DEFENSE TRADE ADVISORY GROUP Plenary Session – May 20 ...

DEFENSE TRADE ADVISORY GROUP

Plenary Session – May 20, 2021

Working Group 2 White Paper

Part 130 Reporting

Table of Contents Working Group Members ............................................................................................................................ 1

Introduction .................................................................................................................................................. 2

Review and Summary of Prior DTAG Research and Recommendations .................................................. 3

Approach and Methodology ........................................................................................................................ 4

Discussion ..................................................................................................................................................... 5

Special Considerations ................................................................................................................................. 6

Obligation to Report to Congress ............................................................................................................. 6

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Working Group Members

Giovanna Cinelli Morgan Lewis & Bockius LLP (Co-Chair)

Ashley Farhat HRL Laboratories, LLC (Co-Chair)

Fred Alvarado Red Mountain Arsenal LLC

Bryon Angvall Independent Consultant

Mary Beran Georgia Tech Research Corporation

Steve Casazza Defense Trade Solutions

Dava Casoni University of Southern California

Monica Chavez Amgen

Sandra Cross Huntington Ingalls Industries

Josh Fitzhugh Flextronics International

Jeff Merrell Rolls-Royce North America

Ari Novis Pratt & Whitney Aircraft

Steven Pelak Holland & Hart, LLP

Daniel Perrone Raytheon Technologies Corporation

Darren Riley Riley Trade Law, PLLC

Olga Torres Torres Law, PLLC

Special acknowledgement to prior Part 130 working group members!

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Introduction

Background: On March 30, 2021, the State Department’s Bureau of Political-Military Affairs, Directorate of Defense Trade Controls (DDTC) tasked the Defense Trade Advisory Group (DTAG) to in provide further analysis on the subject of the International Traffic in Arms Regulations (ITAR), Part 130. The DTAG examined Part 130 issues originally based on a tasking from DDTC that the DTAG addressed at the May 2020 DTAG Plenary meeting.1 In prior plenaries (each of May and October, 2020), DTAG recommended options for regulatory and process modifications to the Part 130 process. DDTC requested more detailed information on the relevant legal issues that could arise out of these recommended revisions to Part 130, and other implications that could result from altering the process. This White Paper outlines the additional legal and related authorities that bear consideration prior to any modifications to Part 130 and consolidates, as well as updates, recommendations from all three (3) taskings. DTAG’s summary report and presentation made during the May 20, 2021 DTAG Plenary Session, this White Paper, and the accompanying attachments represent the DTAG’s observations and recommendations in response to the current tasking. Tasking: DDTC requests the DTAG to continue to build upon the White Paper created in support of the October 2020 Plenary related to ITAR Part 130. DDTC requests that the DTAG incorporate relevant legislative and treaty requirements into its analysis on an alternative reporting approach, paying particular attention to which reporting requirements mandate DDTC to report contributions, gifts, commissions, or fees offered; versus paid or both. Summary: DTAG confirms its prior recommendations and concludes that underlying statutes and treaties, which potentially could impact Part 130, do not appear to limit or restrict the modifications previously proposed and outlined in this white paper. The primary statutes grant DDTC (as the delegated agency) broad discretion as to the timing and development of Part 130 report, and that discretion aligns with the Directorate’s foundational authorities to implement DDTC’s national security and foreign policy objectives. After a refreshed and more detailed review of relevant legislative and treaty requirements, DTAG recommends that DDTC allow for an annual reporting option at the time of registration renewal (rather than transactional or sale-by-sale reporting as was originally recommended in May 2020). DTAG continues to believe that annual reporting would improve the accuracy of reporting, facilitate electronic Part 130 reporting, clarify the timing of Part 130 reporting, and make Part 130 information more readily available in one location for relevant government officials. DTAG appreciates the operational challenges of implementing an annual reporting approach, including repurposing current reporting mechanisms, the potential need for IT changes, a revised dialogue with Congress, and further coordination between the Licensing and Registration teams within DDTC. DTAG believes that its recommendations from March and October 2020 provide a foundation and an operational plan to address some of these challenges. Based on the tasking, the engagement with DDTC, and the observations made by DDTC during the recent plenary session, DTAG offers additional operational thoughts as part of the discussion below.

