Earlier this month, the US State Department, Directorate of Defense Trade Controls (DDTC) issued a beta version of a click-through tool to assist the defense industry make proper determinations about reporting fees, commissions, and political contributions pursuant to the International Traffic in Arms Regulations (ITAR), 22 C.F.R. Part 130.
This tool is released only for US Government evaluation purposes and has not been officially published on DDTC’s main website or in the Federal Register for use by the defense industry. Interested parties may submit questions and comments about the tool to DDTCResponseTeam@state.gov using the subject line: “Part 130 Decision Tool Feedback.” The tool links to a Key Terms List (i.e., important definitions) and References (Part 130 reproduced verbatim), but at the outset of the tool’s first page, DDTC recommends that industry carefully review the ITAR before utilizing the tool. It is anticipated that DDTC will remove the tool for further consideration early in December 2013. We are providing a decision diagram of the questions, answers, and guidance set forth in the beta version. Neither the tool nor the diagram should be relied upon to make a legal determination about whether or not a report is required.
There is an important overlay between Part 130 reporting obligations and ongoing anti-corruption enforcement efforts of the US Government, including under the Foreign Corrupt Practices Act of 1977, as amended. Allegations of failure to file Part 130 reports, or misstatements when making Part 130 representations by applicants, suppliers, or vendors, have contributed to significant civil and criminal settlements between the US Government and L-3 Communications Corporation/L-3 Titan Corporation and BAE Systems plc.
DDTC promulgated Part 130 reporting requirements pursuant to Section 39(a) of the Arms Export Control Act (AECA 22 U.S.C. §2779), as enacted in 1976, due to concern with the use of agents, advisers, and consultants to obtain business in the international defense trade. Part 130 requires reports by industry on payments, political contributions, gifts, commissions, and fees paid or offered, directly or indirectly, in connection with sales of munitions items or services. The reports are intended to uncover certain facts about sales transactions, such as the ultimate recipient of a covered payment or offer, the amount involved, the date of the transaction, and the name of the person making the payment or offer. DDTC is required to provide information from these reports to Congress. Under §39(d) of AECA, all information reported and records retained under Part 130 must be made available upon the request of the US Government.
Part 130 requires “applicants” (for direct commercial sales) and “suppliers” (for foreign military sales) to report “fees or commissions” valued at $100,000 or more (in the aggregate) paid or offered or agreed to be paid to any person, or “political contributions” valued at $5,000 or more (in the aggregate) paid or offered to paid to or for the benefit of, or at the direction of, certain government officials. Such a report is required when related to the solicitation or promotion of, or to secure the sale of, ITAR-controlled defense articles or defense services in the amount of $500,000 or more to the “armed forces” of a foreign country or international organization. The activities of “vendors” to applicants and suppliers must also be reported. If no report is made but facts change sufficient to trigger reporting, then applicants, suppliers, and vendors must file an accurate report within 30 days, as well as file supplementary reports when required based on the payment of additional fees, commissions, and/or political contributions.
Part 130 has been one of the most complicated sections of the ITAR since 1976 and has not been the subject of current US Export Control Reform efforts discussed here through proposed or interim final rules for public comment. DDTC has provided more specific guidance about the types of information to be included in a suggested Part 130 reporting format. The guidance clarifies in a footnote that the reporting obligations extend to reexports and retransfers of ITAR-controlled defense articles, as well as sales of foreign military items with US-origin components subject to the US Munitions List. In conjunction with the beta version tool, this is a step in the right direction of illuminating Part 130 compliance requirements.
Nonetheless, certain aspects of the tool could benefit from further clarification by DDTC, such as: (1) when reporting is required if a contract has been signed for the payment of fees or commissions but no sale has occurred; (2) reporting obligations associated with contract options; and (3) how to compute aggregated amounts of fees, commissions, and political contributions. Additionally, the tool focuses on the requirements imposed on applicants and suppliers. It would be useful if DDTC also provided guidance regarding how applicants and suppliers can communicate with vendors to obtain information sufficient for meeting reporting requirements (or report in lieu of not receiving required information from vendors), as well as how vendors should submit reports directly to DDTC when furnishing such information to an applicant or supplier would cause an unreasonable risk of injury to the vendor’s commercial interests.