Background

Just over two-thirds of the defense export end-use cases closed in fiscal year 2021 were favorable, according to an annual report from the State Department’s Directorate of Defense Trade Controls on the performance of DDTC’s “Blue Lantern” end-use monitoring program. The report’s findings highlight the importance for defense exporters to maintain effective compliance procedures.

The Blue Lantern program aims to minimize the risk of diversion and unauthorized use of U.S. defense articles, combat gray arms trafficking, uncover violations of the Arms Export Control Act, and build confidence and cooperation among defense trade partners. Blue Lantern end-use monitoring includes pre-license, post-license, and post-shipment checks to verify the bona fides of foreign consignees and end-users, confirm the legitimacy of proposed transactions, and provide reasonable assurance that (1) the recipient is complying with U.S. government requirements with respect to use, transfers, and security of defense articles and services and (2) such articles and services are being used for the purposes for which they are provided.

DDTC maintains a watch list with more than 224,500 entities that is used to flag export authorization applications for possible Blue Lantern checks. In FY 2021 DDTC reviewed 72,472 watch list name matches (up from 34,076 the previous year) and made 1,487 new entries (down from 1,978) and 1,889 modifications (up from 1,127). DDTC systematically shares this list with the Bureau of Industry and Security, which improves BIS’ ability to regulate items it controls, especially those formerly controlled on the U.S. Munitions List.

According to the report, in FY 2021 the Blue Lantern program initiated 281 checks (up from 272) in more than 70 countries. Europe accounted for the largest share of these initiations at 40.6 percent (down from 41.5 percent), followed by East Asia and the Pacific at 23.1 percent (down from 23.9 percent), the Near East at 11.3 percent (down from 12.1 percent), the Western Hemisphere at 9.1 percent (up from 8.1 percent), South/Central Asia at 3.4 percent (up from 2.9 percent), and sub-Saharan Africa at 1.0 percent (down from 9.9 percent).

Of the 256 Blue Lantern cases closed in FY 2021 (up from 181), 77 (30 percent, up from 23.8 percent) were determined to be unfavorable. Sub-Saharan Africa had the highest rate of unfavorable checks at 50 percent (up from 33 percent), followed by Europe and the Near East, each with 38 percent (up from 23.0 percent and 11.8 percent, respectively), South/Central Asia at 30 percent (down from 44.4 percent), East Asia and the Pacific at 17 percent (down from 34.0 percent), and the Western Hemisphere at 13 percent (down from 22.2 percent).

The report states that the leading cause of an unfavorable finding in FY 2021 was derogatory information/foreign party deemed unreliable (47 cases, up from 21). Other reasons include refusal to cooperate (29, up from 5), unlicensed party (11, up from 10), lack of secure storage facilities (8, up from 3), inability to confirm an order or receipt of goods (7, up from 6), and unauthorized reexports/retransfers (4, up from 2). No instances of indications of potential or actual diversion were documented.

Finally, the report notes that unfavorable cases resulted in several types of actions, including returning without action or denying export license applications, removing parties from licenses, updating the DDTC Watch List, or referring cases to the Office of Defense Trade Controls Compliance.

For more information on defense export issues, please contact attorney Kristine Pirnia (at (202) 730-4964 or via email.

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