In a Federal Register Notice dated December 19, 2011, the U.S. Department of State announced proposed changes to 22 C.F.R. part 129 and related provisions of the International Traffic in Arms Regulations (ITAR) that regulate brokers and brokering activities. State is accepting comments on the proposed rule until February 17, 2012. The exporting community has been awaiting these amendments for several years, and while providing some clarification as to broker registration and approvals, the amendments are pretty modest.
As noted above, this has been a long time coming. Except for two minor technical changes, the brokering regulations have been unchanged since they were added to the ITAR in 1997. In 2003, the State Department began reviewing the regulations in light of experience gained in administering them. The proposed rule derives from that review and comments received from other agencies and industry. A summary of key changes is below.
Definitions. Probably the most significant changes are to the regulatory definitions of “broker” and “brokering activities,” which will now more closely track their statutory definitions under the Arms Export Control Act. Most notably, under the proposed rule, “brokering activities” explicitly do not include activities that do not extend beyond administrative services; the provision of legal advice by an attorney to his client; or actions by employees of the U.S. Government acting in an official capacity that are limited to facilitating U.S. domestic sales or transfers. While many exporters (and their lawyers) may already have interpreted the brokering regulations to exclude such activities, this clarification should be welcome. The proposed rule also clarifies when a foreign person’s brokering activities are subject to the ITAR.
Registration. The proposed rule also amends the registration process, which to date has been addressed in other ITAR sections. Among other things, under the proposed rule, a parent company and its registered broker subsidiary can be covered under the same registration, provided that the parent meets certain requirements.
Exemptions. In addition, the proposed rule exempts certain parties from registration, prior approval, reporting and recordkeeping requirements. Such exempt parties include persons exclusively in the business of financing, insuring, transporting, or freight forwarding in a transaction. Other persons may be exempt when their activities do not extend beyond acting as an end-user, re-exporter, or re-transferor of a defense article or service exported pursuant to a license or other approval.
Persons exempt from registration or prior approval requirements are nevertheless subject to the ITAR’s policy on embargoes and other proscriptions under the proposed rule.
Added Clarifications. The proposed rule also includes further administrative changes related to reporting, recordkeeping, and applying to the State Department for written guidance on the brokering regulations. Although such written guidance is official, it does not substitute for prior approval of a particular brokering transaction or activity.
The proposed rule also clarifies the annual reporting requirement for brokers.
We believe these proposed changes, while modest, should make it easier to comply with the ITAR’s brokering provisions. Once finalized, these new rules hopefully should, therefore, make the exporting community’s work at least a little bit simpler.