For those working in the export/import trade the term “brokering” would normally mean something to do with customs brokers.  However, brokering also comes up in a completely different context:  Export controls.  What?

The International Traffic in Arms Regulations (ITAR) govern export of most defense articles and related technical data.  Part 129 of the ITAR spells out the regulations on what is termed brokering.  Part 129.2 defines a “broker” as any person ……who engages in the business of brokering activities.”  Brokering activities are “any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, reexport, or retransfer of a U.S. or foreign defense article or defense service, regardless of its origin.”   

Examples of brokering include: (1) Financing, insuring, transporting, or freight forwarding defense articles and defense services; or (2) Soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service.

The persons and parties that are subject to the ITAR brokering regulations include:

• Any US person (citizen or green card holder) or business entity
• Any foreign person located in the US
• Any foreign person located outside the US that is owned or controlled by a US person

For the purpose of these regulations, a “person” can include a natural person or a corporation, partnership or other business organization.

Hold it!  Did the examples in Part 129 include freight forwarding?  Parties and persons who perform brokering activities are required to register with DDTC and pay an annual fee.  There are some exemptions to this registration requirement, including:  “Persons exclusively in the business of financing, insuring, transporting, customs brokering, or freight forwarding, whose activities do not extend beyond financing, insuring, transporting, customs brokering, or freight forwarding.”   If the activities of the US party were to go beyond what is described here, it would be considered brokering and the party would be required to register. 

Example:  Acme Logistics is primarily a freight forwarder; however, Acme also assists in soliciting sales of defense articles to foreign parties.  Those activities go beyond freight forwarding and Acme would be required to register as a broker with DDTC.

A party meeting the definition of a broker and registered with DDTC  must first obtain the approval of DDTC before engaging in brokering activities involving any of the following:

• Any foreign defense articles or defense service;
• Any major defense articles appearing on the US Munitions List

Some transactions may be exempt from this requirement for prior approval.  They include (1) certain brokering activities undertaken for an agency of the U.S. Government pursuant to a contract between the broker and that agency; and (2) brokering activities involving foreign defense articles or defense services when undertaken for NATO, NATO counties and Australia, Israel, Japan, New Zealand, or the Republic of Korea.

Where approval is required for brokering activities, the registered party must submit a request for approval to DDTC via DECCS.  The request must be signed by an Empowered Official and contain: (1) the name, address and registration code of the registered party; (2) the certification in Part 129.6(a)(2), (3) a complete description of the proposed brokering activities; (4) whether the proposed transaction is a commercial sale, or under the U.S. Foreign Military Sales program, or other activity in support of the US Government; and (5) the Empowered Official shall certify that the request is complete and accurate.

The DDTC approval may not exceed 4 years.

Any party that is not certain whether a proposed activity constitutes brokering may apply to DDTC for guidance.  The application must include a complete description of the proposed activity.

Registered brokers must submit an annual report of their activities either with their annual renewal or within 30 days of expiration if the broker does not renew.

Registered brokers must also maintain records for five years after expiration of a license or approval in accordance with Part 122.5 of the ITAR.

Now let’s take a walk on the dark side……. 

An exporter or agent can get in trouble if it:

• Engages in brokering activities without registering with DDTC
• Does not obtain approval from DDTC for brokering activities where prior approval is a requirement
• Does not pay the required registration fee
• Does not submit any required reports
• Engages in illegal or fraudulent activities
• Does not maintain required records

All these requirements are aimed at giving the US Government visibility and control over the activities of people or organizations engaged in the foreign arms trade.  The requirements may seem strict and burdensome; however, we have clients who have made a good living in the arms trade while complying with the regulations.