MISSILE TECHNOLOGY CONTROL REGIME (MTCR):

UNCLAS STATE 108901 SIPDIS PARIS FOR POL: NOAH HARDIE BRASILIA FOR POL: JOHN ERATH E.O. 12958: N/A TAGS: MTCRE ETTC KSCA MNUC PARM TSPA FR BR SUBJECT: MISSILE TECHNOLOGY CONTROL REGIME (MTCR): BROKERING CONTROLS IN THE UNITED STATES ¶1. (U) This is an action request. Please see paragraph 2. ¶2. (U) ACTION REQUEST: Department requests Embassy Paris provide the interagency cleared paper "Brokering Controls in the United States" in paragraph 3 below to the French Missile Technology Control Regime (MTCR) Point of Contact (POC) for distribution to all Partners and posting on EPOC. Info addressees also may provide to host government officials as appropriate. In delivering paper, posts should indicate that the U.S. is sharing this paper as part of our preparation for the Information Exchange that will be held in conjunction with the MTCR Plenary in Rio, November 9-13, 2009. NOTE: Additional IE papers will be provided via septels. END NOTE. ¶3. (U) BEGIN TEXT OF PAPER: (UNCLASS) Brokering Controls in the United States U.S. Department of State In July 1996, the United States Congress amended the Arms Export Control Act (AECA) to include the registration and licensing of arms brokers and brokering activities in order to prevent transfers of U.S. defense articles and or foreign defense articles by U.S. persons from one non-U.S. person to another without the benefit of review and approval from the United States Government (USG). In December 1997, the International Traffic in Arms Regulations (ITAR),which implements the AECA, was amended to expand the definitions of broker and brokering activities, as well as to establish requirements for broker registration, licensing of brokering activities, prohibitions on brokering involving certain countries or persons under U.N. or U.S. embargoes or sanctions, and for an annual brokering activity report. Responsibilities for the regulation of broker and brokering activities were assimilated into the offices already established within the U.S. Department of State to administer arms export registration and licensing. The enforcement provisions of the AECA and the ITAR cover brokering activities. United States law, regulations, and policy regarding arms brokers: ¶A. United States Law 22 United States Code (U.S.C.) Section 2778(b)(1)(A)(ii), outlines the requirements for registration and licensing requirements for arms brokers. Specifically, this section requires that every person engaging in brokering activities pay a fee and register with the U.S. Department of State, the USG agency responsible for implementing Section 2778. In addition, brokers must obtain licenses for brokering activities other than certain activities by or for USG agencies. When a brokering license request is submitted for the export of defense items (defense articles, to include technical data, and defense services),the following evaluation criteria are considered to determine whether the proposed transaction will: * Contribute to the arms race; * Aid in the development of weapons of mass destruction/their means of delivery; * Support international terrorism; * Increase the possibility of outbreak or escalation of conflict; or * Prejudice the development of bilateral or multilateral agreements relative to arms control or non- proliferation. ¶B. U.S. Regulations and Policies The statutory authority of the President to promulgate regulations with respect to exports of defense articles and defense services was delegated to the Secretary of State and further delegated to the Deputy Assistant Secretary of State for Defense Trade Controls and the Managing Director, Directorate of Defense Trade Controls (DDTC). The ITAR implements the AECA. Definitions Part 129 of the ITAR covers brokering controls, but other sections of the regulation also apply - particularly as related to key definitions of persons, defense articles, defense services, eligibility to engage in exporting or brokering activities , policy on embargoes and other proscriptions , registration requirements and the reporting of commissions, political contributions or fees. Specifically, Part 129 provides: * A definition of a broker as any person who acts as an agent, in the broadest sense, in negotiating or arranging, contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or other consideration. But, acting as an agent is just one way of engaging in brokering activities. The 1997 Federal Register notice notifying the public of the brokering amendment offers another explanation of brokering that includes: "...any person...