The State Department’s Directorate of Defense Trade Controls has posted to its Web site a report outlining the fiscal year 2016 performance of its “Blue Lantern” end-use monitoring program for defense exports. The report states that 26 percent of all Blue Lantern cases closed in FY 2016 were unfavorable; i.e., the findings of fact were inconsistent with the information in the license application or that information could not be verified.

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, 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 2016 the Blue Lantern program initiated 673 checks in 97 countries, up from 570 checks in 83 countries the year before. East Asia and the Pacific accounted for the largest share of these initiations at 27 percent (down from 29 percent), followed by the Americas at 23 percent (down from 28 percent), Africa at 20 percent (up from six percent), Europe at 14 percent (down from 22 percent), the Near East at 10 percent (up from eight percent), and South/Central Asia at six percent (down from seven percent).

Of the 566 Blue Lantern cases closed in FY 2016 (down from 662), 173 (26 percent, unchanged from FY 2015) were determined to be unfavorable. The Near East had the highest rate of unfavorable checks at 39 percent (up from nine percent), followed by East Asia and the Pacific at 34 percent (up from 19 percent), the Americas at 28 percent (down from 37 percent), South/Central Asia at 26 percent (up from five percent), Europe at 20 percent (down from 29 percent), and Africa at 9 percent (up from zero). In FY 2016 unfavorable cases resulted in DDTC recommending denial or removal of an entity from 65 license applications, returning 47 applications without action, and revoking 14 licenses. DDTC also referred 23 cases to the Office of Defense Trade Controls Compliance, which in turn referred three cases to law enforcement.

The report states that as in years past the leading cause of an unfavorable finding in FY 2016 (40 cases) was derogatory information (e.g., criminal records) or the foreign party being deemed unreliable (e.g., due to concerns regarding its bona fides). The second most common reason (32 cases) was the involvement of an unlicensed party, which “is often because of poor due diligence on the part of the U.S. exporters or the failure of foreign consignees to properly disclose the full chain of custody.” Other reasons include end-users that were uncooperative or failed to respond (23 cases), administrative accounting or inventory problems (15 cases), indications of potential or actual diversion (12 cases), physical security concerns (nine cases), evidence of stockpiling (four cases), and unauthorized reexports or retransfers (three cases). The report notes that only two percent of closed cases revealed indications of willful diversion tactics.

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