1 DDTC originally tasked DTAG with reviewing Part 130 on March 20, 2020. DTAG presented their recommendations at the May 14, 2020 Plenary meeting. DDTC requested additional information and recommendations via DTAG tasking on August 20, 2020. DTAG presented their recommendations at the October 22, 2020 Plenary meeting.

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Review and Summary of Prior DTAG Research and Recommendations

In March 2020, DTAG was asked to “relook” at Part 130 of the ITAR and to:

1) Recommend modifications to Part 130 reporting rules to increase accuracy and transparency and avoid duplicate reporting (or over reporting).

2) Explore the advantages and disadvantages of allowing reporting of information on a periodic basis (e.g., semi-annually or annually) and on an aggregate basis per recipient with appropriate disclosure of the relevant foreign nation and relevant sale or foreign military program.

3) Explore the advantages and disadvantages of establishing an automated reporting form or process for submitting Part 130 reports.

DTAG reported on its tasking during the May 14, 2020 DTAG Plenary Session and produced a white paper that examined the following factual circumstances, law and topics in undertaking a relook of Part 130:

1) The Factual Context: Defining the Challenge confronting the Defense Trade Industry; 2) The Legal Context: The Statutory Requirements and Regulatory Discretion for DDTC; 3) Potential Causes of Misunderstanding Legal Requirements and Reporting Failures; and 4) Proposed Corrective Actions and ITAR Amendments: Recommendations.

The May 2020 white paper is included at Exhibit [A]. The DTAG analyzed the Arms Export Control Act (AECA) of 1976 statutory requirements to report political contributions, gifts, fees, and commissions and the corresponding ITAR Part 130 reporting requirements. It was determined that, with one exception for congressional notification, the AECA granted the State Department discretion to establish the timing and contents of the Part 130 reporting requirement and that the legislative history and context surrounding enactment of Section 39 of the AECA in 1976 supports periodic annual reporting of Part 130 information. DTAG further concluded that “timely reporting” means reporting at a suitable time to achieve the purposes of Section 39. Based on these determinations DTAG provided the following recommendations:

1) Industry Education – Update the December 2013 Part 130 Guidance with FAQs and Additional Illustrative Examples.

2) Part 130 Reporting Cadence and Timeliness – Allow for periodic annual reporting at the time of registration renewal rather than transactional or sale-by-sale reporting to improve the accuracy of reporting, to facilitate electronic Part 130 reporting, to clarify the timing of Part 130 reporting, and to make Part 130 information more readily available in one location for relevant government officials.

3) Refine the Scope of Reporting – Update the threshold amount for reporting from $500,000 to $1,000,000 and provide the following two clarifications within ITAR Part 130 to improve the accuracy and consistency of Part 130 reporting:

a. Clarify the scope of the technical, operational, and advisory services exemption in ITAR § 130.5(b)(4); and

b. Clarify “substantially different” for supplementary reports per ITAR §103.11(a)(2).

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In August 2020, DDTC further tasked the DTAG to suggest draft forms that could be used to support such an alternative reporting approach (e.g., annually) to ensure that the reports capture relevant information. DDTC requested that DTAG prepare a draft (a) form or attachment that indicates Part 130 information will be reported at a later date (e.g., annually, but in a separate filing, at the same time as the company's registration); and (b) Part 130 (annual) report form. The DTAG presented its summary report during the October 22, 2020 DTAG Plenary Session, produced a corresponding white paper (included at Exhibit [B]) and produced the draft document Guidelines for Annual Reports of Information Pursuant to 22 CFR § 130. In relation to notification by a party of its choice to submit an annual Part 130 Report, DTAG recommended that DDTC – with slight modification -- take advantage of the current Part 130 reporting mechanism within the DSP-5 Vehicle and other license application forms by adding an additional selection option or radio button which would allow a license applicant to select Annual Part 130 Reporting. DTAG also recommended that Part 130 reporting be completed through two Tables, one table presenting a listing per recipient of all reportable Part 130 payments over the preceding 12 months and one table that would present a listing of those recipients to whom a registrant during the preceding 12 months offered or promised to pay reportable Part 130 payments, but no actual payments were yet made in the preceding 12 months on such offer or agreement.

