Broker Registration Renewal and Reporting

Once a broker has been registered, there are numerous additional requirements in order to maintain their status as a registered broker.


Material Changes Must Be Reported

When there have been changes to the circumstances such that the registration is materially affected (the details of brokering activity have changed) then the DDTC will have to be notified of the changes in order for a broker’s registration status to be maintained.


If it’s a US broker, then notice must be given within 5 days of the material change in circumstances.  If it’s a foreign broker, then notice must be given within 60 days of the material change in circumstances.


“Material” changes typically include, but are not limited to, changes in eligibility status (due to citizenship changes, employment status changes, etc.), name, location info, hierarchical changes in firm structure, changes in the defense articles exported and services rendered, and more.


Annual Reporting is Required

Registered brokers are required to provide an annual brokering activity report to the DDTC.  The annual report must include detailed information on brokering activities (such as the dollar value, quantity, category, type, and more).


An annual report is due even if the broker has not been engaged in brokering activities during the previous year.


Annual Registration is Required

In addition to annual reporting, brokers are required to annually renew their registration by filing a statement of registration between 30-60 days before expiration date.  Both the renewal registration and the annual brokering activity report are due in the same month.  Failure to file a statement of registration (to renew) will result in the suspension of registration status.



Under the ITAR, brokers must follow strict guidelines to ensure that they can engage in brokering activity for defense articles and services.  Depending on the circumstances, a broker will have to register and obtain approval from the DDTC, or may qualify for an exemption.

Exemptions from the Registration Requirement

There are numerous provisions in the ITAR that carve out exemptions for specific persons and entities to reduce the administrative burden of having to register as a broker (and subsequently obtain an approval for brokering activities).


US Connection Predecessor to Registration

Broker registration requirements require substantial links to the United States.  They apply only to US persons, foreign persons located in the United States, or and foreign persons outside of the United States but in a position where their decisionmaking authority (or securities ownership of their firm) is controlled by US persons.  To put it simply: a foreign broker whose brokering firm is foreign-owned will not be subject to ITAR broker registration requirements.


“On Behalf Of” Requirement

The ITAR imposes a registration and approval requirement only on brokers that engage in brokering activities “on behalf of” another person or entity.  This language specifically implicates independent brokers and brokering firms, and excepts broker-employees of an arms manufacturer or exporter.  As such, internal brokering activities need not precipitate the registration requirement, saving defense article manufacturers and service providers from the administrative headache of doing so.


Government Employees are Exempt

The brokering provisions carve out an exemption for employees of the government – both foreign and domestic governments – but only when such employees are acting in their official capacity.  An employee of a government (foreign or domestic) cannot independently broker defense article and service exports.


Does Not Apply to Administrative Services

Facilitation in the administrative sense is exempt.  Purely administrative services – including but not limited to real estate, visa, translation, company promotion, and attorney services – does not activate the brokering registration requirements.  This makes it much easier for individuals and entities to work with ITAR-compliant firms without having to step-up their processing burden.


Does Not Apply to Certain Exclusive Activities

Section 129.3(b)(2) of the ITAR carves out an exemption for persons engaged in activities that are not associated with the defense export content itself – in other words, for those whose business is not reliant on the fact that the exportation is a defense article.  This exemption applies specifically to persons who are exclusively engaged in financing, insurance, transportation, customs brokering, and freight forwarding, despite the fact that these activities are considered “brokering activities” according to the section 129.2(b) definition.  No further engagement (beyond what is standard for the industry) is allowed.


It is worth noting that even one-time engagement in brokering activities will precipitate the broker classification.  Continuous brokering activity is not a pre-requisite to registration.

ITAR Brokering Registration Regulations and Compliance

Under the International Traffic in Arms Regulations (ITAR) implemented and enforced by the Directorate of Defense Trade Controls (DDTC) of the Department of State, “brokers” of defense articles and defense services are required to register with and obtain the approval of the DDTC prior to engaging in the business of brokering.


If you are not a broker of covered munitions or defense services, then you are not required to register as a broker or obtain approval.  For a current list of covered munitions and defense services, use the United States Munitions List as a reference (section 121.1 of the ITAR).


So, who qualifies as a broker, and is therefore subject to the registration and compliance requirements of the ITAR?


According to sections 129.2(a) and 129.2(b) of the ITAR, a “broker” is any person who engages in the business of brokering activities, which involves actions taken on behalf of another to facilitate the manufacture, export, permanent import, transfer, re-export, or re-transfer of a US or foreign defense article or defense service.  This definition covers a wide variety of activities, from financing, insurance, and transportation of covered articles and services, to promotion, negotiation, and general assistance with the contract.

