CONSULTANTS CORNER

Jenny Hahn, President

Your company manufactures defense articles and has been told that in order to conduct any international business such as marketing the defense articles or actually making a sale and selling hardware, software or services, you must first be registered with the Department of State as a precursor to applying for any ITAR export license. Then you learn that the company must have someone sign the ITAR license application and that person is called the “ITAR Empowered Official”.

Sounds simple and administrative. Anyone in the company should be able to fulfill this function, right?

Actually, who the company designates as the ITAR Empowered Official is a very important first step in the company trade compliance program. The ITAR Empowered Official is responsible to meet the conditions set forth in the ITAR for this position and in many small companies the ITAR Empowered Official is also responsible for the company trade compliance program.

If you have been “selected” or “volunteered” for the role of ITAR Empowered Official, it is important to first know what the ITAR states your qualifications should be. The Department of State often asks about the qualifications of the persons in your company designated as the trade compliance personnel including the ITAR Empowered Official. Selection is key.

Lets review the ITAR regulation at ITAR 120.25:

§ 120.25 Empowered Official

(a)  Empowered Official means a U.S. person who:

(1) Is directly employed by the applicant or a subsidiary in a position having authority for policy or management within the applicant organization; and

(2) Is legally empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant; and

(3) Understands the provisions and requirements of the various export control statutes and regulations, and the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and the International Traffic in Arms Regulations; and

(4) Has the independent authority to:

(i) Inquire into any aspect of a proposed export, temporary import, or brokering activity by the applicant;

(ii) Verify the legality of the transaction and the accuracy of the information to be submitted; and

(iii) Refuse to sign any license application or other request for approval without prejudice or other adverse recourse.

Lets analyze each element of the requirements.

U.S. Person – The ITAR defines “Person” as a natural person or a corporation, business association, partnership, society, trust, or any other entity, organization or group, including governmental entities. A U.S. person meets the “Person” definition, and is a citizen of the United States, a lawful permanent resident a.k.a. green card holder or a person here in the US on a protected status (religious or political asylum).

Directly employed by the applicant or a subsidiary – other than stating the obvious, this means that external resources such as your outside counsel, consultant, or past ITAR Empowered official who retires and consults back to the company part time on a 1099, cannot fulfill this role.

In a position having authority for policy or management within the applicant organization - Typically Directors, Managers, Vice Presidents and Presidents are some of the titles associated with the person fulfilling this role. If your title is contracts administrator, shipping clerk, administrative assistant, it suggests that the role you play in the company does not carry the level of responsibility or authority for policy or management to meet the threshold to be designated as the ITAR Empowered Official.

Is legally empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant - A letter is required from the Key Senior Officer (the person who signed the registration statement with the Department of State) to you designating you formally as the company ITAR empowered official. If you are at a subsidiary location, the letter should specify that you are limited to signing authority for your location only. Corporate empowerment letters can simply restate the ITAR definition at §120.25 or they can be more expansive articulating the responsibilities of the ITAR Empowered Official for the company trade compliance program or responsibilities that person may also hold. Each ITAR Empowered Official should maintain this letter in their files, Human Resources should also maintain it in the personnel file and the corporate books should maintain a copy.

Understands the provisions and requirements of the various export control statutes and regulations-

This means the ITAR Empowered Official should be able to do more than spell ITAR! It is expected that you will have had training in the International Traffic In Arms Regulations so that you can assert that you understand the regulations. But that is not enough. The ITAR references various export control statutes and regulations. Related regulations include the Foreign Trade Regulations, which every ITAR hardware export transaction interfaces with; the Office of Foreign Assets Controls, which maintains a list of persons and companies and countries that require separate approvals to make exports to from what the ITAR or EAR may impose; the Foreign Corrupt Practices Act, that prohibits the making of payments or other gifts to influence a sale to a government (bribe); and the Export Administration Regulations that regulates the items that were once ITAR but moved over the last few years as a result of Export Control Reform, along with truly commercial or dual use items. That’s a lot of regulations you should be familiar with!

And the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and the International Traffic in Arms Regulations- It is critically important that as the ITAR Empowered Official, you know what the fines and penalties are for willful a.k.a. criminal violations and those unwitting inadvertent mistakes made by the company. The ITAR Empowered Official and the company should understand what the possible outcomes could be for the company and responsible individuals in terms of jail time, denial of export privileges and fines as well as understanding the overall financial costs the company could have as a result of export violations not to mention the potential to lead to repercussions in government contracts including suspension or debarment.

Regular training of the ITAR Empowered Official to understand the civil and criminal penalties is necessary. Penalties are updated on a periodic basis and adjusted for inflation.

Has the independent authority to:

1. Inquire into any aspect of a proposed export, temporary import, or brokering activity by the applicant -The ITAR Empowered Official should be able to question any functional department personnel about the transaction, including business development, finance, contracts, sales, legal, shipping.
2. Verify the legality of the transaction and the accuracy of the information to be submitted- The tools and resources should be readily available to the Empowered Official to conduct due diligence and confirm the proposed transaction is a legitimate business dealing with qualified eligible parties.
3. Refuse to sign any license application or other request for approval without prejudice or other adverse recourse – This means the boss can’t fire the ITAR Empowered Official if the ITAR Empowered Official says I am not comfortable with proceeding based on what I know about this transaction.

Based on the criteria enumerated in the ITAR to fulfill this role, the ITAR Empowered Official should be a person within the company that has knowledge about the regulations, understand the scope of the regulations, the penalties if not abided by, the respect of company employees to follow the ITAR Empowered Official lead and understanding and buy-in by management that no one can override any unfavorable decision made by the ITAR Empowered Official concerning a pending export transaction.

This role is often entered into by employees who are volunteered for the position because they are available or because they heard about the ITAR on their last job. The requirements to fulfill the ITAR Empowered Official position is much more demanding and carries with it significant expectations by the Department of State regarding this responsibility and how the company ensures that it selects qualified candidates. The company is expected to ensure that the ITAR Empowered Official receive regular training regarding the export regulations and criminal and civil penalties.

If you read this article and questioned your qualifications, or thought you might need more training, join us for our ITAR Empowered Official classes in April and November!  We discuss in detail the compliance roles ITAR Empowered Officials take on..