[Federal Register Volume 71, Number 206 (Wednesday, October 25, 2006)]
[Proposed Rules]
[Pages 62407-62415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17848]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 161

[DoD-2006-OS-0039; 0790-AI04]


DLA Procedures for Eligible Purchasers of Munitions List/Commerce 
Control List Items

AGENCY: Department of Defense.

ACTION: Proposed rule.

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SUMMARY: This proposed rule identifies the Defense Logistics Agency 
(DLA) proposed new procedures for determining the eligibility of 
applicants seeking to obtain excess and surplus United States Munitions 
List (USML) and Commerce Control List (CCL) items from DLA. These new 
procedures will provide greater safeguards to protect national security 
interests before releasing such property into commerce. Applicants who 
do not meet the standards established herein will not be eligible to 
receive USML or CCL property.

DATES: Consideration will be given to all comments received by December 
26, 2006.

ADDRESSES: You may submit comments, identified by docket number and or 
RIN number and title, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Federal Docket Management System Office, 1160 
Defense Pentagon, Washington, DC 20301-1160.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
Federal Register document. The general policy for comments and other 
submissions from members of the public is to make these submissions 
available for public viewing on the Internet at http://www.regulations.gov as they are received without change, including any 
personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Vincent, Defense Logistics 
Agency Criminal Investigations Activity, 8725 John J. Kingman Road, 
Suite 2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-mail 
[email protected].

SUPPLEMENTARY INFORMATION: The use of the Qualified Trading Partner 
(QTP) is intended to limit transfers of USML/CCL to those who have been 
assessed and determined to have the capacity and propensity to properly 
handle, control, and lawfully dispose of or export USML/CCL. The 
process is intended to reduce risk without adversely impacting lawful 
commerce of these items. Use of the QTP application will reduce the 
likelihood that recipients present a risk to misuse the material and 
help ensure the applicants have the capability to properly handle such 
items. Implementation of QTP application criteria will improve the 
assessment process. Where the QTP Application needs to be done only 
once each 5 years, continued use of the EUC allows visibility of each 
transaction and the specific factors associated with just that 
transaction.

Executive Order 12866, ``Regulatory Planning and Review''

    It has been determined that 32 CFR part 161 is not a significant 
regulatory action. The rule does not:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy; a section of the 
economy; productivity; competition; jobs; the environment; public 
health or safety; or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another Agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order.

Unfunded Mandates Reform Act (Sec. 202, Pub. L. 104-4)

    It has been certified that this rule does not contain a Federal 
mandate that may

[[Page 62408]]

result in the expenditure by State, local and tribal governments, in 
aggregate, or by the private sector, of $100 million or more in any one 
year.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    It has been certified that this rule is not subject to the 
Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities. The Defense Logistics Agency (DLA) is instituting 
new procedures for determining the eligibility of recipients when 
transferred United States Munitions List (USML) and Commerce Control 
List (CCL) items. The purpose of these new procedures is to provide 
greater safeguards regarding the release of these items when released 
into commerce by DLA.
    The procedures are intended to reduce the likelihood that USML or 
CCL property are transferred to individuals or organizations that may 
use such items to harm the U.S. or its citizens.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

    Sections 161.1 and 161.5 of this proposed rule contains information 
collection requirements. DoD has submitted the following proposal to 
OMB under the provisions of the Paperwork Reduction Act (44 U.S.C. 
Chapter 35). Comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of DoD, including whether the information will have 
practical utility; (b) the accuracy of the estimate of the burden of 
the proposed information collection; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the information collection on respondents, 
including the use of automated collection techniques or other forms of 
information technology.
    Title: Defense Logistics Agency Qualified Trading Partner (QTP) 
Procedures for Eligible Purchasers of United States Munitions List/
Commerce Control List Items (Application Process).
    Type of Request: New requirement.
    Estimated Annual Number of Respondents: 2,040.
    Responses per Respondent: 1.
    Estimated Total Annual Responses: 2,040.
    Average Burden per Response: 1 hr.
    Annual Burden Hours: 2,040.
    Needs and Uses: The information collection is needed to ensure that 
disposal of excess and surplus personal property is administered in a 
manner consistent with U.S. laws, regulations, and policies governing 
exports and related transfers of technology, goods, services, and 
munitions, as well as with other laws, regulations, and policies 
relating to the disposal of such property.
    Applicants will provide application information in letter format 
addressing the following factors:
    (1) Applicant must demonstrate it operates an established business 
enterprise or provides certification of valid personal use.
    (2) Applicant must establish it is a registered business and/or has 
adequate export management controls in place to preclude improper 
transfers of USML and CCL items.
    (3) Applicant must demonstrate a history of compliance with export 
control laws.
    (4) Applicant does not have a history of acts involving fraud, 
misrepresentation and deception or other serious offenses reflecting 
negatively on the applicants credibility and trustworthiness.
    (5) Applicant does not have a history of acts involving violence, 
terrorist activity, corruption with respect to commercial dealings or 
matters pending before any adjudicative court or tribunal, violation of 
U.S. trade or immigration laws, or other acts contrary to U.S. National 
Security interests.
    (6) Applicant does not have a history of insolvency and/or lack of 
financial capacity adequate to ensure it has the financial means to 
properly manage, control, and oversee the use of export controlled 
property transferred to it by DLA or its contractors.
    (7) Applicant must demonstrate a history of cooperation and 
compliance with contract terms and conditions.
    (8) Applicant must certify it has the legal capability and capacity 
to contract with the U.S. Government to trade USML items.
    Upon receipt of the QTP application, the DLA Trade Security Control 
Assessment Office will ensure the application is complete and will 
conduct a Trade Security Control Assessment. A Trade Security Control 
Assessment is a pre-award assessment made by a U.S. Government agency 
verifying that the destination, end-user, and end-use of controlled DoD 
property conform to export license or end-use certificate requirements. 
The application review will involve a ``risk analysis'' process 
somewhat akin to the manner in which technical proposals in negotiated 
procurements are evaluated.
    Affected Public: Individuals, Households, Business or for Profit 
entities, and not for Profit Institutions.
    Frequency: One Time.
    Respondent's Obligation: To obtain or retain benefits.
    OMB Desk Officer: Ms. Hillary Jaffe.
    Written comments and recommendations on the proposed information 
collection should be sent to Ms. Jaffe at the Office of Management and 
Budget, DoD Desk Officer, Room 10102, New Executive Office Building, 
Washington, DC 20503, with a copy to the DLA POC Mr. Mark Vincent, 
Defense Logistics Agency Criminal Investigations Activity, 8725 John J. 
Kingman Road, Suite 2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-
mail [email protected]. Comments can be received from 30 to 60 
days after the date of this notice, but comments to OMB will be most 
useful if received by OMB within 30 days after the date of this notice.
    You may also submit comments, identified by docket number and 
title, by the following method: Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
    Instructions: All submissions received must include the agency 
name, docket number and title for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet http://www.regulations.gov as they are received without 
change, including any personal identifiers or contact information.
    To request more information on this proposed information collection 
or to obtain a copy of the proposal and associated collection 
instruments, please write to Mr. Mark Vincent, Defense Logistics Agency 
Criminal Investigations Activity, 8725 John J. Kingman Road, Suite 
2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-mail 
[email protected].

