USML-CCL List Items Eligible Purchasers

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25 October 2006

[Federal Register: October 25, 2006 (Volume 71, Number 206)]

[Proposed Rules]

[Page 62407-62415]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr25oc06-14]

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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 161

[DoD-2006-OS-0039; 0790-AI04]

DLA Procedures for Eligible Purchasers of Munitions List/Commerce

Control List Items

AGENCY: Department of Defense.

ACTION: Proposed rule.

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SUMMARY: This proposed rule identifies the Defense Logistics Agency

(DLA) proposed new procedures for determining the eligibility of

applicants seeking to obtain excess and surplus United States Munitions

List (USML) and Commerce Control List (CCL) items from DLA. These new

procedures will provide greater safeguards to protect national security

interests before releasing such property into commerce. Applicants who

do not meet the standards established herein will not be eligible to

receive USML or CCL property.

DATES: Consideration will be given to all comments received by December

26, 2006.

ADDRESSES: You may submit comments, identified by docket number and or

RIN number and title, by any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

Mail: Federal Docket Management System Office, 1160

Defense Pentagon, Washington, DC 20301-1160.

Instructions: All submissions received must include the agency name

and docket number or Regulatory Information Number (RIN) for this

Federal Register document. The general policy for comments and other

submissions from members of the public is to make these submissions

available for public viewing on the Internet at http://www.regulations.gov

as they are received without change, including any

personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Vincent, Defense Logistics

Agency Criminal Investigations Activity, 8725 John J. Kingman Road,

Suite 2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-mail

mark.d.vincent@dla.mil.

SUPPLEMENTARY INFORMATION: The use of the Qualified Trading Partner

(QTP) is intended to limit transfers of USML/CCL to those who have been

assessed and determined to have the capacity and propensity to properly

handle, control, and lawfully dispose of or export USML/CCL. The

process is intended to reduce risk without adversely impacting lawful

commerce of these items. Use of the QTP application will reduce the

likelihood that recipients present a risk to misuse the material and

help ensure the applicants have the capability to properly handle such

items. Implementation of QTP application criteria will improve the

assessment process. Where the QTP Application needs to be done only

once each 5 years, continued use of the EUC allows visibility of each

transaction and the specific factors associated with just that

transaction.

Executive Order 12866, ``Regulatory Planning and Review''

It has been determined that 32 CFR part 161 is not a significant

regulatory action. The rule does not:

(1) Have an annual effect on the economy of $100 million or more or

adversely affect in a material way the economy; a section of the

economy; productivity; competition; jobs; the environment; public

health or safety; or State, local, or tribal governments or

communities;

(2) Create a serious inconsistency or otherwise interfere with an

action taken or planned by another Agency;

(3) Materially alter the budgetary impact of entitlements, grants,

user fees, or loan programs, or the rights and obligations of

recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

this Executive Order.

Unfunded Mandates Reform Act (Sec. 202, Pub. L. 104-4)

It has been certified that this rule does not contain a Federal

mandate that may

[[Page 62408]]

result in the expenditure by State, local and tribal governments, in

aggregate, or by the private sector, of $100 million or more in any one

year.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

It has been certified that this rule is not subject to the

Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if

promulgated, have a significant economic impact on a substantial number

of small entities. The Defense Logistics Agency (DLA) is instituting

new procedures for determining the eligibility of recipients when

transferred United States Munitions List (USML) and Commerce Control

List (CCL) items. The purpose of these new procedures is to provide

greater safeguards regarding the release of these items when released

into commerce by DLA.

The procedures are intended to reduce the likelihood that USML or

CCL property are transferred to individuals or organizations that may

use such items to harm the U.S. or its citizens.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

Sections 161.1 and 161.5 of this proposed rule contains information

collection requirements. DoD has submitted the following proposal to

OMB under the provisions of the Paperwork Reduction Act (44 U.S.C.

Chapter 35). Comments are invited on: (a) Whether the proposed

collection of information is necessary for the proper performance of

the functions of DoD, including whether the information will have

practical utility; (b) the accuracy of the estimate of the burden of

the proposed information collection; (c) ways to enhance the quality,

utility, and clarity of the information to be collected; and (d) ways

to minimize the burden of the information collection on respondents,

including the use of automated collection techniques or other forms of

information technology.

Title: Defense Logistics Agency Qualified Trading Partner (QTP)

Procedures for Eligible Purchasers of United States Munitions List/

Commerce Control List Items (Application Process).

Type of Request: New requirement.

Estimated Annual Number of Respondents: 2,040.

Responses per Respondent: 1.

Estimated Total Annual Responses: 2,040.

Average Burden per Response: 1 hr.

Annual Burden Hours: 2,040.

Needs and Uses: The information collection is needed to ensure that

disposal of excess and surplus personal property is administered in a

manner consistent with U.S. laws, regulations, and policies governing

exports and related transfers of technology, goods, services, and

munitions, as well as with other laws, regulations, and policies

relating to the disposal of such property.

Applicants will provide application information in letter format

addressing the following factors:

(1) Applicant must demonstrate it operates an established business

enterprise or provides certification of valid personal use.

(2) Applicant must establish it is a registered business and/or has

adequate export management controls in place to preclude improper

transfers of USML and CCL items.

(3) Applicant must demonstrate a history of compliance with export

control laws.

(4) Applicant does not have a history of acts involving fraud,

misrepresentation and deception or other serious offenses reflecting

negatively on the applicants credibility and trustworthiness.

(5) Applicant does not have a history of acts involving violence,

terrorist activity, corruption with respect to commercial dealings or

matters pending before any adjudicative court or tribunal, violation of

U.S. trade or immigration laws, or other acts contrary to U.S. National

Security interests.

(6) Applicant does not have a history of insolvency and/or lack of

financial capacity adequate to ensure it has the financial means to

properly manage, control, and oversee the use of export controlled

property transferred to it by DLA or its contractors.

