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Complying with ITAR

Introduction

There are four questions that should be considered when planning any export: What is being exported? Where is it going? Who is receiving it? And what will it be used for? To answer the first question, the item should be classified, and it should be determined whether it is subject to ITAR or the EAR. The other questions are key factors in whether a license is required for the export.

If your company's export transactions are subject to ITAR, there are four steps to help ensure compliance. First, register with the Department of State as an exporter. Second, determine whether there are any prohibitions related to the export's country of destination and end user. Third, check if any exemptions apply. And fourth, maintain records of all transactions according to ITAR's requirements.

The first step, registering with the Department of State, is done via the Directorate of Defense Trade Controls, or DDTC. All "US persons" – including US organizations – who manufacture or export defense articles, provide defense services, or engage in arms brokering are required to register with the Department of Defense. Registration with the DDTC must be complete before applying for export licenses.

Registration serves three purposes:

• to inform the government about the US defense industry, supplying information about such things as export eligibility, foreign ownership, legally responsible personnel, and areas of activity
• to act as a channel to inform those involved in the defense industry about export regulations and government concerns
• to help validate US companies engaged in the defense trade, especially during the review of export license applications

Where is the export going?

The second step to ensuring ITAR compliance is to determine which, if any, prohibitions apply. The first thing to consider is whether there are any country of destination embargoes that apply. ITAR prohibits the export of any defense article, defense service, or technical data to several countries due to foreign policy, national security, and antiterrorism considerations, as well as UN arms embargoes. The regulations list such countries as Cuba, Estonia, Iran, and North Korea.

ITAR also denies applications for export licenses to countries against which the United States maintains an arms embargo, such as Burma, China, and the former Yugoslavia. The DDTC web site has a page on "Country Polices and Embargoes," which summarizes in a table the various restrictions. The Federal Register notices should be consulted for the most up-to-date awareness of comprehensive arms embargoes.

End user and end use

The second step also requires considering the end user of the export. Companies are required to screen end users for parties who are identified on the Debarred List. This is a list of individuals or entities who have been convicted of violating or conspiring to violate the Arms Export Control Act. The names appear in Federal Register notices.

But the Debarred List isn't the only source end users should be screened against. There are four other lists maintained by the Commerce Department and Treasury Department:

• the Denied Persons List – The Commerce Department's Bureau of Industry and Security maintains this list of individuals and entities that are denied export privileges. Any dealings with a party on this list that violate the terms of the denial are prohibited.
• the Unverified List – The Bureau of Industry and Security maintains a list of end users that it has been unable to verify. The presence of a party on this list is a "red flag" that should be resolved before proceeding with the transaction.
• the Entity List – The Bureau of Industry and Security maintains a list of parties whose presence in a transaction can trigger a license requirement under the EAR. The list indicates what license requirement applies for each listed party.
• the Specially Designated Nationals and Blocked Persons List – The Treasury Department's Office of Foreign Assets Control prohibits transactions with individuals and companies on this list. The list, known as the SDN list, includes terrorists and narcotics traffickers designated under programs that are not country-specific. The assets of SDNs are blocked, and US persons are generally prohibited from dealing with them.

Exemptions

The third step in the process for ensuring compliance with ITAR is to check whether any exemptions apply to the export transactions. There is, for example, a general exemption is for publicly available technology. Another exemption is known as the "use" exception.

The first general exemption means that technology or technical data otherwise within the scope of ITAR will not need an export license if it's considered publicly available – that is, in the public domain. This exemption may cover educational information, published information, fundamental research, and other information considered to be publicly available – for example, in libraries or online. The "use" exemption means that some employees will be able to use the technology without a license. This can apply when access to design technology is needed to replicate or improve a product.

There are many specific exemptions too. For example, there is a Canadian exemption. This means that a Canadian company can register with the Canadian Controlled Goods Directorate and obtain permission to exchange information, technical data, or technology with a US company without needing an export license.

The fourth step for compliance is to keep accurate records according to ITAR requirements. In general, any documentation or record related to an ITAR-controlled project, shipment, agreement, license, or license exemption must be kept for five years after it has been finalized. ITAR includes specific requirements on such matters as filing, retention, and return of export licenses, filing of export information, record-keeping for exemptions, and termination of manufacturing license agreements.

An understanding of the requirements for ITAR compliance will help you appreciate the importance of having complete information about export transactions. Before you make a quote or conduct any outside communication about a defense export, make sure you have the correct information about the destination and the end user.