Approach and Methodology

To fulfill the requirements of this tasking, the Working Group: • Reviewed relevant treaties • Evaluated requirements of the AECA • Investigated the legislative and policy history of the AECA, including statements in the Congressional

record regarding the payments of fees and commissions • Worked with DDTC to understand DDTC’s Congressional reporting requirements We confirmed the work of previous DTAG Working Groups, finding that in the Arms Export Control Act of 1976, Section 39(a), Congress did not impose more specific requirements in relation to “timely reporting of political contributions, gifts, commissions and fees paid, or offered or agreed to be paid, by any person in connection with…” We further confirmed that the AECA supports the conclusion that Congress provided the Department with flexibility and discretion to define and manage the Part 130 process and reporting, including the discretion to deviate from the standard sale-by-sale bases for the current reporting structure. We also confirmed that as drafted, Congress intended for the AECA to provide the Department the authority to draft regulations most conducive to accurate reporting. Expanding its review of legal authorities, this Working Group also took a close look at the Foreign Corrupt Practices Act (FCPA), to determine whether, directly or indirectly, the FCPA established any limitations on the AECA and ITAR framework for Part 130 reporting. Although both the AECA/ITAR and the FCPA touch upon fees and commissions paid to consultants or sales representations (at the broadest level), the overlap and similarities basically end there. The manner in which the FCPA requires recordkeeping and reporting, while informative, does not appear to act as a bar or limitation to DDTC’s authorities to propose the structure, content or submission and timing of Part 130 reports.

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Finally, the Working Group looked for the first time at two treaties which directly relate to the ITAR and which are covered separately in the ITAR from a requirements perspective - the US-UK and US-Australia Defense Trade Cooperation Treaties. Both treaties were signed in 2007 and ratified in 2010, and their negotiated text may be viewed as the latest thinking on the treatment of payments of fees and commissions that relate to defense articles. Under the U.S. - U.K. Defense Trade Cooperation Treaty, as implemented in ITAR § 126.17: • Section 126.17(m) sets forth that Part 130.10 information is required for exports valued in the

amount of $500,000 or more; • This is the same threshold as defined under 130.2 and 130.7; • Treaty exemptions are subject to the same Part 130 requirements as license applications; and • Section 126.17(l)(xii): Requirements for recordkeeping are consistent with the requirements

outlined in 130.14 Under the U.S. - Australia Defense Trade Cooperation Treaty as implemented in ITAR § 126.16: • Section 126.16(m) sets forth that Part 130.10 information is required for exports valued in the

amount of $500,000 or more; • This is the same threshold as defined under 130.2 and 130.7; • Treaty exemptions are subject to the same Part 130 requirements as license applications; and • Section 126.16(l)(xii) Requirements for recordkeeping are consistent with the requirements outlined

in 130.14 As a result of this more granular review, the DTAG concluded that neither the AECA, the FCPA, the US-UK or US-Australia Defense Trade Cooperation Treaties nor any sparse Congressional legislative history related to Part 130 create an impediment to DDTC pursuing a different timeline or framework for reporting Part 130 fees and commissions. The flexibility inherent in the AECA authority for DDTC to collect this information remains relevant and supports DDTC’s ability to alter its process.

Discussion

When the DTAG briefed its recommendations during the plenary session, DDTC asked four questions and requested that they be addressed in the White Paper:

- How can the annual approach be handled efficiently by DDTC? DTAG believes the annual approach can be handled in the same manner as Part 129 Brokering Reports and included in annual registration submissions. Part 129 provides an initial example of how DDTC can manage the process and continue to collect relevant, timely and accurate information that may need to be shared within the Department of State and with Congress.

