More than a quarter of the defense export end-use cases closed in fiscal year 2018 found inconsistencies with or could not verify the information on license applications, according to a report from State Department’s Directorate of Defense Trade Controls. This report on the annual performance of DDTC’s “Blue Lantern” end-use monitoring program highlights the importance for defense exporters to maintain effective compliance procedures.

The Blue Lantern program monitors the end-use of defense articles, technical data, services, and brokering activities exported through commercial channels and subject to licensing or other approvals under section 38 of the Arms Export Control Act and the International Traffic in Arms Regulations. 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 (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 2018 the Blue Lantern program initiated 466 checks in more than 70 countries, up from 429 in 92 countries the year before. East Asia and the Pacific accounted for the largest share of these initiations at 43 percent (up from 23 percent), followed by Africa at 20 percent (up from 17 percent), Europe at 14 percent (down from 23 percent), the Americas at 7 percent (down from 20 percent), South/Central Asia at 3 percent (down from 10 percent), and the Near East at 2 percent (down from 7 percent).

Of the 585 Blue Lantern cases closed in FY 2018 (up from 539), 168 (29 percent, unchanged from FY 2017) were determined to be unfavorable. South/Central Asia had the highest rate of unfavorable checks at 81 percent (up from 47 percent), followed by the Near East at 46 percent (up from 22 percent), Africa at 41 percent (up from 38 percent), Europe at 32 percent (up from 20 percent), the Americas at 32 percent (up from 28 percent), and East Asia at 5 percent (down from 31 percent).

The report states that the leading cause of an unfavorable finding in FY 2018 (68 cases, up from 25) was the foreign party being uncooperative or failing to respond to an end-use check. Other reasons include the inability to confirm an order or receipt of goods (54 cases, down from 68), derogatory information/foreign party deemed unreliable recipient (52, up from 47), unlicensed party (12, down from 28), physical security concerns (7, up from 4), inability to confirm existence of foreign party (3, up from 1), unauthorized reexports/retransfers (3), indications of potential or actual diversion (1, down from 3), and evidence of stockpiling (1, no change). The report notes that less than one percent of closed cases revealed indications of willful diversion tactics.

Finally, the report notes that unfavorable cases resulted in DDTC recommending denial, removal of an entity, revocation, or return without action on 57 license applications (up from 50). Nine were referred to Defense Trade Controls Compliance (up from three), including three to that office’s Law Enforcement Liaison Division.

For more information on defense export issues, please contact export compliance attorney Kristine Pirnia.

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