Executive Order 13132, ``Federalism''

    It has been certified that this rule does not have federalism 
implications, as set forth in Executive Order 13132. This rule does not 
have substantial direct effects on:
    (1) The States;
    (2) The relationship between the National Government and the 
States; or
    (3) The distribution of power and responsibilities among the 
various levels of Government.

List of Subjects in 32 CFR Part 161

    Munitions.

    Accordingly, 32 CFR chapter I, subchapter G is proposed to be 
amended by adding part 161 to read as follows:

[[Page 62409]]

PART 161--DLA QUALIFIED TRADING PARTNER (QTP) PROCEDURES FOR 
ELIGIBLE PURCHASERS OF UNITED STATES MUNITIONS LIST/COMMERCE 
CONTROL LIST ITEMS

Sec.
161.1 Purpose.
161.2 Scope.
161.3 Background.
161.4 Policy.
161.5 Technical requirements.
161.6 Administrative procedures.
161.7 Appeals.
161.8 Definitions.
161.9 Responsibilities.

    Authority: 40 U.S.C. 101(3).


Sec.  161.1.  Purpose.

    (a) This part sets forth policies and procedures to ensure disposal 
of excess and surplus personal property is administered in a manner 
consistent with U.S. laws, regulations, and policies governing exports 
and related transfers of technology, goods, services, and munitions, as 
well as with other laws, regulations, and policies relating to the 
disposal of such property.
    (b) This part sets forth procedures for determining the eligibility 
of recipients of United States Munitions List (USML) and Commerce 
Control List (CCL) items. These procedures are intended to provide 
greater safeguards and controls regarding the release of these items 
into commerce.
    (c) The criteria for eligibility are intended to limit transfers of 
USML/CCL to those who have been assessed and determined to have the 
capacity to properly handle, control, and lawfully dispose of or export 
USML/CCL without adversely impacting lawful commerce in those items. 
This will reduce the likelihood that recipients present a risk to 
misuse the material and ensure they have the capability to properly 
handle such items. In addition, these procedures will create an 
application and review process to pre-qualify prospective recipients of 
USML/CCL.


Sec.  161.2.  Scope.

    (a) This part sets out policies and procedures for approving 
applications made by individuals, corporations, or other entities 
seeking to purchase excess/surplus personal property designated as USML 
items or CCL items from DLA.
    (b) The use, disposition, export and re-export of this property is 
subject to all applicable U.S. Laws and Regulations, including but not 
limited to the Arms Export Control Act (22 U.S.C. 2751 et seq.); Export 
Administration Act of 1979 (50 U.S.C. App. 2401 et seq.) as continued 
under Executive Order 12924; International Traffic in Arms Regulations 
(ITAR) (22 CFR 120 et seq.); Export Administration Regulations (EAR) 
(15 CFR 730 et seq.); Foreign Assets Control Regulations (31 CFR 500 et 
seq.) and the Espionage Act (18 U.S.C. 793 et seq.).


Sec.  161.3.  Background.

    (a) The DLA and its Commercial Venture (CV) sales contracting 
partner sell surplus property formerly owned by various components of 
the DoD. DLA sells items through contracts awarded by the Defense 
Reutilization and Marketing Service (DRMS) directly to purchasers. Most 
of DRMS' usable property inventory, once it has undergone review by 
other DoD activities, other Federal agencies, and eligible donation 
customers, is sold by DRMS or their CV sales partner.
    (b) The property sold includes USML and CCL items (dual use items--
military, commercial and other strategic uses--including equipment, 
materials, electronics, software and technology). Trade in such items 
is highly regulated under various laws and regulations including the 
ITAR for USML items and under the EAR for CCL items. DoD's surplus 
inventory includes hundreds of thousands of items that may be of 
legitimate use to many thousands of end users. DLA's contractors and 
representatives do not have the resources to become personally familiar 
with the businesses of all the persons and entities to which USML and 
CCL items are sold.


Sec.  161.4  Policy.