(7) Applicant must demonstrate a history of cooperation and

compliance with contract terms and conditions.

(8) Applicant must certify it has the legal capability and capacity

to contract with the U.S. Government to trade USML items.

Upon receipt of the QTP application, the DLA Trade Security Control

Assessment Office will ensure the application is complete and will

conduct a Trade Security Control Assessment. A Trade Security Control

Assessment is a pre-award assessment made by a U.S. Government agency

verifying that the destination, end-user, and end-use of controlled DoD

property conform to export license or end-use certificate requirements.

The application review will involve a ``risk analysis'' process

somewhat akin to the manner in which technical proposals in negotiated

procurements are evaluated.

Affected Public: Individuals, Households, Business or for Profit

entities, and not for Profit Institutions.

Frequency: One Time.

Respondent's Obligation: To obtain or retain benefits.

OMB Desk Officer: Ms. Hillary Jaffe.

Written comments and recommendations on the proposed information

collection should be sent to Ms. Jaffe at the Office of Management and

Budget, DoD Desk Officer, Room 10102, New Executive Office Building,

Washington, DC 20503, with a copy to the DLA POC Mr. Mark Vincent,

Defense Logistics Agency Criminal Investigations Activity, 8725 John J.

Kingman Road, Suite 2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-

mail mark.d.vincent@dla.mil. Comments can be received from 30 to 60

days after the date of this notice, but comments to OMB will be most

useful if received by OMB within 30 days after the date of this notice.

You may also submit comments, identified by docket number and

title, by the following method: Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

Instructions: All submissions received must include the agency

name, docket number and title for this Federal Register document. The

general policy for comments and other submissions from members of the

public is to make these submissions available for public viewing on the

Internet http://www.regulations.gov as they are received without

change, including any personal identifiers or contact information.

To request more information on this proposed information collection

or to obtain a copy of the proposal and associated collection

instruments, please write to Mr. Mark Vincent, Defense Logistics Agency

Criminal Investigations Activity, 8725 John J. Kingman Road, Suite

2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-mail

mark.d.vincent@dla.mil.

Executive Order 13132, ``Federalism''

It has been certified that this rule does not have federalism

implications, as set forth in Executive Order 13132. This rule does not

have substantial direct effects on:

(1) The States;

(2) The relationship between the National Government and the

States; or

(3) The distribution of power and responsibilities among the

various levels of Government.

List of Subjects in 32 CFR Part 161

Munitions.

Accordingly, 32 CFR chapter I, subchapter G is proposed to be

amended by adding part 161 to read as follows:

[[Page 62409]]

PART 161--DLA QUALIFIED TRADING PARTNER (QTP) PROCEDURES FOR

ELIGIBLE PURCHASERS OF UNITED STATES MUNITIONS LIST/COMMERCE

CONTROL LIST ITEMS

Sec.

161.1 Purpose.

161.2 Scope.

161.3 Background.

161.4 Policy.

161.5 Technical requirements.

161.6 Administrative procedures.

161.7 Appeals.

161.8 Definitions.

161.9 Responsibilities.

Authority: 40 U.S.C. 101(3).

Sec. 161.1. Purpose.

(a) This part sets forth policies and procedures to ensure disposal

of excess and surplus personal property is administered in a manner

consistent with U.S. laws, regulations, and policies governing exports

and related transfers of technology, goods, services, and munitions, as

well as with other laws, regulations, and policies relating to the

disposal of such property.

(b) This part sets forth procedures for determining the eligibility

of recipients of United States Munitions List (USML) and Commerce

Control List (CCL) items. These procedures are intended to provide

greater safeguards and controls regarding the release of these items

into commerce.

USML/CCL to those who have been assessed and determined to have the

capacity to properly handle, control, and lawfully dispose of or export

USML/CCL without adversely impacting lawful commerce in those items.

This will reduce the likelihood that recipients present a risk to

misuse the material and ensure they have the capability to properly

handle such items. In addition, these procedures will create an

application and review process to pre-qualify prospective recipients of

USML/CCL.

Sec. 161.2. Scope.

(a) This part sets out policies and procedures for approving

applications made by individuals, corporations, or other entities

seeking to purchase excess/surplus personal property designated as USML

items or CCL items from DLA.

(b) The use, disposition, export and re-export of this property is

subject to all applicable U.S. Laws and Regulations, including but not

limited to the Arms Export Control Act (22 U.S.C. 2751 et seq.); Export

Administration Act of 1979 (50 U.S.C. App. 2401 et seq.) as continued

under Executive Order 12924; International Traffic in Arms Regulations

(ITAR) (22 CFR 120 et seq.); Export Administration Regulations (EAR)

(15 CFR 730 et seq.); Foreign Assets Control Regulations (31 CFR 500 et

seq.) and the Espionage Act (18 U.S.C. 793 et seq.).

Sec. 161.3. Background.

(a) The DLA and its Commercial Venture (CV) sales contracting

partner sell surplus property formerly owned by various components of

the DoD. DLA sells items through contracts awarded by the Defense

Reutilization and Marketing Service (DRMS) directly to purchasers. Most

of DRMS' usable property inventory, once it has undergone review by

other DoD activities, other Federal agencies, and eligible donation

customers, is sold by DRMS or their CV sales partner.

(b) The property sold includes USML and CCL items (dual use items--

military, commercial and other strategic uses--including equipment,

materials, electronics, software and technology). Trade in such items

is highly regulated under various laws and regulations including the

ITAR for USML items and under the EAR for CCL items. DoD's surplus

inventory includes hundreds of thousands of items that may be of

legitimate use to many thousands of end users. DLA's contractors and

representatives do not have the resources to become personally familiar

with the businesses of all the persons and entities to which USML and

CCL items are sold.

Sec. 161.4 Policy.

