The Department of State Directorate of Defense Trade Controls (“DDTC”) zealously guards its discretion to carry out foreign affairs functions. This is why, despite hundreds of pages in regulations, Federal Register notices, and various forms of written guidance, the vast majority of information necessary to export controls compliance is unwritten. It is also the reason why additional agency guidance is often required. Unfortunately, DDTC continues to place government enforcement interests above industry needs to understand what is required under the International Traffic in Arms Regulations (“ITAR”).
DDTC is charged with administering the ITAR. In doing so, it performs very limited public outreach. But it does have a unit named the “DDTC Response Team” which, according to the agency’s website, is available to provide “responses to the full range of defense trade inquiries” and “fields basic process and status questions, and assists exporters in identifying what they need to do to get answers to more complex questions involving issues substantively handled by DDTC’s licensing and compliance offices.”
Assistance from the Response Team comes with some significant strings attached. According to its members, the Team follows an operating instruction that it will only reply to inquiries in which all parties to a proposed or actual export transaction are identified, and the defense article, technical data, or defense service is specified. The implications of this instruction are extraordinary.
Under the DDTC Response Team operating instruction:
1) You cannot obtain guidance from the Response Team on the scope of permissible activities in advance of arranging a transaction unless you already have specific transaction information.
Under the operating instruction, the Response Team will not provide guidance until you have party names and other specific information on a proposed or actual transaction. This presents a “Catch-22” situation in cases where you may not yet have specific transaction information but nevertheless require assistance on how to arrange an ITAR-controlled transaction. Absent specific information, such assistance is not forthcoming, ultimately setting you up to commit inadvertent violations as you engage in activities that are a prerequisite to obtaining specific information and establishing eligibility for Response Team guidance, such as submitting proposals and establishing relations with brokers. In these cases, consider making the request to the Response Team and documenting its refusal to provide guidance in case proof of the agency’s refusal to assist you is later needed.
2) You cannot obtain guidance from the Response Team necessary to maintain your company’s export control compliance policies and procedures.
Export compliance policies and procedures frequently raise general compliance questions that may not involve specific parties or a specific defense article, technical data, or defense service. Although such questions can be easily resolved on the telephone with agency officials, the operating instruction theoretically precludes the Response Team from responding to them. Similar to cases of DDTC refusals to provide guidance on transactions, you should document any DDTC refusal to provide guidance.
3) Your attorney cannot obtain guidance from the Response Team on your behalf without disclosing confidential information protected under the attorney-client privilege.
Despite laws on preservation of the attorney-client privilege and confidentiality of client information, DDTC equally applies the Response Team operating instruction to attorneys. Thus, the instruction forces attorneys to disclose such information to DDTC, which effectively requires them to violate other laws and their ethical obligations in order to obtain compliance advice on their client’s behalf. Although you may consent to your attorney’s disclosure of specific information to DDTC, doing so can expose you to inquiries regarding the legality of a particular transaction, a visit by law enforcement agents, or even a DDTC directed disclosure request, particularly in cases of inquiries involving past transactions.
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As noted by the New York City Bar in a 2009 letter to DDTC that raised a variety of concerns with the operating instruction, “[t]he lack of ability to seek general guidance is in conflict with the statement on DDTC’s website that the purpose of the Response Team is to field basic process and status questions and to assist exporters in identifying what they need to do to get answers to more complex questions.”
The DDTC website does not discuss the operating instruction, nor does it provide a rationale for the instruction. Reportedly, however, the operating instruction is intended to artificially reduce staffing demands, prevent attribution of incorrect advice to agency officials in defense of enforcement actions, and help the DDTC Enforcement Division establish specific intent in criminal prosecutions. Indeed, industry experience has shown that, depending on the nature of your discussions with Response Team members, the information you provide can lead to other enforcement activities.
Will DDTC maintain the operating instruction? Only time will tell. But the instruction constitutes a “rule” under the meaning of the Administrative Procedures Act (“APA”), which prohibits agencies from unreasonably withholding action, instituting arbitrary and capricious rules, and from not adhering to formal rulemaking requirements. Given industry’s dire need for guidance in a complex area of law and the availability of other enforcement resources to DDTC, the validity of the operating instruction under the APA is questionable. It is even more questionable given the conflict with state laws caused by the operating instruction’s requirement to effectively waive the attorney-client privilege. Regardless of what judicial challenge may lay on the horizon, the instruction so clearly chills industry requests for guidance and undermines good faith efforts to comply with the ITAR that DDTC should address it on its own accord. This is also an appropriate time for DDTC to revisit the instruction given current reform efforts aimed at eliminating inefficient export control agency procedures.
* The above is not intended as an exhaustive list of restrictions that may apply to a particular transaction nor advice for a specific transaction because the specifics of an individual case may implicate application of other U.S. laws as well as foreign laws that carry added or different requirements. In addition, U.S. export control and sanctions laws are frequently subject to change. Such changes can affect the continued validity of the information above, which is based on U.S. law existing as of November 7, 2013. For these reasons, assistance from a qualified attorney competent to advise on such matters is highly recommended.
Matthew A. Goldstein is an International Trade Attorney in Washington D.C. licensed to practice in the District of Columbia. He can be reached at (202) 550-0040 and Matthew@GoldsteinPLLC.com.
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