- How might/Will changing the approach to allow for annual reporting limit DDTC’s ability to

obtain details about licenses and specific Part 130 issues? A change in the process or timeline for collecting accurate information does not affect or alter DDTC’s overarching ability to request additional information from registrants or parties that engage with the agency. Information can be requested by DDTC on a specific license basis and a registrant would be able to respond with

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the information the agency needs. Given this flexibility and continuing DDTC authority, DTAG believes the annual approach does not impede DDTC’s ability to obtain license specific Part 130 information. To the extent the agency believes the process may need to be refined – based on its current method of monitoring or tracking the data in its systems – consultation with DDTC’s IT resources, as well as the licensing, compliance and registration teams may identify efficiencies within existing processes that will permit this information identification.

- How might/Will changing the approach to annual reporting limit DDTC’s ability to coordinate between the licensing and registration teams? DTAG understands that DDTC is a highly integrated and effective organization that manages seamless information sharing across a range of issues. Licensing, registration, and compliance have consistently coordinated in enforcement actions where parties may be involved in a disclosure situation while concurrently seeking export authorizations pending resolution of the disclosure. In this situation, we understand that DDTC Licensing would confirm the current status of the party’s registration and engage with DDTC Compliance and Enforcement to gauge whether the type of disclosure or the alleged violations make the issuance of a license problematic. That same level of coordination appears capable of repetition in this context. Thus, DTAG believes that, based on DDTC’s existing engagements among its coordinate offices, coordination issues will be manageable.

- What types of regulatory changes, if any, need to occur for DTAG’s recommendations to be

implemented? DTAG suggests that existing vehicles for information collection be revised to add information needed for updates to the Part 130 process. For example, additional information required for submission of registration filings could be inserted into the DPS-5 vehicle either by replacing one of the existing questions that currently applies to Part 130 license-by-license responses, or through the addition of another field to address the issue. The DTAG appreciates that modifying the DSP-5 vehicle (or any other form) would likely require intergovernmental engagement between State and the Office of Management and Budget (OMB). The DTAG understands the challenges that could arise in this context, but the overarching benefits to the information collection process, as well as the accuracy and relevance of the data collected, may outweigh the administrative burden that could be imposed on DDTC in making the change. In addition, while changes to a form would be needed, the changes would be tailored and narrow such that the OMB process could move expeditiously.

Special Considerations

Prior to and at the May 20, 2021 Plenary meeting, DDTC asked a series of questions and conveyed additional clarifying information to help DTAG further refine the tasking and ensure that any research and recommendations by DTAG were responsive to DDTC’s specific needs. The following additional comments address these matters. Obligation to Report to Congress Both previous White Papers concluded that DDTC retains the discretion and authority to adopt periodic Part 130 reporting. Under 36 (a), Congress requires a quarterly Presidential report of specific information concerning FMS, DCS and other sales and transfers of defense articles and defense services (including Part 130 reports). However, the DTAG was unable to identify any current provision that requires that DDTC receive Part 130 information on a quarterly basis, and DTAG believes the quarterly

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Presidential report would not be undermined or inaccurate if it included Part 130 responses from annual reports which occurred in the applicable quarter. The current proposal that registrants include Part 130 information within the DSP-5 vehicle in conjunction with the Letter of Transmission and subsequently during the an annual Part 130 Report (at the time of registration) providing payments made vs. payments offered or agreed provides more accurate information to the State Department. Provision of accurate and relevant information to Congress appears to underpin the overall Part 130 reporting process and altering the process to accommodate annual as well as license-by-license reporting maximizes the effectiveness of the information shared with Congress and minimizes the potential for the submission of incomplete reports.