(a) End Use Certificate. In the interest of protecting national

security and ensuring the DLA is able to maintain an effective and

compliant export control policy, the DLA and the DRMS require all

purchasers of USML and CCL property to complete an End Use Certificate

(EUC). This form requires potential purchasers to explain and certify

the intended end uses of the specific property acquired in every sales

transaction involving USML or CCL property.

(b) Trade Security Controls (TSC) Assessment. Potential purchasers

must submit certain information to DLA for establishing initial

eligibility to acquire USML or CCL items from DRMS and its contractors.

These potential purchasers then undergo a DLA TSC assessment to

establish their ability to meet the Agency's Qualified Trading Partner

standards for purchasers of these items, as specified in Sec. 161.5. A

TSC assessment is a pre-award assessment of the integrity and

reliability of the prospective recipient made by DLA. The TSC

assessment also verifies the proposed destination and intended use of

the property conforms to export license requirements. TSC assessments

are conducted by the Defense Logistics Agency Criminal Investigations

Activity, Trade Security Controls Assessment Office located at: 74 N.

Washington Ave., Room 2-4-30, Battle Creek, MI 49017. Once the DLA

gives a favorable assessment, these purchasers will be eligible to

receive USML and CCL items subject to the understanding that future

EUCs for specific transactions will also be reviewed to ensure

compliance with export control laws. Additionally, regardless of a

bidder's status, background, and assessment results, the DLA, DRMS and

its sales contractor(s) reserve the right to refuse to complete any

sale or transfer when the purchaser or transferee cannot affirmatively

establish certain criteria. These include the intended transaction and

ultimate end use of the property to be transferred is consistent with

the export control laws of the United States and any third country in

which the DLA/DRMS and their contractor(s) sell or transfer DoD surplus

property (i.e., those countries referred to as ``host nations'' under

many DoD policies and agreements).

with the standards specified in these procedures, purchasers must

continue to meet the criteria specified in Sec. 161.5. The Agency may

revoke a previously granted Qualified Trading Partner (QTP) status upon

receipt of any information that would affect the issuance of a QTP

status under these standards. In such cases, purchasers will be advised

of the basis for such a determination and advised of their rights in

accordance with Sec. 161.6 and Sec. 161.7.

(d) TSC assessments will determine whether an Applicant has been

``USML Approved;'' ``CCL only;'' or ``CCL conditionally approved.'' The

same criteria are reviewed with respect to all Applicants seeking to

buy regulated commodities. There are varying standards depending on the

status under consideration.

(e) This part contains the criteria and procedures to be used in

assessing prospective purchasers of USML/CCL property. The technical

requirements are contained in Sec. 161.5. The administrative

procedures are contained in Sec. 161.6. Applicants seeking approval as

trading partners eligible to receive USML or CCL property under the

eight criteria (and applicable standards) stated in Sec. 161.5 are

referred to herein as ``Applicants.'' Once a party has received a

favorable assessment to acquire USML and/or CCL property, it

[[Page 62410]]

may be considered a ``Qualified Trading Partner.'' This designation is

valid for 5 years unless terminated or revoked. There is no application

or qualification fee. These procedures apply to purchasers of property

sold by DRMS directly or through the DRMS contract with its CV sales

partner, to persons buying from the CV sales partner.

(f) Requests for information on the DLA QTP application process

should be addressed to the Defense Logistics Agency, ATTN: DLA Criminal

Investigations Activity (DCIA), 8725 John J. Kingman Road, Suite 2358,

Fort Belvoir, Virginia 22060-6221.

Sec. 161.5. Technical requirements.

(a) Criteria. (1) These criteria are intended to address eight

specific areas of eligibility to purchase USML or CCL property. A QTP

applicant receiving property from the CV contracting partner will

submit a properly completed application to the CV contracting partner

Government Liquidation, LLC, 15051 North Kierland Blvd., Third Floor,

Scottsdale, AZ 85254-2185, Attn: Jim Cash, Operations Department, Phone

(480) 609-3280. A QTP applicant receiving property directly from DLA

will submit a properly completed application to the applicable Sales

Contracting Officer at 74 N. Washington Ave., Battle Creek, MI 49017,

Room 2-4-5, Attn: Justin Low, DRMS-NOP, Phone (269) 961-5294. The DLA

TSC Assessment Office will validate the application complete and then

conduct the assessment. The application review will involve a ``risk

analysis'' process. The review will be an overall evaluation of the

Applicant information with respect to all the criteria. Absent a clear

inability to meet the eligibility requirements, such as not meeting the

Item 8 ``legal capacity'' standard, or significant negative information

regarding the criminal/civil history criteria (e.g., recent significant

export law violation), the TSC Assessment Office will conduct an

overall qualitative review of all eight eligibility areas.

(2) In this procedure, even if there are no absolute disqualifiers

to granting a favorable assessment, but there are several significant

risk areas or areas where lack of information provided creates a risk

in determining whether an Applicant will be able to successfully and

safely manage export controlled materials, the TSC Assessment Office

may, in its discretion, determine that QTP status should be denied.

(b) Areas of eligibility to purchase USML or CCL property.

(1) Factor 1: Applicant must demonstrate it operates an established

business enterprise or provide certification of valid personal use. The

Applicant can demonstrate experience or that it is an established

business enterprise that engages in the sale of trade of USML or CCL

items. If an Applicant seeks to buy USML and/or CCL items for its own

use, it must identify the types of items it will be seeking to obtain

and establish a legitimate and lawful purpose for its use of same.

Since USML represents the greatest risk, an applicant who applies for

and are favorably assessed to acquire USML items i.e., DoD

Demilitarization Code ``B'' items) will also be considered favorably

assessed to acquire CCL property. Persons who do not wish to acquire

USML items, but whose trade involves only CCL or unregulated items, may

apply for approval to acquire only CCL (or DoD Demil Code ``Q'')

property and not USML items.

