A Rare Chance To Shape Arms Regulation Compliance Relief

By Soo-Mi Rhee, Nicholas Townsend and Trevor Schmitt
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Law360 (June 11, 2020, 5:15 PM EDT) --
Soo-Mi Rhee
Soo-Mi Rhee
Nicholas Townsend
Nicholas Townsend
On June 5, the U.S. Department of State, Directorate of Defense Trade Controls, or DDTC, announced that it would accept limited public comment on certain temporary regulatory relief it had granted in response to the COVID-19 pandemic with respect to the International Traffic in Arms Regulations, or ITAR.[1]

As a result of this temporary relief, which was the subject of a DDTC announcement on May 1, companies around the world that work with defense articles and technical data controlled under the ITAR have temporarily faced fewer regulatory obligations.[2]

Interested parties now have a rare opportunity through this comment period to seek to expand or otherwise shape relief measures to address the continued impact of COVID-19 on ITAR compliance.

This limited opportunity to comment may provide a key avenue for interested parties to protect operational flexibility during the ongoing pandemic.

For example, under the DDTC's current ITAR approach, contract employees subject to ITAR-compliance will have only until the end of July to return to work in order to qualify as so-called regular employees.

This limited deadline could significantly impact work-at-home policies at a time when many ITAR-regulated companies are wrestling with questions of when, and how, to resume normal operations.

Moreover, the opportunity to advocate for additional relief measures is significant. The continued reduction in operational capacity and increases in telework may negatively impact a wide array of ITAR compliance requirements not covered under the current relief, including record-keeping and export licensing applications.

ITAR-regulated companies under increased strain due to the COVID-19 pandemic should consider whether to take this, and likely only, opportunity to weigh in on these and other compliance requirements.

It is also important to note that, because the DDTC's prior relief measures are retroactive, this comment period represents a unique chance for companies to reduce or otherwise limit future — as well as past — ITAR compliance issues even if such issues have already been the subject of a voluntary disclosure to the DDTC.

Interested parties must submit comments by June 25.[3]

Temporary Relief Previously Granted Under the ITAR

The temporary easing of regulatory burdens that the DDTC had granted under the ITAR results from a series of published rules granting relief under specific circumstances.[4]

Specifically, the DDTC, which administers the ITAR, published a rule that as of May 1 gave effect to, and in some cases expanded, certain previously announced measures intended to mitigate the impact of the pandemic on compliance with the ITAR.[5]

In particular, the rule announced on May 1 enacted four temporary measures.

First, certain ITAR registration due dates were extended for two months. ITAR registrations set to expire Feb. 29, March 31, April 30, May 31 or June 30 are extended for two months from the original date of expiration.

Second, certain ITAR licenses and agreements were extended for six months.

Effective as of March 13, existing ITAR licenses and agreements that otherwise would have expired between March 13 and May 31 were automatically extended for six months, provided there are no changes to the scope or value of the authorization and no name or address changes are required.

The rule explained that such an extension is appropriate "in light of the unique challenges applicants face in the current environment when attempting to coordinate with US and foreign business partners regarding the scope of applications."

Third, temporarily, contract employees do not need to work at a company's facilities to qualify as regular employees.

Effective March 13, contract employees are permitted to work remotely and still qualify as regular employees for purposes of ITAR licensing and authorizations, as long as they are not located in Russia or a country listed in Title 22 Section 126.1 of the Code of Federal Regulations.

This temporary suspension of the ITAR requirement that contract employees must work at a company's facilities to qualify as a regular employee is effective until July 31, unless the suspension is extended in writing.

Fourth, temporarily, regular employees working with data transferred under an ITAR agreement can work remotely in most countries not expressly approved by the DDTC on the face of the agreement.

Effective March 13, regular employees of entities who are working remotely in a country not currently authorized by a technical assistance agreement, manufacturing license agreement, or exemption to send, receive, or access any technical data authorized for export, reexport, or retransfer to their employer via a technical assistance agreement, manufacturing license agreement, or exemption are permitted to work remotely as long as the employee is not located in Russia or a country listed in ITAR Section 126.1.

This authorization for remote work under certain circumstances is effective until July 31, unless extended in writing.

As reflected in the DDTC's original announcement of these measures, the relief applies retroactively to March 13, when the president declared the COVID-19 national emergency.

Therefore, in certain circumstances, these measures retroactively mitigate or eliminate actions from March 13 onward that would in other circumstances have been considered ITAR violations.

Limited Opportunity to Comment

The June 5 announcement provides interested parties with a limited opportunity to comment on these, and potentially additional, relief measures in connection with the COVID-19 pandemic. The announcement notes that the DDTC will limit comments to three topic areas:

  • The effectiveness of each of the ITAR-relief measures on the operating environments of the regulated community during the COVID-19 pandemic;

  • Whether the expiration dates of these measures should be extended; and

  • Additional temporary relief measures necessary to respond to specific difficulties in connection with ITAR compliance as a direct result of the COVID-19 pandemic.

Parties have until June 25 to submit comments.

Conclusion

The DDTC's announcement of a special comment period on temporary relief measures reflects the agency's continued awareness of the substantial burdens that the COVID-19 pandemic has placed on compliance with the ITAR. It could also suggest the DDTC's openness to considering additional relaxation of regulatory requirements.

Companies that benefit from these kinds of special suspensions, modifications and provisions to the ITAR — or might benefit through other regulatory relief — should carefully consider whether to submit comments.

Because the window to comment is limited to 15 days, interested parties should act quickly to take advantage of this rare opportunity to expand or otherwise impact the scope of the DDTC's relief measures.



Soo-Mi Rhee is a partner, Nicholas L. Townsend is counsel and Trevor G. Schmitt is an associate at Arnold & Porter.

Arnold & Porter partners John P. Barker and Baruch Weiss, counsel Samuel Witten, senior associate Tom McSorley, and associate Elizabeth T.M. Fitzpatrick, contributed to this article.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


[1] https://s3.amazonaws.com/public-inspection.federalregister.gov/2020-12580.pdf?utm_source=federalregister.gov&utm_medium=email&utm_campaign=pi+subscription+mailing+list.

[2] For a in depth look at these, and other, regulatory relief measures enacted by DDTC, see Enforcement Agencies Grant Temporary Trade Sanctions and ITAR Compliance Relief Due to COVID-19, Arnold & Porter (May 8, 2020), https://www.arnoldporter.com/en/perspectives/publications/2020/05/covid19-trade-sanctions-itar-compliance-relief.

[3] https://www.federalregister.gov/documents/2020/06/10/2020-12580/international-traffic-in-arms-regulations-temporary-suspension-modification-or-exception-to.

[4] DDTC's relaxation of certain requirements is consistent with the general approach by the Trump Administration to relieve regulatory burdens in the interest of economic recover from the Coronavirus pandemic. For a discussion of relief in areas other than ITAR compliance, see Executive Order on Regulatory Relief Issued to Support Economic Recovery, Arnold & Porter (June 4, 2020), https://www.arnoldporter.com/en/perspectives/publications/2020/06/eo-on-regulatory-relief-to-support-recovery.

[5] 85 Fed. Reg. 25287 (May 1, 2020).

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