International Traffic in Arms Regulation (ITAR) Application
U.S. contractors operate under the International Traffic in Arms Regulation (ITAR) which prevents controlled defense articles, technical data, and defense services from being exported to foreigners without Government approval. This makes sense considering that the items, services, and technical data covered by the regulation and the Arms Export Control Act of 1976 are things that significantly contribute to our national security strategy and military operations of the armed forces. If your business provides articles, technical data, or defense services in the U.S. and is planning to expand internationally, it is important to consider the ITAR and its limitations. To start, some foundational questions may be helpful to any contractor dealing with items subject to the ITAR.
- What is the ITAR?
ITAR is short for International Traffic in Arms Regulation. The ITAR implements the Arms Export Control Act of 1976 (AECA) and Executive order 13637. Executive Order 13637 delegates statutory authority to control the export of defense articles, technical data, and defense services to the Secretary of State. The Department of State Directorate of Defense Trade Controls (DDTC) controls the export and temporary import of defense articles and services covered by the United States Munitions List (USML).
- What is the United States Munitions List?
The USML is composed of twenty-one categories of defense items that range from firearms, close assault weapons and Combat Shotguns to nuclear weapons, submersible vessels, and directed energy weapons. This list identifies items controlled by the Arms Export Control Act and is found at 22 CFR 121.
- Why is the ITAR important to your business?
Most businesses want to be able to sell their goods or services in as many venues, states, and countries as possible. The bigger your marketing pool, the more potential sales. When you do business in the defense industry it is often pretty specialized so there is a limited market. Consequently, as you plan your company and attempt to grow, you will probably consider doing business internationally to increase or diversify your income stream.
Doing business internationally can often be very rewarding. It expands your marketplace, creates new income streams, and develops more business partnerships. However, when dealing with defense items, technical data, and defense services, there could be some impediments that you need to consider. Some of the most important of which are the ITAR and the USML.
- Does the ITAR apply to my business?
If you do manufacture defense articles, technical data, or provide defense services it is likely that ITAR applies to the items or services you provide. To comply with the ITAR, business must obtain a license (government permission) to export to other countries and do business with foreign entities. Licenses are granted after your business registers with the Directorate of Defense Trade Controls (DTTC). U.S. businesses who engage in the manufacture, exporting, or temporarily importing defense articles, or furnish defense services, are required to register with the DDTC. This even applies to one-time sales and to manufacturers who do not engage in exporting but use a third party to do so.
- What are the Export Administration Regulations (EAR) and how might it apply to my business?
The EAR and ITAR are two regulations that control the manufacture, distribution, and sales of goods and services. As mentioned, the ITAR is administered by the Department of State through the DTTC. It controls export of items on the USML and deals with technical data, defense items, and defense services. The EAR is administered by the Department of Commerce through the Bureau of Industry and Security. It utilizes a Commerce Control List to identify goods and services subject to its jurisdiction and applies to goods and services with both commercial and defense related applications. ITAR, however, generally only applies to defense items, defense services, and technical data. As you can imagine, the ITAR and EAR are significantly different and require different compliance standards. Therefore, it is important to identify whether the ITAR or EAR applies to your business’ good or service and ensure you have met the associated compliance standards.
- How do I comply with the ITAR?
The DTTC identifies a three-step process to get “started with defense trade.” Step one is to determine if the item or service you wish to export is ITAR controlled. This is a self-assessment that is done by reviewing the USML and determining whether the good or service is described within the list. The DTTC website offers a good “decision tree tool” to help determine if your product or service is described on the USML. If you are still not sure or you may need to submit a “commodity jurisdiction request” to determine whether and item or service is covered.
Step 2 is to register with DDTC. The Arms Export Control Act requires that all manufactures, exporters, temporary importers and brokers of defense articles as defined by the USML and businesses that furnish defense services are required to register with the DDTC. This is how the government can monitor and control such exports. Registration is a six-step process that includes enrolling in the Defense Export Control and Compliance System (DECCS), filling out registration form, having a senior officer submit registration, tracking registration status, paying registration fees, and retrieving the registration letter in DECCS.
Step 3 is to apply for an export license. The application requires completing a Form DSP-5 permanent export license application.
- What if you are not sure your technical data, defense article, or defense service is subject to ITAR?
Some items and services have commercial and defense industry uses. In fact as you review the USML and CCL it may not be clear which control list and compliance procedures apply. When faced with such a dilemma you can submit a commodity jurisdiction (CJ) request to the DDTC. CJ’s are submitted electronically through the DECCS.
- What are the consequences of violating the ITAR?
Violations of the ITAR can result in civil and/or criminal penalties which can includes fines and debarment, revocation of licenses or denial of licenses, compliance oversight, and loss of business opportunities. Civilian penalties can include over $1million per violation depending on the statute violated, debarment, or be generally settled through a negotiated agreement. Criminal penalties can include $1 Million or up to 20 years’ of imprisonment and debarment. Debarment prohibits participation directly or indirectly in the export of defense articles, including technical data and defense services. Statutory debarment continues until the debarred person applies for reinstatement and export privileges are granted by the DDTC.