(2) Factor 2: Applicant must establish it is a registered business

and/or has adequate export management controls in place to preclude

improper transfers of USML and CCL items.

(i) The Applicant must establish that it is registered with the

Department of State (DoS) Directorate of Defense Trade Controls and has

an established export management policy or, if DoS registration is not

required for its particular business, the Applicant can establish that

it has adequate controls in place to ensure compliance with export

control laws. Examples of the kinds of controls and compliance programs

the Agency will be looking for in this process are:

(A) An organizational structure that describes the Applicant

defense trade functions and its management and control structures for

implementing and tracking compliance with U.S. export controls.

(B) Applicant commitment and policies to comply with and understand

the ITAR and EAR, as well as the internal controls to make this happen.

track ITAR items and technical data.

(D) Applicant procedures for obtaining DoS approval for re-export

or retransfers.

(E) Applicant procedures for screening carriers, resale customers

and countries regarding restricted/ prohibited exports and transfers.

(F) Applicant recordkeeping procedures.

(G) Applicant internal monitoring program regarding its compliance

program.

(H) Evidence of a training program on these issues.

(ii) If an Applicants business includes trade with other than U.S.

Government entities, Applicant must establish it has appropriate

controls in place to ensure its transactions do not result in illegal

exports or transfers. This can be accomplished by demonstrating

adequate information collection, screening of transactions to ensure

transfers are lawful; background checks on its purchasers; purchaser

certifications, etc. If the Applicant is not registered with the DoS,

it can still gain approval by establishing that it trades only with

U.S. Government entities, or its trade occurs in the U.S. and involves

only transfers to U.S. persons.

(iii) Applicant must establish it has adequate management controls

to preclude improper transfers (CCL only transferees). Applicant must

describe its trade involving CCL items and provide documentation

establishing that it has effective controls in place to ensure export

control compliance. This must be demonstrated by restricting its trade

to domestic transactions not required to be licensed, or through an

established export management program to ensure compliance with export

licensing and other export control requirements.

(3) Factor 3. Applicant must demonstrate a history of compliance

with export control laws.

(i) The Applicant (and if organized in any business format, that of

any principals or officers thereof) does not have a history of

violating any statutes identified in the ITAR (see 22 CFR 120.27) or

any export control law or regulation including, but not limited to:

(A) Section 38 of the Arms Export Control Act (22 U.S.C. 2778);

(B) Section 11 of the Export Administration Act of 1979 (50 U.S.C.

app. 2410);

espionage involving defense or classified information);

(D) Section 16 of the Trading with the Enemy Act (50 U.S.C.

App.16);

(E) Section 206 of the International Emergency Economic Powers Act

(relating to foreign asset controls; 50 U.S.C. 1705);

(F) Section 30A of the Securities Exchange Act of 1934 (15 U.S.C.

78dd-1) or section 104 of the Foreign Corrupt Practices Act (15 U.S.C.

78dd-2);

(G) Chapter 105 of title 18, United States Code (relating to

sabotage)

(H) Section 4(b) of the Internal Security Act of 1950 (relating to

communication of classified information; 50 U.S.C. 783(b));

(I) Sections 57, 92, 101, 1094, 222, 224, 225, or 226 of the Atomic

Energy Act of 1954, 942 U.S.C. 2077, 2122, 2131, 2134, 2272, 2274,

2275, and 2276;

[[Page 62411]]

(J) Section 601 of the National Security Act of 1947 (relating to

intelligence identities protection; 50 U.S.C. 421);

(K) Section 603(b) or(c) of the Comprehensive Anti-Apartheid Act of

1986 (22 U.S.C. 5113(b) and (c));

(L) Section 371 of title 18, United States Code (when it involves

conspiracy to violate any of the statutes mentioned under factor 3;

(M) Any other export control, armaments transfer, or related laws

of United States of any nation in which the U.S. Government generates

or transfers surplus property;

(N) Convictions and settlements reflecting conspiracy, attempts, or

other incomplete acts shall be considered as serious as if the

underlying offense were completed. A criminal conviction, civil

judgment or other settlement for an alleged violation of any of the

statutes, laws and regulations identified in factor 3, will be

considered conclusive proof of a violation.

(ii) When considering an Applicants qualifications under this

criterion, the size and scope of the Applicant business in handling

USML/CCL items shall be considered and evaluated. A single or minimal

offense, or one of a non-criminal nature, may not bar qualification if

found within the history of a large organization conducting significant

successful trade in such articles. The same offense may, however, be

disqualifying if found within the history of a firm that has completed

only a few transactions involving such property, especially if the

offense suggests a lack adequate controls or experience to preclude

negligent occurrence of violations.

(4) Factor 4. Applicant does not have a history of acts involving

fraud, misrepresentation and deception or other serious offenses

reflecting negatively on the applicant credibility and trustworthiness.

The Applicant (and if organized in any business format, that of any

principals or officers) does not have a history of committing actions

involving fraud, misrepresentation, falsification or destruction of

records, collusive bidding or other similar offenses. A criminal

conviction, civil judgment or other settlement for an alleged violation

of any factors will be considered conclusive proof of a violation. The

Agency plans to consider any such acts committed within the last 7

years. Due to the significant risks involved in trading USML and CCL

items, offenses occurring more than 7 years ago may be considered on a

case-by-case basis.

(5) Factor 5. Applicant does not have a history of acts involving

violence, terrorist activity, corruption with respect to commercial

dealings or matters pending before any adjudicative court or tribunal,

violation of U.S. trade or immigration laws, or other acts contrary to

U.S. national security interests.

