[Federal Register Volume 76, Number 94 (Monday, May 16, 2011)]
[Rules and Regulations]
[Pages 28174-28178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11697]
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DEPARTMENT OF STATE
22 CFR Parts 120, 124, and 126
RIN 1400-AC68
[Public Notice: 7428]
International Traffic in Arms Regulations: Dual Nationals and
Third-Country Nationals Employed by End-Users
AGENCY: Department of State.
ACTION: Final rule.
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SUMMARY: The Department of State is amending the International Traffic
in Arms Regulations (ITAR) to establish a policy to address those who
are unable to implement the exemption for intra-company, intra-
organization, and intra-government transfers of defense articles and
defense services by approved end-users to dual national and third-
country nationals who are employees of such approved end-users. Prior
to making transfers to certain dual national and third-country national
employees under this policy, approved end-users must screen employees,
make an affirmative decision to allow access, and maintain records of
screening procedures to prevent diversion of ITAR-controlled technology
for purposes other than those authorized by the applicable export
license or other authorization.
DATES: Effective Date: This rule is effective August 15, 2011.
FOR FURTHER INFORMATION CONTACT: Director Charles B. Shotwell, Office
of Defense Trade Controls Policy, Department of State, Telephone (202)
663-2792 or Fax (202) 261-8199; E-mail DDTCResponseTeam@state.gov.
ATTN: Regulatory Change, Dual and Third-Country Nationals.
SUPPLEMENTARY INFORMATION: This is part of the President's Export
Control Reform effort. The Department of State is amending parts 124
and 126 of the ITAR to reflect new policy regarding end-user employment
of dual nationals and third-country nationals.
As a part of the President's Task Force on Export Control Reform,
the previous policy regarding the treatment of dual nationals and
third-country nationals employed by approved end users was re-
evaluated. A proposed rule to
[[Page 28175]]
eliminate the separate licensing requirement for dual nationals and
third-country nationals employed by licensed end-users was presented
for public comment. The proposed rule had a comment period ending
September 10, 2010. Thirty-two (32) parties filed comments recommending
changes. Having thoroughly reviewed and evaluated the comments and the
recommended changes, the Department has determined that it will, and
hereby does, adopt the proposed rule, with changes noted and minor
edits, and promulgates it as a final rule. The Department's evaluation
of the written comments and recommendations follows.
Comment Analysis
The overwhelming majority of commenting parties expressed
dissatisfaction with the current rule regarding dual and third-country
nationals, citing conflicts with foreign human rights laws as well as
the burden of compliance, and welcomed the Directorate of Defense Trade
Controls' (DDTC) efforts to reform current practice. One commenting
party asserted that the ``tremendous administrative burden'' imposed on
foreign end-users is exaggerated. By contrast, six inputs, including
one from a group representing 21 nations, agreed with the assessment
that current rules impose a large administrative burden, such as
separate accounting and licensing of foreign nationals. Four commenting
parties, including a major U.S. industry association, pointed out that
the current rule is an extensive administrative burden for U.S.
manufacturers and exporters, not just foreign end-users, and places
U.S. companies at a disadvantage with foreign competitors.
One commenting party recommended adding language to Sec. 126.18(a)
to make clear that the exemption applies ``notwithstanding any other
provisions of this Part'' to make clear that the limitations of the
last sentence of Sec. 126.1(a), which would have conflicted with the
intent of the proposed rule, did not apply. DDTC agreed and adopted
this change.
One commenting party argued that the current nationality (or place
of birth) standard should stay in place, citing recent prosecutions of
Chi Mak, Greg Chung, and Noshir Gowadia. We note that all three cases
involve naturalized U.S. citizens, whose prosecutions would not have
been affected by the proposed rule. It should also be pointed out that
even if the proposed rule had applied to them, all three would have
failed the substantive contacts test and, thus, could not have received
the defense articles at issue under the exemption.
Another commenting party criticized the concept of ``substantive
contacts'' in favor of clarifying the definition of ``non-U.S.'' person
or foreign person. We note that the current definition of foreign
person in Sec. 120.16 is consistent with both U.S. law and usage in
the proposed rule. Therefore, we find no need to change the definition
of foreign person and do not adopt the recommendation.
