1. Defense Trade Advisory Group
Working Group 2
U.S. Persons Abroad Registration
March 30, 2017

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WG2 Team Members
Fred Alvarado, Nammo
Bryon Angvall, The Boeing Company
Jim Bartlett, Full Circle Compliance
Mike Cormaney, Luks Cormaney
Sandra Cross, Huntington Ingalls Industries
Tom Donovan, Northrop Grumman
Peter Lichtenbaum, Covington & Burling
Christine McGinn, InterGlobal Trade Consulting
Heather Sears, Johnson Controls
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3. Tasking
DDTC requests a recommendation from the DTAG regarding an appropriate annual registration fee for U.S. natural persons (as defined in the proposed 22 CFR ), who furnish defense services while in the employ of foreign persons, and would register individually in the absence of coverage by another person’s current registration. These U.S. persons must comply with registration requirements in accordance with Part 122 of the ITAR, including natural persons who may fall under an authorization exemption (proposed in a new 22 CFR ). DDTC is considering an annual fee of $250 for U.S. natural persons furnishing defense services to foreign employers, and requests comment from the DTAG on this recommendation in addition to any alternative recommendations

4. Background
DDTC is considering an amendment of the ITAR relating to the licensing and registration of U.S. persons providing defense services while in the employ of foreign persons. A proposed rule was published in May 2015 (see 80 FR 30001, May 26, 2015). Key changes in the proposed rule, specifically as it relates to registration, are outlined below. The Department proposes to:
Add a definition for “natural persons” in 22 CFR : “Natural person means an individual human being, as distinguished from a corporation, business association, partnership, society, trust, or any other entity, organization or group”

5. Background (continued)
Revise 22 CFR to clarify the existing requirements that U.S. persons performing defense services abroad are required to be registered pursuant to 22 CFR Specifically, revise 22 CFR 122.1, paragraph (a) to add as follows: “…any U.S. person who engaged in the business of furnishing defense services wherever located, is required to register with the Directorate of Defense Trade Controls under § 122.2”
Revise 22 CFR to clarify that subsidiaries and affiliates controlled by a registrant pursuant to 22 CFR may be included on the registrant’s Statement of Registration
Revise 22 CFR by adding a note to paragraph (a) to read as follows: “Any natural person directly employed by a DDTC-registered person, or by a person listed on the registration as a subsidiary or affiliate of a DDTC-registered U.S. person, is deemed to be registered

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DTAG Analysis
Reviewed:
Current and proposed ITAR definitions
Proposed ITAR amendment related to registering and licensing U.S. persons , 80 FR 30001, May 26, 2015 and public comments
Executive Order actions
Discussed potential objective for requiring registration of U.S. persons working abroad
Identified issues in current regulations that may negatively impact the implementation of the proposed rule
Applied the proposed rule against real-time examples
Debated necessary revisions to the definition of defense services
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7. Issues Identified
While a fee for registration may be necessary, the amount is immaterial to the larger issue of requiring registration
Licensing, or other authorization, is already required under the ITAR for the provision of defense services by U.S. persons, regardless of location, and should provide DDTC sufficient visibility into the activities of U.S. persons employed abroad without requiring registration
Multiple ITAR compliance and export touch points that relate to and complicate the requirement for registration of U.S. persons furnishing defense services abroad

8. What is the Objective?
What need is driving DDTC to change how it currently implements the AECA registration requirements in 122.1?
Are there national security concerns or foreign policy interests?
Was the impact on U.S. persons abroad considered?
Why are existing licensing requirements insufficient?
Individual registration of U.S. persons providing defense services for a foreign employer is an unnecessary regulatory burden

9. Recent Executive Order
In accordance with EO of February 24, 2017, it is the policy of the United States to alleviate unnecessary regulatory burdens on the American people
This proposed registration requirement presents an unnecessary regulatory burden on the American people
In accordance with EO, this proposal:
could eliminate jobs, inhibit job creation, or result in loss of talented U.S. person employees abroad
is unnecessary and may be ineffective as proposed; and
imposes costs to individuals that exceed benefits

10. ITAR Taint
Without modifying the existing Defense Services definition, U.S. persons could unreasonably subject entirely foreign products to ITAR control
ITAR “taint” – produced or manufactured from defense service
Potential chilling effect on foreign persons hiring U.S. person employees
Encourages foreign companies to avoid hiring U.S. persons
Encourages “ITAR free workforce”