(i) The Applicant (and if organized in any business format, that of

any principals or officers) does not have a history of committing

offenses of the type described in the above standard. These offenses

include, but are not limited to: Violations of 18 U.S.C. Chapter 113

relating to terrorist activity; murder; assault with intent to commit

murder; kidnapping; hostage taking; criminal sexual offenses;

extortion; crimes against property including robbery, larceny and

related offenses; sedition, treason, arson, bribery, espionage,

smuggling; firearms and/or weapons violations; violations of the

Racketeering, Influence and Corrupt Organizations Act (RICO) or related

corruption laws, whether State or Federal in nature; offenses related

to the unlawful possession, use, sale, distribution, purchase, receipt,

transfer, shipping, transporting, importing exporting, dealing, or

storing of an explosive device; distribution of, or possession of a

controlled substance with intent to distribute, or importation thereof.

A criminal conviction, civil judgment or other settlement for an

alleged violation of any of the offenses identified in this paragraph

will be considered conclusive proof of a violation.

(ii) Individuals who have been adjudicated mentally incompetent,

involuntarily committed to a mental institution, or have other

background factors evidencing the potential for harm to self or others

may likewise be excluded under this standard.

(6) Factor 6. Applicant does not have a history of insolvency and/

or lack of financial capacity adequate to ensure it has the financial

means to properly manage, control, and oversee the use of export

controlled property transferred to it by DLA or its contractors.

Although there are no absolute standards applicable to a review of

solvency and financial capacity, the Agency may review resources

applicable to a consideration of an Applicants solvency or financial

capability to manage the USML/CCL property transferred to it by

Government sources. Regardless of any potential ability to post a bond

or pay for any contemplated purchases of controlled items, DLA has an

interest in ensuring the Applicants have adequate financial means to

ensure the physical security of USML and CCL items transferred to them.

In addition, DLA has an interest in ensuring Applicants have the

resources to effectively manage, transfer, and oversee the uses of USML

and CCL items released to their control. Such consideration would

examine an Applicants financial capability relative to the size and

scope of its business involving trade in USML or CCL items, or its

personal solvency and credit worthiness in the case of individuals

obtaining USML/CCL items for personal use.

(7) Factor 7. Applicant must demonstrate a history of cooperation

and compliance with contract terms and conditions. The U.S. Government

may always consider an Applicants compliance under previous government

or similar contracts as a matter of establishing the Applicants

responsibility to receive and perform the contract under consideration.

The U.S. Government may also consider previous contract compliance when

evaluating an Applicants technical capability to perform the contract

under consideration. Due to the sensitive nature of USML/CCL items and

the on-going regulatory requirements governing the management and

transfer of such items, the Applicant must demonstrate a satisfactory

history of compliance with contract terms and conditions.

(i) The Applicant must establish a history of favorable compliance

and cooperation regarding changes in demilitarization codes or

inadvertent releases affecting USML or CCL items obtaining from DRMS or

the CV sales partner. Both DRMS and CV contracts contain terms

requiring return of demilitarization-required items or providing

subsequent transferee information when advised of a demilitarization

code change or the inadvertent sale of demilitarization required

property as non-controlled property by DRMS or the CV sales partner.

Failure to cooperate with the U.S. Government or its contractors, when

seeking to track or retrieve USML/CCL property deemed likely to present

risks to national security, may be considered unfavorably under this

criteria as may attempts to extract significant profits from Government

officials charged with seeking retrieval of such property. Applicants

acquiring USML/CCL items under these contracts must appreciate the

Government's interest in protecting national security and comply with

those terms now embodied in U.S. Government and CV contracts requiring

transferees to assist in tracking or return such items upon Government

request, in return for reimbursement covering their purchase price and

expenses incurred only,

[[Page 62412]]

without compensation for any expected or anticipatory profits.

(ii) The Applicant history must reflect cooperation and contract

compliance with respect to U.S. Government requests for records or

information regarding subsequent transfers or any matter relating to

compliance with the ITAR, EAR, and any other export control laws.

Likewise, if the Applicant has previously acquired USML/CCL property,

its history must reflect compliance with export control related terms,

such as those related to properly identifying items as USML/CCL and

perpetuating information about export control requirements to

subsequent transferees.

(8) Factor 8. Applicant must certify it has the legal capability

and capacity to contract with the U.S. Government to trade USML items.

(i) The Applicant must establish its status as an individual of at

least 18 years old and that Applicant, if an individual or business

operating as a sole proprietorship and all officers or officials of any

business organized in any other juristic form, are ``U.S. persons'' as

defined in the ITAR.

(ii) For Applicants seeking permission to become a trading partner

for CCL items only, the same requirement applies, except the Agency may

consider applications involving non-U.S. persons which may be approved

on a ``Conditional Only'' basis. Although a non-U.S. person may be

granted a favorable assessment to receive CCL items on a ``conditional

only'' basis, such a status does not indicate an entitlement to receive

additional CCL items sold by DRMS or CV partner. Although such status

may indicate the Government will not review the trading partner's

situation upon each subsequent sales/transfer request, non-U.S. persons

should be aware that even a favorable assessment will not mean they are

entitled to buy all items of CCL property, since the legality of such

transfers are fact-specific. The Government will review the purchaser's

application carefully to determine the appropriateness of any sale on a

case-by-case basis.

(iii) In addition, to be eligible under this factor the Applicant

must not appear on the General Services Administration (GSA) Excluded

Parties List, on any Directorate of Defense Trade Controls or

Department of Commerce, Bureau of Industry and Security lists of

entities banned from trade in USML or CCL items, nor can the individual

or firm be in a prohibited area under the Office of Foreign Assets

Control Regulations (OFAC) regulations.

Sec. 161.6. Administrative procedures.

