On August 26, 2013, the State Department’s Directorate of Defense Trade Controls (DDTC) published an interim final rule in the Federal Register that will narrow the scope of persons and activities currently subject to the brokering requirements of the International Traffic in Arms Regulations (ITAR). The interim final rule, summarized below, will become effective on October 25, 2013.
1. The definition of “broker” and related “brokering activities”
The current brokering requirements set by the ITAR have posed major compliance challenges due to the ambiguous definitions of what constitutes a “broker” and related “brokering activities” and the potentially broad and extraterritorial application of the brokering provisions.
The interim final rule attempts to clarify these ambiguities and to narrow the definition of each. The DDTC’s interim final rule revises the definitions of those terms as follows:
a. A “broker” is –
– Any US person wherever located,
– Any foreign person located in the US, or
– Any foreign person outside the US where that person is owned or controlled by a US person, and
– Who engages in “brokering activities.”
b. “Brokering activities” are defined to include –
– Any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, re-export, or re-transfer of a US or foreign defense article or defense service, regardless of its origin, including (but not limited to) the following activities:
– Freight forwarding,
– Arranging, and
2. Specific exclusions from the definition of “brokering activities”
The interim final rule specifically excludes certain activities from the definition of “brokering activities.” Among the excluded activities are non-administrative activities by regular employees acting on behalf of their employer; legal advice, including export compliance services provided by an attorney; and activities performed by an affiliate on behalf of another affiliate.
As a result of these exclusions, and upon the interim final rule becoming effective, many currently registered brokers may no longer be subject to broker registration requirements, or may be eligible to consolidate into their manufacturer/exporter registration.
For more information on the upcoming changes to the brokering provisions, please contact us.