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ITAR Touch Points
Specific subsections
§ Defense Service
§ Person
§ U.S. Person
§ Foreign Person
§ Export
§ Affiliate (subsidiary)
§ Natural Person (proposed)
§ Registration Requirements (proposed)
§ Approval
§ Exemption for natural U.S. persons employed by foreign persons (proposed)
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12. Defense Services – Touch Point
The current definition of defense services appears to capture activities that were not intended by the regulators, thus clarification of the definition is critical
Defense Services definition has not been modified since The DTAG made previous recommendations in 2010
DTAG requests a new tasking from DDTC for recommendation of a new definition of defense services that adds clarity and delineates specific exclusions from the definition

13. Person – Touch Point § 120.14-16 Person, U.S. Person, Foreign Person
Currently three definitions of a “person” within the regulations
The current definition of a “person” already distinguishes between a natural person and an entity
Adding a new definition of a “natural person” is duplicative

14. Registration – Touch Point
§ Registration Requirements
Given the lack of clarity on what is or is not a defense service under the current definition at § 120.9, an individual is unnecessarily burdened in his or her ability to work for a foreign entity both in the U.S. and abroad
U.S. persons with no prior defense industry affiliation will be unnecessarily burdened with a registration requirement, for example:
Person born in the U.S. but lived and schooled abroad who has never had access to U.S. defense technical data
Canadian citizen who is a legal permanent resident of the U.S. works for a company in Canada temporarily

15. Registration – Touch Point
§ Registration Requirements (continued)
U.S. persons with prior U.S. defense industry or military affiliation will be unnecessarily burdened with a registration requirement, for example:
U.S. person worked for U.S. defense company and later moves to take a job working for a foreign defense company but has knowledge of technical data in his or her head. Without the specific use of tangible technical data, this should not qualify as a defense service
Former U.S. military mechanic maintaining aircraft

16. Approval – Touch Point § 124.1 Approval
The approval of DDTC must be obtained before the defense services described in § 120.9(a) may be furnished. In order to obtain such approval, the U.S. Person must submit a proposed agreement or similar authorization request
This effectively eliminates the requirement for registration of U.S. persons working abroad
If US technical data is authorized in support of a foreign program the USG has already approved the program and already approved its use. Why does it matter if a US person, i.e. mechanic, works on the program?

17. § – Touch Point
DTAG does not recommend proceeding with the proposed § Exemption (Proposed Vol 80, No. 100 / May 26, 2015) for natural U.S. persons employed by foreign persons.
First it is necessary to modify the defense services definition
Second, evaluate a defense service exemption at a later date after benefit of a new defense service definition, absent from the issue of U.S. persons performing defense services for foreign persons

18. DTAG Primary Recommendation
Modify § Defense Services
Identify specific problem(s) that are the target of the proposed registration requirement rule
Address these problems by amending the definition of Defense Services
Focus definition on activities of concern to DDTC
Exclude certain low-risk activity of U.S. persons from definition
Eliminate registration requirement for U.S. persons
Fee amount is irrelevant to discussion
Oversight provided by existing licensing requirements

19. DTAG Secondary Recommendation
Modify § Registration
(a) Remains unchanged
(b) New Subparagraph
Any U.S. person who engages in the business of furnishing defense services, outside of the United States, is required to register with the Directorate of Defense Trade Controls under § A U.S. person included on the DDTC registration of an affiliated U.S. entity is compliant with this requirement. The use of tangible U.S. technical data in the performance of defense services must be covered by a separate license authorization
(c) DTAG recommends adding a new exclusion specific to (b) that excludes U.S. Persons who have never had access to U.S. origin technical data from the registration requirement

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Conclusion
DTAG recommends eliminating this proposed registration requirement and addressing DDTC’s objectives through a new definition of defense services. The cost of registration is insignificant when given the broader scope of the burden on the U.S. Persons as further evidenced herein
Definition of defense service too broad
Captures more activity than intended
Leads to inconsistent application
Imposes unnecessary regulatory burden on U.S. persons
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21. Final Thoughts This proposed rule is not consistent with EO 13777
DDTC can oversee activities of U.S. persons abroad through licensing requirements, without imposing a registration requirement
A more precise definition of defense services is critically needed. The DTAG requests a tasking from DDTC to recommend a new definition of defense services that adds clarity and delineates specific exclusions from the definition

22. QUESTIONS