Export Control Advisory - Defense Authorization Bill Contains Provision Enforcing Export Control Laws

The National Defense Authorization Act for Fiscal Year 2008, passed last week by Congress, contains provisions intended to prevent violations of US export control laws.  The defense authorization bill, which includes authorization of $696.4 billion in national security spending, was passed by wide margins in both houses of Congress and was delivered to the President on December 19 for his signature.  Section 890 of the bill requires the Defense Department to promulgate regulations requiring its contractors to comply with export control laws and to develop a contract clause enforcing such requirement.   

Specifically, the 2008 defense authorization bill includes the following requirements:

• No later than 180 days after the Act’s enactment, the Secretary of Defense must prescribe regulations requiring any contractor under a contract with the Department of Defense to provide goods or technology that is subject to export controls under the Arms Export Control Act (“AECA”) or the Export Administration Act of 1979 (“EAA”) (as continued in effect under the International Emergency Economic Powers Act) to comply with those Acts and applicable regulations with respect to such goods and technology, including the International Traffic in Arms Regulations (“ITAR”) and the Export Administration Regulations (“EAR”).
  

• The regulations prescribed by the Secretary of Defense must include a contract clause enforcing this requirement to comply with export control laws and regulations.

• The Secretary of Defense must ensure that any contractor under a contract with the Department of Defense to provide goods or technology that is subject to export controls under the AECA or EAA is made aware of any relevant resources made available by the State and Commerce Departments to assist in compliance with export control laws and the need for a corporate compliance plan and periodic internal audits of corporate performance under such plan.

The legislation also requires the Secretary of Defense, no later than 180 days after the Act’s enactment, to submit to the Senate and House Committees on Armed Services a report assessing the utility of the following:

• requiring defense contractors (or subcontractors at any tier) to periodically report on measures taken to ensure compliance with the ITAR and EAR;
  

• requiring periodic audits of defense contractors (or subcontractors at any tier) to ensure compliance with all provisions of the ITAR and EAR;

• requiring defense contractors to maintain a corporate training plan to disseminate information to appropriate contractor personnel regarding the applicability of the AECA and EAA; and
  

• requiring a designated corporate liaison, available for training provided by the United States Government, whose primary responsibility would be contractor compliance with the AECA and EAA.

This legislation reflects the growing acceptance of export control compliance as a national security issue.  It is also consistent with the increasing congressional and administrative focus on export control enforcement, which can be seen, for example, in recent and dramatic increases in civil penalties for export control violations. 

The 2008 defense authorization bill, if signed into law, would add another layer of administrative involvement in export control compliance and enforcement.  The Defense Department regulation requiring compliance with US export control laws does not reflect any new legal obligation since defense contractors that have export activities have always been subject to the AECA, EAA, and the regulations promulgated thereunder.  However, the regulation could potentially increase a contractor’s liability by overlapping the Defense Department’s jurisdiction with that of the State and Commerce Departments.  The addition of a contract clause requiring compliance with export control laws would give the government another enforcement mechanism.  In addition to civil and criminal penalties for export control violations, the Defense Department would also possess contract-based remedies for export control violations when a defense contractor is involved.

The training provision, while currently unclear how it would be implemented, could positively affect export control compliance.  Many parties subject to the ITAR and EAR, especially small companies, are unaware of their compliance obligations under these regulatory regimes.  It remains to be seen what assistance will be provided beyond simply notifying contractors of the relevant legal requirements. 

The Congressional report provision, while placing no new obligation on defense contractors, has the potential to increase contractors’ regulatory burden.  If the Defense Department supports the utility of the requirements described above, it is possible that they could become statutory or regulatory requirements at some point in the future.  Such requirements would greatly increase defense contractors’ export control compliance requirements vis-à-vis the Defense Department, in additional to any requirements imposed by the State and Commerce Departments.  While the statute does not state whether the Defense Department would solicit public comments on these issues before making its report to Congress, defense contractors may be interested in discussing such issues with relevant Defense Department contacts or submitting a formal letter with comments on these issues.

If you have any questions regarding this piece of legislation, please contact Ed Krauland at 202.429.8083, or Mike Gershberg at 202.429.6208.