operational challenges due to a net reduction in regulatory burden over time for both Industry and the U.S. Government. This DTAG Part 130 Working Group supports the May 2020 and October 2020 DTAG Part 130 Working Group recommendations:

o Institute consolidated annual Part 130 reporting at the time of registrant’s renewal of registration

o Follow recommended Annual Part 130 report as outlined in the tables o Publish Guidelines for annual Part 130 reporting o The requirements for exporting under the treaties do not appear to restrict the

Department’s ability to adjust the timing of Part 130 reports o Make substantive changes to the ITAR to enhance Part 130 process

Increase the threshold to $1,000,000 or more Exclude third parties who are not retained solely for particular sale Define “substantially different in amount” to mean a change of 20% or more

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Exhibit A

Part 130 Relook White Paper May 2020

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DEFENSE TRADE ADVISORY GROUP

Plenary Session – May 14, 2020

Working Group 3 White Paper

Relook at ITAR Part 130 Reporting

The Defense Trade Advisory Group (DTAG) was tasked in March 2020,1 to assist the State Department’s Directorate of Defense Trade Controls, Bureau of Political-Military Affairs (DDTC), by undertaking a “relook” at Part 130 of the International Traffic in Arms Regulations. More specifically, DDTC requested the DTAG to:

(1) Recommend modifications to Part 130 reporting rules to increase accuracy and transparency and avoid duplicate reporting ( or over reporting).

(2) Explore the advantages and disadvantages of allowing reporting of information on a periodic basis (e.g., semi-annually or annually) and on an aggregate basis per recipient with appropriate disclosure of the relevant foreign nation and relevant sale or foreign military program.

(3) Explore the advantages and disadvantages of establishing an automated reporting form or process for submitting Part 130 reports.

DTAG Working Group 3 undertook the above tasking. This White Paper and the Working Group’s PowerPoint presentation during the May 14 DTAG plenary session report the DTAG’s observations and recommendations in response to the above tasking.

Table of Contents

I. Introduction .............................................................................................................................. 2

A. Arms Export Control Act of 1976 -- Statutory Requirement to Report Political Contributions, Gifts, Fees, and Commissions ..................................................................... 2

B. ITAR Part 130 – The General Reporting Obligation ............................................................ 3

II. DTAG’s Approach to the DDTC Tasking .................................................................................... 3

A. DTAG Working Group Members ......................................................................................... 3

B. Methodology of Part 130 Relook ........................................................................................ 4

C. Areas of DTAG Analysis ....................................................................................................... 4

1 Letter of March 6, 2020, from Michael F. Miller, Deputy Assistant Secretary, Defense Trade Controls, U.S. Department of State.

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III. Discussion.................................................................................................................................. 4

A. The Factual Context: Defining the Challenge Confronting the Defense Trade Industry ............................................................................................................................... 4

B. The Legal Context: Statutory Requirements and Regulatory Discretion ........................... 6

1. With one exception for congressional notification, Congress in the AECA granted the State Department discretion to establish the timing of Part 130 reporting. ............... 6

2. The legislative history and context surrounding enactment of Section 39 of the AECA in 1976 support periodic annual reporting of Part 130 information ........................ 8

3. “Timely reporting” means reporting at a suitable time to achieve the purposes of Section 39. ......................................................................................................................... 11

C. Recommendations ............................................................................................................ 12

1. Industry Education ...................................................................................................... 12

2. Annual Part 130 Reporting – An Alternative or Replacement to the Current Transactional and Sale-by-Sale Reporting .................................................................. 13

3. ITAR Part 130 – An Update and Two Clarifications .................................................... 14

i. Update the Threshold Amount for Reporting ...................................................... 14

ii. Clarify Scope of Technical, Operational, and Advisory Services Exemption, ITAR § 130.5(b)(4) ................................................................................................. 14

iii. Clarify “Substantially Different” for Supplementary Reports per Section 130.11(a)(2) ........................................................................................................... 15

IV. SUMMARY OBSERVATIONS AND RECOMMENDATIONS ........................................................ 16

I. Introduction

A. Arms Export Control Act of 1976 -- Statutory Requirement to Report Political Contributions, Gifts, Fees, and Commissions

As part of the Arms Export Control of 1976 (“AECA”), Congress enacted a provision requiring the reporting to the Department of State of political contributions, gifts, commissions, and fees in relation to the international sales of defense articles and defense services.2

2 International Security Assistance and Arms Export Control Act of 1976 Act, Pub.L. 94-329, § 604(b) (adding a new Section 39 to the Military Sales Act), 22 U.S.C. § 2779 (“Fees of military sales agents”).

