NCMA Boston’s 3 rd Annual Int’l Contracting Forum Alan F. Lehman Chief, International Law 66 ABG/JA 9 December 2015 Foreign Military Sales Contracts & Export Control Reform

Overview Background Legal Authority Control of Arms Exports & Imports Foreign Military Sales (FMS) Direct Commercial Sales (DCS) and the ITAR Sole Source: FMS Export Administration Regulations (EAR) Export Control Reform 2

Background The USG contracts on behalf of a foreign government The contract implements an FMS case The contract implements an international agreement * Contract directly with a foreign government Direct commercial sale Government-to-government sale * FMS LOA not an international agreement per DoDD

Legal Authority Arms Export Control Act (AECA), as amended (22 U.S.C. §2751, et seq.) Export Administration Act of 1979 (EAA), as amended (50 U.S.C. app. §§ ) ITAR EAR 4

Legal Authority ( cont’d ) Arms Export Control Act (AECA) Establishes the FMS Program: reporting requirements to Congress Section 38 of the AECA authorizes President to:  establish United States Munitions List  issue export licenses  control imports and exports of defense articles and defense services  establish registration & license requirements for manufacturers, exporters and importers 5

Legal Authority ( cont’d ) Export Administration Act of 1979, as amended Authority for the Export Administration Regulation (EAR) [administered by Department of Commerce] 15 C.F.R., Ch. VII, Subchapter C, Parts EAR contains, inter alia, the Commerce Control List (CCL) and anti-boycott/discrimination sanctions, both criminal & civil International Emergency Economic Powers Act (IEEPA) (50 U.S.C. §1702)* * Used from time-to-time when Export Administration Act of 1979, as amended, has lapsed (i.e., not renewed by Congress) 6

Arms Export Control Act (AECA) Establishes the Foreign Military Sales program Sec. of State reporting requirements to Congress Authorizes the President to enter into cooperative projects with other nations and international organizations Promulgated under authority of the Case-Zablocki Act (1 U.S.C. §112b) Sec. of State reporting requirements to Congress Establishes control of exports/imports of defense articles and defense services 7

Export Administration Act of 1979 (EAA) [50 U.S.C. Appx. §2401,et seq.] Controls exports of goods and technologies in international markets by U.S. citizens Not permanent legislation, i.e., not codified Concerned with ability of the US to maintain its national security, political and economic position the world Establishes regulation of embargoes and other special controls Authorizes regulation of restrictive trade practices and boycotts 8

International Emergency Economic Powers Act (IEEPA) 50 U.S.C. §§ §1701 gives the President the authority to “deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the US, to the national security, foreign policy, or economy of the US, if the President declares a national emergency with respect to that threat” Used to establish USG-sponsored embargoes & boycotts of other nations and/or international organizations Secretary of Commerce administers the various sanctions imposed by the President and/or Congress Reporting requirements to Congress by Sec. of Commerce 9

Foreign Military Sales Normally contract under authority of Sections 21, 22, 23, or 24 of AECA US contracts on behalf of foreign govt. Use DFARS provisions in place of FAR e.g., DFARS Subpart , Acquisition for Foreign Military Sales DSCA Manual M [aka Security Assistance Management Manual (SAMM)] Section C6.3: Case Execution - Acquisition 10

Foreign Military Sales ( cont’d ) C6.3.3 & Table C6.T1, Selected FAR & DFARS Selections Relevant to FMS Acquisition LOA Standard Terms & Conditions, ¶1.2, second sentence: DoD will do business for FMS customer like it will do business for itself US contract Normally competed under FAR 15 (or 14) Sole source must be specified in LOA, otherwise... Follow SAMM C6.1, Case Implementation 11

Foreign Military Sales ( cont’d ) Follow FAR Subpart (DFARS ) procedures for exceptions to competition  Examples of exceptions: Only one responsible source [§2304(c)1] (FAR ) International agreement [§2304(c)4] (FAR ) Funds must be in Trust Account (DFAS) 12

