I Say Tomato, You Say Tomatoe: You Say Brokering, I Say Facilitation


I Say Tomato, You Say Tomatoe: You Say Brokering, I Say Facilitation

January 31, 2012 | Print this page

Words matter. More than that “All words are pegs to hang ideas on.” So said the colorful 19th century preacher and abolitionist Henry Ward Beecher. Given this immutable notion, the recent proposed revisions of the International Traffic in Arms Regulations (ITAR) by the Department of State’s Directorate of Defense Trade Controls (DDTC) are curious. Specifically, by removing and adding just a few key words to the brokering regulations, the DDTC may be dramatically expanding brokering requirements.

As we know, the purpose of ITAR Part 129 - Brokering is to regulate arms brokers. Under the current law, if you aren’t a broker you aren’t subject to the brokering regulations. So far, so good. The new proposal, however, deletes the term broker, in effect removing the need to be a broker to be subject to the ITAR rules. This simply makes no sense, common or otherwise. How can brokering regulations cover anyone other than brokers? It would be like subjecting someone to banking regulations because he or she engaged in a banking activity, such as giving $20 to a family member. Removing the term broker not only goes beyond the Congressional intent to regulate arms brokers but is also inconsistent with definitions of “broker” offered by almost every dictionary in use today. According to Dictionary.comMerriam Webster, and the Black’s Law Dictionary, a broker is someone who acts as an agent on someone else’s behalf. DDTC, though, prefers to define a broker as any person who is engaged in “brokering activities.” The concept of a broker being an agent for someone else or another entity is completely omitted.

 

The reason why this proposed change is so problematic is that the elimination of the true “broker” concept coupled with the expansion of “brokering activity” leads to confusion and conflicting interpretations, which is exactly what we’d hoped to remedy. The potential minefields are best shown by example:

 

A defense or space company operates in the United States and Germany.  Both have separate product lines, and the German entity has products that would be considered “foreign defense articles” under the brokering regulations.

 

The difficulty with the proposed regulation is that the U.S. entity could potentially perform “brokering activities” through seemingly innocuous events where it was not, in fact, acting as a “broker” under today’s definition. Is the U.S. person giving someone a business card of a German colleague akin to soliciting? Is having separate booths at a trade show but telling prospective customers to visit the other’s booth “promoting?” Or is posting product information on a common web site the same as “promoting?”  Could an individual or company face fines and other penalties for this otherwise benign conduct? Truthfully, as proposed, it is not clear, but it is hard to imagine that this was what Congress intended when it issued the Brokering Amendment to the Arms Export Control Act in 1996.

 

As it stands now, the proposed changes turn the brokering regulations into a “facilitation” regulation. Export compliance professionals know the facilitation concept (or “gray area”) all too well from OFAC’s various country sanction programs. By comparison, OFAC’s Iranian Transaction Regulations define facilitation to provide that “no United States person, wherever located, may approve, finance, facilitate, or guarantee any transaction” while the proposed definition of “brokering activity” includes “financing, insuring, transporting” and “soliciting, promoting, negotiating, contracting for, arranging.”  Look familiar?
 

Given that the regulations are trending to go beyond Congress’ original intent to regulate brokers, one possibility is to rename ITAR Part 129 to “Facilitation.” At least at that point we’d all see its true colors.

Clearly this proposed new language should be re-evaluated. It’s confusing and missing the mark on Congressional intent. Moreover, these changes could lead U.S. companies to remove themselves further from related foreign entity activities.  In fact, in some cases we’ve already seen companies take steps to sell or divest foreign entities because of perceived difficulties with the “gray area” surrounding ITAR brokering activities.  It is essential that businesses know where to draw the line, both from a compliance standpoint and to be competitive. Thus, we encourage anyone affected by these latest proposals to submit comments to DDTC by February 17, 2012.  It would be a shame to lose the opportunity for a meaningful revision because of a word or two.