The United States Court of Appeals for the District of Columbia Circuit recently dismissed a case filed against the State Department Directorate of Defense Trade Controls (“DDTC”) by the author’s law firm, finding that DDTC only intends to apply Arms Broker regulations, codified at Part 129 of the International Traffic in Arms Regulations (“ITAR”) [FN 1], to attorneys who act as “finders” in sales of ITAR-controlled articles and services. [FN 2] This decision, and DDTC representations to the Court of Appeals, provide critical guidance for every export control attorney.
Summary of the Case
Documents detailing the substantive and procedural history of the case are available at goo.gl/p6d2GZ.
Shortly after ITAR Part 129 was amended in August 2013 to exclude certain legal advice by attorneys [FN 3], and after a series of correspondence seeking clarification from DDTC on the exact scope of legal advice that may be subject to Part 129, the plaintiff filed suit in federal district court alleging, among other things, that DDTC lacks constitutional and statutory authority to apply Part 129 to bona fide legal advice by licensed attorneys. [FN 4]
After the suit was filed, DDTC sent the plaintiff a letter advising that Part 129 would not apply to the legal advice at issue “as long as the client has already identified the foreign party/parties” to a transaction. DDTC then moved to dismiss the lawsuit for lack of standing, and the district court granted the motion. [FN 5]
The plaintiff appealed to the Court of Appeals for the District of Columbia Circuit. At oral argument, the Justice Department advised the Court that the only example DDTC can identify of an attorney providing legal advice in a manner that implicates Part 129 is the use of legal advice to steer a client towards a particular buyer or a particular seller. [FN 6]
The Court of Appeals Ruling
On March 14, 2017, the Court of Appeals issued an Order affirming the District Court’s dismissal of the case for lack of standing. More specifically, the Court found that DDTC’s 2013 amendment to Part 129 to explicitly remove legal advice from the definition of brokering activities, the letter sent by DDTC after the suit was filed, and DDTC’s representation at oral argument that it only seeks to regulate situations where attorneys act as “finders,” demonstrates that the plaintiff is not subject to Part 129. [FN 7]
The Court of Appeals noted:
“True, an attorney like Goldstein could provide legal advice in a manner that constituted brokering, but the State Department has explained that the only such situation it has identified is when an attorney acts as a “finder” by, for example, helping clients to identify or locate foreign counterparties for proposed transactions.” [FN 8]
The Court therefore held:
“[B]ecause the firm alleges that it intends only to provide legal advice and denies that it will act as a finder (or collect a contingency fee) in the process, it has not shown that it faces a meaningful risk that the State Department will seek to enforce Part 129 against it, either by forcing it to register or by penalizing it for failure to register.” [FN 9]
The Finder Rule
DDTC’s Finder rule is much narrower in focus than what was litigated in the District Court — i.e., DDTC’s position that Part 129 would not apply to legal advice “as long as the client has already identified the foreign party/parties” to a transaction. Addressing this, the Court of Appeals stated that the law firm’s concerns were “based on a misunderstanding” and that the “as long as” language in the DDTC letter was intended to create a limited safe harbor:
“when an attorney provides ordinary legal services to a client in a situation where the foreign party has been identified, it is especially clear that the attorney is not helping to ‘find’ the foreign party to the transaction—and thus not engaging in brokering activities. If the foreign party has not been identified, that merely leaves open the possibility that the attorney may be acting as a finder.” [FN 10]
Of course, if DDTC truly intended to only impose Part 129 on attorneys who act as finders, it could have simply said so from the start, before the case was filed. It could have added a FAQ stating the new exception to Part 129 for attorneys does not apply where an attorney acts as a finder. It could have clearly stated its intent to only control attorneys who act as finders in the letter it wrote to the plaintiff, ending the case from the start. It could have further stated its intent in the memoranda it filed with the district court. But it never did so.
Finder Rule Pitfalls
Regardless of whether the initial DDTC position was truly intended as a safe harbor or (in the author’s view) resulted from a change in litigation strategy at the appellate level, it is clear that the Court of Appeals based its decision on DDTC’s assurance that the agency will only impose Part 129 on an attorney who acts as a “finder.” This narrowing of DDTC’s stated focus to finders is a ‘win’ for attorneys because acting as a finder for a fee or commission in sales of defense articles is the very definition of an arms dealer—an act well outside the scope of bona fide legal advice.
