24 December 1997
Source: http://www.access.gpo.gov/su_docs/aces/aces140.html

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[Federal Register: December 24, 1997 (Volume 62, Number 247)]
[Rules and Regulations]
[Page 67274-67278]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de97-12]

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DEPARTMENT OF STATE

22 CFR Parts 120, 123, 124, 126, 127, and 129

[Public Notice 2602]


Bureau of Political-Military Affairs; Amendments to the
International Traffic in Arms Regulations

AGENCY: Department of State.

ACTION: Final rule.

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SUMMARY: This rule amends certain provisions of the International
Traffic in Arms Regulations (ITAR) in order to reflect recent changes
to the Arms Export Control Act (AECA).

EFFECTIVE DATE: December 24, 1997.

FOR FURTHER INFORMATION CONTACT: Mary F. Sweeney, Compliance and
Enforcement Branch, Office of Defense Trade Controls, Bureau of
Political-Military Affairs, Department of State (703) 875-6644.

SUPPLEMENTARY INFORMATION: Section 1045(a) of the National Defense
Authorization Act for Fiscal Year 1997 (Public Law 104-201) added a new
paragraph 12 to section 36(a) of the AECA requiring a report on all
concluded agreements involving coproduction or licensed production
outside of the United States of defense articles of United States
origin.
    Section 141 of the Defense and Security Assistance Improvements Act
of 1996 (Public Law 104-164) amended and restated the requirements in
section 36(c) and (d) of the AECA for certification to Congress of
certain proposed exports and technical assistance or manufacturing
license agreements, generally reducing the time for transfers involving
member countries of the North Atlantic Treaty Organization, Australia,
Japan and New Zealand.
    Section 151 of Public Law 104-164 added a new clause (ii) to
Subsection (b)(1)(A) of section 38 of the AECA requiring the
registration and licensing of persons who engage in the business of
brokering activities of defense articles and defense services.
    Section 156 of Public Law 104-164 amended section 38(e) of the
AECA, providing that certain types of information shall not be withheld
from public disclosure unless the President

[[Page 67275]]

determines that the release of such information would be contrary to
the national interest.
    Section 144 of Public Law 104-164 amended and restated certain
definitions contained in Section 47 of the AECA.
    The civil penalty amount is in accordance with 22 U.S.C. 2778,
2779a and 2780.
    In order to ensure consistent application of the ITAR as provided
in law, Parts 120, 123, 124, 126, and 127 are being amended and a new
Part 129 is being established.
    Part 129 contains guidance concerning persons required to register
as brokers and the types of brokering activities that require prior
approval of the Department of State. As a general matter, any person in
the United States or otherwise subject to U.S. jurisdiction who is in
the business of brokering transfers of defense articles or services is
required to register and pay a fee. This would include for example,
persons who act as agents for others in arranging arms deals, as well
as so-called finders and other persons who facilitate such deals.
Certain exemptions to this requirement are also established, however,
such as persons exclusively in the business of financing or
transporting defense articles whose business activities do not include
brokering arms deals. Certain prohibitions are also established in Part
129 concerning brokering activities associated with defense articles
and defense services involving ineligible countries or persons, such as
those countries for which the United States maintains an arms embargo
and those persons debarred from receiving U.S. munitions licenses owing
to previous violations of U.S. law. Part 129 identifies those
circumstances or defense articles for which either prior written
approval by, or prior notification to, the Department of State is
necessary, and also specifies exemptions to these requirements.
Further, Part 129 provides a procedure by which persons may seek
guidance from the Department of State in respect to the possible
application of these requirements to their activities.
    These amendments involve a foreign affairs function of the United
States. They are excluded from review under Executive Order 12866 (69
FR 51735) and 9 U.S.C. 553 and 554, but have been reviewed internally
by the Department to ensure consistency with the purposes thereof.
    In accordance with 5 U.S.C. 808, as added by the Small Business
Regulatory Enforcement Fairness Act of 1996 (the ``Act''), the
Department of State has found for foreign policy reasons that notice
and public procedure under section 251 of the Act is impracticable and
contrary to the public interest. However, interested parties are
invited to submit written comments to the Department of State, Office
of Defense Trade Controls, ATTN: Regulatory Change, Room 200, SA-6,
Washington, D.C. 20520-0602.

