- ITAR Amendments Proposed for Dual Nationals and Third-Country Nationals
- August 24, 2010 | Authors: G. Brent Connor; Charles A. Hunnicutt
- Law Firm: Troutman Sanders LLP - Washington Office
On August 11, 2010, the Department of State published a proposed rule to amend the International Traffic in Arms Regulations (ITAR) to update the policies regarding end-user employment of dual nationals and third-country nationals. This proposed amendment is part of the President's Export Control Reform effort which has been under Cabinet-level review since earlier this year.
The Department of State's Directorate of Defense Trade Controls (DDTC) is seeking to amend 22 C.F.R. Parts 124 and 126 to reflect new policy regarding end-user employment of dual-nationals and third-country nationals. The Administration has acknowledged that the current requirement for the provision of additional information within a license to cover dual national and third-country national foreign employees has created an administrative burden on approved end-users. Furthermore, the existing regulations have at times resulted in human rights issues which become an issue of contention between the U.S. and allies and friends without a commensurate gain in national security. The Department of State has determined that based on available intelligence and law enforcement information, and given the current licensing requirements regarding access by dual or third country national employees, most diversions of U.S. Munitions List (USML) items appears to occur outside the scope of approved licenses, not within foreign companies or organizations providing access to properly screened dual national or third country national employees.
Part 124 concerns agreements, offshore procurements and other defense services, and would be amended to strike existing text prohibiting transfers to a person or national of a third country and instead make such transfers contingent upon compliance with new requirements set forth in Part 126. Section 126.8 is an entirely new regulatory requirement which sets forth details on certain exemptions for intra-company transfers to employees who are dual nationals or third-country nationals. It would hold that no approval is needed from DDTC "for the transfer of defense articles, including technical data, within a foreign business entity, foreign governmental entity, or international organization that is an approved end-user or consignee for those defense articles (including technical data), including the transfer to dual nationals or third country nationals who are bona fide, regular employees, directly employed by the foreign business entity, foreign governmental entity, or international organization." Any transfer of defense articles under this proposed amendment would be required to occur completely within the physical territories of the country where the end-user is located or the consignee operates, and be within the scope of an approved export license, other export authorization, or license exemption. The foreign company receiving the controlled-good or technology would be required to implement effective procedures to prevent diversion; and, the transfer to the end-user or consignee could occur by meeting certain security-related conditions such as proof of a security clearance, execution of a non-disclosure agreement, or other screening and vetting measures.
Overall, these proposed amendments would place the affirmative responsibility upon the foreign company, government, or international organization, with the understanding that by accepting the USML defense article, they must comply with the provisions of U.S. laws and regulations to prevent the possible diversion of U.S. defense articles and technology. In proposing these regulatory changes, however, DDTC has made clear that any final amendment would not reduce the due diligence requirements of the U.S. exporter to ensure, to the best of their ability, that the end-use and end-user are consistent with the approved authorization. The Department states that it "views due diligence as a requirement for security clearances or other effective screening procedures as a condition for access to ITAR-controlled defense articles and technology."
These proposed amendments should be well-received by the exporting community who have long complained that technology controls have imposed a significant and often unnecessary burden on the global operations of U.S. companies. It has been often debated that existing controls on deemed exports and technology transfers needed updating to reflect a post-Cold War environment, where auditable company internal control programs are an established part of globalized US business. In essence these proposed amendments to Parts 124 and 126 of the ITAR would implement a "Trusted Party License Exception" for intra-company transfers involving U.S. allies, and other trusted non-embargoed destinations.