VZCZCXYZ0004
PP RUEHWEB

DE RUEHC #8901 2941853
ZNR UUUUU ZZH
P 211831Z OCT 09
FM SECSTATE WASHDC
TO AMEMBASSY PARIS PRIORITY 0000
MISSILE TECHNOLOGY CONTROL REGIME COLLECTIVE

UNCLAS STATE 108901 
 
SIPDIS 
PARIS FOR POL: NOAH HARDIE 
BRASILIA FOR POL: JOHN ERATH 
 
E.O. 12958: N/A 
TAGS: MTCRE ETTC KSCA MNUC PARM TSPA FR BR
SUBJECT: MISSILE TECHNOLOGY CONTROL REGIME (MTCR): 
BROKERING CONTROLS IN THE UNITED STATES 
 
¶1. (U)  This is an action request.  Please see paragraph 2. 
 
¶2. (U)  ACTION REQUEST:  Department requests Embassy Paris 
provide the interagency cleared paper "Brokering Controls in 
the United States" in paragraph 3 below to the French Missile 
Technology Control Regime (MTCR) Point of Contact (POC) for 
distribution to all Partners and posting on EPOC.  Info 
addressees also may provide to host government officials as 
appropriate.  In delivering paper, posts should indicate that 
the U.S. is sharing this paper as part of our preparation for 
the Information Exchange that will be held in conjunction 
with 
the MTCR Plenary in Rio, November 9-13, 2009.  NOTE: 
Additional IE papers will be provided via septels.  END NOTE. 
 
¶3. (U) BEGIN TEXT OF PAPER: 
 
(UNCLASS) 
 
Brokering Controls in the United States 
U.S. Department of State 
 
In July 1996, the United States Congress amended the Arms 
Export Control Act (AECA) to include the registration and 
licensing of arms brokers and brokering activities in order to 
prevent transfers of U.S. defense articles and or foreign 
defense articles by U.S. persons from one non-U.S. person to 
another without the benefit of review and approval from the 
United States Government (USG).  In December 1997, the 
International Traffic in Arms Regulations (ITAR), which 
implements the AECA,  was amended to expand the definitions of 
broker and brokering activities, as well as to establish 
requirements for broker registration, licensing of brokering 
activities, prohibitions on brokering involving certain 
countries or persons under U.N. or U.S. embargoes or 
sanctions, and for an annual brokering activity report. 
Responsibilities for the regulation of broker and brokering 
activities were assimilated into the offices already 
established within the U.S. Department of State to administer 
arms export registration and licensing.  The enforcement 
provisions of the AECA and the ITAR cover brokering 
activities. 
 
United States law, regulations, and policy regarding arms 
brokers: 
 
¶A.     United States Law 
 
22 United States Code (U.S.C.) Section 2778(b)(1)(A)(ii), 
outlines the requirements for registration and licensing 
requirements for arms brokers.  Specifically, this section 
requires that every person engaging in brokering activities 
pay a fee and register with the U.S. Department of State, the 
USG agency responsible for implementing Section 2778.  In 
addition, brokers must obtain licenses for brokering 
activities other than certain activities by or for USG 
agencies.  When a brokering license request is submitted for 
the export of defense items (defense articles, to include 
technical data, and defense services), the following 
evaluation criteria are considered to determine whether the 
proposed transaction will: 
 
*     Contribute to the arms race; 
*     Aid in the development of weapons of mass 
destruction/their means of delivery; 
*     Support international terrorism; 
*     Increase the possibility of outbreak or escalation of 
conflict; or 
*     Prejudice the development of bilateral or multilateral 
agreements relative to arms control or non- 
proliferation. 
 
¶B.     U.S. Regulations and Policies 
 
The statutory authority of the President to promulgate 
regulations with respect to exports of defense articles and 
defense services was delegated to the Secretary of State and 
further delegated to the Deputy Assistant Secretary of State 
for Defense Trade Controls and the Managing Director, 
Directorate of Defense Trade Controls (DDTC).  The ITAR 
implements the AECA. 
 
Definitions 
 
Part 129 of the ITAR covers brokering controls, but other 
sections of the regulation also apply - particularly as 
related to key definitions of persons, defense articles, 
defense services, eligibility to engage in exporting or 
brokering activities , policy on embargoes and other 
proscriptions , registration requirements  and the reporting 
of commissions, political contributions or fees. 
Specifically, Part 129 provides: 
 
*     A definition of a broker as any person who acts as an 
agent, in the broadest sense, in negotiating or 
arranging, contracts, purchases, sales or transfers of 
defense articles or defense services in return for a 
fee, commission, or other consideration.    But, acting 
as an agent is just one way of engaging in brokering 
activities.  The 1997 Federal Register notice notifying 
the public of the brokering amendment offers another 
explanation of brokering that includes: "...any 
person...who is in the business of brokering transfers of 
defense articles or services is required to register 
and pay a fee.  This would include for example, persons 
who act as agents for others in arranging arms deals, 
as well as so-called finders and other persons who 
facilitate such deals."  Examples may include a U.S. or 
foreign person sales representatives of a U.S. 
manufacturer of U.S. defense articles; a U.S. person 
finding buyers for a foreign manufacturer of foreign 
defense articles; or an internet company that matches 
buyers and sellers involving defense articles based on 
agreements with one or the others. 
 
