- Exporting an Armored SUV and Other James Bond Stuff
- January 14, 2010
- Law Firm: Robinson Brog Leinwand Greene Genovese & Gluck P.C. - New York Office
One of my favorite movies of all time is “The In-Laws” -- the 1979 original, of course. Alan Arkin plays Sheldon Kornpett, a dentist whose daughter is set to marry the son of CIA agent Vincent Ricardo, played by Peter Falk. Agent Ricardo embroils his future in-law Shelly Kornpett in a screwball intelligence operation and hilarity ensues. As it turns out, dentists do not get to have all the fun. Automobile dealers, too, can engage in their fair share of cloak and dagger. Recently an email came across the National Association of Dealer Counsel listserver from an attorney whose client was asked by a customer to modify a stock SUV and turn it into a vehicle like you would see in a James Bond movie. Among other things, the vehicle was to be outfitted with Kevlar armor, a fire suppressant system, an armored explosive-resistant fuel tank, a road tack dispensing system, a smoke dispenser, run-flat tires, bullet-proof glass, shocking door handles, etc. To top it all off, the customer said the modified vehicle was intended for export to Nigeria. So, what is such a dealer -- and his attorney -- to do?
From an export compliance perspective, there are two sets of regulations to be aware of -- the Export Administration Regulations (“EAR”) and the International Traffic in Arms Regulations ("ITAR"). EAR governs the export of so-called “dual-use” items and is administered by the Bureau of Industry and Security at the Department of Commerce. ITAR governs the export of military articles and is administered by the Directorate of Defense Trade Controls at the Department of State. While compliance with export licensing requirements primarily falls on the exporter of an item -- who is likely to be the dealer's customer -- the dealer plays an important role in the process.
As a general matter, under the EAR regulations, the exporter must first determine whether a specific Export Control Classification Number ("ECCN") covers the item to be exported or if the item is classified as EAR99, which is a generic classification meaning the item is governed by the EAR but does not fall under a specific ECCN. Generally, an item classified as EAR99 does not require a license whereas an item covered by a specific ECCN may or may not require a license depending on the nature of the item and the country of destination. A section of the EAR regulations, known as the Commerce Control List, describes each ECCN, states each ECCN's "Reasons for Control," and states any license exceptions available for that ECCN. (EAR, Supplement No. 1 to Part 774). "Reasons for Control" include, for example, National Security, Regional Stability, Anti-Terrorism, Nuclear Nonproliferation, Crime Control, etc. Finally, yet another section of the EAR regulations, known as the Commerce Country Chart, shows whether a given "Reason for Control" requires a Commerce Department license in order to export an item to a given country (EAR, Supplement No. 1 to Part 738). Simply put, if an item is covered by an ECCN, the Commerce Control List gives the "Reasons for Control" for that ECCN, and the Commerce Country Chart tells whether a license is required to export an item covered by those Reasons for Control to any given country.
As it turns out, the EAR regulations specifically address the armored SUV scenario raised in the email. Unfortunately, as is often the case with government regulations, these are rather serpentine, containing exceptions, and exceptions to the exceptions, and at the end you find yourself back where you started. Simply put, however, there are three basic questions to answer: (1) is the vehicle "armed" or "unarmed"; (2) are any specialized military components installed on the vehicle; and (3) what is the vehicle's level of ballistic protection. I will do my best to untie this Gordian Knot.
The EAR regulations provide that "unarmed all-wheel drive vehicles capable of off-road use which have been manufactured or fitted with materials to provide ballistic protection to level III¿or better" are classified as ECCN 9A018.b. (EAR, Supplement No. 1 to Part 774, Category 9, at pp. 5-6). However, if such a vehicle is a passenger car, limousine, van, or SUV "designed for the transportation of passengers and marketed through civilian channels in the United States" and is not fitted with materials to provide ballistic protection to Level III or above, it is classified as EAR99 and an export license is probably not required. (See, EAR §772(h) -- Interpretation 8).
What does all of that mean? Stripped down to its basics, an armored (but unarmed) SUV of sort described in that email would be classified as EAR99 unless it is outfitted with materials to provide ballistic protection at level III or better. What is level III ballistic protection you might ask? Level III ballistic protection would stop a 7.62mm NATO cartridge, or its civilian version, the .308 Winchester round, the most popular big-game hunting cartridge.
