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Kinney Law Office adds arms trade compliance capabilities

What comes to mind when you hear "international traffic in arms?" For me, the phrase conjures up the idea of a shady businessperson selling crates of stolen assault rifles to an equally nefarious looking villain, likely at an abandoned airfield or deserted road somewhere. The buyer inspects the weapons, a suitcase full of cash trades hands and then - depending on the movie plot - they get ready to go their separate ways and the good guys swoop in and catch them both. Once again, the world is saved from the forces of evil and we all live happily ever after.

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As fun as the movies are, the reality of the International Traffic in Arms Regulations (ITAR) is more about proper paperwork and documentation than catching bad guys selling illegal guns. These regulations are critically important to companies and individuals creating goods and services with potential military applications. The ITAR regulatory regime is intended to restrict and control the export of defense and military related technologies for U.S. national security protection and foreign policy purposes. While these types of technologies contain the types of weapons, ammunition and other war materials that one would expect to be associated with national security and foreign policy, there are a number of other technologies such as laser systems, communications equipment and even training programs that can fall under the regulations as well. ITAR compliance issues are important for the 400-plus companies and 25,000 workers involved in Colorado's $3.2 billion aerospace industry. 

I had the opportunity to attend a professional development course hosted by the World Trade Center Denver on ITAR on Thursday, October 12th. The course was designed to cover the basic and intermediate concepts in ITAR and the Export Administration Regulations (EAR) that are administered by the Department of Commerce. The speakers were David Glynn and Lizabeth Rodriguez-Johnson, both from the Denver law firm of Holland & Hart. Participants in the course included compliance managers and other professionals involved in international business. Mr. Glynn and Ms. Rodriguez-Johnson are recognized experts in international trade and regulatory compliance in this area and presented a very informative and helpful course. Below is a brief summary of the information presented in the course for individuals or companies that may have an interest in manufacturing and/or exporting ITAR regulated material. For specific legal advice on your situation, please contact our office.

If you or your firm are involved in the design or manufacture of products or materials (even training courses) that could have potential military applications, you should be familiar with both ITAR and the EAR. The U.S. State Department uses a process called "commodity jurisdiction" to determine whether the product or material is subject to ITAR or the EAR. The applicable standard is reproduced from the Code of Federal Regulations below:

"§120.3   Policy on designating or determining defense articles and services on the U.S. Munitions List.

(a) For purposes of this subchapter, a specific article or service may be designated a defense article (see §120.6 of this subchapter) or defense service (see §120.9 of this subchapter) if it: (1) Meets the criteria of a defense article or defense service on the U.S. Munitions List; or (2) Provides the equivalent performance capabilities of a defense article on the U.S. Munitions List.

(b) For purposes of this subchapter, a specific article or service shall be determined in the future as a defense article or defense service if it provides a critical military or intelligence advantage such that it warrants control under this subchapter."

Sounds straightforward right? If it is listed on the U.S. Munitions List or provides the same type of capabilities, then it should be ITAR. If it is not on the list, then my product or service is not regulated under ITAR. Unfortunately, as with most laws and regulations there are a number of exceptions and interpretations that can make this analysis more challenging. The Directorate of Defense Trade Controls (DDTC) has provided a tool to help with this analysis on its website. You can find the tool by clicking here.

So what happens if you find that your product is subject to ITAR? Generally speaking, the ITAR requires any person in the U.S. that manufactures or exports defense articles or provides defense services to register with the DDTC. The registration does not confer export rights, but the company must be registered in order to receive an export license. The registration requires an annual renewal and the company must notify the Directorate if they are no longer engaged in the defense trade (including manufacturing). While registered, the company also has ongoing notification requirements which include material changes of information to the registration statements (ex. change in corporate officers, change in category of the item/material, etc.). Registration also requires notification if the company is going to be acquired. I have provided a link to the registration page at the U.S. State Department DDTC here.

Registration alone does not provide a right to export the goods, services or materials. An export license or agreement is required for transfer of any controlled data or items under ITAR. There are several different types of export licenses, depending on what product or information is being exported. The regulations also provide for Technical Assistance Agreements and Manufacturing Licensing Agreements depending again on the nature of the information or product being exported. One of the key points to remember with an export is that an item or information does not have to leave the United States for an export to occur. In some cases, an export may be "deemed" if a foreign national gains access to the controlled information or if the controlled information is placed on the internet. Export licenses are granted through an electronic system that can be accessed here.

The ITAR exists for the laudable goal of protecting U.S. national security and foreign policy interests. The key to protecting yourself and your business from potential violations is the development of a rigorous and effective compliance program once you determine that ITAR applies to your product or service. This process starts by familiarizing yourself with the ITAR rules and requirements and then developing, either alone or in consultation with an ITAR compliance specialist, a system to ensure compliance with ITAR. This set of regulations is one area where preventative action at the beginning of the process can save tens of thousands or millions of dollars in administrative penalties, not to mention possible criminal sanctions, later on. Don't wait until Immigration and Customs Enforcement agents are standing at your office door with a search warrant to understand what this means for you and your business.

I am pleased to be able to offer these additional ITAR support capabilities through Kinney Law Office. This is a subject where it is critically important to get the right advice before beginning production or exporting a product. For more information, contact our office.

Photo credit: Photo by SpaceX on Unsplash

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