Aug

28

Miracle on E Street


Posted by at 10:24 pm on August 28, 2013
Category: DDTCPart 129

M1200 Armored Knight source:http://commons.wikimedia.org/wiki/File:M1200ArmoredKnight.jpg [Public Domain]It seems like the Directorate of Defense Trade Controls (“DDTC”) has been working on the amendments to the brokering rules in Part 129 of the International Traffic in Arms Regulations since sometime during the Taft Administration. So when the latest iteration of these rules, oxymoronically labelled as the “Final Interim” Rule, appeared early this week I wearily clicked through to the Federal Register notice, fully prepared to revisit the horror that I had experienced some many times before. But, but, I soon realized that the lengthy gestation of the rules and the numerous rounds of public comment had borne fruit. Although not perfect, this new version fixes a number of the problems that plagued the previous versions.

I will over the next several days review various parts of the new rules, but I want to start with the best news. Cue music for a happy dance: DDTC has finally gotten the jurisdictional scope of the rules right.  As many of you know far too painfully, DDTC had, starting with some improvident remarks made by at least one former staffer at the agency, argued that the brokering rules, even before any proposed amendment, covered foreign persons in foreign lands if a U.S. origin defense article was involved. The earlier versions of the proposed rules made this explicit, covering U.S. persons, all persons in the United States and

any foreign person located outside the United States involving a U.S.-origin defense article or defense service.

The Final Interim rule completely eliminates this last category and, at last, returns to the original intent of the Brokering Amendment to the Arms Export Control Act, the authority for the brokering rules in the first place. As DDTC says in its comments on the Final Interim rule:

In conformance with the statutory requirements for the brokering of defense articles and services, the Department has revised the proposed changes to these definitions to clarify their scope. In particular, the Department has clarified that foreign persons that are required to register as brokers are those that are in the United States and those foreign persons outside the United States that are owned/controlled by a U.S. person. And the Department has removed from the definition of ‘‘brokering activities’’ the activities of any foreign person located outside the United States acting on behalf of a U.S. person.

This is great news and eliminates an enormous headache for exporters that use foreign reps and agents to distribute their defense articles abroad.

The only downside is that this new language makes clear the foreign subsidiaries may have to register, something that had not been required by previous versions of the rule which covered activities “for others” and which some at DDTC had said informally did not cover companies under the same “corporate umbrella,” although some others at the agency have said informally that all foreign subsidiaries were covered if they were involved in the parent company’s sale of defense articles.

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Copyright © 2013 Clif Burns. All Rights Reserved.
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5 Comments:


Cliff, or anyone else… If the foreign subsidiary is reflected on the U.S. parent’s registration with State then wouldn’t that count? Would State really expect, in effect, for the foreign subsidiary to be registered essentially twice? And, I suppose, that foreign parents with US and other foreign subsidiaries might also like an answer from their perspective. Maybe someone could pose this at the next SIA conference and post the response for those of us who can not attend that conference?

Comment by extegral on September 1st, 2013 @ 12:01 pm

Trade publications advised that DDTC representative said not all legal services are covered by the exception. Said that exception for legal services does not include attorneys who advise on how to structure defense sales and who are “writing it up.” Anyone else read those? This really seems to swallow the exception. Obviously bigger issues are with state ethics rules re confidentiality of client files, Congressional intent, etc.

Comment by John on September 2nd, 2013 @ 11:06 am

    I saw that and plan to mention that in my next post. I’m suspecting it will generate a flood of comments by law firms and the Interim Final Final rule or the Final Final Final rule will take care of this problem

    Comment by Clif Burns on September 2nd, 2013 @ 1:55 pm

extegral:

Unless I’m misreading the Interim Final Rule or your question, I believe revised subsection 129.3(d) has the answer for you. A U.S. firm registered as a manufacturer or exporter, as well as the “U.S. or foreign subsidiaries and other affiliates listed” in the firm’s Part 122 registration paperwork, “are not required to submit a separate broker registration.” They just have to be “listed and identified as brokers” in the firm’s Part 122 registration, and meet certain ownership/control thresholds called out in 129.3(d).

Comment by Pat on September 3rd, 2013 @ 11:24 am

Do you still intend to cover the purported extension of brokering to legal services or is no go as an ECR issue?

Comment by John on September 11th, 2013 @ 9:23 am