    (a) End Use Certificate. In the interest of protecting national 
security and ensuring the DLA is able to maintain an effective and 
compliant export control policy, the DLA and the DRMS require all 
purchasers of USML and CCL property to complete an End Use Certificate 
(EUC). This form requires potential purchasers to explain and certify 
the intended end uses of the specific property acquired in every sales 
transaction involving USML or CCL property.
    (b) Trade Security Controls (TSC) Assessment. Potential purchasers 
must submit certain information to DLA for establishing initial 
eligibility to acquire USML or CCL items from DRMS and its contractors. 
These potential purchasers then undergo a DLA TSC assessment to 
establish their ability to meet the Agency's Qualified Trading Partner 
standards for purchasers of these items, as specified in Sec.  161.5. A 
TSC assessment is a pre-award assessment of the integrity and 
reliability of the prospective recipient made by DLA. The TSC 
assessment also verifies the proposed destination and intended use of 
the property conforms to export license requirements. TSC assessments 
are conducted by the Defense Logistics Agency Criminal Investigations 
Activity, Trade Security Controls Assessment Office located at: 74 N. 
Washington Ave., Room 2-4-30, Battle Creek, MI 49017. Once the DLA 
gives a favorable assessment, these purchasers will be eligible to 
receive USML and CCL items subject to the understanding that future 
EUCs for specific transactions will also be reviewed to ensure 
compliance with export control laws. Additionally, regardless of a 
bidder's status, background, and assessment results, the DLA, DRMS and 
its sales contractor(s) reserve the right to refuse to complete any 
sale or transfer when the purchaser or transferee cannot affirmatively 
establish certain criteria. These include the intended transaction and 
ultimate end use of the property to be transferred is consistent with 
the export control laws of the United States and any third country in 
which the DLA/DRMS and their contractor(s) sell or transfer DoD surplus 
property (i.e., those countries referred to as ``host nations'' under 
many DoD policies and agreements).
    (c) In addition to establishing initial eligibility in accordance 
with the standards specified in these procedures, purchasers must 
continue to meet the criteria specified in Sec.  161.5. The Agency may 
revoke a previously granted Qualified Trading Partner (QTP) status upon 
receipt of any information that would affect the issuance of a QTP 
status under these standards. In such cases, purchasers will be advised 
of the basis for such a determination and advised of their rights in 
accordance with Sec.  161.6 and Sec.  161.7.
    (d) TSC assessments will determine whether an Applicant has been 
``USML Approved;'' ``CCL only;'' or ``CCL conditionally approved.'' The 
same criteria are reviewed with respect to all Applicants seeking to 
buy regulated commodities. There are varying standards depending on the 
status under consideration.
    (e) This part contains the criteria and procedures to be used in 
assessing prospective purchasers of USML/CCL property. The technical 
requirements are contained in Sec.  161.5. The administrative 
procedures are contained in Sec.  161.6. Applicants seeking approval as 
trading partners eligible to receive USML or CCL property under the 
eight criteria (and applicable standards) stated in Sec.  161.5 are 
referred to herein as ``Applicants.'' Once a party has received a 
favorable assessment to acquire USML and/or CCL property, it

[[Page 62410]]

may be considered a ``Qualified Trading Partner.'' This designation is 
valid for 5 years unless terminated or revoked. There is no application 
or qualification fee. These procedures apply to purchasers of property 
sold by DRMS directly or through the DRMS contract with its CV sales 
partner, to persons buying from the CV sales partner.
    (f) Requests for information on the DLA QTP application process 
should be addressed to the Defense Logistics Agency, ATTN: DLA Criminal 
Investigations Activity (DCIA), 8725 John J. Kingman Road, Suite 2358, 
Fort Belvoir, Virginia 22060-6221.


Sec.  161.5.  Technical requirements.

    (a) Criteria. (1) These criteria are intended to address eight 
specific areas of eligibility to purchase USML or CCL property. A QTP 
applicant receiving property from the CV contracting partner will 
submit a properly completed application to the CV contracting partner 
Government Liquidation, LLC, 15051 North Kierland Blvd., Third Floor, 
Scottsdale, AZ 85254-2185, Attn: Jim Cash, Operations Department, Phone 
(480) 609-3280. A QTP applicant receiving property directly from DLA 
will submit a properly completed application to the applicable Sales 
Contracting Officer at 74 N. Washington Ave., Battle Creek, MI 49017, 
Room 2-4-5, Attn: Justin Low, DRMS-NOP, Phone (269) 961-5294. The DLA 
TSC Assessment Office will validate the application complete and then 
conduct the assessment. The application review will involve a ``risk 
analysis'' process. The review will be an overall evaluation of the 
Applicant information with respect to all the criteria. Absent a clear 
inability to meet the eligibility requirements, such as not meeting the 
Item 8 ``legal capacity'' standard, or significant negative information 
regarding the criminal/civil history criteria (e.g., recent significant 
export law violation), the TSC Assessment Office will conduct an 
