On December 13, 2013, the US State Department, Directorate of Defense Trade Controls (DDTC) published on its website updated guidance (the Guidance) for existing rules about reporting fees, commissions, and political contributions pursuant to the International Traffic in Arms Regulations (ITAR), 22 C.F.R. Part 130. By issuing the Guidance, DDTC reiterates rules for submitting reports when filing an application for a license or other approval and obligations to submit a supplementary report, as well as the content requirements and a recommended format for making such reports. Importantly, a footnote of the Guidance states 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, by which payments to advisers and representatives, or by such persons to others, must be referenced. These statements are not made in conjunction with a proposed rule or interim final rule to amend Part 130.
The Guidance follows last month’s publication of a beta version of a click-through tool to assist the defense industry make proper determinations about Part ITAR 130 reporting requirements.
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. 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 US Foreign Corrupt Practices Act, 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 when no prior report was filed, then applicants or suppliers must file an accurate report about the covered activities of themselves or of their vendors. Also, when there is a payment of, or offer or agreement to pay, fees or commissions of $50,000 or more and/or political contributions of $2,500 or more not previously reported or paid, a report must be made. Be aware of these lower monetary thresholds, because supplemental reports set forth above are due within 30 days after facts give rise to the reporting obligation.
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. In conjunction with the beta version tool, the Guidance is a step in the right direction of illuminating Part 130 compliance requirements, particularly in amplifying the desired information to be supplied pursuant to § 130.10.
Nonetheless, certain aspects of the Guidance and 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 or is contemplated to occur; (2) reporting obligations associated with contract options; and (3) how best to compute aggregated amounts of fees, commissions, and political contributions. Additionally, the Guidance and tool focus on applicant and supplier reporting requirements. It would be useful if DDTC also provided guidance regarding how applicants and suppliers can communicate with vendors to obtain information sufficient for meeting initial and supplementary 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.