Foreign Military Sales ( cont’d ) All international contracts under USG responsibility contain additional clauses Most found in DFARS The rest of the clauses scattered about the rest of DFARS Part 252 DFARS Secondary Arab Boycott of IsraelSecondary Arab Boycott of Israel 13

Control of Arms Exports & Imports Under Executive Order 11958, administration of AECA Section 38 (22 U.S.C. §2778) delegated to Secretary of State State Dept. promulgated International Traffic in Arms Regulation (ITAR), establishing export licensing requirements (22 C.F.R. §120, et seq.) Establishes U.S. Munitions List (USML) Licensing requirements based on what is on USML Mostly affects direct commercial sales 14

Direct Commercial Sales & the ITAR AECA Section 38 (22 U.S.C. §2778) Contracts between US contractor and a foreign government Contracts between US contractor and foreign contractor International Traffic in Arms Regulation (ITAR) export licensing requirements (22 C.F.R. §120, et seq.) §124.1, Manufacturing license agreements and technical assistance agreements 15

Direct Commercial Sales & the ITAR ( cont’d ) §124.3, Exports of technical data in further- ance of an international agreement Part 125, Licenses for the Export of Technical Data and Classified Defense Articles Part 127, Violations and Penalties §127.1(a): Unlawful to export or attempt to export defense article or service, or technical data without permission in writing (i.e., license) from Directorate of Defense Trade Controls (DDTC) §127.3, Penalties per AECA, Sect. 38 − $1,000,000, or 20 yrs., or both, per violation 16

Sole Source: FMS Foreign Military Sales (FMS) DFARS 206.3, Other Than Full & Open Competition, applies If sole source reflected in the LOA, use , International Agreement, as exception Absent that, use normal sole source procedures DSCA Manual M, [SAMM], C6.3.4, Requests for Other than Full and Open Competition Submit sole source justification(s) for designated source in Letter of Request (LOR) − Example justifications listed in Figure C15.F2 Approval of designated source reflected in resultant Letter of Offer and Acceptance (LOA) 17

Export Administration Regulations (EAR) [15 C.F.R. Parts ] §730.2: Legal authority EAA is the primary legal authority; IEEPA may sub Other underlying legal authorities listed at the beginning of each section §730.3: “Dual Use,” other types of items subject to EAR and the Commerce Control List (CCL) Dual Use: one that has civil applications as well as terrorism and military of WMD applications Part 746: Embargoes & Other Special Controls Part 760: Restrictive Trade Practices or Boycotts Part 764: Enforcement & Protective Measures 18

EAR & Anti-Boycott Restrictions DFARS Secondary Arab Boycott of Israel Contractor must certify it is not a participant Export Administration Regulations (EAR) 15 C.F.R. Part 760, Restrictive Trade Practices or Boycotts — civil & criminal Don’t have restrictive contract clauses in your contracts! 19

Export Control Reform (ECR) Begun in 2010, the President approved a plan that envisions: A Single Licensing Agency to receive and adjudicate licenses currently processed by State, Treasury and Commerce A Single Control List, tiered based on sensitivity of commodity A Single IT system for submission, review an adjudication of licenses A Single Export Enforcement Coordination Agency 20

ECR ( cont’d ) The Departments began action to reform the way the US does exports in 3 phases: I: Immediate improvements, create framework II: Implement the new framework within existing structures/authorities III: Complete transition: Merge & consolidate To date, a transition from USML to CCL Category rewrites in both ITAR and EAR, moving some categories from USML to BIS-600 Series in the EAR DoC’s Bureau of Industry and Security (BIS) issuing more licenses as a result 21

Summary Foreign Military Sales (FMS) contracts follow normal U.S. laws, policies, and procedures DFARS has specialized coverage for FMS contracting Exports of defense articles and services controlled by the ITAR Exports of non-military technologies and commercial ventures controlled by the EAR The EAR also controls export of dual-use technology The EAR regulates restrictive trade practices and boycotts Export Control Reform is alive and well Continual re-categorizing & transfers from USML to CCL 22

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