overall qualitative review of all eight eligibility areas.
    (2) In this procedure, even if there are no absolute disqualifiers 
to granting a favorable assessment, but there are several significant 
risk areas or areas where lack of information provided creates a risk 
in determining whether an Applicant will be able to successfully and 
safely manage export controlled materials, the TSC Assessment Office 
may, in its discretion, determine that QTP status should be denied.
    (b) Areas of eligibility to purchase USML or CCL property.
    (1) Factor 1: Applicant must demonstrate it operates an established 
business enterprise or provide certification of valid personal use. The 
Applicant can demonstrate experience or that it is an established 
business enterprise that engages in the sale of trade of USML or CCL 
items. If an Applicant seeks to buy USML and/or CCL items for its own 
use, it must identify the types of items it will be seeking to obtain 
and establish a legitimate and lawful purpose for its use of same. 
Since USML represents the greatest risk, an applicant who applies for 
and are favorably assessed to acquire USML items i.e., DoD 
Demilitarization Code ``B'' items) will also be considered favorably 
assessed to acquire CCL property. Persons who do not wish to acquire 
USML items, but whose trade involves only CCL or unregulated items, may 
apply for approval to acquire only CCL (or DoD Demil Code ``Q'') 
property and not USML items.
    (2) Factor 2: Applicant must establish it is a registered business 
and/or has adequate export management controls in place to preclude 
improper transfers of USML and CCL items.
    (i) The Applicant must establish that it is registered with the 
Department of State (DoS) Directorate of Defense Trade Controls and has 
an established export management policy or, if DoS registration is not 
required for its particular business, the Applicant can establish that 
it has adequate controls in place to ensure compliance with export 
control laws. Examples of the kinds of controls and compliance programs 
the Agency will be looking for in this process are:
    (A) An organizational structure that describes the Applicant 
defense trade functions and its management and control structures for 
implementing and tracking compliance with U.S. export controls.
    (B) Applicant commitment and policies to comply with and understand 
the ITAR and EAR, as well as the internal controls to make this happen.
    (C) Applicant ability and methodology used to identify, receive and 
track ITAR items and technical data.
    (D) Applicant procedures for obtaining DoS approval for re-export 
or retransfers.
    (E) Applicant procedures for screening carriers, resale customers 
and countries regarding restricted/ prohibited exports and transfers.
    (F) Applicant recordkeeping procedures.
    (G) Applicant internal monitoring program regarding its compliance 
program.
    (H) Evidence of a training program on these issues.
    (ii) If an Applicants business includes trade with other than U.S. 
Government entities, Applicant must establish it has appropriate 
controls in place to ensure its transactions do not result in illegal 
exports or transfers. This can be accomplished by demonstrating 
adequate information collection, screening of transactions to ensure 
transfers are lawful; background checks on its purchasers; purchaser 
certifications, etc. If the Applicant is not registered with the DoS, 
it can still gain approval by establishing that it trades only with 
U.S. Government entities, or its trade occurs in the U.S. and involves 
only transfers to U.S. persons.
    (iii) Applicant must establish it has adequate management controls 
to preclude improper transfers (CCL only transferees). Applicant must 
describe its trade involving CCL items and provide documentation 
establishing that it has effective controls in place to ensure export 
control compliance. This must be demonstrated by restricting its trade 
to domestic transactions not required to be licensed, or through an 
established export management program to ensure compliance with export 
licensing and other export control requirements.
    (3) Factor 3. Applicant must demonstrate a history of compliance 
with export control laws.
    (i) The Applicant (and if organized in any business format, that of 
any principals or officers thereof) does not have a history of 
violating any statutes identified in the ITAR (see 22 CFR 120.27) or 
any export control law or regulation including, but not limited to:
    (A) Section 38 of the Arms Export Control Act (22 U.S.C. 2778);
    (B) Section 11 of the Export Administration Act of 1979 (50 U.S.C. 
app. 2410);
    (C) Sections 793, 794, 798 of title 18 U.S.C. (relating to 
espionage involving defense or classified information);
    (D) Section 16 of the Trading with the Enemy Act (50 U.S.C. 
App.16);
    (E) Section 206 of the International Emergency Economic Powers Act 
(relating to foreign asset controls; 50 U.S.C. 1705);
    (F) Section 30A of the Securities Exchange Act of 1934 (15 U.S.C. 
78dd-1) or section 104 of the Foreign Corrupt Practices Act (15 U.S.C. 
78dd-2);
    (G) Chapter 105 of title 18, United States Code (relating to 
sabotage)
    (H) Section 4(b) of the Internal Security Act of 1950 (relating to 
communication of classified information; 50 U.S.C. 783(b));
    (I) Sections 57, 92, 101, 1094, 222, 224, 225, or 226 of the Atomic 
Energy Act of 1954, 942 U.S.C. 2077, 2122, 2131, 2134, 2272, 2274, 
2275, and 2276;

