May 26, 2015

DDTC Publishes Proposed Changes to Registration and Licensing of U.S. Persons Providing Defense Services to Non-U.S. Persons

by Gwen Green

subscribe icon write signOn May 26, 2015, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) published a proposed rule to amend the International Traffic in Arms Regulations (“ITAR”) to clarify requirements for the registration and licensing of U.S. persons providing defense services while employed by non-U.S. employers.

The proposed rule would require U.S. “natural persons”, who furnish defense services to and/or on behalf of their non-U.S. employer, whether in the United States or abroad, to register with the Directorate of Defense Trade Controls (“DDTC”), unless their non-U.S. employer is an ITAR-registered entity or is listed on the ITAR registration statement of a U.S. parent or other U.S.-affiliate entity.  In the proposed rule, the term “natural person” is defined as an individual human being, as distinguished from a corporation, business association, partnership, society, trust, or any other entity, organization or group.

Barring an exemption, the proposed rule would require U.S. natural persons to obtain a DSP-5 license to provide defense services to a non-U.S. person, or otherwise be employed by a non-U.S. affiliate or subsidiary of a U.S. ITAR-registrant that has a valid manufacturing license agreement(s) (“MLA”) or technical assistance agreement(s) (“TAA”) in place where the  U.S. ITAR-registrant can demonstrate its ability to ensure ITAR compliance by the U.S. natural person.  U.S. natural persons  may qualify for an license exemption if: (i) employed by a non-U.S. person in a North Atlantic Treaty Organization (“NATO”) or European Union member country, Australia, Japan, New Zealand and/or Switzerland and are providing defense services exclusively in these counties, or (ii) working in support of an active Foreign Military Sales (“FMS”) contract.

The proposed  rule is a continuation of the President’s Export Control Reform initiative to streamline and add clarity to the nation’s export control policies. If adopted, non-U.S. companies and their U.S. person employees may face significant compliance challenges.  Non-U.S. companies, as well as their U.S. person employees, would need to evaluate whether their business activities constitute controlled defense services and determine whether additional registrations and authorizations are required.