Export Controls: Relaxed Rules on Defense Article Transfers to Dual and Third-Party National Employees of Foreign Licensees and End-Users under ITAR

by Miller Canfield

The International Traffic in Arms Regulations (ITAR) was recently amended to reflect the U.S. Department of State’s new policy regarding transferring unclassified Defense Articles to dual and third-country national employees of authorized foreign business entities, foreign governmental entities, and international organizations (Foreign Licensees) and their authorized end-users (End-Users). 

Prior to the amendment, Foreign Licensees and their End-Users receiving Defense Articles from a U.S. exporter could not transfer Defense Articles to any of their dual or third-country national employees unless certain additional personal information was provided to the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC). 

Providing personal information created a significant administrative burden on U.S. exporters and on the Foreign Licensees and End-Users.  In addition, since many foreign countries have enacted privacy and human rights legislation that restrict a company’s ability to collect personal data on nationality and make employment decisions based on nationality, in some instances the requirement caused the Foreign Licensees and/or their End-Users to violate labor, privacy, and human rights legislation of their home countries.  Such violations in turn created tension between the U.S. and some of its allies. 

To alleviate the administrative burden on U.S. exporters and their Foreign Licensees and End-Users and to avoid impairing the relationship of the U.S. with its allies, the U.S. Department of State amended the ITAR on August 15, 2011. 

The amendment added the definition of “regular employee” to ITAR Section 120, slightly modified the existing ITAR Sections 124.8(5) and 128.16, and added a completely new ITAR Section 126.18. 

The amended ITAR Section 124.8(5) provision now requires all Technical License Agreements and Manufacturing License Agreements to include the following clause:

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 Sections 124.16[1] and 126.18, as specifically authorized in this agreement, or where prior written approval of the Department of State has been obtained.

The new ITAR Section 126.18 addresses situations where ITAR Section 124.16 cannot be implemented because of applicable domestic law.  Under this new provision, no approval is needed from the DDTC for the transfer of unclassified Defense Articles to or within a Foreign Licensee and its End-User, including the transfer to dual or third country nationals who are bona fide, “regular employees,” directly employed by the Foreign Licensee or End-User. 

In order to utilize the exemption, the following conditions must be met:

   1.  The transfer must take place wholly within the physical territory of the country where the Foreign Licensee conducts official business or operates or where the End-User is located;

   2.  The transfer must be within the scope of an approved export license, other export authorization, or a license exemption; and

   3.  The Foreign Licensee and End-User must have “effective procedures to prevent diversion” to destinations, entities or for purposes other than those authorized by the applicable export license or other authorization.

The new amendment shifts the compliance burden of having “effective procedures to prevent diversion” to the authorized Foreign Licensee or End-User.  This burden can be met in two ways. 

First, if the Foreign Licensee or End-User has received security clearance for its employees approved by its host nation’s government, it will be considered to have “effective procedures to prevent diversion.” 

Second, if such a security clearance has not been received, the Foreign Licensee or End-User can still meet the requirement of having “effective procedures to prevent diversion” if it:

has in place a process and a technology security/clearance plan to screen its employees to make sure that the employees do not have any “substantive contacts” with restricted or proscribed countries listed in ITAR Section 126.1


has executed a Non-Disclosure Agreement with its employees that provides assurances that the employee will not transfer any Defense Articles to persons or entities unless specifically authorized by the Foreign Licensee or End-User. 

Moreover, the Foreign Licensee and End-User must maintain records of its screening activities for five years, and records must be made available to the DDTC or its agents.

While the compliance burden has shifted to the Foreign Licensee and End-User, the U.S. exporter will still be held responsible if something goes wrong. 

Accordingly, if U.S. exporters wish to rely on the new exemption, they should carefully review the screening policies and procedures of their Foreign Licensees and End-Users to confirm that they are effective and that the policies and procedures are adequately being followed.   

Contact Gurinder J. Singh for additional information.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Miller Canfield | Attorney Advertising

Written by:

Miller Canfield

Miller Canfield on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.