[[Page 62411]]

    (J) Section 601 of the National Security Act of 1947 (relating to 
intelligence identities protection; 50 U.S.C. 421);
    (K) Section 603(b) or(c) of the Comprehensive Anti-Apartheid Act of 
1986 (22 U.S.C. 5113(b) and (c));
    (L) Section 371 of title 18, United States Code (when it involves 
conspiracy to violate any of the statutes mentioned under factor 3;
    (M) Any other export control, armaments transfer, or related laws 
of United States of any nation in which the U.S. Government generates 
or transfers surplus property;
    (N) Convictions and settlements reflecting conspiracy, attempts, or 
other incomplete acts shall be considered as serious as if the 
underlying offense were completed. A criminal conviction, civil 
judgment or other settlement for an alleged violation of any of the 
statutes, laws and regulations identified in factor 3, will be 
considered conclusive proof of a violation.
    (ii) When considering an Applicants qualifications under this 
criterion, the size and scope of the Applicant business in handling 
USML/CCL items shall be considered and evaluated. A single or minimal 
offense, or one of a non-criminal nature, may not bar qualification if 
found within the history of a large organization conducting significant 
successful trade in such articles. The same offense may, however, be 
disqualifying if found within the history of a firm that has completed 
only a few transactions involving such property, especially if the 
offense suggests a lack adequate controls or experience to preclude 
negligent occurrence of violations.
    (4) Factor 4. Applicant does not have a history of acts involving 
fraud, misrepresentation and deception or other serious offenses 
reflecting negatively on the applicant credibility and trustworthiness. 
The Applicant (and if organized in any business format, that of any 
principals or officers) does not have a history of committing actions 
involving fraud, misrepresentation, falsification or destruction of 
records, collusive bidding or other similar offenses. A criminal 
conviction, civil judgment or other settlement for an alleged violation 
of any factors will be considered conclusive proof of a violation. The 
Agency plans to consider any such acts committed within the last 7 
years. Due to the significant risks involved in trading USML and CCL 
items, offenses occurring more than 7 years ago may be considered on a 
case-by-case basis.
    (5) Factor 5. Applicant does not have a history of acts involving 
violence, terrorist activity, corruption with respect to commercial 
dealings or matters pending before any adjudicative court or tribunal, 
violation of U.S. trade or immigration laws, or other acts contrary to 
U.S. national security interests.
    (i) The Applicant (and if organized in any business format, that of 
any principals or officers) does not have a history of committing 
offenses of the type described in the above standard. These offenses 
include, but are not limited to: Violations of 18 U.S.C. Chapter 113 
relating to terrorist activity; murder; assault with intent to commit 
murder; kidnapping; hostage taking; criminal sexual offenses; 
extortion; crimes against property including robbery, larceny and 
related offenses; sedition, treason, arson, bribery, espionage, 
smuggling; firearms and/or weapons violations; violations of the 
Racketeering, Influence and Corrupt Organizations Act (RICO) or related 
corruption laws, whether State or Federal in nature; offenses related 
to the unlawful possession, use, sale, distribution, purchase, receipt, 
transfer, shipping, transporting, importing exporting, dealing, or 
storing of an explosive device; distribution of, or possession of a 
controlled substance with intent to distribute, or importation thereof. 
A criminal conviction, civil judgment or other settlement for an 
alleged violation of any of the offenses identified in this paragraph 
will be considered conclusive proof of a violation.
    (ii) Individuals who have been adjudicated mentally incompetent, 
involuntarily committed to a mental institution, or have other 
background factors evidencing the potential for harm to self or others 
may likewise be excluded under this standard.
    (6) Factor 6. Applicant does not have a history of insolvency and/
or lack of financial capacity adequate to ensure it has the financial 
means to properly manage, control, and oversee the use of export 
controlled property transferred to it by DLA or its contractors. 
Although there are no absolute standards applicable to a review of 
solvency and financial capacity, the Agency may review resources 
applicable to a consideration of an Applicants solvency or financial 
capability to manage the USML/CCL property transferred to it by 
Government sources. Regardless of any potential ability to post a bond 
or pay for any contemplated purchases of controlled items, DLA has an 
interest in ensuring the Applicants have adequate financial means to 
ensure the physical security of USML and CCL items transferred to them. 
In addition, DLA has an interest in ensuring Applicants have the 
resources to effectively manage, transfer, and oversee the uses of USML 
and CCL items released to their control. Such consideration would 
examine an Applicants financial capability relative to the size and 
scope of its business involving trade in USML or CCL items, or its 
personal solvency and credit worthiness in the case of individuals 
obtaining USML/CCL items for personal use.
    (7) Factor 7. Applicant must demonstrate a history of cooperation 
and compliance with contract terms and conditions. The U.S. Government 
may always consider an Applicants compliance under previous government 
or similar contracts as a matter of establishing the Applicants 
responsibility to receive and perform the contract under consideration. 
The U.S. Government may also consider previous contract compliance when 
evaluating an Applicants technical capability to perform the contract 
under consideration. Due to the sensitive nature of USML/CCL items and 
the on-going regulatory requirements governing the management and 
transfer of such items, the Applicant must demonstrate a satisfactory 
history of compliance with contract terms and conditions.
    (i) The Applicant must establish a history of favorable compliance 
and cooperation regarding changes in demilitarization codes or 
inadvertent releases affecting USML or CCL items obtaining from DRMS or 
the CV sales partner. Both DRMS and CV contracts contain terms 
requiring return of demilitarization-required items or providing 
subsequent transferee information when advised of a demilitarization 
code change or the inadvertent sale of demilitarization required 
property as non-controlled property by DRMS or the CV sales partner. 
Failure to cooperate with the U.S. Government or its contractors, when 
seeking to track or retrieve USML/CCL property deemed likely to present 
risks to national security, may be considered unfavorably under this 
criteria as may attempts to extract significant profits from Government 
officials charged with seeking retrieval of such property. Applicants 
acquiring USML/CCL items under these contracts must appreciate the 
Government's interest in protecting national security and comply with 
those terms now embodied in U.S. Government and CV contracts requiring 
transferees to assist in tracking or return such items upon Government 
request, in return for reimbursement covering their purchase price and 
expenses incurred only,

[[Page 62412]]

without compensation for any expected or anticipatory profits.
    (ii) The Applicant history must reflect cooperation and contract 
compliance with respect to U.S. Government requests for records or 
information regarding subsequent transfers or any matter relating to 
compliance with the ITAR, EAR, and any other export control laws. 
Likewise, if the Applicant has previously acquired USML/CCL property, 
its history must reflect compliance with export control related terms, 
such as those related to properly identifying items as USML/CCL and 
perpetuating information about export control requirements to 
subsequent transferees.
    (8) Factor 8. Applicant must certify it has the legal capability 
and capacity to contract with the U.S. Government to trade USML items.
    (i) The Applicant must establish its status as an individual of at 
least 18 years old and that Applicant, if an individual or business 
operating as a sole proprietorship and all officers or officials of any 
business organized in any other juristic form, are ``U.S. persons'' as 
defined in the ITAR.
    (ii) For Applicants seeking permission to become a trading partner 
for CCL items only, the same requirement applies, except the Agency may 
consider applications involving non-U.S. persons which may be approved 
on a ``Conditional Only'' basis. Although a non-U.S. person may be 
granted a favorable assessment to receive CCL items on a ``conditional 
only'' basis, such a status does not indicate an entitlement to receive 
additional CCL items sold by DRMS or CV partner. Although such status 
may indicate the Government will not review the trading partner's 
situation upon each subsequent sales/transfer request, non-U.S. persons 
should be aware that even a favorable assessment will not mean they are 
entitled to buy all items of CCL property, since the legality of such 
transfers are fact-specific. The Government will review the purchaser's 
application carefully to determine the appropriateness of any sale on a 
case-by-case basis.
    (iii) In addition, to be eligible under this factor the Applicant 
must not appear on the General Services Administration (GSA) Excluded 
Parties List, on any Directorate of Defense Trade Controls or 
Department of Commerce, Bureau of Industry and Security lists of 
entities banned from trade in USML or CCL items, nor can the individual 
or firm be in a prohibited area under the Office of Foreign Assets 
Control Regulations (OFAC) regulations.


Sec.  161.6.  Administrative procedures.