Effects of the New DCS Rules

Effects of the New Rules


The BIS and State Department intend for these DCS revisions to have significant positive effects on exporters, and on export regulation generally.  Specifically, their hope is that the final rule revisions will help minimize the compliance burden for exporters, and the complexity of the export control process overall.  Recipient parties and re-exporters are also benefitted by the revisions, as DCS information is consolidated in the commercial invoice and inconsistencies in mixed shipments are eliminated.  Re-exporters can easily fashion another DCS for the shipment using the commercial invoice DCS as a reference.


These final rules have been put into effect as part of a larger executive-branch initiative to consolidate the export control process and create a unified export control list and licensing agency.  Ultimately, the intent is to create one agency for export control and one set of regulations to govern such exports.


Under Executive Order 13563, the BIS and the State Department must continue to review the impact of the final rules on exporters’ licensing burden.  They will collect data on a periodic basis and conduct an assessment of the effects of the rules on exporters.  Elements of the rule may be modified, repealed, and otherwise reviewed and revised in the future (after a public comments period, of course).



As of November 15, 2016, the world of defense article export compliance will change forever as DCS requirements under EAR and ITAR are harmonized as per the new rules.  These changes are intended to reduce the regulatory burden for exporters and help ensure that the export of defense articles remains well-controlled.

Changes Made to Harmonize the DCS provisions

The final rules issued by the BIS and State Department – and effective as of November 2016 – alter the text of the existing EAR and ITAR regulations to better harmonize their separate DCS requirements.


Commercial invoice only.

The new rules no longer require a DCS on several different export control documents.  Instead, under the modified EAR and ITAR, a DCS will only be required for the commercial invoice.  The commercial invoice DCS must include the destination country, the end-user, any claimed exemptions, and additional classification information as necessary (for limited item categories).


Tangible items limitation.

A DCS is only required for the shipment of tangible export items.  Intangible items do not require a DCS, though the BIS recommends the inclusion of a DCS as a matter of consistent compliance best-practices.


The harmonized DCS will have the same text.

Existing EAR and ITAR regulations require DCSs with different text, thus creating confusion as to which DCS to include – especially for exporters shipping mixed shipments.  The new EAR and ITAR regulations have been revised to harmonize DCS language between the two.  The text is equally applicable.  As a result, exporters need not worry about which DCS to include for their mixed shipments.  The harmonized DCS will work for either EAR or ITAR-covered items.


Though harmonized, the DCS text will allow for differentiation.

If necessary, the revised DCS text does have the flexibility to allow for differentiation under specific ITAR and EAR provisions – such as the de minimis approval requirements of the EAR.  Though the default DCS text is equally applicable to many ITAR and EAR defense article items, differentiation may be necessary in certain circumstances.


Despite these revisions, exporters of defense articles must still go through the process of obtaining proper authorization and approval for shipping ITAR and EAR-covered items.  Only the export clearance process – specifically, inclusion of a compliant DCS – has been affected by the issuance of these final rules.

How is the pre-existing DCS paradigm frustrating for exporters?

How is the pre-existing DCS paradigm frustrating for exporters?


The purpose of a DCS is to notify international parties as to the compliance of the exported defense article with applicable EAR and ITAR regulation, and to ensure that the relevant parties are further notified as to the illegality of diverting the exported article.


Under the pre-existing DCS paradigm, exporters of defense articles are required to include a DCS on several different export control documents in accordance with either or both of the EAR and ITAR regulations.


Multiple export documents.

Existing EAR and ITAR regulations require that exporters include a DCS on several different export documents, including the bill of lading, the air waybill, the commercial invoice, among others.  With several different documents requiring a DCS, this increases the cost of compliance for exporters quite significantly.


Confusion as to DCS application.

It is not uncommon for exporters to move mixed shipments of defense articles that are subject to both EAR and ITAR regulation.  When moving mixed shipments, many exporters have been concerned as to the DCS requirements – EAR and ITAR regulations each demand different DCS language, and as such, ensuring compliance can be confusing.  Exporters may find themselves confused as to which DCS to include on their export documentation.

New Revisions to the EAR and ITAR to Harmonize Destination Control Statements

New Revisions to the EAR and ITAR to Harmonize Destination Control Statements


On August 17, 2016, as part of the President’s Export Control Reform initiative, the Bureau of Industry and Security (BIS) and the US Department of State issued final rules revising the destination control statement (DCS) requirements in the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) so as to harmonize DCS implementation between the two regulatory frameworks.  The final rules will be effective as of November 15, 2016.

