Department of State is Stepping up Enforcement of ITAR related to Manufacturers

Frequently, clients that are considering or have obtained their 07 manufacturing Federal Firearms License (FFL) inquire as to whether they must register with the Directorate of Defense Trade Control of the State Department under the Arms Export Control Act (AECA), which is implemented through the International Trafficking in Arms Regulations (ITAR). While very few 07 FFLs register under ITAR, they are generally required to do so and the Department of State is stepping enforcement of those 07 FFLs that have not registered.

22 C.F.R. Section 122.1 states, “Any person who engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services is required to register with the Directorate of Defense Trade Controls.” The only possible exception for a manufacture, unless the item is not a defense article, is for “Persons who engage only in the fabrication of articles for experimental or scientific purpose, including research and development.” As for what constitutes a defense article, it is those items which are designated by the President and listed in the US Munitions List, pursuant to 22 C.F.R. Section 120.2. Currently, although there is a push to reform the list and remove general firearms from ITAR and move them over to the Bureau of Industry and Security under the Department of Commerce, any firearm, with the exception of a non-combat shotgun with a barrel length over 18″, are defense articles, pursuant to 22 C.F.R. Section 121.1.

Many manufactures refuse to register because of the annual fee of $2,250.00, as set forth by 22 C.F.R. Section 122, for those who have no need to obtain export licenses. However, several 07 FFLs have recently been contacted by the Department of State for their failure to comply with the registration requirements. The letter received states the following:

United States Department of State
Bureau of Political-Military Affairs
Directorate of Defense Trade Controls
Office of Defense Trade Controls Compliance Compliance & Registration Division
Washington, D. C. 20522-0112
<date>

To Whom It May Concern:

Section 38 of the Arms Exports Control Act (AECA) and Section 122.1 of the International Traffic in Arms Regulations (ITAR) require that persons in the business of manufacturing or exporting defense articles or defense services register with the Department of State, Directorate of Defense Trade Controls (DDTC), Office of Defense Trade Controls Compliance.

The Office of Defense Trade Controls Compliance has reason to believe that <FFL Name> is involved in the business of manufacturing and/or exporting of defense articles or defense services. An examination of information contained on the World Wide Web indicates a Manufacturing/Exporter and brokering registration may be required. A review of our records indicates that <FFL Name> is not currently registered with this Office.

Failure to register with this Office constitutes a violation of the AECA and the ITAR and could result in civil and/or criminal penalties. Therefore, it is recommended that your company respond to this Office no later than 30 days from the date of this letter. You may refer to the DDTC website, http://www.pmddtc.state.gov, to locate registration information to include the Registration Statement (DS-203Z), a sample Transmittal Letter and registration fees. The website also includes copies of tite ITAR, explanations of export licenses procedures, how to submit a license application, country sanctions, and individuals/companies debarred by the Department of State and other export matters.

For general registration related questions, please contact the DDTC Response Team at (202) 663-1282 or by email at DDTCResponseTeam@Dstate.gov. For assistance with this matter, please contact Monique Galloway at (202) 632-2158.

Sincerely,
arnel :CrN’ook
Chief
Compliance and Registration Division

The penalties for violating ITAR are severe. 22 C.F.R. Section 127.1(b)(3)declares, “It shall be unlawful:…(3) To engage in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services without complying with the registration requirements.” 22 C.F.R. Section 127.3 states “Any person who willfully:…(a) Violates any provision of §38 or §39 of the Arms Export Control Act (22 U.S.C. 2778 and 2779) or any rule or regulation issued under either §38 or §39 of the Act, or any undertaking specifically required by part 124 of this subchapter;…shall upon conviction be subject to a fine or imprisonment, or both, as prescribed by 22 U.S.C. 2778(c).”

22 U.S.C. 2778(c) declares, “Any person who willfully violates any provision of this section, section 2779 of this title, a treaty referred to in subsection (j)(1)(C)(i), or any rule or regulation issued under this section or section 2779 of this title, including any rule or regulation issued to implement or enforce a treaty referred to in subsection (j)(1)(C)(i) or an implementing arrangement pursuant to such treaty, or who willfully, in a registration or license application or required report, makes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined for each violation not more than $1,000,000 or imprisoned not more than 20 years, or both.”

If that weren’t bad enough, ITAR also allows for civil penalties, pursuant to 22 C.F.R. Section 127.10. “The Assistant Secretary of State for Political-Military Affairs is authorized to impose a civil penalty in an amount not to exceed that authorized by 22 U.S.C. 2778, 2779a, and 2780 for each violation of 22 U.S.C. 2778, 2779a, and 2780, or any regulation, order, license, or written approval issued thereunder. This civil penalty may be either in addition to, or in lieu of, any other liability or penalty which may be imposed.”

However, ITAR does provide for Voluntary Disclosures, where the voluntary disclosure can be used as a mitigating factor in the determination the administrative penalty, if any, of a violation, pursuant to 22 C.F.R. 127.12(a). “General policy. The Department strongly encourages the disclosure of information to the Directorate of Defense Trade Controls by persons (see §120.14 of this subchapter) that believe they may have violated any export control provision of the Arms Export Control Act, or any regulation, order, license, or other authorization issued under the authority of the Arms Export Control Act. The Department may consider a voluntary disclosure as a mitigating factor in determining the administrative penalties, if any, that should be imposed. Failure to report a violation may result in circumstances detrimental to U.S. national security and foreign policy interests, and will be an adverse factor in determining the appropriate disposition of such violations.”

While there may be some wiggle room if you haven’t manufactured anything for resale, the simple building of an AR-15 constitutes manufacture of a defense article, requiring registration. If you should received this letter, you should contact us immediately to discuss your options, including a voluntary disclosure. If you have not yet received this letter but are an 07 FFL which is manufacturing defense articles, you should immediately register and contact us to discuss whether a voluntary disclosure should be made.

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7 Comments

Filed under ATF, Firearms Law

7 responses to “Department of State is Stepping up Enforcement of ITAR related to Manufacturers

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  6. Charle

    Is this something that goes into effect immediately or on a set date?

    Like

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