If such a vehicle is classified EAR99, a Commerce Department export license is generally not required. On the other hand, if such a vehicle is classified ECCN 9A018.b (generally because of its level of ballistic protection), a Commerce Department export license will almost certainly be required. The EAR regulations specifies that ECCN 9A018.b's "Reasons for Control" are National Security, Regional Stability and Anti-Terrorism. (EAR, Supplement No. 1 to Part 774 at p. 5). The Commerce Country Chart, in turn, states that exports to Nigeria are controlled for National Security and Regional Stability (EAR, Supplement No. 1 to Part 738). In short if the vehicle described in the email was outfitted to ballistic protection level III, it would be classified under ECCN 9A018.b and a Commerce Department license would be required to export the vehicle to Nigeria. In fact, due to the National Security Reason for Control, a Commerce Department license will be required to export any vehicle classified as ECCN 9A018.b to any country except Canada. The Bureau of Industry and Security has an excellent website that can walk you through the licensing process: http://www.bis.doc.gov.
Now where does ITAR fit in? ITAR will govern the export if the vehicle is "armed" or if it is outfitted with military components. In those cases, the export is governed by the State Department's Directorate of Defense Trade Controls.
The definition of an "armed" vehicle is quite broad and does not simply require that actual weaponry be installed -- a license would be required on that basis alone. Rather, a vehicle is considered "armed" if it has mounts for weapons installed and even if it has merely been reinforced to accept mounts for weapons. (See, EAR §772(h) ¿ Interpretation 8). In short, a State Department export license will be required if the vehicle has weapons mounts or has been reinforced to accept weapons mounts.
Even if a vehicle is "unarmed" it may still require a State Department export license if military articles are installed on the vehicle. Whether a component is a "military article" under the ITAR regulation is a question best answered by the manufacturer of that component. Military articles are defined in 22 CFR part 121 (also known as the Munitions List) and include components, parts, accessories, attachments and associated equipment designed or modified for military use. Thus the dealer will need to find out from the manufacturer of the components it is installing on the armored SUV whether any of those components are military articles. In all likelihood, the components described in the original email are probably not covered by ITAR, but the dealer should ask the manufacturer of each component to be installed. If the manufacturer of a particular component informs the dealer that an item is a military article, then a State Department export license will be needed to export the vehicle. An example of a military article requiring a State Department export license would be a radio frequency jammer intended to interfere with the remote detonation of roadside bombs.
The State Department requires that exporters of military articles be registered with the Directorate of Defense Trade Controls prior to the submission of any license application. The license application will require detailed information about the vehicle and its installed components and disclosure of the vehicle's end user, end use and ultimate country of destination. The State Department's Directorate of Defense Trade Controls has a very informative website to walk the customer through the registration and licensing procedure: http://pmddtc.state.gov.
It bears repeating that while the formal obligation to comply with EAR and ITAR and obtain any necessary licenses falls on the exporting customer and not the dealer, the customer will likely need the dealer to obtain relevant information from the manufacturer of the installed components in order to prepare the license application. Dealers should require that the customer sign an acknowledgment that the vehicle may be or is subject to export controls under EAR and ITAR and that it is the customer's responsibility to obtain any necessary export licenses prior to exporting the vehicle. The customer should be further required to indemnify and hold the dealer harmless for all claims and liabilities arising from any violation of the export laws and regulations of the United States. Finally, the dealer should also consider requiring proof of submission an export license application (or better yet the actual granting of a license) before delivery of the vehicle. In the case of a vehicle covered by ITAR, proof of the exporter's registration with the State Department's Directorate of Defense Trade Controls should also be required.
Finally, as if FACTA were not enough, the export regulatory arena has its own Red Flags and Know your Customer regimens. The Bureau of Industry and Security's website contains Know Your Customer and Red Flags guidance: http://www.bis.doc.gov/enforcement/knowcust.htm. The following website provides various "lists to check" the customer against: http://www.bis.gov/complianceandenforcement/liststocheck.htm. If the customer shows up on any of the control lists or if the dealer otherwise detects any "red flags," the transaction should be reported to the appropriate authorities.