One commenting party, a large U.S. aerospace firm, argued that DDTC
should return to its pre-1999 rules, where there was no additional
licensing requirement for dual nationals or third-country nationals
working for authorized end-users. This option was explored early on in
the development of this proposed rule, but DDTC chose not to pursue
that option any further due to policy implications outside of the
Department of State.
Ten commenting parties recommended that the exemption proposed in
Sec. 126.18 be expanded to include ``defense services.'' The current
proposal was limited to ``defense articles,'' which by the definition
in Sec. 120.6 includes technical data. We note that the rule was
intended to address concerns about restrictions on dual national and
third-country national employees of licensed end-users and consignees
who would have access to defense articles, which, as noted above,
includes technical data per Sec. 120.6, within the scope of their
employment. The intent of the rule was to create a policy for such
transfers in a manner that would prevent diversions of such articles to
unauthorized end-users. Thus, the proposed rule was limited to use of
the defense article within a company and within the scope of the
license in question. Defense services, on the other hand, cannot be
``transferred'' within a company in the manner in which defense
articles can. Rather, defense services are rendered to specific end-
users identified in the license or other authorization. As such, the
defense services are rendered to the named company rather than the
individual employees. In any event, if the contemplated defense service
involves defense articles already licensed to the company, the proposed
exemption would generally cover dual and third-country national
employees receiving the defense service. We deem it neither necessary
nor prudent to specifically add defense services to this rule and thus
do not adopt the recommendation.
One commenting party asserted that there was uncertainty regarding
whether the exemption applied to academic institutions. This proposed
rule is an incremental change in favor of foreign business entities,
foreign governmental entities, and international organizations,
recognizing internal incentives for the protection of export controlled
articles and data. The Department of State is not prepared to extend
the exemption to academic institutions at the present time.
Ten commenting parties recommended that the current Sec. 124.16
not be removed. That provision allows for a limited exception for
access to unclassified defense articles exported in furtherance of or
produced as a result of a Technical Assistance Agreement/Manufacturing
License Agreement, retransfer of technical data and defense services to
dual national and third-country national employees of licensed
signatories that are nationals exclusively of NATO member states, EU
member states, Australia, Japan, New Zealand, or Switzerland. A major
concern was that the proposed rule, unlike Sec. 124.16, did not
include approved sub-licensees. After careful consideration, we
concurred with the recommendation to retain Sec. 124.16 and have
amended the section to include workers who have long term employment
relationships with licensed end-users, per a new definition to
``regular employee'' added in part 120.
One foreign governmental commenting party observed that there is a
need to expand the exemption beyond the physical territories of the
governmental end-user or international organization. For example, such
would be required to facilitate repair of a disabled aircraft overseas.
This change was adopted subject to a requirement that such operations
are in the conduct of official business by the government or
international organization and provided such activities are within the
scope of the license.
Nine commenting parties recommended the proposed rule apply to
contract employees, not just ``bona fide, regular employees.'' The
intent of the proposed rule was to recognize vested interests within
companies, international organizations, and foreign governmental
entities to carefully screen employees for purposes of trustworthiness.
Full-time employment meets that criterion as it indicates a higher
level of scrutiny and represents a long-term relationship with the
entity at issue, as opposed to the transactional, temporary nature of
the contractual arrangement. Furthermore, companies, international
organizations, and foreign governmental entities bear significantly
more legal responsibility for the acts of their regular employees than
they do for
[[Page 28176]]
the acts of contactors. However, DDTC is prepared to narrowly extend
this policy to workers who have long term employment relationships with
licensed end-users, per a new definition to ``regular employee'' added
in part 120.
Several commenting parties recommended clarification of the meaning
of ``substantive contacts.'' Many of the requests for clarification
center around specific areas discussed below. One commenting party
expressed concern that any employee with a family member in a
proscribed country would automatically be disqualified. It is not
DDTC's intent to deny access based solely upon relationships or
contacts with family members in a context posing no risk of diversion.
We note that contacts with government officials and agents of
governments of Sec. 126.1(a) countries, be they family or not, would
require higher scrutiny.
