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Unauthorized Uses of Exported Defense Articles Down Again in FY 2014

Wednesday, August 12, 2015
Sandler, Travis & Rosenberg Trade Report

The State Department’s Directorate of Defense Trade Controls has posted to its Web site a report outlining the fiscal year 2014 performance of its “Blue Lantern” end-use monitoring program for defense exports. The report reveals that 18 percent of all Blue Lantern cases closed were unfavorable (down from 19 percent in FY 2013); i.e., that the findings of fact were not consistent with the information in the authorization request.

The Blue Lantern program monitors the end-use of commercially exported defense articles, defense services and brokering activities exported through commercial channels and subject to licensing or other authorizations under section 38 of the Arms Export Control Act and the International Traffic in Arms Regulations. Blue Lantern end-use monitoring entails pre-license, post-license or post-shipment checks undertaken to verify the bona fides of proposed foreign consignees and end-users, to confirm the legitimacy of proposed transactions and to provide reasonable assurance that (a) the recipient is complying with U.S. government requirements with respect to use, transfers and security of defense articles and defense services and (b) such articles and services are being used for the purposes for which they are provided.

According to the report, in FY 2014 the Blue Lantern program initiated 564 checks in 79 countries, down from 918 checks in 93 countries the year before. Europe accounted for the largest share of these initiations at 27 percent, followed by East Asia and the Pacific at 25 percent, the Americas at 25 percent, the Near East at 12 percent, South/Central Asia at 8 percent and Africa at 3 percent. The ratio of checks to license application requests was relatively low in European countries with long-established U.S. defense trade relationships, while the highest ratio was in the Americas and South/Central Asia due principally to concerns about unfamiliar foreign parties and the effect on regional security and stability of firearms and ammunition exports.

Of the 641 Blue Lantern cases closed in FY 2014 (down from 1,029 in FY 2013), 117 (18 percent) were determined to be unfavorable, which is below the four-year global average of 21 percent. Unfavorable cases may result in the rejection, denial or revocation of a license application, the removal of a party from a license, an update of the Office of Defense Trade Controls Compliance Watch List, or referral for civil and/or criminal enforcement investigation and action.

The report provides the following statistics regarding such actions in FY 2014.

- Most (65 percent) of the cases closed as unfavorable were initiated due to the involvement of a Watch List party or other diversion concern, while the rest were conducted for more routine post-shipment verifications or bona fides checks.

- DDTC denied 14 license application requests, returned 23 without action and revoked one as a result of pre-license checks.

- Eleven unfavorable cases (up from 9) were referred to the DTCC, which directed companies to disclose information related to suspected ITAR violations. One case (down from 9) was referred to law enforcement for criminal investigation.

- Africa had the highest rate of unfavorable checks at 52.4 percent, followed by the Near East at 27.1 percent, Europe at 21.6 percent, East Asia at 20.9 percent, South/Central Asia at 17.0 percent and the Americas at 9.4 percent.

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