(a) Application process. (1) Request for approval. The Applicant

will submit a letter to the Sales Contracting Officer (SCO) requesting

approval as a trading partner for USML or CCL items only (as

appropriate to Applicants intent). This letter will provide sufficient

detail to allow the Agency to review its background and conduct

relevant research regarding the criteria specified in Sec. 161.5, as

well as an EUC regarding the specific or immediate sales transaction in

question to the SCO. If access to a particular type of information,

such as bankruptcy or financial records, requires an authorization or

approval, the Applicant agrees to furnish such consent upon request by

the Agency. Applicants are encouraged to submit complete information,

including existing DoS registrations, other business licenses, and

evidence of experience in the defense article trade. Applicants are

responsible for notifying the SCO when there are changes to their

registrations, business operation or ownership, or business location.

(2) Application review process. The TSC Assessment Office will

ensure the application is complete before conducting the TSC

Assessment. Applicants bear the burden of providing sufficient

information to establish that they meet the review criteria. Failure to

do so may result in the return of an application (without action) until

access to the requested information is provided and the information

reviewed. An application will not be deemed submitted or pending

relevant information pertaining to all the criteria addressed in Sec.

161.5 have been received by the TSC Assessment Office.

(3) Application assessment process. The review will be an overall

consideration of the Applicants information with respect to all the

criteria, absent a clear inability to meet the eligibility

requirements, such as not meeting the factor 8 ``legal capacity''

standard (see Sec. 161.5(b)(8)), or significant negative information

regarding the criminal/civil history criteria (e.g., recent significant

export law violation). In this procedure, even if there are no absolute

disqualifiers to granting a favorable assessment, but there are several

significant risk areas or areas where lack of information provided

creates a risk in determining whether an Applicant will be able to

successfully and safely manage export controlled materials, the TSC

Assessment office may, in its discretion, determine that the QTP status

should be denied.

(b) Notification to applicant. (1) Upon completion of the TSC

assessment, the DLA will notify the Applicant on whether it has been

granted QTP status. If QTP status is denied, the Agency will issue a

denial notice to the Applicant along with a copy to the SCO. The

Applicant must wait at least 90 days from the date of the notice before

reapplying.

(2) Issuance of denial notice includes:

(i) A statement that DLA has determined the individual/business was

not favorably assessed and is denied QTP status;

(ii) The basis for the denial determination; and

(iii) Information about the correction of records and appeal

process.

(3) Rejection of an application is not a permanent rejection. For

example, an Applicant that is disapproved because it lacked sufficient

experience with USML items may be able to reapply and show it has taken

affirmative action in the business or otherwise resolved deficient

aspects of its initial application.

information that would merit removal of QTP status, the Agency will

immediately suspend QTP status and send the QTP a Notice of

Contemplated Removal, citing specific reasons for the proposed removal.

The QTP will have 15 business days from the date of the letter to

respond. Failure of the QTP to respond to the Notice of Contemplated

Removal within the 15 day period will result in immediate revocation of

QTP status. If the purchaser responds to the Notice within the 15 day

period, the DLA will evaluate the response, including proposed

corrective action, if any, and will determine whether revocation of QTP

status, retention of QTP status, or further action, applies.

(2) If an individual's QTP status is removed, there is specified

time limit for such removal. The removal period will be based on the

time necessary to document those changes necessary to correct the

problem(s) resulting in removal. If an individual's QTP status is

removed, once corrective actions have been taken to remedy the reasons

for removal, the individual may reapply for QTP status. A new letter

requesting QTP status must be filed, together with information

indicating the deficiencies resulting in the removal have been

corrected. If the DLA has removed QTP status, notice of such removal

and the reasons for it may be given to other interested Government

activities.

Sec. 161.7 Appeals.

(a) Scope. (1) This part applies to applicants who either have had

their

[[Page 62413]]

previously granted QTP status revoked or who have been issued an

initial Denial notice, concluding that they do not meet the standards

for QTP status, and who wish to appeal the decision.

(2) [Reserved]

(b) Denials and revocations. (1) Applicants whose requests for an

approved QTP status are denied or whose previously approved QTP status

has been revoked will be advised in writing of the Denial or

Revocation. The written Denial or Revocation will state the reasons for

the Denial or Revocation and the facts relied on in determining that

the Applicant does not meet the requirements for QTP status.

(2) [Reserved]

status is denied or previously approved QTP status has been revoked may

file an appeal of the Denial or Revocation. A written appeal must be

filed directed to: Defense Logistics Agency, ATTN: DLA Criminal

Investigations Activity (DCIA), 8725 John Kingman Road, Suite 2358,

Fort Belvoir, Virginia 22060-6221. To be timely, an Appeal must be

received within 30 days after receipt of the Denial or Revocation. The

Denial or Revocation will be considered to be received when delivered

or within 10 days after mailing the Notice to the last known street

address if undeliverable or delivery is refused.

(2) DLA will appoint an Administrative Review Official (ARO) to

consider the Appeal when received. The ARO will be at a minimum, either

an individual at the GS-15 (civilian) or O-6 (military) level who was

not involved in the Denial or the Revocation.

(3) In its written appeal, the Appellant must demonstrate that it

meets the standards of the authorization for which it is applying in

Sec. 161.5, providing information and argument in support thereof. In

addition to any information and argument in opposition to the Denial or

Revocation, the Appeal must identify any specific facts or statements

contained in the Denial or Revocation which it disputes and identify

specific facts that contradict the identified disputed facts.

(4) The Appellant will be afforded the opportunity to present

information and argument to the ARO and to request a hearing to present

information or argument either in person or by teleconference. The

Appeal proceedings under this section will be conducted in a fair and

informal manner. The ARO may use flexible procedures to allow an

Appellant to present matters in opposition and in so doing is not

required to follow formal rules of evidence or procedure in creating an

Official Record upon which the ARO will base the decision to grant QTP

status to an Appellant.

(5) The ARO will provide the Appellant with any documents relied on

in making the Revocation or Denial, subject to any restrictions on the

release of the information provided by other agencies or other

necessary restrictions on the release of the documents, when requested.

The Appellant must present any documentary evidence it wants considered

to the ARO prior to the close of the Official Record.