Failure to Comply – Civil and Criminal Penalties

The State Department works with various other agencies (e.g., US Customs, Department of Defense) and with foreign governments and their agencies to ensure compliance, both before and after shipment, through extensive monitoring programs. If there is an ITAR violation – for example, if the arms export is transferred to a prohibited end-user – then you may be subject to significant civil and criminal penalties. As such, it is crucial that you extensively research your customers to ensure that the actual end-user is your intended end-user, and that no diversions will be made after the sale (barring appropriate approvals, of course).

Criminal penalties
For each violation, you may be subject to fines of up to $1M, and up to 10 years imprisonment.

Civil Penalties
Civil penalties are much more varied. If a delivery in violation of applicable law is attempted, then the vector for delivery (truck, airplane, ship, etc.) may be seized. For each violation, you may also be subject to fines of up to $500K and further, you risk debarment of your arms exporter business.

Debarment could result in the destruction of your export business as a whole, even if your business exports other products unrelated to arms and defense. When your business has been debarred, you lose all export privileges, and all export licenses will be revoked. You are also no longer allowed to do business with the government.

Diversions by end-users cannot always be prevented, however. What should you do if there has been an unintended compliance violation?

In the event of an unintended compliance violation, the ITAR provides for a Voluntary Disclosure Program that may result in the mitigation of the penalties. The violation must be reported within 60 days of its discovery, and a plan must be set in place to reduce the likelihood of its re-occurrence.

Arms exportation is a heavily-regulated business with strict compliance requirements. As the penalties are so severe, full and consistent compliance is necessary to the success of any arms exportation business. Further, the development of a well-structured compliance plan may help attract high-end, discerning customers.

Licensing and Registration

Under ITAR section 122.1(a), an arms exporter must first register with the DDTC and receive State Department approval of their license application. Registration is a pre-requisite for licensing, and approval of the license application entitles the would-be arms exporter to important export privileges.

Additional registration requirements and exemptions
Under ITAR section 120.25, an arms exporter-applicant must select an employee or a subsidiary of their company to serve as an “Empowered Official”.

An Empowered Official must: a) serve as the legal agent for the exporter-applicant when signing off on license applications and other approval requests; b) understand the requirements and penalties of applicable export control regulations; c) be able to conduct independent inquiries and verification of submission information; and d) have the authority to refuse to sign off on a license application or other approval request without being punished for doing so.

Empowered Officials are largely responsible for ITAR compliance, and as such, are also responsible for the maintenance of any and all arms export control plans (which may include internal training and awareness programs).

ITAR registration is not required for all arms exporters. Officers and employees of the government who are acting in an official capacity are not required to register, and neither are persons involved in the exportation or manufacture of defense articles meant solely for experimental purposes (e.g., for R&D purposes).

The licensing process
Once registration is complete, the license approval process can move forward. Licenses must be submitted through DTrade, an electronic submission system.

During the review process, the State Department ensures that information related to the use and purpose of the defense article, handling, and the identity of the recipient end-user is verified and compliant with applicable regulations.

A sizeable portion of license applications will be referred to other agencies for further investigation and for recommendations. In general, exporters should expect the license approval process to take at least a month to complete, but should prepare for a longer process, especially when the application has been referred out for additional recommendations.

Importantly, arms exportation to certain countries and specific regions are prohibited outright, and a license will not be approved if the end-user resides in or will use the defense article in a prohibited area. A list of embargoed areas is made available in the updated text of ITAR 126.1. Certain areas are not prohibited by default but will be evaluated on a case-by-case basis.

To prevent resale or transfer by an end-user, export documentation must unequivocally state that further transfer is prohibited without the written approval of the State Department.

Exporting Arms and other Defense Articles – an Introduction to ITAR Compliance

What are the basic rights and obligations of arms exporters under current federal law?

US-based arms exporters are legally entitled to sell, transfer, and export arms and other defense articles to foreign recipients – though these transfers may be subject to numerous regulatory controls.

Exportation of defense articles is seen as a crucial component in furthering various national security and diplomatic objectives. From a foreign policy perspective, the government authorizes exportation of defense articles as such exportation can help provide necessary equipment the defense of allied and friendly nations, deter military aggression, and promote geopolitical stability. To prevent unauthorized exportation and potentially indiscriminate arms transfers, however, the trade in arms and other defense articles has been strictly regulated.

As an arms exporter, you will have to meet the standards set by the International Traffic in Arms Regulations (ITAR), which implements the Arms Export Control Act (AECA) and is administered by the Directorate of Defense Trade Controls (DDTC) of the State Department.

If you are exporting arms and other defense articles that are absent from the United States Munitions List (USML), as set forth in ITAR section 121, then the regulations will not apply. If you are unsure whether your arms export is covered by the USML, then you may file a Commodity Jurisdiction request for an official determination.