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Under AECA § 39(a), Congress required that the Secretary of State “shall require adequate and timely reporting on political contributions, gifts, commissions and fees paid, offered or agreed to be paid, by any person” in relation to certain sales of defense articles/defense services.3 Congress further directed that “regulations shall specify the amounts and the kinds of payments, offers, and agreements to be reported, and the form and timing of reports, and shall require reports on the names of sales agents and other persons receiving such payments.”4 Finally, Congress provided the Secretary of State with broad discretion to “require such recordkeeping as he determines is necessary.”5

B. ITAR Part 130 – The General Reporting Obligation

Part 130 of the ITAR, 22 C.F.R. § 130, requires each “applicant”6 to the DDTC for a license or approval in relation to any sale of “defense articles” or “defense services” valued in an amount of $500,000 or more which are to be sold commercially to or for the use of foreign “armed forces” or an international organization to inform DDTC of certain “political contributions” and “fees or commissions.”7 Likewise, Part 130 also requires each “supplier” or person who contracts to sell defense articles or defense services valued in an amount of $500,000 to the U.S. Department of Defense pursuant to the Foreign Military Sales program8 to inform DDTC of certain political contributions and fees or commissions.9

II. DTAG’s Approach to the DDTC Tasking

A. DTAG Working Group Members

Daniel Perrone (Co-Chair) Raytheon Technologies Corporation

Steven Pelak (Co-Chair) Holland & Hart LLP

Marjorie Alquist Lockheed Martin Missiles & Fire Control

Peter Lichtenbaum Covington & Burling, LLP

Fred Alvarado Red Mountain Arsenal, LLC

Johanna Reeves Reeves & Dola LLP

3 22 U.S.C. § 2779(a).

4 Id.

5 Id.

6 We have endeavored to place quotation marks on the principal terms within Part 130 that are further defined in the ITAR at Part 130 or another section.

7 22 C.F.R. § 130.9(a) (“Obligation to Furnish Information to the Directorate of Defense Trade Controls”).

8 22 U.S.C. § 2762.

9 22 C.F.R. § 130.9(b).

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Gretta Rowald Langley Law Group

Melanie Fujiu United Launch Alliance, LLC


Larry Fink Leidos, Inc.

B. Methodology of Part 130 Relook

DTAG’s goal is to recommend a path to better accuracy, transparency, and compliance in Part 130 reporting. In order to accomplish this goal, DTAG needed to first define what the challenge was and then provide an analysis to DDTC as to whether and where the statutory enviroment would allow for change.

To do so, the Working Group divided up to two teams. The first was concerned with exploring the factual context for the challenge presented by Part 130. The second reviewed the Statutory and Regulatory environment to analysis what, if any, prohibitions or restrictions were apparent that would prevent or otherwise disuade the Department from implementing any proposed solutions.

C. Areas of DTAG Analysis

With an aim of arriving at appropriate recommendations to improve transparency and accuracy in Part 130 reporting, DTAG examined the following factual circumstances, law, and topics in undertaking a relook of Part 130 as tasked by DTAG:

1. The Factual Context: Defining the Challenge confronting the Defense Trade Industry

2. The Legal Context: The Statutory Requirements and Regulatory Discretion for DDTC

3. Potential Causes of Misunderstanding Legal Requirements and Reporting Failures

4. Proposed Corrective Actions and ITAR Amendments: Recommendations

III. Discussion

A. The Factual Context: Defining the Challenge Confronting the Defense Trade Industry

Anecdotally, DTAG recognized that the way that industry conducts international business creates challenges for companies to meet the timely reporting requirements demanded by the ITAR. To illuminate these challenges further, DTAG polled it’s membership and received the following feedback:

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• 70% of respondents indicated that they believed industry had general confusion around Part 130, in areas such as the applibility of qualification and timeliness requirements.

o A commenter puntuated this by stating it’s been their experience that the general confusion leads “many in industry to just check the box on the license submission without full knowledge of the requirement or whether they actually meet the criteria to report.”

