Day 1 1300 ITAR PART 129 and 130 · 2018-05-01 · ITAR PART 129 and PART 130. HISTORY SIA Proprietary Part 129 (1997) • “Ensure that arms export support the furtherance of U.S.

Society for International Affairs

Joshua FitzhughCounselClifford Chance US LLP

Jeff MerrellVP Strategic Export ControlRolls-Royce North America

Jason Prince PartnerHolland & Hart LLP

Jennifer K. Weinel Asst. Gen. Counsel – Export/ImportNorthrop Grumman Corporation

ITAR PART 129 and PART 130

HISTORY

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Part 129 (1997)

• “Ensure that arms export support the furtherance of U.S. foreign policy objectives, national security interests and world peace. More specifically, in some instances U.S. persons are involved in arms deals that are inconsistent with U.S. policy. Certain of these transactions could fuel regional instability, lend support to terrorism or run counter to a U.S. policy decision not to sell arms to a specific country or area.” (House Report 104-519: Part I, Section 151. "Brokering Activities relating to Commercial Sales of Defense Articles and Services.”)

Part 130 (1976) / FCPA (1977)

• USG concern with international defense trade companies and their agents making corrupt payments to obtain or retain business abroad

OVERVIEW OF PART 129 - DEFINITIONS

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• Broker• US person anywhere, foreign person located in the US or foreign person

“owned or controlled by a US person”

• Brokering Activity• Facilitate, solicit, promote, etc.

• On behalf of another

• US or Foreign Defense Article or Defense Service

• Does not include “administrative services,” action of employees of USG or “affiliates,” etc.

• Requirement to Register• Can be consolidated

OVERVIEW OF PART 129 - BROKERING

• License Required• For any foreign defense article/service

• US origin defense articles/services identified in 129.4(a)(2)

• Exemptions• For USG

• Foreign defense article/services (except those in 129.4(a)(2)) arranged wholly and destined exclusively for NATO, its member countries, Australia, Israel, Japan, New Zealand and Republic of Korea

• Annual Reporting Requirement • Including exempt activity

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THE SLIPPERY SLOPE – BROKERING ACTIVITIES?

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Brokering

Financing; insuring; transporting; freight forwarding; or soliciting/promoting, negotiating, contracting, arranging or otherwise assisting in purchase/sale/transfer/loan/lease

Could be Brokering

Pre-contract activities for potential FMS sale; life cycle support/drop shipments; ancillary facilitation (offset, etc.)

Not Brokering

Arranging office space/equipment; advertising; collecting product/pricing information for RFP; general promotion of good will at trade shows

BEST PRACTICES & TOOLS/RESOURCES

• Identifying• Supplier questionnaire & management process/tool

• SOW restrictions

• Registration requirements

• Monitoring • Training

• Invoice review

• Supplier questionnaire

• Periodic review/audit and assessment of need for third parties

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OVERVIEW OF PART 130 –CONTRIBUTIONS/FEES/COMMISSIONS

• Requires reporting on certain payments relating to sales of defense articles and services -• Political Contributions, Fees and/or Commissions

• “For the solicitation or promotion or otherwise to secure the conclusion of a sale of defense articles or defense services…”

• Paid, Offered or Agreed

• In relation to License/Agreement applications and FMS Contracts

• Involving defense articles and/or defense services valued at $500,000 or more

• For use by the armed forces of a foreign country or international organization

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OVERVIEW OF PART 130 – THREE SCENARIOS

• Requirements in Three Distinct Scenarios• Applicant – when applying for export approval (including vendors)

• Supplier – prime contract with USG for FMS (including vendors) (30-day deadline)

• Vendor – subcontractor/vendor to an Applicant or Supplier (20-day deadline)

• Supplemental • Updates – when new payments are discovered or facts change (30-day deadline)

• Thresholds• Initial Report: Political contributions = $5,000 or more (aggregate);

Fees/commissions = $100,000 or more (aggregate)

• Supplementary Reports: Political contributions = $2,500 or more (aggregate); Fees/commissions = $50,000 or more (aggregate)

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FINDING AND MONITORING PART 130

• Automation is your friend!

• Where to look –• Ethics/Compliance, Procurement, HR, Contracts, Finance, BD, Giving, Gov’t

Relations, Legal/ABC, Audit, Sectors/Programs

• Vendor queries – Use standard templates; 130.12(b) timelines (20 days); impose as PO requirement

• Supplier – FMS Contract checklist

• Applicant – Establish baseline before license or Agreement application, refresh periodically from there

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THE INTERSECTION OF PART 129/130 AND

ANTI-CORRUPTION COMPLIANCE

• Part 129/130 overlap with other regulations • Foreign Corrupt Practices Act (DoJ/SEC)

• UK Bribery Act (Serious Fraud Office)

• Disclosures• Part 129/130 – be aware of DoJ/SEC considerations

• FCPA – be aware of Part 129/130 impact

• Enforcement• Why the enforcement disparity between US and non-US companies?

• Reminders and precedents from BAE case 7 years later

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TAKEAWAYS

• When considering your company’s own requirements• Register, as required

• Obtain licenses, as required

• Annual Report upon renewal

• When considering 3rd party relationships• Perform Anti-Corruption due diligence

• Evaluate whether SOW requires the 3rd party to register as a Broker • Ensure/request confirmation of registration before tasking

• Track payments

• Ensure YOU are reporting offers/agreements/payments timely

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