List of Subjects

22 CFR Part 120

    Arms and munitions, Exports, Technical assistance.

22 CFR Part 123

    Arms and munitions, Exports, Technical assistance.

22 CFR Part 124

    Arms and munitions, Exports, Technical assistance.

22 CFR Part 126

    Arms and munitions, Exports.

22 CFR Part 127

    Arms and munitions, Exports.

22 CFR Part 129

    Arms and munitions, Exports, Technical assistance.

    Accordingly, for the reasons set forth above, Title 22, Chapter I,
Subchapter M, Parts 120, 123, 124, 126 and 127 are amended and Part 129
is established as follows:

PART 120--PURPOSE AND DEFINITIONS

    1. The authority citation for part 120 is revised to read as
follows:

    Authority: Secs. 2, 38, and 71, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2797); 22 U.S.C. 2794; E.O. 11958, 42 FR 4311; 3
CFR, 1977 Comp. p. 79; 22 U.S.C. 2658.

    2. In Sec. 120.7 paragraph (a) is revised to read as follows:

Sec. 120.7  Significant military equipment.

    (a) Significant military equipment means articles for which special
export controls are warranted because of their capacity for substantial
military utility or capability.
* * * * *
    3. Section 120.9 is revised to read as follows:

Sec. 120.9  Defense service.

    (a) Defense service means:
    (1) The furnishing of assistance (including training) to foreign
persons, whether in the United States or abroad in the design,
development, engineering, manufacture, production, assembly, testing,
repair, maintenance, modification, operation, demilitarization,
destruction, processing or use of defense articles;
    (2) The furnishing to foreign persons of any technical data
controlled under this subchapter (see Sec. 120.10), whether in the
United States or abroad; or
    (3) Military training of foreign units and forces, regular and
irregular, including formal or informal instruction of foreign persons
in the United States or abroad or by correspondence courses, technical,
educational, or information publications and media of all kinds,
training aid, orientation, training exercise, and military advice. (See
also Sec. 124.1.)
    (b) [Reserved]

PART 123--LICENSES FOR THE EXPORT OF DEFENSE ARTICLES

    4. The authority citation for part 123 is revised to read as
follows:

    Authority: Secs. 2 and 38, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778); 22 U.S.C. 2753; E.O. 11958, 42 FR 4311; 3 CFR
1977 Comp. 79; 22 U.S.C. 2658.

    5. Section 123.15 is revised to read as follows:

Sec. 123.15  Congressional notification for licenses.

    (a) All exports of major defense equipment, as defined in
Sec. 120.8 of this subchapter, sold under a contract in the amount of
$14,000,000 or more, or exports of defense articles and defense
services sold under a contract in the amount of $50,000,000 or more,
may take place only after the Office of Defense Trade Controls notifies
the exporter through issuance of a license or other approval that
Congress has not enacted a joint resolution prohibiting the export and:
    (1) In the case of a license for an export to the North Atlantic
Treaty Organization, any member country of that Organization, or
Australia, Japan or New Zealand, 15 calendar days have elapsed since
receipt by the Congress of the certification required by 22 U.S.C.
2776(c)(1); or
    (2) In the case of a license for an export to any other
destination, 30 calendar days have elapsed since receipt by the
Congress of the certification required by 22 U.S.C. 2776(c)(1).
    (b) Persons who intend to export defense articles and defense
services pursuant to any exemption in this subchapter (e.g., Sec. 126.5
of this subchapter) under the circumstances described in the first
sentence of paragraph (a) of this section must notify the Office of
Defense Trade Controls by letter of the intended export and, prior to
transmittal to Congress, provide a

[[Page 67276]]

signed contract and a DSP-83 signed by the applicant, the foreign
consignee and end-user.

PART 124--AGREEMENTS, OFF-SHORE PROCUREMENT AND OTHER DEFENSE
SERVICES

    6. The authority citation for Part 124 continues to read as
follows:

    Authority: Secs. 2, 38 and 71, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2797); E.O. 11958, 42 FR 4311; 3 CFR 1977 Comp.
p. 79; 22 U.S.C. 2658.