• More than 30% of respondents indicated that their company had no documented process for managing Part 130. Many indicated it is challenging to develop a process that sufficiently addresses all risks for mistakes under this regulations, given the manner in which the requirements are written.

• Almost 100% of respondents indicated that despite good faith efforts, their process resulted in some combination of estimations, potential misrepresentations, and a requirement to later reconcile payments.

• 55% said the transactional nature of the requirement hurt their ability to remain compliant.

• More than half of the respondents indicated the difficulty meeting some timing requirements.

We explored further as a Working Group what types of legal questions and risk-based decisions companies, consultants, and law firms experienced while trying to implement a process to capture Part 130 applicability and meet timeliness requirements. It became clear that what the Working Group had hypothesized anecdotally was realized in it’s further research throughout the rest of DTAG. It was at this point that it was determined to display the challenge at the DTAG Plenary by conducting a short role-play to examine the complexity of conducting international defense business. [Refer to the Plenary Minutes for an overview of the business example provided by the Working Group] The stark reality of how business is done needed further illumination to tee up the challenge with both determining which relationships present Part 130 reportability and when to report such applicability. The following factors, among others, must be considered when determining Part 130 applicability and timely reporting that applicability (and were explored in some depth at the Plenary):

• Length of defense-related sales cycles. International pursuits subject to Part 130 reporting can last years if not a decade or more and, within that timeframe, multiple parties with multiple roles are utilized for everything from market research to introductions to solicitation to promotional activities to general advice. Some entities play multiple roles. Some only assist with early parts of the pursuit but are nonetheless critical for eventually securing a sale.

• Costs of products and services change over time, as do the contracting vehicles. Understanding the contract value and how that relates to different portions of Part

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130 applicability (e.g. portions of a deal can go FMS, while others DCS, and even within that only portions may deal with ITAR-controlled defense articles. Further, frequent amendments to FMS contracts, the use of IDIQs, and other vehicles add complexity to understanding when regulatory requirements may be triggered.

• Agreements with Representatives and/or Consultants take numerous forms. Some entities may be paid on a percentage of a sale, some on a monthly/retainer basis. Some payments may vary over time and often the term of the agreement is shorter than the period of performance under a contract. In almost all cases agreements with these 3rd parties span multiple products and territories. Determining what portion of payment is applicable to any sale and at what time can be challenging.

• Shifting licensing strategy moves with the needs of the customer and, at times, with the U.S. government. As noted above, a shifting landscape related to FMS and DCS as well as the allocation of funds for a particular effort may demand flexibility in export licensing strategy. When a company requires multiple authorizations for the same or related efforts, it can be complex to determine which 3rd parties and which values to report on which authorization applications.

• International supply chains are complex, diverse, and growing. The sheer number of and sophistication of suppliers presents challenges for prime contractors and large subcontractors to manage requirements. Mom & pop shops and the international community often do not appreciate U.S. regulatory requirements making timeliness particularly challenging on defense related contracts. Looking at the supply chain also always crystalizes the concept of “we don’t know what we don’t know”. Though compliance responsibility may lie downstream with the prime or sub, the known unknowns in supply chain management bring about risk.

B. The Legal Context: Statutory Requirements and Regulatory Discretion

1. With one exception for congressional notification, Congress in the AECA granted the State Department discretion to establish the timing of Part 130 reporting.