Another commenting party expressed concern that any personal or
business travel to a country listed in Sec. 126.1 would disqualify
that person from access to a defense article. The intent of the
proposed rule is not to automatically disqualify a person on the basis
of such travel, where the travel does not involve contacts with foreign
agents or proxies likely to lead to diversion of controlled data or
articles. Instead, full disclosure about travel is required, which
would be the basis of an assessment of diversion risk on a case-by-case
basis.
One commenting party objected to the limitation of the exemption to
the country where the end-user is located, pointing out that
international organizations operate in more than one country. We note
that licenses for international organization end-users will specify the
location(s) and country(ies) where the end-item will be utilized.
Therefore, DDTC believes that transfers to locations (and end-users)
within the scope of the license poses no problems. Any contemplated
transfers beyond the authorized and licensed location(s) will require
an additional license (or an amendment to an existing license), and is
a prudent limitation on the rule. This rule is not intended to
authorize unlimited transfers around the world for end-users with
nominal connections throughout the globe.
One commenting party recommended that the requirement for screening
not apply to citizens (including dual nationals) and permanent
residents of the host country. This approach would exclude from
screening a large group of individuals who continue to maintain
affiliation by citizenship with a third country (i.e., different than
that of the authorized end-user). Though we agree that citizens who
relinquish citizenship of the former country would not require
screening, the nature of continuing relationships with the third
country for those maintaining citizenship remains relevant, especially
if the country is subject to restrictions in Sec. 126.1. In any event,
this rule does not present foreign citizenship alone as a bar to access
to ITAR controlled defense articles.
Several commenting parties recommended clarification of whether the
proposed rule would apply to both classified and unclassified data. In
the absence of explicit inclusion, this rule will not apply to
classified data. The word ``unclassified'' was added to the first
sentence in Sec. 126.18(a) as a qualifier to make the point clearer.
We note that the release of classified data to foreign persons is
governed by separate National Disclosure directives and policies. To be
clear, this rule is not a grant of a separate authority for the
transfer of classified information.
Several commenting parties expressed concern about the record-
keeping requirements, especially where local privacy laws may apply. We
note that the records in question are intended for use by DDTC, a
governmental entity for governmental use and not for public release.
DDTC's function in this capacity is analogous to the exchange of
information with cross-border law enforcement agencies that regularly
receive and have a similar obligation to protect information subject to
privacy laws.
Regulatory Analysis and Notices
Administrative Procedure Act
The Department of State is of the opinion that restricting defense
article exports is a foreign affairs function of the United States
Government and that rules implementing this function are exempt from
Sec. 553 (Rulemaking) and Sec. 554 (Adjudications) of the
Administrative Procedure Act. Although the Department is of the opinion
that this rule is exempt from the rulemaking provisions of the APA, the
Department published this rule with a 60-day provision for public
comment and without prejudice to its determination that restricting
defense article exports is a foreign affairs function.
Regulatory Flexibility Act
Since this amendment is not subject to the provisions of 5 U.S.C.
Sec. 553(b), it does not require analysis under the Regulatory
Flexibility Act.
Unfunded Mandates Reform Act of 1995
This amendment does not involve a mandate that will result in the
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any year and it
will not significantly or uniquely affect small governments. Therefore,
no actions were deemed necessary under the provisions of the Unfunded
Mandates Reform Act of 1995.
Small Business Regulatory Enforcement Fairness Act of 1996
This amendment has been found not to be a major rule within the
meaning of the Small Business Regulatory Enforcement Fairness Act of
1996.
Executive Orders 12372 and 13132
This amendment will not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 13132, it is determined that this amendment does not have
sufficient federalism implications to require consultations or warrant
the preparation of a federalism summary impact statement. The
regulations implementing Executive Order 12372 regarding
intergovernmental consultation on Federal programs and activities do
not apply to this amendment.
Executive Order 12866
The Department of State does not consider this rule to be a
``significant regulatory action'' under Executive Order 12866, section
3(f), Regulatory Planning and Review. The Department is of the opinion
that restricting defense articles exports is a foreign affairs function
of the United States Government and that rules governing the conduct of
this function are exempt from the requirements of Executive Order
12866.