Nevertheless, attorneys are not entirely in the clear because DDTC apparently takes a broad view of what constitutes a finder. For example, at oral argument the Justice Department explained that “the only example . . . that the Agency has been able to identify” of an attorney providing legal advice in a manner that implicates the brokering regulation involves the use of that “legal advice to steer a client towards a particular buyer or a particular seller.” [FN 11] The Justice Department further described a situation where DDTC might consider an attorney acting as a finder:
“[F]or example, if someone comes to an attorney and they want to sell controlled explosives, and they ask the attorney to draft a general sales contract, that would be legal advice, [and] it would not constitute brokering. But if the same person came to the attorney, asked them to draft a general sales contract and the attorney happens to also represent a buyer in Pakistan and knows the buyer would want to buy these controlled explosives, and so the attorney recommends that the contract be translated into Urdu knowing that this is going to be the only likely buyer in the area, then the attorney might have used non-legal knowledge and tried to steer the seller towards the particular buyer even though he was engaging in legal advice.” [FN 12]
Of particular significance to many export control attorneys, the DDTC restriction on attorneys who “steer a client towards a particular buyer or a particular seller” logically extends to attorneys that steer clients to foreign companies that produce ITAR-free parts and components. It also extends to attorneys who steer clients towards foreign partners with robust compliance programs, who are willing to sign a DSP-83 nontransfer and use certificate, and who present low risks of diversion.
In addition, it is not entirely clear if and how the Finder rule applies to attorneys who steer clients to domestic parties. Here, on the topic of referrals to financial institutions, the DDTC letter to the plaintiff states, “as long as you provide a listing from open sources of potential financial institutions for selection by your client” advising clients on the availability of financing for export sales of defense articles and defense services is not subject to Part 129. [FN 13] The DDTC letter does not state whether this limited exception also applies to referrals to other export-related service providers, such as freight forwarders, custom brokers, etc. Even if it did, DDTC frequently warns that advisory opinions are issued on a case-by-case basis and should not be relied upon by persons other than the requestor.
No Decision on the Merits
Finally, it is important to note that this case, like so many others against U.S. government agencies, was dismissed for lack of standing. There was no decision on the merits of the underlying claim that DDTC lacks constitutional and statutory authority to apply Part 129 to bona fide legal advice. This means that the claims are still viable and another plaintiff can consider pursuing the same or substantially similar claims in subsequent litigation if they have standing.
* * *
 22 C.F.R. Parts 120-130.
 Court of Appeals Order p. 9 in GOLDSTEIN PLLC v. DDTC et al., United States Court of Appeals for the District of Columbia Circuit Docket No. 16-5034, available at goo.gl/p6d2GZ
 78 Fed. Reg. 52,681, 52,681 (Aug. 26, 2013); relevant section of amendment implemented at 22 C.F.R. § 129.2(b)(2)(iv).
 See Amended Complaint for Declaratory and Injunctive Relief in GOLDSTEIN PLLC v. DDTC et al., D.C. District Court Docket No. 1:15-cv-003110RC, available at goo.gl/p6d2GZ
 The legal doctrine of standing requires that a plaintiff show an injury or imminent threat of harm from the challenged government action that is sufficient to ensure the plaintiff has a stake in the action
 Court of Appeals Order p. 9, citing Oral Arg. Tr. 28:14-29:3; Recording of Oral Argument, available at https://goo.gl/PpLPtv
 Court of Appeals Order p. 11.
 See Court of Appeals at p. 9, citing Oral Arg. Tr. 38:10-14.
 Court of Appeals Order p. 11.
 Court of Appeals Order p. 10.
 Court of Appeals Order p. 9, citing Oral Arg. Tr. 28:14-29:3.
 Court of Appeals Order p. 9 fn 2, citing Oral Arg. Tr. 28:14-29:3.
 See DDTC May 2015 Response to Advisory Opinion Request, available at goo.gl/p6d2GZ
*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 March 16, 2017. 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