Trade Compliance Flash: DDTC Provides Latest ITAR Enforcement and Regulatory Updates
On June 1, 2022, the Directorate of Defense Trade Controls (DDTC) published the minutes from the April 28 Defense Trade Advisory Group (DTAG) plenary session. In those minutes, DDTC provided a comprehensive update on several key enforcement and regulatory developments involving the International Traffic in Arms Regulations (ITAR) that should be of interest to industry.
- Pending Consent Agreements. DDTC indicated it is finalizing the terms and conditions of at least two more consent agreements and that these should be announced within 2022. In January, DDTC issued its first consent agreement of the year against Torrey Pines Logic, Inc. Assuming the additional enforcement actions are full consent agreements (requiring a special compliance officer), it would be the first time since 2019 that DDTC issued three full consent agreements in a single calendar year. Evincing the rarity of three full consent agreements in a year, it has happened only one other time in the last 10 years, in 2013.
- Increasing Directed Disclosures. DDTC provided enforcement case stats for fiscal year (FY) 2021 that showed a substantial increase in directed disclosures year-over-year, with 58 directed disclosures occurring in 2021 compared to 40 in 2020. The number of directed disclosures in 2021 was also higher than the previous five-year average of 51; the new five-year average is 52. By contrast, the number of voluntary disclosures has steadily declined over the last decade, with 580 submissions in 2021. That number is significantly below the previous five-year average of 722; the new five-year average is 652.
- New Compliance Program Guidelines. A revised and more substantial edition of DDTC's Compliance Program Guidelines is expected to be released this summer. That may be a welcome change to the current iteration, which is a basic and high-level overview of general compliance topics to consider. The revised guidelines will include a Compliance Risk Matrix and may be more similar to the Export Compliance Guidelines published by the Bureau of Industry and Security (BIS) for the Export Administration Regulations (EAR) and the compliance guidelines issued by the Office of Foreign Assets Controls (OFAC) for its economic sanctions programs.
- USML Revisions. While it has previously announced several U.S. Munitions List (USML)-related reviews, DDTC stated that proposed rules are expected in the near-term regarding Category IV (missiles and launch vehicles), Category XV (spacecraft), and Category XVI (nuclear weapons related articles). With respect to Categories IV and XV, based on previous announcements, a proposed rule is expected as the next step. In addition, a final rule is expected to make "minor" revisions to those categories. As it relates to Category XVI, an interim final rule is also being prepared.
- Updating the Regular Employee Definition. DDTC indicated it remains a priority to issue a final rule to implement the proposed revision to the ITAR's "regular employee" definition to make permanent a temporary change that permits teleworking. The final rule may incorporate some additional changes in light of the public comments that proposed rule received.
- Revising the Section 123.17 Exemption. It was emphasized that DDTC is working on revising the current ITAR licensing exemption for certain personal protective equipment (PPE) by recognizing it does not satisfy modern realities. Based on previous announcements, it is expected that the next action here will be an interim final rule to make those revisions, which is expected to expand the list of covered equipment.
- Revising the Section 125.4(b)(9) Exemption. DDTC announced that it was looking to revise ITAR section 125.4(b)(9), which provides a licensing exemption for technical data provided "by or to a U.S. person, or a foreign person employee of a U.S. person travelling or on temporary assignment abroad" if certain terms and conditions are satisfied. The intention of these revisions would be to improve the exemption's function.
- Licensing Exemptions Consolidation. With the Part 120 consolidation completed, DDTC is turning its attention towards consolidating the ITAR's various exemptions within a single Part to make the ITAR's structure more linear.
- Open General License Concept. DDTC continues to work with the Department of Defense (DoD) and certain close-allied countries (Australia, Canada, the United Kingdom) to implement a new type of authorization to allow exports to such countries through a single open general license rather than by requiring individual licenses.
In addition, DDTC provided statistics on its licensing reviews. In FY 2021, DDTC processed 23,757 licenses with an average processing time of 48 days. DDTC is also working to update the Conventional Arms Transfer Policy, its main policy guidance for evaluating defense trade license applications.
These latest updates provide some key insights into DDTC's current priorities, which most notably reveals an increased focus on enforcement with a higher-than-average number of directed disclosures and suggesting a higher number of consent agreements in 2022 than in previous years. While the risk of a consent agreement from a disclosure has historically been relatively low, the trend of fewer disclosures annually coupled with DDTC pursuing two or more consent agreements per year will naturally somewhat increase that calculation.
DDTC's updates have also provided insight into the latest status of the agency's regulatory priorities and how it is approaching the substantial number of intended regulatory revisions that were made public at the end of 2021. The public should continue to monitor these developments to determine how it might be affected by any of these changes and where it might be able to provide feedback to DDTC by obtaining further clarity or reconsideration of any regulatory change.
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