1

In addition, brokering activities that involve “prohibited countries” referred to in ITAR §126.1 would not be eligible for the exemptions.  Any brokering activities involving prohibited countries, including activities by persons that are exempt from the registration requirement, would be subject to the prior approval requirement and to a general policy of denial.


There are also other administrative changes included in the revisions, including to the guidance, reporting and recordkeeping provisions.  The new provisions provide greater specificity as to procedures to follow, and also provide timing requirements for these activities to take place.


The Department is accepting comments on these proposed changes through February 17, 2012.


If you have any questions concerning these proposed changes, please contact Forbes Thompson at 202-327-5070 or Jahna Hartwig at 202-293-8145.

1 Foreign defense articles and services involved in brokering activities within and exclusively for NATO member countries, Australia, Japan, New Zealand or the Republic of Korea will be eligible for the exemption so long as they do not include articles on the list of excluded items.