    7. Section 124.4 is revised to read as follows:

Sec. 124.4  Deposit of signed agreements with the Office of Defense
Trade Controls.

    (a) The United States party to a manufacturing license or a
technical assistance agreement must file one copy of the concluded
agreement with the Office of Defense Trade Controls not later than 30
days after it enters into force. If the agreement is not concluded
within one year of the date of approval, the Office of Defense Trade
Controls must be notified in writing and be kept informed of the status
of the agreement until the requirements of this paragraph or the
requirements of ( 124.5 are satisfied.
    (b) In the case of concluded agreements involving coproduction or
licensed production outside of the United States of defense articles of
United States origin, a written statement must accompany filing of the
concluded agreement with the Office of Defense Trade Controls, which
shall include:
    (1) The identity of the foreign countries, international
organization, or foreign firms involved;
    (2) A description and the estimated value of the articles
authorized to be produced, and an estimate of the quantity of the
articles authorized to be produced:
    (3) A description of any restrictions on third-party transfers of
the foreign-manufactured articles; and
    (4) If any such agreement does not provide for United States access
to and verification of quantities of articles produced overseas and
their disposition in the foreign country, a description of alternative
measures and controls to ensure compliance with restrictions in the
agreement on production quantities and third-party transfers.
    8. Section 124.11 is revised to read as follows:

Sec. 124.11  Certification to Congress for agreements.

    Regardless of dollar value, a Technical Assistance Agreement or a
Manufacturing License Agreement that involves the manufacture abroad of
any item of significant military equipment (as defined in Sec. 120.7 of
this subchapter) shall be certified to Congress by the Department as
required by 22 U.S.C. 2776(d). Additionally, any technical assistance
agreement or manufacturing license agreement providing for the export
of major defense equipment, as defined in Sec. 120.8, sold under a
contract in the amount of $14 million or more, or of defense articles
or defense services sold under a contract in the amount of $50 million
or more, shall be certified to Congress by the Department as required
by 22 U.S.C. 2776(c)(1). The Office of Defense Trade Controls will not
approve agreements requiring Congressional notification unless Congress
has not enacted a joint resolution prohibiting the agreement and:
    (a) In the case of an agreement for or in a country which is a
member of the North Atlantic Treaty Organization or Australia, Japan,
or New Zealand, at least 15 calendar days have elapsed since receipt by
the Congress of the certification required by 22 U.S.C. 2776(d); or
    (b) In the case of an agreement for or in any other country, at
least 30 calendar days have elapsed since receipt by the Congress of
the certification required by 22 U.S.C. 2776(d).

PART 126--GENERAL POLICIES AND PROVISIONS

    9. The authority citation for Part 126 is revised to read as
follows:

    Authority: Secs. 2, 38, 40, 42, and 71, Pub. L. 90-629, 90 Stat.
744 (22 U.S.C. 2752, 2778, 2780, 2791, and 2797); 22 U.S.C. 2778;
E.O. 11958, 42 FR 4311; 3 CFR, 1977 Comp., p. 79; 22 U.S.C. 2658; 22
U.S.C. 287c; E.O. 12918, 59 FR 28205, 3 CFR, 1994 Comp., p. 899.

    10. In Sec. 126.10 paragraph (b) is revised to read as follows:

Sec. 126.10  Disclosure of information.

* * * * *
    (b) Determinations required by law. Section 38(e) of the Arms
Export Control Act (22 U.S.C. 2778) provides by reference to certain
procedures of the Export Administrative Act that certain information
required by the Department of State in connection with the licensing
process may generally not be disclosed to the public unless certain
determinations relating to the national interest are made in accordance
with the procedures specified in that provision, except that the names
of the countries and the types and quantities of defense articles for
which licenses are issued under this section shall not be withheld from
public disclosure unless the President determines that release of such
information would be contrary to the national interest. Determinations
required by section 38(e) shall be made by the Assistant Secretary for
Political-Military Affairs.
* * * * *

PART 127--VIOLATIONS AND PENALTIES

    11. The authority citation for part 127 is revised to read as
follows:

    Authority: Secs. 2, 38, and 42, Pub. L. 90-629, 90 Stat. 744 (22
U.S.C. 2752, 2778, 2791); E.O. 11958, 42 FR 4311, 3 CFR, 1977 Comp.,
p. 79; 22 U.S.C. 401; 22 U.S.C. 2658; 22 U.S.C. 2779a; 22 U.S.C.
2780.

