Background

Nearly three-quarters of the defense export end-use cases closed in fiscal year 2020 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 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 (1) the recipient is complying with U.S. government requirements with respect to use, transfers, and security of defense articles and defense 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 227,500 entities that is used to flag export authorization applications for possible Blue Lantern checks. In FY 2020 DDTC reviewed 34,076 watch list name matches (including false hits) and made 1,978 new entries and 1,127 modifications. DDTC also began systematically sharing this list with the Bureau of Industry and Security, which it said improves BIS’ ability to regulate items it controls, especially those formerly controlled on the U.S. Munitions List.

According to the report, in FY 2020 the Blue Lantern program initiated 272 checks in more than 70 countries, up from 187 in more than 40 countries the year before. Europe accounted for the largest share of these initiations at 41.5 percent (up from 32 percent), followed by East Asia and the Pacific at 23.9 percent (up from 20.2 percent), the Near East at 12.1 percent (up from 9.2 percent), sub-Saharan Africa at 9.9 percent (up from 1.8 percent), the Western Hemisphere at 8.1 percent (down from 16.2 percent), and South/Central Asia at 2.9 percent (unchanged).

Of the 181 Blue Lantern cases closed in FY 2020 (virtually unchanged from FY 2019), 43 (23.8 percent, down from 29 percent) were determined to be unfavorable. South/Central Asia had the highest rate of unfavorable checks at 44.4 percent (up from 25 percent), followed by East Asia and the Pacific with 34.0 percent (down from 58.8 percent), Europe at 23.0 percent (up from 16.7 percent), the Western Hemisphere at 22.2 percent (up from 8.3 percent), and the Near East at 11.8 percent (down from 47.1 percent).

The report states that the leading cause of an unfavorable finding in FY 2020 (21 cases, down from 40) was derogatory information/foreign party deemed unreliable recipient. Other reasons include unlicensed party (10, down from 22), inability to confirm an order or receipt of goods (6, down from 13), refusal to cooperate (5, up from 4), lack of secure storage facilities (3, up from 1), and unauthorized reexports/retransfers (2, down from 5). No instances of indications of potential or actual diversion were documented.

Finally, the report notes that unfavorable cases resulted in DDTC recommending denial, removal of an entity, or return without action on 83 license applications, down from more than 130. Four (down from eight) were referred to Defense Trade Controls Compliance.

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

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