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Defense Export Regulations on Brokers, Brokering Activities Could be Revised

Monday, December 19, 2011
Sandler, Travis & Rosenberg Trade Report

The State Department has issued a proposed rule that would amend part 129 of the International Traffic in Arms Regulations relating to brokers and brokering activities. The proposed revisions are intended to clarify registration requirements, the scope of brokering activities, prior approval requirements and exemptions, procedures for obtaining prior approval and guidance, and reporting and recordkeeping of such activities. State notes that this rule would establish new exemptions, eliminate requirements for prior notification and provide detailed guidance on obtaining a brokering authorization. The proposed changes also provide additional specificity regarding the applicability of these regulations to foreign brokers operating overseas. Comments on this proposal are due no later than Feb. 17, 2012.

Among the major changes proposed in this rule are the following.

• revise the term “brokering activities” to more closely track the definition in the Arms Export Control Act, which provides that brokering activities include the financing, transportation, freight forwarding or taking of any other action that facilitates the manufacture, export or import of a defense article or defense service, thus clarifying that brokering does not include activities that do not extend beyond administrative services such as providing or arranging office space and equipment, hospitality, advertising, or clerical, visa or translation services or does not include activities beyond the provision of legal advice by an attorney to a client

• expand the list of those exempt from registration, prior approval for brokering activities, and reporting and recordkeeping requirements

• allow State to permit a broker that is a parent of a U.S. or foreign person registered as a broker to be covered by the registrant’s statement of registration provided that such broker parent is listed in the registrant’s statement of registration and meets specified certification and other requirements

• add a new exemption for brokering activities outside of NATO member countries, Australia, Japan, New Zealand or Korea that involve U.S.-origin defense articles that are not significant military equipment and where the end-use is limited to foreign government and international organization end-users

• expand the list of excluded items in section129.7(e) to cover certain sensitive defense articles and services (e.g., man-portable air defense systems, night vision equipment, spacecraft items that are SME, submersible vessels, directed energy weapons, and miscellaneous articles in U.S. Munitions List Category XXI)

• delete in its entirety the requirement for prior notification, which “had the effect of being a prior approval requirement and proved to be confusing and difficult to administer”

• provide more specific guidance on the information required in a request for prior approval (e.g., identities of all entities and individuals who would participate in the brokering activities, information regarding the defense articles and services and any fee, commission or other consideration)

• limit the validity period of a prior approval to four years

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