    12. In Sec. 127.10 paragraph (a) is revised to read as follows:

Sec. 127.10  Civil penalty.

    (a) The Assistant Secretary of State for Political-Military
Affairs, Department of State, is authorized to impose a civil penalty
in an amount not to exceed that authorized by 22 U.S.C. 2778, 2779a and
2780 for each violation of 22 U.S.C. 2778, 2779a and 2780, or any
regulation, order, license or approval issued thereunder. This civil
penalty may be either in addition to, or in lieu of, any other
liability or penalty which may be imposed.
* * * * *
    13. Part 129 is added to read as follows:

PART 129--REGISTRATION AND LICENSING OF BROKERS

Sec.
129.1  Purpose.
129.2  Definitions.
129.3  Requirement to register.
129.4  Registration statement and fees.
129.5  Policy on embargoes and other proscriptions.
129.6  Requirement for license/approval.
129.7  Prior approval (license).
129.8  Prior notification.
129.9  Reports.
129.10  Guidance.

    Authority: Sec. 38, Pub. L. 104-164, 110 Stat. 1437, (22 U.S.C.
2778).

Sec. 129.1  Purpose.

    Section 38(b)(1)(A)(ii) of the Arms Export Control Act (22 U.S.C.
2778) provides that persons engaged in the business of brokering
activities shall register and pay a registration fee as prescribed in
regulations, and that no person may engage in the business of brokering
activities without a license issued in accordance with the Act.

Sec. 129.2  Definitions.

    (a) Broker means any person who acts as an agent for others in
negotiating or

[[Page 67277]]

arranging contracts, purchases, sales or transfers of defense articles
or defense services in return for a fee, commission, or other
consideration.
    (b) Brokering activities means acting as a broker as defined in
Sec. 129.2(a), and includes the financing, transportation, freight
forwarding, or taking of any other action that facilitates the
manufacture, export, or import of a defense article or defense service,
irrespective of its origin. For example, this includes, but is not
limited to, activities by U.S. persons who are located inside or
outside of the United States or foreign persons subject to U.S.
jurisdiction involving defense articles or defense services of U.S. or
foreign origin which are located inside or outside of the United
States. But, this does not include activities by U.S. persons that are
limited exclusively to U.S. domestic sales or transfers (e.g., not for
export or re-transfer in the United States or a foreign person).
    (c) The term ``foreign defense article or defense service''
includes any non-United States defense article or defense service of a
nature described on the United States Munitions List regardless of
whether such article or service is of United States origin or whether
such article or service contains United States origin components.

Sec. 129.3  Requirement to Register.

    (a) Any U.S. person, wherever located, and any foreign person
located in the United States or otherwise subject to the jurisdiction
of the United States (notwithstanding Sec. 120.1(c)), who engages in
the business of brokering activities (as defined in this part) with
respect to the manufacture, export, import, or transfer of any defense
article or defense service subject to the controls of this subchapter
(see Sec. 121) or any ``foreign defense article or defense service''
(as defined in Sec. 129.2) is required to register with the Office of
Defense Trade Controls.
    (b) Exemptions. Registration under this section is not required
for:
    (1) Employees of the United States Government acting in official
capacity.
    (2) Employees of foreign governments or international organizations
acting in official capacity.
    (3) Persons exclusively in the business of financing, transporting,
or freight forwarding, whose business activities do not also include
brokering defense articles or defense services. For example, air
carriers and freight forwarders who merely transport or arrange
transportation for licensed United States Munitions List items are not
required to register, nor are banks or credit companies who merely
provide commercially available lines or letters of credit to persons
registered in accordance with Part 122 of this subchapter required to
register. However, banks, firms, or other persons providing financing
for defense articles or defense services would be required to register
under certain circumstances, such as where the bank or its employees
are directly involved in arranging arms deals as defined in
Sec. 129.2(a) or hold title to defense articles, even when no physical
custody of defense articles is involved.