(6) If an Appellant's presentation raises a genuine dispute over

facts material to the determinations made in a Denial or Revocation,

the ARO must conduct additional fact finding to resolve those facts.

Generally, a conviction of a criminal offense which was a material fact

in the determination of the Denial or Revocation is not subject to

dispute and will not require the conduct of additional fact finding.

(7) If fact finding is conducted, the Appellant and the Agency may

present witnesses and other evidence and confront any witness presented

by the other party and written findings of fact must be prepared for

the record. A transcribed record of fact finding procedures must be

made, unless both the Appellant and the Agency agree to waive it in

advance. If either party wants a copy of the transcribed record, they

may purchase it. The ARO may refer disputed material facts to another

official for findings of fact. The ARO may reject any resultant

findings, in whole or in part, only after specifically determining them

to be arbitrary, capricious, or clearly erroneous.

(8) The ARO will make a determination on the Appellant's

eligibility for QTP status based on all the information contained in

the Official Record. The Official Record includes:

(i) The Notice of Denial or Notice of Revocation and all material

relied on their issuance, along with all information submitted to the

Reviewing Official in support of the Denial or Revocation.

(ii) Any information or argument presented by the appellant under

these procedures in opposition to the Revocation or Denial.

(iii) Any transcribed record of fact finding.

(9) In any appeal under this section, the Agency must establish the

cause for a Denial or Revocation by a preponderance of the evidence.

(10) In any appeal under this section, the Agency has the burden to

prove that a cause for a Denial or Revocation exists.

(11) The ARO must make a written decision on an Appeal under this

part within 45 days of closing the Official Record. The Official Record

closes when the Reviewing Official receives final submissions and

information and findings of fact, if any. The Reviewing Official may

extend this period for good cause.

Sec. 161.8 Definitions.

(a) Affiliate. Persons are affiliates of each other if, directly or

indirectly, either one controls or has the power to control the other

or a third person controls or has the power to control both. The ways

used to determine control include, but are not limited to:

(1) Interlocking management or ownership.

(2) Identity of interests among family members.

(3) Shared facilities and equipment.

(4) Common use of employees.

(b) Civil judgment. The disposition of a civil action by any court

of competent jurisdiction, whether by verdict, decision, settlement,

stipulation, other disposition which creates a civil liability for the

complained of wrongful acts, or a final determination of liability

under the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-

3812). Conviction is defined as follows:

(1) A judgment or any other determination of guilt of a criminal

offense by any court of competent jurisdiction, whether entered upon a

verdict or plea, including a plea of nolo contendere; or

(2) Any other resolution that is the functional equivalent of a

judgment, including probation before judgment and deferred prosecution.

A disposition without the participation of the court is the functional

equivalent of a judgment only if it includes an admission of guilt.

Item). Commodities and associated technical data (including software)

subject to export controls under the EAR. The EAR contains the CCL and

is administered by the BIS, Department of Commerce.

(d) Demilitarization code. A single-character code indicating

``USML'' or ``CCL'' and the degree of demilitarization necessary (if

any) or TSCs (if any) before release from DoD control.

(e) DoD excess and surplus personal property. DoD excess personal

property is property other than real property not needed by any DoD

activity, whether located inside or outside the United States. DoD

surplus personal property is property not needed by any Federal

activity. DoD foreign excess personal property (FEPP) is property

located

[[Page 62414]]

outside the United States, American Samoa, Guam, Puerto Rico, Palau, or

the U.S. Virgin Islands. The term ``excess property'' includes FEPP.

Foreign Military Sales, Military Assistance Program, or Grant Aid

Program excess personal property transferred by the DoD to a foreign

government that becomes excess to that government.

(f) End-use certificate (EUC). A DLA Form 1822 prepared by

prospective recipients of USML or CCL property which provides

identifying information, sales terms, acknowledgment of export

licensing requirements, and a statement indicating the intended

destination and disposition of the property.

(g) Export. The transfer of a controlled USML or CCL Item out of

the United States in any manner. Transfer of an USML or CCL Item in the

United States to a non-U.S. person may also be deemed an export in

certain circumstances.

(h) Indictment (for a criminal offense). A presentment, information

or other filing by a competent authority charging a criminal offense

shall be given the same effect as an indictment.

(i) Preponderance of the evidence. Proof by information that,

compared with information opposing it, leads to the conclusion that the

fact at issue is more probably true than not.

(j) Principal. An officer, director, owner, partner, investor or

other person within an organization with management or supervisory

responsibilities related to the transaction in question.

(k) Trade Security Controls (TSC). The controls on export, import

and demilitarization of personal property established by 22 U.S.C.

2778, 22 CFR parts 120-130, ``International Traffic in Arms

Regulations'' (ITAR), 50 U.S.C. Chapter 35, 15 CFR parts 730-799,

``Export Administration Regulations'' (EAR), 31 CFR parts 500-598,

``Office of Foreign Assets Control Regulations'' (OFAC)) and any

similar controls established by the Department of Homeland Security.

(l) TSC assessment. A pre-award assessment of the integrity and

reliability of the prospective recipient made by DLA. The TSC

assessment also verifies that the proposed destination and intended use

of the property conforms to export license requirements.

(m) TSC measures. Measures designed to preclude the improper or

unauthorized transfer of USML or CCL items, to any entity (i.e.,

person, organization or country) whose interests are unfriendly or

hostile to the United States. These measures shall also be applied to

other selected entities as designated by the Under Secretary of Defense

(USD(P)).

(n) Transfer. The sale, lease, loan, grant, exchange, trade,

barter, release, or donation of property from DoD to another person or

entity other than an agency of the United States Government.

(o) United States Munitions List (USML) personal property. Defense

articles, associated technical data (including software), and defense

services recorded or stored in any physical form, controlled by the

ITAR. The ITAR, which contains the U.S. Munitions List, is administered

by the Directorate of Defense Trade Controls, DOS.

