U.S. proposes revisions to “defense service” definition and related export controls

Introduction

The International Traffic in Arms Regulations (ITAR) regulate, among other things, the temporary import, export, reexport and transfer of defense articles and provision of defense services for national security purposes. The proposed rule intends to (1) control activities by U.S. persons that provide a critical military or intelligence advantage to foreign persons such that they warrant control under the ITAR but are not currently controlled; or (2) clarify activities that are already controlled under the ITAR but require additional clarity.

Proposed amendments to the definition of “defense service”

The Definition of defense services revised to control consulting and activities that harm military capability

The July 29 proposed rule amends the definition of “defense services” to include:

assistance, including training or consulting, to foreign persons in the development (including, e.g., design), production (including, e.g., engineering and manufacture), assembly, testing, repair, maintenance, modification, disabling, degradation, destruction, operation, processing, use, or demilitarization of a defense article.

The definition adds reference to “disabling” and “degradation” to clarify that the act of harming a military capability, such as through cyber services, remains controlled under the ITAR.

DDTC stated that the addition of “training and consulting” to the definition of defense services attempts to clarify that activities related to development of training information or activities that prepare a foreign person to provide the actual training are also controlled under the ITAR. These additions could have a broader impact, and consultants and other providers of training materials will need to assess their service offerings for such end users to the extent the providers are taking the position that the ITAR defense services provisions do not apply.

DDTC also proposes removing the “provision of technical data” from the current definition of “defense services” because the furnishing of technical data to a foreign person is already controlled as an export or retransfer under ITAR §§ 120.50 and 120.52. ITAR § 120.50(a) defines an “export” as, in part, releasing or otherwise transferring technical data to a foreign person in the United States, or the release of previously encrypted technical data. ITAR § 120.52 defines “retransfer” as, in part, a “release of technical data to a foreign person who is a citizen or permanent resident of the country where the release or transfer takes place.” Finally, DDTC proposes removing reference to terms like “regular” and “irregular” units/forces and replacing those terms with reference to the “capabilities of a military or paramilitary” to place focus on the nature and type of training or advice provided—military or paramilitary capabilities—as opposed to the recipients of that support, which are now more broadly defined to include proxies or agents of a foreign government.

Defense services definition is revised to include reference to two new USML paragraphs related to Intelligence and Military Assistance regardless of whether defense articles are involved

Defense services also include furnishing of assistance, including training or consulting, to foreign persons, regardless of whether a defense article is involved, as described in USML Category IX(s)(2) or (3).

New paragraphs in USML Cat. IX

The proposed rule adds two new paragraphs to USML Cat. IX(s) to control certain defense service—intelligence assistance and military assistance. Additionally, the proposed rule intends to rename USML Cat. IX as “Military Training Equipment, Intelligence Defense Services, and Military Defense Services.” USML Cat. IX is currently named “Military Training Equipment and Training.”

Intelligence assistance

USML Cat. IX(s)(2) would control:

Assistance, including training or consulting, to a foreign government, unit, or force, or their proxy or agent, that creates, supports, or improves intelligence activities, including through planning, conducting, leading, providing analysis for, participating in, evaluating, or otherwise consulting on such activities, for compensation.¹

This new paragraph would control assistance to a foreign government or their proxy that creates, supports or improves intelligence activities, including through planning, conducting, or consulting on such activities for compensation. These defense services can be controlled under the ITAR even if no defense article is involved. Additionally, controlling the activity of “providing analysis” makes clear that conducting an intelligence analysis can provide a critical advantage even without involvement in intelligence collection or other intelligence operations, and thus warrants control on the USML. Although the EAR includes definitions for broad terms like “support,” that term is not defined in the existing provisions of the ITAR or this proposed rule.

Activities controlled pursuant to USML Cat. IX(s)(2) would be limited to those services that are provided “for compensation” (i.e. have some measurable response from the recipient in exchange for the service that is not limited to monetary compensation but could include gifts, lodging, services, political favors, and legislative or legal relief).

The proposed rule does not target for control non-critical intelligence assistance provided on a volunteer basis, or the activities of hobbyists and “casually interested persons.” As an example, DDTC notes that it does not intend to control as persons furnishing a defense service those who forward or comment on open-source, publicly available satellite imagery relevant to the invasion of Ukraine.