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." Examples may include a U.S. or foreign person sales representatives of a U.S. manufacturer of U.S. defense articles; a U.S. person finding buyers for a foreign manufacturer of foreign defense articles; or an internet company that matches buyers and sellers involving defense articles based on agreements with one or the others. * The definition of a broker applies not only to U.S. persons, whether living in the U.S. or overseas, but to foreign persons otherwise subject to U.S. jurisdiction. For example, a foreign person who serves as a finder, or facilitates the sale of U.S. defense articles or defense services, would be under U.S. jurisdiction. In addition, a U.S. person who serves as a finder or facilitates the sale of U.S. or foreign defense articles or defense services is covered by the brokering regulations. * Section 129.2(b) of the ITAR states that "brokering activities mean acting as a broker, and includes the financing , transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, import or transfer of a defense article or defense service, irrespective of its origin." However, the ITAR also provide exemptions for "persons exclusively in the business of financing, transporting, or freight forwarding, who business activities do not also include brokering defense articles or defense services." In addition, air carriers who merely transport or arrange transportation, or banks that provide commercially available lines of credit, for defense items are not required to register. Licensing * With respect to the licensing of brokering activities, the same policies established in the regulations for the licensing of defense articles and defense services apply, except U.S. or foreign registered brokers may apply for brokering licenses. Brokers must identify the defense articles to be brokered, the end-user, potential entities or individuals who will be involved in the activity, etc. This information is critical to ensuring that brokering activities requiring licenses are thoroughly vetted and screened to ensure all parties are eligible and not subject to embargoes, sanctions or debarment, for example. * Brokering activities involving defense articles and defense services -- including MTCR items -- always require prior approval from the U.S. Government. Reporting Requirements The ITAR requires all registered brokers to submit an annual report providing details of brokering activities conducted during the prior year. The annual report is to include who was involved, what countries were involved, what defense articles or services were involved, whether brokering activities occurred or not, and the potential consideration to be paid or value of the transaction. Additionally, those engaging in brokering activities may be required to submit quarterly activity reports to the Licensing Office, imposed as a condition of their approval of their brokering request. Violations The regulation of brokering activities under the ITAR and the AECA are supported by more than a decade of enforcement activity. Education and coordination continue with U.S. Immigration and Customs agents, Customs and Border Protection Inspectors, the Federal Bureau of Investigation, and Assistant U.S. Attorneys on the regulations and necessary enforcement actions. The Directorate of Defense Trade Controls also has the authority to initiate civil enforcement actions and, as necessary impose fines and penalties, and to direct remedial compliance measures. DTCC can impose remedial measures as part of consent agreements. The ITAR was amended to include an explicit violation -- involving the engagement in the business of brokering activities for which registration, a license or written approval is required -- without first registering or obtaining the required brokering license from the Directorate of Defense Trade Controls. Importantly, any person who is granted a license or other approval under the regulations is responsible for the acts of employees, agents, and all authorized persons to whom possession of the license defense article or technical data has been entrusted regarding the operation, use, possession, transportation, and handling of such defense articles or technical data abroad. This applies irrespective of the number of intermediate transfers and bounds those having custody (to include a broker should they be provided a defense article to include related technical data) to the same extent as the original owner or transferor. Penalties for Violations Any person who willfully violates any provision of Sections 38-39 of the AECA, or makes any untrue statement of material fact, or omits a material fact required to be stated in a registration, license application or report required by the law or regulation may be subject to a fine not to exceed $1,000,000 for each violation or imprisonment of no more than ten years or both. Civil fines may not exceed $500,000 for each violation. Trends The number of brokers registered with the U.S. now totals more than 1,000. This represents significant growth in the past three years. We have seen a growing trend involving brokers who engage in activities in many more countries than previously. We also see a growing trend in brokers who find suppliers overseas, and the delivery of the actual defense articles never passes through U.S. territory and may therefore be subject to an export license issued by another governmental export authority. END TEXT OF PAPER. ¶4. (U) Please slug any reporting on this or other MTCR issues for ISN/MTR. A word version of this document will be posted at www.state.sgov.gov/demarche. CLINTON