On December 19, 2011, the Directorate of Defense Trade Controls (DDTC) published proposed amendments to 22 C.F.R. Part 129 of the International Traffic in Arms Regulations (ITAR), which relate to brokers and brokering activities. The link to the Federal Register Notice can be found here: http://www.pmddtc.state.gov/FR/2011/76FR78578.pdf. The proposed changes have been anticipated since the Department of State advised Congress in 2003 that it was reviewing regulations. The DDTC announced that the proposed rules are intended to clarify registration requirements, the scope of brokering activities, prior approval requirements and exemptions, procedures for obtaining prior approval and guidance, and reporting and recordkeeping. Comments on the proposed revisions are due Feb. 17, 2012.

Some of the proposed changes that may affect your business include:

  • Clarifying the definitions of "broker" and "brokering activity" by deleting the phrase "who acts as an agent of others" which is in the definition of "broker" but not "brokering activities." This language has been a source of confusion for years for in-house lawyers applying the legal definition of an "agent" to broker relationships, resulting in disagreements between companies and DDTC on who is a broker.
  • Clarifying that brokering does not include limited administrative services, such as providing or arranging office space, clerical, visa or translation services, or legal advice. This has been a particular problem over the years for companies taking advantage of their foreign affiliates' office to conduct meetings with potential customers.
  • Requiring prior approval for all brokering activities unless they are specifically exempted in the new § 129.7. The new § 129.7 exempts brokering (a) conducted for a government agency; (b) of certain defense articles wholly within NATO countries, Japan, New Zealand, Australia, or South Korea; or (c) of defense articles that are not "Significant Military Equipment" for end use by foreign governments or international organizations.
  • Changing registration requirements to more accurately reflect those engaging in "brokering activity." Specifically, persons who are exclusively in the business of insuring are exempt from registration requirements under § 129.3(b)(2) so long as their insuring activity is similar to that of banks and financing. Importantly, for parties registered under Part 122, the proposed regulations state that persons registered pursuant to Part 122 (including affiliates listed in the registrant's Statement of Registration) are not required to obtain a separate Part 129 registration and are exempt from the requirements in § 129.6 and § 129.10 so long as their brokering activities (a) involve only defense articles currently subject to export licenses obtained or being obtained by the registrant; or (b) are on behalf of the registrant and only involve defense services located and obtained from a manufacturer in the U.S. for export outside the U.S. under an export approval. These Part 122 registrants will still have to meet the recordkeeping requirements specified in § 129.11 though. Last, but not least, persons whose activities do not extend beyond acting as an end-user of defense articles or services exported pursuant to a license or approval under parts 123, 124 or 125, or those acting as re-exporters of such articles are also exempt from registration requirements.
  • Consolidating most broker registration requirements in § 129.4 rather than referring to certain requirements in Part 122. The new rules expressly recognize the discretion of DDTC to permit a broker that is a parent of a U.S. or foreign registered broker to be covered by that parent's Statement of Registration, provided that the broker is listed in the Statement and meets the same certification and other requirements of § 129.
  • Requiring a new reporting schedule to consolidate registration renewal with report submission and clarifying the information required in those reports. Specifically, the new rules require that reports be submitted annually with the registration submission. Or, if a broker is not renewing, within 30 days after expiration of registration for brokering activities in the preceding year. Currently, the regulations do not provide a specific time period for submission of these reports, although the DDTC website requests submissions in January.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.