Sec. 129.4  Registration statement and fees.

    (a) General. The Department of State Form DSP-9 (Registration
Statement) and a transmittal letter meeting the requirements of
Sec. 122.2(b) of this subchapter must be submitted by an intended
registrant with a payment by check or money order payable to the
Department of State of one of the fees prescribed in Sec. 122.3(a) of
this subchapter. The Registration Statement and transmittal letter must
be signed by a senior officer who has been empowered by the intended
registrant to sign such documents. The intended registrant shall also
submit documentation that demonstrates that it is incorporated or
otherwise authorized to do business in the United States.
    (b) A person required to register under this part who is already
registered as a manufacturer or exporter in accordance with part 122 of
this subchapter must also provide notification of this additional
activity by submitting to the Office of Defense Trade Controls by
registered mail a transmittal letter meeting the requirements of
Sec. 122.2(b) and citing the existing registration, and must pay an
additional fee according to the schedule prescribed in Sec. 122.3(a).
Any person who registers coincidentally as a broker as defined in
Sec. 129.2 of this subchapter and as a manufacturer or exporter must
submit a Registration Statement that reflects the brokering activities,
the Sec. 122.2(b) transmittal letter, as well as the additional fee for
registration as a broker.
    (c) Other provisions of part 122, in particular, Sec. 122.4
concerning notification of changes in information furnished by
registrants and Sec. 122.5 concerning maintenance of records by
registrants, apply equally to registration under this part (part 129).

Sec. 129.5  Policy on embargoes and other proscriptions.

    (a) The policy and procedures set forth in this subparagraph apply
to brokering activities defined in Sec. 129.2 of this subchapter,
regardless of whether the persons involved in such activities have
registered or are required to register under Sec. 129.3 of this
subchapter.
    (b) No brokering activities or brokering proposals involving any
country referred to in Sec. 126.1 of this subchapter may be carried out
by any person without first obtaining the written approval of the
Office of Defense Trade Controls.
    (c) No brokering activities or proposal to engage in brokering
activities may be carried out or pursued by any person without the
prior written approval of the Office of Defense Trade Controls in the
case of other countries or persons identified from time to time by the
Department of State through notice in the Federal Register, with
respect to which certain limitations on defense articles or defense
services are imposed for reasons of U.S. national security or foreign
policy (e.g., Cyprus, Guatemala, Yemen) or law enforcement interests
(e.g., an individual subject to debarment pursuant to Sec. 127.7 of
this subchapter).
    (d) No brokering activities or brokering proposal may be carried
out with respect to countries which are subject to United Nations
Security Council arms embargo (see also Sec. 121.1(c)).
    (e) In cases involving countries or persons subject to paragraph
(b), (c), or (d), above, it is the policy of the Department of State to
deny requests for approval, and exceptions may be granted only rarely,
if ever. Any person who knows or has reason to know of brokering
activities involving such countries or persons must immediately inform
the Office of Defense Trade Controls.

Sec. 129.6  Requirement for License/Approval.

    (a) No person may engage in the business of brokering activities
without the prior written approval (license) of, or prior notification
to, the Office of Defense Trade Controls, except as follows:
    (b) A license will not be required for:
    (1) Brokering activities undertaken by or for an agency of the
United States Government--
    (i) for use by an agency of the United States Government; or
    (ii) for carrying out any foreign assistance or sales program
authorized by law and subject to the control of the President by other
means.
    (2) Brokering activities that are arranged wholly within and
destined exclusively for the North Atlantic Treaty Organization, any
member country of that Organization, Japan, Australia, or New Zealand,
except in the case of the defense articles or defense services
specified in Sec. 129.7(a) of this

[[Page 67278]]

subchapter, for which prior approval is always required.

Sec. 129.7  Prior Approval (License).

