2010-19833. Amendment to the International Traffic in Arms Regulations: Dual Nationals and Third-Country Nationals Employed by End-Users

AGENCY:

Department of State.

ACTION:

Proposed rule.

SUMMARY:

The Department of State is proposing to amend the International Traffic in Arms Regulations (ITAR) to update the policies regarding end-user employment of dual nationals and third-country nationals.

DATES:

Comment Due Date: The Department of State will accept comments on this proposed rule until September 10, 2010.

ADDRESSES:

Interested parties may submit comments within 30 days of the date of the publication by any of the following methods:

• E-mail: [e-mail] with an appropriate subject line.
• Mail: PM/DDTC, SA-1, 12th Floor, Directorate of Defense Trade Controls, Office of Defense Trade Controls Policy, ATTN: Regulatory Change—Nationals, Bureau of Political Military Affairs, U.S. Department of State, Washington, DC 20522-0112.
• Persons with access to the Internet may also view this notice by searching for its RIN on the U.S. Government regulations Web site at http://regulations.gov/​index.cfm.

FOR FURTHER INFORMATION CONTACT:

Director Charles B. Shotwell, Office of Defense Trade Controls Policy, Department of State, Telephone [phone] or Fax [phone]; E-mail [e-mail]. ATTN: Regulatory Change, Nationals.

SUPPLEMENTARY INFORMATION:

This is part of the President's Export Control Reform effort. The Department of State is amending Parts 124 and 126 of the ITAR to reflect new policy regarding end-user employment of dual-nationals and third-country nationals.

As a result of the President's Task Force on Export Control Reform, the previous policy regarding the treatment of dual nationals and foreign nationals was reconsidered. The current requirement for the provision of additional information within a license to cover dual national and third-country national foreign employees has created a tremendous administrative burden on approved end-users and has evolved into a human rights issue, which has become a focus of contention between the U.S. and allies and friends without a commensurate gain in national security. Based on available intelligence and law enforcement information, and given the current licensing requirements regarding access by dual or third country national employees, most diversions of U.S. Munitions List (USML) items appears to occur outside the scope of approved licenses, not within foreign companies or organizations providing access to properly screened dual national or third country national employees. This amendment will place the affirmative responsibility upon the foreign company, government, or international organization, with the understanding that by accepting the USML defense article, they must comply with the provisions of U.S. laws and regulations to prevent the possible diversion of U.S. defense articles and technology. This change, by no means, reduces the due diligence requirements of the applicant to ensure, to the best of their ability, that the end-use and end-user are consistent with the approved authorization. The Department views due diligence as a requirement for security clearances or other effective screening procedures as a condition for access to ITAR-controlled defense articles and technology.

Regulatory Analysis and Notices

Administrative Procedure Act

This amendment involves a foreign affairs function of the United States and, therefore, is not subject to the procedures contained in 5 U.S.C. 553 and 554.

Regulatory Flexibility Act

Since this amendment is not subject to the provisions of 5 U.S.C. 553(b), it does not require analysis under the Regulatory Flexibility Act.

Unfunded Mandates Reform Act of 1995

This amendment does not involve a mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any year and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

Small Business Regulatory Enforcement Fairness Act of 1996

This amendment has been found not to be a major rule within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996.

Executive Orders 12372 and 13132

This amendment will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this amendment does not have sufficient federalism implications to require consultations or warrant the preparation of a federalism summary impact statement. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities do not apply to this amendment.

Executive Order 12866

This amendment is exempt from review under Executive Order 12866, but has been reviewed internally by the Department of State to ensure consistency with the purposes thereof.

Executive Order 12988

The Department of State has reviewed the proposed amendment in light of sections 3(a) and 3(b)(2) of Executive Order 12988 to eliminate ambiguity, minimize litigation, establish clear legal standards, and reduce burden.

Executive Order 13175

The Department of State has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not pre-empt tribal law. Accordingly, the requirement of Section 5 of Executive Order 13175 does not apply to this rulemaking.