    (a) Application process. (1) Request for approval. The Applicant 
will submit a letter to the Sales Contracting Officer (SCO) requesting 
approval as a trading partner for USML or CCL items only (as 
appropriate to Applicants intent). This letter will provide sufficient 
detail to allow the Agency to review its background and conduct 
relevant research regarding the criteria specified in Sec.  161.5, as 
well as an EUC regarding the specific or immediate sales transaction in 
question to the SCO. If access to a particular type of information, 
such as bankruptcy or financial records, requires an authorization or 
approval, the Applicant agrees to furnish such consent upon request by 
the Agency. Applicants are encouraged to submit complete information, 
including existing DoS registrations, other business licenses, and 
evidence of experience in the defense article trade. Applicants are 
responsible for notifying the SCO when there are changes to their 
registrations, business operation or ownership, or business location.
    (2) Application review process. The TSC Assessment Office will 
ensure the application is complete before conducting the TSC 
Assessment. Applicants bear the burden of providing sufficient 
information to establish that they meet the review criteria. Failure to 
do so may result in the return of an application (without action) until 
access to the requested information is provided and the information 
reviewed. An application will not be deemed submitted or pending 
relevant information pertaining to all the criteria addressed in Sec.  
161.5 have been received by the TSC Assessment Office.
    (3) Application assessment process. The review will be an overall 
consideration of the Applicants information with respect to all the 
criteria, absent a clear inability to meet the eligibility 
requirements, such as not meeting the factor 8 ``legal capacity'' 
standard (see Sec.  161.5(b)(8)), or significant negative information 
regarding the criminal/civil history criteria (e.g., recent significant 
export law violation). In this procedure, even if there are no absolute 
disqualifiers to granting a favorable assessment, but there are several 
significant risk areas or areas where lack of information provided 
creates a risk in determining whether an Applicant will be able to 
successfully and safely manage export controlled materials, the TSC 
Assessment office may, in its discretion, determine that the QTP status 
should be denied.
    (b) Notification to applicant. (1) Upon completion of the TSC 
assessment, the DLA will notify the Applicant on whether it has been 
granted QTP status. If QTP status is denied, the Agency will issue a 
denial notice to the Applicant along with a copy to the SCO. The 
Applicant must wait at least 90 days from the date of the notice before 
reapplying.
    (2) Issuance of denial notice includes:
    (i) A statement that DLA has determined the individual/business was 
not favorably assessed and is denied QTP status;
    (ii) The basis for the denial determination; and
    (iii) Information about the correction of records and appeal 
process.
    (3) Rejection of an application is not a permanent rejection. For 
example, an Applicant that is disapproved because it lacked sufficient 
experience with USML items may be able to reapply and show it has taken 
affirmative action in the business or otherwise resolved deficient 
aspects of its initial application.
    (c) Revoking previously granted QTP status. (1) If the DLA receives 
information that would merit removal of QTP status, the Agency will 
immediately suspend QTP status and send the QTP a Notice of 
Contemplated Removal, citing specific reasons for the proposed removal. 
The QTP will have 15 business days from the date of the letter to 
respond. Failure of the QTP to respond to the Notice of Contemplated 
Removal within the 15 day period will result in immediate revocation of 
QTP status. If the purchaser responds to the Notice within the 15 day 
period, the DLA will evaluate the response, including proposed 
corrective action, if any, and will determine whether revocation of QTP 
status, retention of QTP status, or further action, applies.
    (2) If an individual's QTP status is removed, there is specified 
time limit for such removal. The removal period will be based on the 
time necessary to document those changes necessary to correct the 
problem(s) resulting in removal. If an individual's QTP status is 
removed, once corrective actions have been taken to remedy the reasons 
for removal, the individual may reapply for QTP status. A new letter 
requesting QTP status must be filed, together with information 
indicating the deficiencies resulting in the removal have been 
corrected. If the DLA has removed QTP status, notice of such removal 
and the reasons for it may be given to other interested Government 
activities.


Sec.  161.7  Appeals.

    (a) Scope. (1) This part applies to applicants who either have had 
their

[[Page 62413]]

previously granted QTP status revoked or who have been issued an 
initial Denial notice, concluding that they do not meet the standards 
for QTP status, and who wish to appeal the decision.
    (2) [Reserved]
    (b) Denials and revocations. (1) Applicants whose requests for an 
approved QTP status are denied or whose previously approved QTP status 
has been revoked will be advised in writing of the Denial or 
Revocation. The written Denial or Revocation will state the reasons for 
the Denial or Revocation and the facts relied on in determining that 
the Applicant does not meet the requirements for QTP status.
    (2) [Reserved]
    (c) Appeals. (1) An Applicant whose request for an approved QTP 
status is denied or previously approved QTP status has been revoked may 
file an appeal of the Denial or Revocation. A written appeal must be 
filed directed to: Defense Logistics Agency, ATTN: DLA Criminal 
Investigations Activity (DCIA), 8725 John Kingman Road, Suite 2358, 
Fort Belvoir, Virginia 22060-6221. To be timely, an Appeal must be 
received within 30 days after receipt of the Denial or Revocation. The 
Denial or Revocation will be considered to be received when delivered 
or within 10 days after mailing the Notice to the last known street 
address if undeliverable or delivery is refused.
    (2) DLA will appoint an Administrative Review Official (ARO) to 
consider the Appeal when received. The ARO will be at a minimum, either 
an individual at the GS-15 (civilian) or O-6 (military) level who was 
not involved in the Denial or the Revocation.
    (3) In its written appeal, the Appellant must demonstrate that it 
meets the standards of the authorization for which it is applying in 
Sec.  161.5, providing information and argument in support thereof. In 
addition to any information and argument in opposition to the Denial or 
Revocation, the Appeal must identify any specific facts or statements 
contained in the Denial or Revocation which it disputes and identify 
specific facts that contradict the identified disputed facts.
    (4) The Appellant will be afforded the opportunity to present 
information and argument to the ARO and to request a hearing to present 
information or argument either in person or by teleconference. The 
Appeal proceedings under this section will be conducted in a fair and 
informal manner. The ARO may use flexible procedures to allow an 
Appellant to present matters in opposition and in so doing is not 
required to follow formal rules of evidence or procedure in creating an 
Official Record upon which the ARO will base the decision to grant QTP 
status to an Appellant.
    (5) The ARO will provide the Appellant with any documents relied on 
in making the Revocation or Denial, subject to any restrictions on the 
release of the information provided by other agencies or other 
necessary restrictions on the release of the documents, when requested. 
The Appellant must present any documentary evidence it wants considered 
to the ARO prior to the close of the Official Record.
    (6) If an Appellant's presentation raises a genuine dispute over 
facts material to the determinations made in a Denial or Revocation, 
the ARO must conduct additional fact finding to resolve those facts. 
Generally, a conviction of a criminal offense which was a material fact 
in the determination of the Denial or Revocation is not subject to 
dispute and will not require the conduct of additional fact finding.
    (7) If fact finding is conducted, the Appellant and the Agency may 
present witnesses and other evidence and confront any witness presented 
by the other party and written findings of fact must be prepared for 
the record. A transcribed record of fact finding procedures must be 
made, unless both the Appellant and the Agency agree to waive it in 
advance. If either party wants a copy of the transcribed record, they 
may purchase it. The ARO may refer disputed material facts to another 
official for findings of fact. The ARO may reject any resultant 
findings, in whole or in part, only after specifically determining them 
to be arbitrary, capricious, or clearly erroneous.
    (8) The ARO will make a determination on the Appellant's 
eligibility for QTP status based on all the information contained in 
the Official Record. The Official Record includes:
    (i) The Notice of Denial or Notice of Revocation and all material 
relied on their issuance, along with all information submitted to the 
Reviewing Official in support of the Denial or Revocation.
    (ii) Any information or argument presented by the appellant under 
these procedures in opposition to the Revocation or Denial.
    (iii) Any transcribed record of fact finding.
    (9) In any appeal under this section, the Agency must establish the 
cause for a Denial or Revocation by a preponderance of the evidence.
    (10) In any appeal under this section, the Agency has the burden to 
prove that a cause for a Denial or Revocation exists.
    (11) The ARO must make a written decision on an Appeal under this 
part within 45 days of closing the Official Record. The Official Record 
closes when the Reviewing Official receives final submissions and 
information and findings of fact, if any. The Reviewing Official may 
extend this period for good cause.