    (a) The following brokering activities require the prior written
approval of the Office of Defense Trade Controls:
    (1) Brokering activities pertaining to certain defense articles (or
associated defense services) covered by or of a nature described by
Part 121, to or from any country, as follows:
    (i) Fully automatic firearms and components and parts therefor;
    (ii) Nuclear weapons strategic delivery systems and all components,
parts, accessories, attachments specifically designed for such systems
and associated equipment;
    (iii) Nuclear weapons design and test equipment of a nature
described by Category XVI of Part 121;
    (iv) Naval nuclear propulsion equipment of a nature described by
Category VI(e);
    (v) Missile Technology Control Regime Category I items
(Sec. 121.16);
    (vi) Classified defense articles, services and technical data;
    (vii) Foreign defense articles or defense services (other than
those that are arranged wholly within and destined exclusively for the
North Atlantic Treaty Organization, Japan, Australia, or New Zealand
(see Secs. 129.6(b)(2) and 129.7(a)).
    (2) Brokering activities involving defense articles or defense
services covered by, or of a nature described by, Part 121, in addition
to those specified in Sec. 129.7(a), that are designated as significant
military equipment under this subchapter, for or from any country not a
member of the North Atlantic Treaty Organization, Australia, New
Zealand, or Japan whenever any of the following factors are present:
    (i) The value of the significant military equipment is $1,000,000
or more;
    (ii) The identical significant military equipment has not been
previously licensed for export to the armed forces of the country
concerned under this subchapter or approved for sale under the Foreign
Military Sales Program of the Department of Defense;
    (iii) Significant military equipment would be manufactured abroad
as a result of the articles or services being brokered; or
    (iv) The recipient or end user is not a foreign government or
international organization.
    (b) The requirements of this section for prior written approval are
met by any of the following:
    (1) A license or other written approval issued under parts 123,
124, or 125 of this subchapter for the permanent or temporary export or
temporary import of the particular defense article, defense service or
technical data subject to prior approval under this section, provided
the names of all brokers have been identified in an attachment
accompanying submission of the initial application; or
    (2) A written statement from the Office of Defense Trade Controls
approving the proposed activity or the making of a proposal or
presentation.
    (c) Requests for approval of brokering activities shall be
submitted in writing to the Office of Defense Trade Controls by an
empowered official of the registered broker; the letter shall also meet
the requirements of Sec. 126.13 of this subchapter.
    (d) The request shall identify all parties involved in the proposed
transaction and their roles, as well as outline in detail the defense
article and related technical data (including manufacturer, military
designation and model number), quantity and value, the security
classification, if any, of the articles and related technical data, the
country or countries involved, and the specific end use and end
user(s).
    (e) The procedures outlined in Sec. 126.8(c) through (g) are
equally applicable with respect to this section.

Sec. 129.8  Prior Notification.

    (a) Prior notification to the Office of Defense Trade Controls is
required for brokering activities with respect to significant military
equipment valued at less than $1,000,000, except for sharing of basic
marketing information (e.g., information that does not include
performance characteristics, price and probable availability for
delivery) by U.S. persons registered as exporters under Part 122.
    (b) The requirement of this section for prior notification is met
by informing the Office of Defense Trade Controls by letter at least 30
days before making a brokering proposal or presentation. The Office of
Defense Trade Controls will provide written acknowledgment of such
prior notification to confirm compliance with this requirement and the
commencement of the 30-day notification period.
    (c) The procedures outlined in Sec. 126.8(c) through (g) are
equally applicable with respect to this section.

Sec. 129.9  Reports.

    (a) Any person required to register under this part shall provide
annually a report to the Office of Defense Trade Controls enumerating
and describing its brokering activities by quantity, type, U.S. dollar
value, and purchaser(s) and recipient(s), license(s) numbers for
approved activities and any exemptions utilized for other covered
activities.

Sec. 129.10  Guidance.

    (a) Any person desiring guidance on issues related to this part,
such as whether an activity is a brokering activity within the scope of
this Part, or whether a prior approval or notification requirement
applies, may seek guidance in writing from the Office of Defense Trade
Controls. The procedures and conditions stated in Sec. 126.9 apply
equally to requests under this section.

    Dated: November 24, 1997.
Strobe Talbott,
Acting Secretary of State.
[FR Doc. 97-33649 Filed 12-23-97; 8:45 am]
BILLING CODE 4710-25-P
