Search:  

 Blog     e-Newsletter       Resource Library      Directories      Webinars     Apps
AFCEA logo
 

International Traffic in Arms Regulations (ITAR): From a Small Business Perspective

June 16, 2008
SIGNAL Staff

Knowledge of the International Traffic in Arms Regulations (ITAR), including what they are, what they cover and the corporate responsibilities for compliance under these regulations, is pertinent to all small businesses that work in the federal sector. This especially is true for those that routinely deal with technical data.

Paul Luther, partner at Baker Botts LLP, addressed the AFCEA Small Business Committee and covered ITAR from a small business perspective. He shared information about specific areas that have been common pitfalls for some companies, such as the transfer, maintenance and safeguarding of technical data. In addition, Luther listed best practices that can help ensure compliance and outlined possible penalties for noncompliance.

The U.S. Department of State Directorate of Defense Trade Controls (DDTC) branch administers ITAR. The regulations deal with the export and temporary import of defense articles and the provision of defense services, including technical data and assistance to foreign nationals. All companies or individuals that manufacture, import, export or broker defense articles must register under ITAR with the DDTC. This is generally an annual registration requirement with few exemptions.

Luther explained that the definition of an export is not limited to sending goods overseas; it also applies to the release of technical data to foreign nationals. It can occur simply by mailing data to or engaging in a conversation with a foreign national. Foreign nationals are defined as those persons that are not US citizens, do not hold Green Card status and are not under asylum in the United States. This transfer of data can take place entirely within the United States and still be considered an export. This is called a “deemed” export as the transfer can be expected to result in export.

Often the most difficult question that comes up is whether or not a company’s product should fall under ITAR or the U.S. Commerce Department’s Export Administration Regulations (EAR) that address dual-use goods. These similar regulations for exports outside of defense are much more detailed. At first glance, ITAR appears less imposing than the Commerce Department regulation. In some aspects though, the EAR rules are easier to work with because this level of detail provides clearer guidance.

To determine if its product is subject to ITAR, a company must seek a Jurisdiction Determination from the State Department, which has jurisdiction in this matter. Clearly, U.S. Munitions list items fall under the ITAR; however, many other items also fall under ITAR that are not specifically listed. If a firm can show that its product has predominant civilian applications and that it has a performance equivalent to products used predominantly in civilian applications, then the company can possibly avoid the more restrictive ITAR determination. However, the State Department has considerable discretion in determining whether a company falls under ITAR, Luther explained.

If the State Department deems the product militarily significant, it becomes an ITAR item. However, it also is important to understand the ITAR “See-Through Rule.” Under this rule, if a company offers an item that predominantly is used in a civilian setting but it includes a military component, the State Department will “see through” the item, and the entire product will be regulated by ITAR.

Another common situation in which an item may be placed under the ITAR umbrella is in the original design or source of funding. If it was designed originally for military application or was funded by the military, this creates the presumption that the item is subject to ITAR. Further, the present intended use generally is not relevant to the determination.

Navigating ITAR is not a simple undertaking. The regulations have been in place for decades and have remained fairly stable; however, as a result of the more global economic environment, enforcement has undergone substantial change. A working knowledge of ITAR—when the regulations are applicable and a company’s responsibilities relate to compliance—is an important basic. Luther concluded that, “There is no better way to curry favor with, or reassure a business partner, particularly a prime, than to show you actually know what these rules are and that you have a system of compliance in place.”

Small business representatives from several prime contractors who attended the meeting remarked about how important it is for their subcontracting partners to have at least a working knowledge of ITAR. In a preface to Luther’s presentation, Ludmilla Parnell, director, Small Business Partnerships, General Dynamics Information Technology, remarked, “If you are going to be involved with a large company as a subcontractor, you absolutely must be aware of the ITAR.”

The regulations are being addressed in her company’s offices daily, and export-control language may be included in subcontract agreements with small businesses, she said. It is important for small business personnel to be aware of what they are signing, Ludmilla emphasized. “If you are not,” she cautioned, “you could find yourself in a position of accountability without even realizing it.”

Small Business Committee Co-chairman David A Lee Jr. reiterated the importance large companies place on this accountability by adding that Science Applications International Corporation (SAIC) has an entire section devoted to ITAR and export control. Lee currently serves as vice president and program manager of the company’s Mentor-Protégé program in SAIC’s Enterprise and Mission Systems business unit.

 

Presentation materials and a podcast of this presentation are available on the Small Business Committee site.