*     The definition of a broker applies not only to U.S. 
persons, whether living in the U.S. or overseas, but to 
foreign persons otherwise subject to U.S. jurisdiction. 
For example, a foreign person who serves as a finder, 
or facilitates the sale of U.S. defense articles or 
defense services, would be under U.S. jurisdiction. In 
addition, a U.S. person who serves as a finder or 
facilitates the sale of U.S. or foreign defense 
articles or defense services is covered by the 
brokering regulations. 
 
*     Section 129.2(b) of the ITAR states that "brokering 
activities mean acting as a broker, and includes the 
financing , transportation, freight forwarding, or 
taking of any other action that facilitates the 
manufacture, export, import or transfer of a defense 
article or defense service, irrespective of its origin." 
However, the ITAR also provide exemptions for "persons 
exclusively in the business of financing, transporting, 
or freight forwarding, who business activities do not 
also include brokering defense articles or defense 
services."  In addition, air carriers who merely 
transport or arrange transportation, or banks that 
provide commercially available lines of credit, for 
defense items are not required to register. 
 
Licensing 
 
*     With respect to the licensing of brokering activities, 
the same policies established in the regulations for 
the licensing of defense articles and defense services 
apply, except U.S. or foreign registered brokers may 
apply for brokering licenses.  Brokers must identify 
the defense articles to be brokered, the end-user, 
potential entities or individuals who will be involved 
in the activity, etc.  This information is critical to 
ensuring that brokering activities requiring licenses 
are thoroughly vetted and screened to ensure all 
parties are eligible and not subject to embargoes, 
sanctions or debarment, for example. 
 
*     Brokering activities involving defense articles and 
defense services --   including MTCR items -- always 
require prior approval from the U.S. Government. 
 
Reporting Requirements 
 
The ITAR requires all registered brokers to submit an annual 
report providing details of brokering activities conducted 
during the prior year.  The annual report is to include who 
was involved, what countries were involved, what defense 
articles or services were involved, whether brokering 
activities occurred or not, and the potential consideration to 
be paid or value of the transaction.  Additionally, those 
engaging in brokering activities may be required to submit 
quarterly activity reports to the Licensing Office, imposed as 
a condition of their approval of their brokering request. 
 
Violations 
 
The regulation of brokering activities under the ITAR and the 
AECA are supported by more than a decade of enforcement 
activity.  Education and coordination continue with U.S. 
Immigration and Customs agents, Customs and Border Protection 
Inspectors, the Federal Bureau of Investigation, and Assistant 
U.S. Attorneys on the regulations and necessary enforcement 
actions.  The Directorate of Defense Trade Controls also has 
the authority to initiate civil enforcement actions and, as 
necessary impose fines and penalties, and to direct remedial 
compliance measures.  DTCC can impose remedial measures as 
part of consent agreements. 
 
The ITAR was amended to include an explicit violation -- 
involving the engagement in the business of brokering 
activities for which registration, a license or written 
approval is required -- without first registering or obtaining 
the required brokering license from the Directorate of Defense 
Trade Controls.  Importantly, any person who is granted a 
license or other approval under the regulations is responsible 
for the acts of employees, agents, and all authorized persons 
to whom possession of the license defense article or technical 
data has been entrusted regarding the operation, use, 
possession, transportation, and handling of such defense 
articles or technical data abroad.  This applies irrespective 
of the number of intermediate transfers and bounds those 
having custody (to include a broker should they be provided a 
defense article to include related technical data) to the same 
extent as the original owner or transferor. 
 
Penalties for Violations 
 
Any person who willfully violates any provision of Sections 
38-39 of the AECA, or makes any untrue statement of material 
fact, or omits a material fact required to be stated in a 
registration, license application or report required by the 
law or regulation may be subject to a fine not to exceed 
$1,000,000 for each violation or imprisonment of no more than 
ten years or both.  Civil fines may not exceed $500,000 for 
each violation. 
 
Trends 
 
The number of brokers registered with the U.S. now totals more 
than 1,000.  This represents significant growth in the past 
three years. We have seen a growing trend involving brokers 
who engage in activities in many more countries than 
previously.  We also see a growing trend in brokers who find 
suppliers overseas, and the delivery of the actual defense 
articles never passes through U.S. territory and may therefore 
be subject to an export license issued by another governmental 
export authority. 
 
END TEXT OF PAPER. 
 
¶4.  (U)  Please slug any reporting on this or other MTCR 
issues for ISN/MTR.   A word version of this document will be 
posted at www.state.sgov.gov/demarche. 
CLINTON