International Law Advisory - State Department Amends Rule Regarding Exports to Dual Nationals and Third Country Nationals Employed by Parties to Authorized Agreements

The US Department of State, Directorate of Defense Trade Controls (“DDTC”) has published a federal register notice, 72 Fed. Reg. 71,785-87, effective December 19, 2007, changing the licensing procedure for exporting defense articles, controlled technical data, or defense services to foreign nationals and dual nationals employed by non-US parties in connection with either a Technical Assistance Agreement (“TAA”) or a Manufacturing License Agreement (“MLA”).  See new Section 124.16 to the International Traffic in Arms Regulations (“ITAR”), 22 C.F.R. Parts 120-130.  In summary, DDTC is adopting a favorable defense trade licensing policy for transfers or retransfers to third country nationals and dual nationals from countries who are closely allied with the United States, including but explicitly limited to members of the North Atlantic Treaty Organization (“NATO”), the European Union (“EU”), Australia, Switzerland, New Zealand, and Japan, where those individuals are employed by a party to a valid TAA or MLA, and where their “nationality” is connected to one or more of these aforementioned countries. 

DDTC’s policy is to require all nationals who are employed by a foreign party to a TAA or MLA to be authorized for access to defense articles or services exported to the foreign party, including those persons who reside within the country of the foreign party’s location but who may have a different nationality (or dual nationality) from that country of residence.  In order for any such persons to be authorized by DDTC, exporters previously were required to list all third countries in the TAA/MLA that reflected the nationalities of these individuals, and in certain circumstances provide specific information about these individuals, and then upon DDTC’s approval, ensure that all third county and dual nationals had executed non-disclosure agreements (“NDAs”). 

Significantly, no definition of “dual national” or “third country national” is included in the ITAR, and as a result, this policy has led to confusion and compliance difficulties for many exporters.  In the “Supplementary Information” section of the subject notice, however, DDTC stated for the record that it considers:

“…a third country national to be an individual from a country other than the country which is the foreign signatory to the agreement.  A third country national may also be a dual national if he holds nationality from more than one country.  In addition to citizenship, DDTC considers country of birth a factor in determining nationality.” 

Exporters must take a number of factors into account when determining whether third country nationals or dual nationals need to be authorized by DDTC for ITAR-compliance purposes, and the basic requirement remains that third country/dual nationality information still needs to be submitted in some format.

Section 124.16 now authorizes third country/dual nationals exclusively of countries in NATO, the EU, Australia, Switzerland, New Zealand, and Japan to be transferred unclassified defense articles, ITAR-controlled technical data, or defense services pursuant to a valid TAA/MLA.  These procedural changes will also apply to employees of sub-licensees authorized under the TAA/MLA.  Retransfers must take place completely within the physical territories of these countries or the United States.  Permanent retransfer of hardware is not authorized.  When submitting agreement transmittal requests (see Section 124.12(c) of the ITAR), exporters must list all the relevant Section 124.16 countries to be authorized for dual/third country nationals, as well as the authorized transfer territories of the parties.  In the future, however, such persons will no longer need to execute NDAs.  This rule therefore seemingly creates a three-tiered authorization process concerning dual nationals or third country nationals:

• First, nationals or dual nationals of countries listed in Section 124.16 will presumably be routinely approved by DDTC in connection with the granting of the TAA/MLA, and such persons will no longer need to be specifically authorized by DDTC nor required to execute a NDA before transfers of ITAR-controlled defense articles or defense services can occur.

• Second, third country nationals or dual nationals of proscribed countries under Part 126.1 of the ITAR will be routinely denied retransfer authorization by DDTC.

• Third, nationals or dual nationals of non-proscribed countries, but who also do not fall within the favorable policy of section 124.16 (e.g., India, South Korea, Russia, among others), will be subject to approval or denial on a specific case-by-case basis of review by DDTC.  In all likelihood, particularly with respect to persons who are third country foreign nationals (e.g., not considered nationals of the approved transfer territory of the parties), DDTC will continue to require the submission of detailed personal and nationality information consistent with a DSP-5 license application for those person, and these persons will also be required to execute an NDA.

As a result, the new rule should allow for easier administration of dual national and third country national compliance requirements for specific countries, but the basic ITAR compliance obligation of taking into account nationality factors still exists for exporters.  If you have any questions or comments, please contact Ed Krauland at 202.429.8083 or Jack Hayes at 202.429.6491 to discuss further.