However, DDTC seeks input on the “for compensation” criteria, including on implementing controls on requests from foreign persons for assistance, even if those requests are not compensated, so long as those additional controls supply clear, objective standards to control the kind of intelligence services proposed as USML Cat. IX(s)(2) without inadvertently capturing more activities than is necessary.

Military assistance

USML Cat. IX(s)(3) would control:

Assistance, including training or consulting, to a foreign government, unit, or force, or their proxy or agent, that creates, supports, or improves the following²:

• The organization or formation of military or paramilitary forces;

• Military or paramilitary operations, by planning, leading, or evaluating such operations; or

• Military or paramilitary capabilities through advice or training, including formal or informal instruction.

This new paragraph would cover assistance in the development and organization of foreign military services (e.g., armies, navies, air forces, etc.) at any stage. It is also intended to cover logistical support and assistance in the conduct and analysis of military operations, whether in war or peacetime.

“defense services” is defined in ITAR § 120.32(a)(3) as:

Military training of foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the United States or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice.

The proposed USML Cat. IX(s)(3) does not enumerate the same examples of military training but the provisions are consistent in this respect because the examples in section 120.32(a)(3) are non-exhaustive. These defense services are controlled under the ITAR even if no defense articles are involved.

Catch and release

The proposed rule applies the “catch and release” method of control: The proposed new paragraphs in USML Cat. IX(s) related to intelligence assistance and military assistance described above will “catch” activities that furnish certain forms of military or intelligence assistance to a foreign person, but the carve-outs contained therein will “release” certain activities from those controls. As companies study the release categories, it will be important to assess whether the carve outs are clear and adequate given the expanded definitions. Some elements of the catch and release rubric deployed in the classification provisions of the ITAR have led to an overly broad application of the ITAR to certain items.

Carve-Outs to Intelligence Assistance (Category IX(s)(2))

The following types of activities would not be considered “intelligence assistance:”

• Furnishing of medical, translation, financial, insurance, legal, scheduling, or administrative services, or acting as a common carrier;

• Participation as a member of a regular military force of a foreign nation by a U.S. person who has been drafted into such a force (as noted in current § 124.2(b));

• Training and advice that is entirely composed of general scientific, mathematical, or engineering principles commonly taught in schools, colleges, and universities;

• Information technology services that support ordinary business activities not specific to a particular business sector;

• Any lawfully authorized investigative, protective, or intelligence activity of a law enforcement or intelligence agency of the United States or of a territory, possession, State, or District of the United States, including political subdivisions thereof; or

• Maintenance or repair of a commodity or software.

There will be a number of questions and comments regarding these exclusions. For example, the carve out for “entirely composed of” general scientific, mathematical, or engineering principles may be too limited to be a useful standard without other elements of the public domain exclusion. It is not clear how broadly “administrative” services will be interpreted. We also note that “information technology services that support ordinary business activities not specific to a particular business sector” are a type of activity proposed for control under the BIS rule imposing, in part, license requirements on Intelligence End Users (IEUs). IEUs include any foreign government intelligence, surveillance, or reconnaissance organization, or other entities performing functions on behalf of such organizations. So, even though this type of activity would not be controlled under the ITAR, this activity may be controlled under the EAR.

Carve-Outs to Military Assistance (Category IX(s)(3)(iv))

The following types of activities would not be considered “military assistance”:

• Furnishing of medical, translation, financial, insurance, legal, scheduling, or administrative services, or acting as a common carrier;

• Participation as a member of a regular military force of a foreign nation by a U.S. person who has been drafted into such a force (as noted in current § 124.2(b); or

• Training and advice that is entirely composed of general scientific, mathematical, or engineering principles commonly taught in schools, colleges, and universities.

Next steps

DDTC’s proposed rulemaking highlights the State Department’s increasing focus on controlling military and intelligence-related exports that may, even indirectly, threaten U.S. national security interests. Companies are advised to review the proposed changes to the ITAR and consider how this proposed rule could impact its business, including whether the proposed rule would subject activity to control under the ITAR even if it is not currently controlled. Please contact any of the listed Hogan Lovells lawyers with questions about how the ITAR may affect your business moving forward. We would be happy to assist you.