Executive Order 13563
The Department of State has considered this rule in light of
Section 1(b) of Executive Order 13563, dated January 18, 2011, and
affirms that this regulation is consistent with the guidance therein.
Executive Order 12988
The Department of State has reviewed the proposed amendment in
light of sections 3(a) and 3(b)(2) of Executive Order 12988 to
eliminate ambiguity, minimize litigation, establish clear legal
standards, and reduce burden.
[[Page 28177]]
Executive Order 13175
The Department of State has determined that this rulemaking will
not have tribal implications, will not impose substantial direct
compliance costs on Indian tribal governments, and will not pre-empt
tribal law. Accordingly, the requirement of Section 5 of Executive
Order 13175 does not apply to this rulemaking.
Paperwork Reduction Act
The Department of State is of the opinion that this rule does not
impose any new reporting or recordkeeping requirements subject to the
Paperwork Reduction Act, 44 U.S.C. Chapter 35, but will provide a
separate Federal Register notification regarding such requirements.
List of Subjects in 22 CFR Parts 120, 124, and 126
Arms and munitions, Exports.
Accordingly, for the reasons set forth above, Title 22, Chapter I,
Subchapter M, parts 120, 124, and 126 are amended as follows:
PART 120--PURPOSE AND DEFINITIONS
0
1. The authority citation for part 120 continues to read as follows:
Authority: Secs. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2797); 22 U.S.C. 2794; E.O. 11958, 42 FR 4311;
E.O. 13284, 68 FR 4075; 3 CFR, 1977 Comp. p. 79; 22 U.S.C. 2651a;
Pub. L. 105-261, 112 Stat. 1920.
Sec. Sec. 120.33 through 120.38 [Reserved]
0
2. Add reserved Sec. Sec. 120.33 through 120.38 and Sec. 120.39 to
read as follows:
Sec. 120.39 Regular employee.
(a) A regular employee means for purposes of this subchapter:
(1) An individual permanently and directly employed by the company,
or
(2) An individual in a long term contractual relationship with the
company where the individual works at the company's facilities, works
under the company's direction and control, works full time and
exclusively for the company, and executes nondisclosure certifications
for the company, and where the staffing agency that has seconded the
individual has no role in the work the individual performs (other than
providing that individual for that work) and the staffing agency would
not have access to any controlled technology (other than where
specifically authorized by a license).
PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE
SERVICES
0
3. The authority citation for part 124 continues to read as follows:
Authority: Sec. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2797); E.O. 11958, 42 FR 4311; 3 CFR 1977 Comp.
p. 79; 22 U.S.C. 2651a; 22 U.S.C. 2776; Pub. L. 105-261.
0
4. In Sec. 124.8, paragraph (5) is revised to read as follows:
Sec. 124.8 Clauses required both in manufacturing license agreements
and technical assistance agreements.
* * * * *
(5) The technical data or defense service exported from the United
States in furtherance of this agreement and any defense article which
may be produced or manufactured from such technical data or defense
service may not be transferred to a foreign person except pursuant to
Sec. Sec. 124.16 and 126.18, as specifically authorized in this
agreement, or where prior written approval of the Department of State
has been obtained.
* * * * *
0
5. Section 124.16 is revised to read as follows:
Sec. 124.16 Special retransfer authorizations for unclassified
technical data and defense services to member states of NATO and the
European Union, Australia, Japan, New Zealand, and Switzerland.
The provisions of Sec. 124.8(5) of this subchapter
notwithstanding, the Department may approve access to unclassified
defense articles exported in furtherance of or produced as a result of
a TAA/MLA, and retransfer of technical data and defense services to
individuals who are dual national or third-country national employees
of the foreign signatory or its approved sub-licensees, including the
transfer to dual nationals or third-country nationals who are bona fide
regular employees, directly employed by the foreign signatory or
approved sub-licensees, provided they are nationals exclusively of
countries that are members of NATO the European Union, Australia,
Japan, New Zealand, and Switzerland and their employer is a signatory
to the agreement or has executed a Non Disclosure Agreement. The
retransfer must take place completely within the physical territories
of these countries or the United States. Permanent retransfer of
hardware is not authorized.