Sec.  161.8  Definitions.

    (a) Affiliate. Persons are affiliates of each other if, directly or 
indirectly, either one controls or has the power to control the other 
or a third person controls or has the power to control both. The ways 
used to determine control include, but are not limited to:
    (1) Interlocking management or ownership.
    (2) Identity of interests among family members.
    (3) Shared facilities and equipment.
    (4) Common use of employees.
    (b) Civil judgment. The disposition of a civil action by any court 
of competent jurisdiction, whether by verdict, decision, settlement, 
stipulation, other disposition which creates a civil liability for the 
complained of wrongful acts, or a final determination of liability 
under the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-
3812). Conviction is defined as follows:
    (1) A judgment or any other determination of guilt of a criminal 
offense by any court of competent jurisdiction, whether entered upon a 
verdict or plea, including a plea of nolo contendere; or
    (2) Any other resolution that is the functional equivalent of a 
judgment, including probation before judgment and deferred prosecution. 
A disposition without the participation of the court is the functional 
equivalent of a judgment only if it includes an admission of guilt.
    (c) Commerce Control List (CCL) (formerly known as Strategic List 
Item). Commodities and associated technical data (including software) 
subject to export controls under the EAR. The EAR contains the CCL and 
is administered by the BIS, Department of Commerce.
    (d) Demilitarization code. A single-character code indicating 
``USML'' or ``CCL'' and the degree of demilitarization necessary (if 
any) or TSCs (if any) before release from DoD control.
    (e) DoD excess and surplus personal property. DoD excess personal 
property is property other than real property not needed by any DoD 
activity, whether located inside or outside the United States. DoD 
surplus personal property is property not needed by any Federal 
activity. DoD foreign excess personal property (FEPP) is property 
located

[[Page 62414]]

outside the United States, American Samoa, Guam, Puerto Rico, Palau, or 
the U.S. Virgin Islands. The term ``excess property'' includes FEPP. 
Foreign Military Sales, Military Assistance Program, or Grant Aid 
Program excess personal property transferred by the DoD to a foreign 
government that becomes excess to that government.
    (f) End-use certificate (EUC). A DLA Form 1822 prepared by 
prospective recipients of USML or CCL property which provides 
identifying information, sales terms, acknowledgment of export 
licensing requirements, and a statement indicating the intended 
destination and disposition of the property.
    (g) Export. The transfer of a controlled USML or CCL Item out of 
the United States in any manner. Transfer of an USML or CCL Item in the 
United States to a non-U.S. person may also be deemed an export in 
certain circumstances.
    (h) Indictment (for a criminal offense). A presentment, information 
or other filing by a competent authority charging a criminal offense 
shall be given the same effect as an indictment.
    (i) Preponderance of the evidence. Proof by information that, 
compared with information opposing it, leads to the conclusion that the 
fact at issue is more probably true than not.
    (j) Principal. An officer, director, owner, partner, investor or 
other person within an organization with management or supervisory 
responsibilities related to the transaction in question.
    (k) Trade Security Controls (TSC). The controls on export, import 
and demilitarization of personal property established by 22 U.S.C. 
2778, 22 CFR parts 120-130, ``International Traffic in Arms 
Regulations'' (ITAR), 50 U.S.C. Chapter 35, 15 CFR parts 730-799, 
``Export Administration Regulations'' (EAR), 31 CFR parts 500-598, 
``Office of Foreign Assets Control Regulations'' (OFAC)) and any 
similar controls established by the Department of Homeland Security.
    (l) TSC assessment. A pre-award assessment of the integrity and 
reliability of the prospective recipient made by DLA. The TSC 
assessment also verifies that the proposed destination and intended use 
of the property conforms to export license requirements.
    (m) TSC measures. Measures designed to preclude the improper or 
unauthorized transfer of USML or CCL items, to any entity (i.e., 
person, organization or country) whose interests are unfriendly or 
hostile to the United States. These measures shall also be applied to 
other selected entities as designated by the Under Secretary of Defense 
(USD(P)).
    (n) Transfer. The sale, lease, loan, grant, exchange, trade, 
barter, release, or donation of property from DoD to another person or 
entity other than an agency of the United States Government.
    (o) United States Munitions List (USML) personal property. Defense 
articles, associated technical data (including software), and defense 
services recorded or stored in any physical form, controlled by the 
ITAR. The ITAR, which contains the U.S. Munitions List, is administered 
by the Directorate of Defense Trade Controls, DOS.