Sec. 161.9 Responsibilities.

The following authorities apply to this part:

(a) Federal Property and Administrative Services Act, as amended,

40 U.S.C. 101(3) \1\

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\1\ Information on the Federal Property and Administrative

Services Act can be found on the Internet at URL http://uscode.house.gov/download/title_40.shtml or http://epw.senate.gov/

fpasa49.pdf.

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(1) Sec. 101. [40 U.S.C. 751] General Services Administration. The

Administrator shall have authority to prescribe regulations to carry

out this Act.

(2) Sec. 203. [40 U.S.C. 484] Disposal of Surplus Property.

(i) Except as otherwise provided in this section, the Administrator

shall have supervision and direction over the disposition of surplus

property. Such property shall be disposed of to such extent, at such

time, in such areas, by such agencies, at such terms and conditions,

and in such manner, as may be prescribed in or pursuant to this Act.

(ii) The care and handling of surplus property, pending its

disposition, and the disposal of surplus property, may be performed by

the GSA or, when so determined by the Administrator, by the executive

agency in possession thereof or by any other executive agency

consenting thereto.

(iii) Any executive agency designated or authorized by the

Administrator to dispose of surplus property may do so by sale,

exchange, lease, permit, or transfer, for cash, credit, or other

property, with or without warranty, and upon such other terms and

conditions as the Administrator deems proper, and it may execute such

documents for the transfer of title or other interest in property and

take such other action as it deems necessary or proper to dispose of

such property under the provisions of this title.

(b) DoD Directive 4140.1, ``Supply Chain Materiel Management

Policy,'' April 22, 2004.\2\

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\2\ Information on the DoDD 4140.1, can be found on the Internet

at URL http://www.dtic.mil/whs/directives/corres/html/41401.htm.

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(1) The Under Secretary of Defense for Acquisition, Technology, and

Logistics shall:

(i) Develop DoD materiel management policies and ensure

implementation in a uniform manner throughout the Department of

Defense.

(ii) Develop and maintain DoD Materiel Management issuances to

implement the policies contained in this Directive.

(iii) Monitor the overall effectiveness and efficiency of the DoD

logistics system, and continually develop improvements.

(2) The Heads of the DoD Components shall implement the policies

and procedures in this Directive and all supporting DoD issuances.

Regulation,'' May 23, 2003.\3\

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\3\ Additional information on the DoD 4140.1-R is available on

the Internet at URL http://www.dtic.mil/whs/directives/corres/html/41401r.htm

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(1) The Director, DLA, shall administer the Defense Material

Disposition Program including reutilization, transfer, donation, sales,

loans, gifts, hazardous property disposal, precious metals recovery

program, demilitarization, and trade security controls.

(2) [Reserved]

(d) DoD 4160.21-M, ``Defense Materiel Disposition Manual,'' August

19, 1997.\4\

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\4\ To download additional information on the DoD 4160.21-M from

the Internet go to URL http://www.dtic.mil/whs/directives/corres/html/416021m.htm

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(1) The Federal Property and Administrative Services Act assigned

the responsibility for the supervision and direction over the

disposition of excess and surplus property to the Administrator of

General Services. The Act further assigned the responsibility for

supervision and direction over the disposition of DoD FEPP to the

Secretary of Defense.

(2) The Administrator of General Services delegated to the

Secretary of Defense the responsibility for the sale and final

disposition of surplus personal property which the Administrator

determines is not needed for transfer as excess to other Federal

agencies or for donation as surplus to authorized donees. The Secretary

of Defense also has the responsibility, under the ``Act,'' for internal

screening and redistribution of DoD property among the services and

[[Page 62415]]

defense agencies and for reporting such property as excess to the

General Services Administration (GSA).

(3) The Secretary of Defense has assigned to the Director, Defense

Logistics Agency (DLA), responsibility for the administration of the

Defense Materiel Disposition Program, to include the PMRP and the

Defense Demilitarization Program.

(e) DoD Instruction 2030.08, ``Implementation of Trade Security

Controls (TSC) for Transfers of DoD U.S. Munitions List (USML) and

Commerce Control List (CCL) Personal Property to Parties Outside DoD

Control,'' May 23, 2006.\5\ The Under Secretary of Defense for

Acquisition, Technology, and Logistics shall:

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\5\ To download additional information on the DoDI 2030.08,

reference URL http://www.dtic.mil/whs/directives/corres/html/203008.htm

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(1) Provide for the establishment of supplemental procedures and

TSC measures needed to implement this Instruction for dispositions of

DoD USML and CCL personal property under DoD Directive 4140.01.

(2) Direct the Director of the Defense Logistics Agency (DLA) to:

(i) Provide assistance to the DoD Components, according to this

Instruction, DoD 5105.38-M, ``Security Assistance Management Manual,''

October 3, 2003, and DoD 4140.01-R, in cases where they dispose of or

transfer personal property to parties outside DoD control. In such

cases, DoD Components remain ultimately responsible to ensure their

subordinate elements comply with this Instruction.

(ii) Develop and implement a TSC Enforcement and Investigative

Program within DLA.

(iii) Ensure all dispositions of DoD USML and CCL personal property

under DLA's control are executed according to this Instruction.

(iv) Provide oversight of the Demilitarization Program, according

to DoD 4160.21-M-1, ``Defense Demilitarization Manual,'' October 1991.

Ensure that DoD Components are provided the necessary instructions to

demilitarize all USML personal property properly before disposition to

prevent unauthorized use and/or potential compromise of U.S. national

security, except as otherwise permitted by law, regulation, and/or

policy.

Dated: October 19, 2006.

L.M. Bynum,

Alternate OSD Federal Register Liaison Officer, Department of Defense.

[FR Doc. E6-17848 Filed 10-24-06; 8:45 am]

BILLING CODE 5001-06-P