PART 126--GENERAL POLICIES AND PROVISIONS
0
6. The authority citation for part 126 continues to read as follows:
Authority: Secs. 2, 38, 40, 42, and 71, Pub. L. 90-629, 90
Stat. 744 (22 U.S.C. 2752, 2778, 2780, 2791, and 2797); E.O. 11958,
42 FR 4311; 3 CFR, 1977 Comp., p.79; 22 U.S.C. 2651a; 22 U.S.C.
287c; E.O. 12918; 59 FR 28205, 3 CFR, 1994 Comp. p. 899; Sec. 1225,
Pub. L. 108-375.
Sec. Sec. 126.16 and 126.17 [Reserved]
0
7. Add reserved Sec. Sec. 126.16 and 126.17 and Sec. 126.18 to read
as follows:
Sec. 126.18 Exemptions regarding intra-company, intra-organization,
and intra-governmental transfers to employees who are dual nationals or
third-country nationals.
(a) Subject to the requirements of paragraphs (b) and (c) of this
section and notwithstanding any other provisions of this part, and
where the exemption provided in Sec. 124.16 cannot be implemented
because of applicable domestic laws, no approval is needed from the
Directorate of Defense Trade Controls (DDTC) for the transfer of
unclassified defense articles, which includes technical data (see Sec.
120.6), to or within a foreign business entity, foreign governmental
entity, or international organization that is an authorized end-user or
consignee (including approved sub-licensees) for those defense
articles, including the transfer to dual nationals or third-country
nationals who are bona fide regular employees, directly employed by the
foreign consignee or end-user. The transfer of defense articles
pursuant to this section must take place completely within the physical
territory of the country where the end-user is located, where the
governmental entity or international organization conducts official
business, or where the consignee operates, and be within the scope of
an approved export license, other export authorization, or license
exemption.
(b) The provisions of Sec. 127.1(b) are applicable to any transfer
under this section. As a condition of transferring to foreign person
employees described in paragraph (a) of this section any defense
article under this provision, any foreign business entity, foreign
governmental entity, or international organization, as a ``foreign
person'' within the meaning of Sec. 120.16, that receives a defense
article, must have effective procedures to prevent diversion to
destinations, entities, or for purposes other than those authorized by
the applicable export license or other authorization (e.g., written
approval or exemption) in order to comply with the applicable
[[Page 28178]]
provisions of the Arms Export Control Act and the ITAR.
(c) The end-user or consignee may satisfy the condition in
paragraph (b) of this section, prior to transferring defense articles,
by requiring:
(1) A security clearance approved by the host nation government for
its employees, or
(2) The end-user or consignee to have in place a process to screen
its employees and to have executed a Non-Disclosure Agreement that
provides assurances that the employee will not transfer any defense
articles to persons or entities unless specifically authorized by the
consignee or end-user. The end-user or consignee must screen its
employees for substantive contacts with restricted or prohibited
countries listed in Sec. 126.1. Substantive contacts include regular
travel to such countries, recent or continuing contact with agents,
brokers, and nationals of such countries, continued demonstrated
allegiance to such countries, maintenance of business relationships
with persons from such countries, maintenance of a residence in such
countries, receiving salary or other continuing monetary compensation
from such countries, or acts otherwise indicating a risk of diversion.
Although nationality does not, in and of itself, prohibit access to
defense articles, an employee who has substantive contacts with persons
from countries listed in Sec. 126.1(a) shall be presumed to raise a
risk of diversion, unless DDTC determines otherwise. End-users and
consignees must maintain a technology security/clearance plan that
includes procedures for screening employees for such substantive
contacts and maintain records of such screening for five years. The
technology security/clearance plan and screening records shall be made
available to DDTC or its agents for civil and criminal law enforcement
purposes upon request.
Dated: April 26, 2011.
Ellen O. Tauscher,
Under Secretary, Arms Control and International Security, Department of
State.
[FR Doc. 2011-11697 Filed 5-13-11; 8:45 am]
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