International Traffic in Arms Regulations (ITAR) is a set of United States government regulations that control the export and import of defense-related articles and services on the United States Munitions List (USML).
ITAR Part 129 imposes certain requirements on “brokers” of defense articles and defense services, including registration, reporting and licensing requirements under certain circumstances. Section 129.2 of the ITAR provides the following definitions:
(a) Broker means any person who acts as an agent for others in negotiating or 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 § 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 to a foreign person). For the purposes of this subchapter, engaging in the business of brokering activities requires only one action as described above.
Constructive-Edge recognises that these provisions of the ITAR are broad and interpreted by the State Department on a discretionary basis and there is very little published guidance regarding the proper application of the current rules. Additionally, the US Department of State revised Part 129 of the ITAR, with an effective date of 25 October 2013 covering the requirements on “brokers” of defense articles and defense services, including registration, reporting, and licensing requirements. The interim final rule includes a number of significant changes to Part 129, including the following:
Narrower applicability to foreign persons: The term “broker” (Section 129.2) was revised to cover foreign persons only when located in the United States or when owned or controlled by a U.S. person. As a result of this change, foreign persons located outside the United States that are not owned or controlled by U.S. persons will no longer need to be registered as brokers. This change still places a burden on foreign persons with no other nexus to the United States besides U.S. ownership. This is an example of the increasingly broad reach of trade-related regulations to foreign incorporated entities.
Based on the services that Constructive Edge provides to its clients, we believe Constructive Edge has a legal basis for the position that it has not and will not act as a “broker” or be engaged in “brokering activities” in relation to its services, as described, regardless of the amendment to the ITAR.
In particular, Constructive Edge plays no role in bringing together clients and the Governments, by promoting or marketing defense articles, negotiating the terms of the agreements between them, or transferring the defense articles themselves.