State Department Issues Proposed Rule to Amend ITAR’s Broker Registration and Licensing Requirements

December 19, 2011

On December 19, 2011, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) issued a proposed rule to amend parts 120, 122, 126, 127, and 129 of the International Traffic in Arms Regulations (“ITAR”), which implement Section 38 of the Arms Export Control Act (“AECA”).[1]  The proposed rule’s substantive changes are primarily to part 129, regarding the registration and licensing of brokers.

First, the proposed rule clarifies the relevant definitions in Section 129.2 by revising paragraphs (a) and (b) to more closely conform to the “broker” and “brokering activities” definitions found in the AECA; by adding paragraphs (d)(3)-(5) to specify when the brokering activities of a foreign person located outside of the United States are subject to the ITAR; and by adding paragraph (e)(3) to distinguish administrative services and legal advice from brokering activities.  The addition of paragraph (e)(2) also confirms that the activities of employees of the U.S. government, acting in an official capacity, are not subject to part 129.

Second, the proposed rule alters the registration requirements and exemptions in Section 129.3.  Paragraph (b)(2) now excludes from the registration requirement any person exclusively in the business of insuring.  Paragraph (b)(3) is revised so that certain manufacturers and exporters registered under part 122, as well as certain of their affiliates, are not required to obtain a separate part 129 registration, and are exempt from part 129’s prior approval and reporting requirements — although, not from its recordkeeping requirements.  The new paragraph (b)(4) exempts end-users of an article or service exported pursuant to a license or approval under parts 123, 124, or 125, from part 129’s prior approval, reporting, and recordkeeping requirements.  Finally, the new paragraph (d) states that for those U.S. manufacturers or exporters registered under part 122 for which the revised Section 129.3(b)(3) does not apply, no separate part 129 broker registration or fee is required.

Third, the proposed rule revises the ITAR so that most registration statement and fee requirements are consolidated in Section 129.4, instead of making repeated references to part 122.  Additionally, Section 129.4(c) now indicates specific senior officials that must be included in the registration statement; requires registrants to disclose all convictions, indictments, or other charges for violating certain U.S. or foreign criminal statutes; and requires that foreign owned or controlled registrants explain such ownership or control, including the identities of the foreign person or persons who ultimately own or control the registrant.

Fourth, the proposed rule amends Section 129.7 on prior approval exemptions by clarifying the exemption for a person under direct contract with a U.S. government agency or carrying out a foreign assistance or sales program authorized by law and subject to the control of the President; by clarifying the scope of the exemption for NATO, NATO member countries, Australia, Japan, New Zealand, and the Republic of Korea; by adding a new exemption for brokering certain non-SMEs for end-use by an international organization or foreign government; and by expanding the list of items excluded from exemptions.

Additionally, the proposed rule explicitly states that prior approval exemptions do not apply to brokering activities involving countries or any person subject to embargoes; eliminates the prior notification requirement and modifies the procedures for obtaining prior approval; provides procedures for obtaining guidance from DDTC; revises rules related to annual reports; and requires that registrants must maintain records in accordance with Section 122.5.

Comments on the proposed rule are due by February 17, 2012.