Sec.  161.9  Responsibilities.

    The following authorities apply to this part:
    (a) Federal Property and Administrative Services Act, as amended, 
40 U.S.C. 101(3) \1\
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    \1\ Information on the Federal Property and Administrative 
Services Act can be found on the Internet at URL http://uscode.house.gov/download/title_40.shtml or http://epw.senate.gov/fpasa49.pdf.
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    (1) Sec. 101. [40 U.S.C. 751] General Services Administration. The 
Administrator shall have authority to prescribe regulations to carry 
out this Act.
    (2) Sec. 203. [40 U.S.C. 484] Disposal of Surplus Property.
    (i) Except as otherwise provided in this section, the Administrator 
shall have supervision and direction over the disposition of surplus 
property. Such property shall be disposed of to such extent, at such 
time, in such areas, by such agencies, at such terms and conditions, 
and in such manner, as may be prescribed in or pursuant to this Act.
    (ii) The care and handling of surplus property, pending its 
disposition, and the disposal of surplus property, may be performed by 
the GSA or, when so determined by the Administrator, by the executive 
agency in possession thereof or by any other executive agency 
consenting thereto.
    (iii) Any executive agency designated or authorized by the 
Administrator to dispose of surplus property may do so by sale, 
exchange, lease, permit, or transfer, for cash, credit, or other 
property, with or without warranty, and upon such other terms and 
conditions as the Administrator deems proper, and it may execute such 
documents for the transfer of title or other interest in property and 
take such other action as it deems necessary or proper to dispose of 
such property under the provisions of this title.
    (b) DoD Directive 4140.1, ``Supply Chain Materiel Management 
Policy,'' April 22, 2004.\2\
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    \2\ Information on the DoDD 4140.1, can be found on the Internet 
at URL http://www.dtic.mil/whs/directives/corres/html/41401.htm.
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    (1) The Under Secretary of Defense for Acquisition, Technology, and 
Logistics shall:
    (i) Develop DoD materiel management policies and ensure 
implementation in a uniform manner throughout the Department of 
Defense.
    (ii) Develop and maintain DoD Materiel Management issuances to 
implement the policies contained in this Directive.
    (iii) Monitor the overall effectiveness and efficiency of the DoD 
logistics system, and continually develop improvements.
    (2) The Heads of the DoD Components shall implement the policies 
and procedures in this Directive and all supporting DoD issuances.
    (c) DoD 4140.1-R, ``DoD Supply Chain Material Management 
Regulation,'' May 23, 2003.\3\
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    \3\ Additional information on the DoD 4140.1-R is available on 
the Internet at URL http://www.dtic.mil/whs/directives/corres/html/41401r.htm.
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    (1) The Director, DLA, shall administer the Defense Material 
Disposition Program including reutilization, transfer, donation, sales, 
loans, gifts, hazardous property disposal, precious metals recovery 
program, demilitarization, and trade security controls.
    (2) [Reserved]
    (d) DoD 4160.21-M, ``Defense Materiel Disposition Manual,'' August 
19, 1997.\4\
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    \4\ To download additional information on the DoD 4160.21-M from 
the Internet go to URL http://www.dtic.mil/whs/directives/corres/html/416021m.htm.
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    (1) The Federal Property and Administrative Services Act assigned 
the responsibility for the supervision and direction over the 
disposition of excess and surplus property to the Administrator of 
General Services. The Act further assigned the responsibility for 
supervision and direction over the disposition of DoD FEPP to the 
Secretary of Defense.
    (2) The Administrator of General Services delegated to the 
Secretary of Defense the responsibility for the sale and final 
disposition of surplus personal property which the Administrator 
determines is not needed for transfer as excess to other Federal 
agencies or for donation as surplus to authorized donees. The Secretary 
of Defense also has the responsibility, under the ``Act,'' for internal 
screening and redistribution of DoD property among the services and

[[Page 62415]]

defense agencies and for reporting such property as excess to the 
General Services Administration (GSA).
    (3) The Secretary of Defense has assigned to the Director, Defense 
Logistics Agency (DLA), responsibility for the administration of the 
Defense Materiel Disposition Program, to include the PMRP and the 
Defense Demilitarization Program.
    (e) DoD Instruction 2030.08, ``Implementation of Trade Security 
Controls (TSC) for Transfers of DoD U.S. Munitions List (USML) and 
Commerce Control List (CCL) Personal Property to Parties Outside DoD 
Control,'' May 23, 2006.\5\ The Under Secretary of Defense for 
Acquisition, Technology, and Logistics shall:
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    \5\ To download additional information on the DoDI 2030.08, 
reference URL http://www.dtic.mil/whs/directives/corres/html/203008.htm.
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    (1) Provide for the establishment of supplemental procedures and 
TSC measures needed to implement this Instruction for dispositions of 
DoD USML and CCL personal property under DoD Directive 4140.01.
    (2) Direct the Director of the Defense Logistics Agency (DLA) to:
    (i) Provide assistance to the DoD Components, according to this 
Instruction, DoD 5105.38-M, ``Security Assistance Management Manual,'' 
October 3, 2003, and DoD 4140.01-R, in cases where they dispose of or 
transfer personal property to parties outside DoD control. In such 
cases, DoD Components remain ultimately responsible to ensure their 
subordinate elements comply with this Instruction.
    (ii) Develop and implement a TSC Enforcement and Investigative 
Program within DLA.
    (iii) Ensure all dispositions of DoD USML and CCL personal property 
under DLA's control are executed according to this Instruction.
    (iv) Provide oversight of the Demilitarization Program, according 
to DoD 4160.21-M-1, ``Defense Demilitarization Manual,'' October 1991. 
Ensure that DoD Components are provided the necessary instructions to 
demilitarize all USML personal property properly before disposition to 
prevent unauthorized use and/or potential compromise of U.S. national 
security, except as otherwise permitted by law, regulation, and/or 
policy.

    Dated: October 19, 2006.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. E6-17848 Filed 10-24-06; 8:45 am]
BILLING CODE 5001-06-P