Paperwork Reduction Act

This rule does not impose any new reporting or recordkeeping requirements subject to the Paperwork Reduction Act, 44 U.S.C. Chapter 35.

List of Subjects in 22 CFR Parts 124 and Part 126

• Arms and munitions
• Exports

For the reasons set out in the preamble, the Department of State, proposes to amend 22 CFR parts 124 and 126 as follows:

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

1. The authority citation for part 124 continues to read as follows:

Authority: Sec. 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. 2651a; 22 U.S.C. 2776; Pub. L. 105-261

2. In § 124.8, paragraph (5) is revised to read as follows:

§ 124.8

Clauses required both in manufacturing license agreements and technical assistance agreements.

* * * * *

(5) The technical data or defense service exported from the United States in furtherance of this agreement and any defense article which may be produced or manufactured from such technical data or defense service may not be transferred to a foreign person except pursuant to § 126.18 or as specifically authorized in this agreement unless the prior written approval of the Department of State has been obtained.

* * * * *

§ 126.16

[Removed]

3. Section 124.16 is removed.

PART 126—LICENSE FOR THE EXPORT OF DEFENSE ARTICLES

4. The authority citation for part 126 continues 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); E.O. 11958, 42 FR 4311; 3 CFR, 1977 Comp., p.79; 22 U.S.C. 2651a; 22 U.S.C. 287c; E.O. 12918; 59 FR 28205, 3 CFR, 1994 Comp. p. 899; Sec. 1225, Pub. L. 108-375.

§§ 126.16 and 126.17

[Reserved]

5. Sections 126.16 and 126.17 are reserved.

6. Section 126.18 is added to read as follows:

§ 126.18

Exemptions Regarding Intra-company Transfers to Employees who are Dual Nationals or Third-Country Nationals.

(a) Subject to the requirements of paragraphs (b) and (c) of this section, no approval is needed from the Directorate of Defense Trade Controls (DDTC) for the transfer of defense articles, including technical data, within a foreign business entity, foreign governmental entity, or international organization that is an approved end-user or consignee for those defense articles (including technical data), including the transfer to dual nationals or third country nationals who are bona fide, regular employees, directly employed by the foreign business entity, foreign governmental entity, or international organization. The transfer of defense articles pursuant to this section must take place completely within the physical territories of the country where the end-user is located or the consignee operates, and be within the scope of an approved export license, other export authorization, or license exemption.

(b) The provisions of § 127.1(b) are applicable to any transfer under this section. As a prerequisite to receiving any defense article, any foreign business entity, foreign governmental entity, or international organization, as a “foreign person” within the meaning of § 120.16, that receives a defense article, including technical data, is responsible for implementing effective procedures to prevent diversion to destinations, entities, or for purposes other than those authorized by the applicable export license or other authorization (e.g., written approval or exemption) and must comply with U.S. laws and regulations (including the ITAR).

(c) (1)Pursuant to paragraph (b) of this section, the end-users or consignees can meet the above conditions, prior to access to defense articles, by requiring:

(i) A security clearance approved by the host nation government for its employees, or

(ii) The end-user or consignee have in place a process to screen its employees and to have executed a Non-Disclosure Agreement that provides assurances that the employee will not transfer any information to persons or entities unless specifically authorized by the consignee or end-user.

(2) The end-user or consignee must screen its employees for substantive contacts with restricted or prohibited countries listed in § 126.1. Substantive contacts include, but are not limited to, recent or regular travel to such countries, recent or continuing contact with agents and nationals of such countries, continued allegiance to such countries, or acts otherwise indicating a risk of diversion. Though nationality does not, in and of itself, prohibit access to defense articles or defense services, an employee that has substantive contacts with persons from countries listed in § 126.1(a) shall be presumed to raise a risk of diversion, unless DDTC determines otherwise. End-users and consignees must maintain a technology security/clearance plan that details its procedures for screening employees for such substantive contacts and maintain records of such screening. The technology security/clearance plan and screening records will be available to DDTC or its agents upon request.

Dated: July 8, 2010.

Ellen O. Tauscher,

Under Secretary, Arms Control and International Security, Department of State.