To identify the available paths to more accurate, transparent, and compliant Part 130 reporting, we assessed whether there were any statutory requirements or restrictions which may limit revision of the current version of Part 130. Most importantly, we researched the following legal issue:

Did Congress provide the State Department with discretion under Section 39 of the AECA to permit “periodic” or annual Part 130 reporting rather than require Part 130 reporting on a transactional or sale-by-sale basis as currently mandated in Part 130?

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We concluded that Congress provided the State Department with discretion to adopt periodic Part 130 reporting with one limited exception involving certain sales subject to congressional notification pursuant to Section 36(b)(1) of the AECA.

The plain terms of Section 39 of the AECA provide the State Department with broad discretion in relation to the timing of Part 130 reporting. Congress requires “timely reporting on political contributions, gifts, commissions and fees paid, or offered or agreed to be paid, by any person in connection with” Foreign Military Sales (FMS) of defense articles, defense services, or design and construction services under the Act10 or Direct Commercial Sales of defense articles or defense services licensed or approved under the Act.11 Congress did not define or specify further in the Act the meaning of “timely reporting” of such payments. To the contrary, Congress merely stated that the State Department’s “regulations shall specify the . . . timing of reports.”12

In two instances, the AECA requires the Executive Branch at specified times to report to Congress information concerning political contributions, fees and commissions paid or agreed to be paid in relation to the sale of defense articles and defense services. In the first instance, the AECA’s requirement of general quarterly reporting to Congress does not impose any requirement which would preclude or restrict periodic reporting of Part 130 information by registrants to DDTC. In the second instance, however, the AECA’s requirement to provide Part 130 information in relation to certain congressionally notified FMS transactions requires Part 130 reporting on a transactional basis in order to meet the statutory requirement.

First, pursuant to Section 36(a), Congress requires a quarterly report from the President to Congress of specified information concerning certain FMS, DCS, and other sales and transfers of defense articles and defense services. Among the data and information to be provided to Congress on a quarterly basis is a “description of each payment, contribution, gift, commission, or fee reported to the Secretary of State under section 2779.”13 Such reporting of Part 130 information is made on a rolling basis each quarter. There is no provision within Section 36(a) which requires the State Department to receive Part 130 information from registrants on a quarterly basis. Section 36(a)(7) merely requires the President to submit to Congress a description of Part 130 information, including the names of the payor and payee, the date and amount of payment, and an identification of the relevant arms sale.

Second, pursuant to Section 36(b)(1) of the AECA, Congress requires that the President notify the Speaker of the House of Representatives and the Chairman of the Senate Committee on Foreign Relations of any proposed letter of offer to sell defense articles, defense services, design and construction services, or major defense equipment above certain specified values to a

10 22 U.S.C. § 2779(a)(1) (citing the Act at 22 U.S.C. §§ 2762 and 2769).

11 22 U.S.C. § 2779(a)(2) (citing the Act at 22 U.S.C § 2778).

12 22 U.S.C. § 2779(a).

13 22 U.S.C. § 2776(a)(7).

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foreign country or international organization. As part of that congressional notification, the President is required to furnish to Congress information of “any contribution, gift, commission or fee paid or offered or agreed to be paid in order to solicit, promote, or otherwise to secure such letter of offer.”14

In relation to a FMS transaction qualifying for congressional notification under Section 36(b)(1), therefore, the Secretary of State and the President are required to collect and present to Congress Part 130 information at the time of congressional notification.15 We have identified no other statutory imperative which requires that the Executive Branch obtain from registrants Part 130 information in relation to a specific transaction (such as required currently by Part 130 “in respect of any sale for which a license or approval is requested”)16 or on a sale-by-sale basis (such as required currently by Part 130 “in respect of any sale” made pursuant to a FMS program).17

2. The legislative history and context surrounding enactment of Section 39 of the AECA in 1976 support periodic annual reporting of Part 130 information

As noted above, we found that the statutory text of the AECA neither provided definition nor guidance in relation to the duty imposed by Congress at Section 39(a) on the Secretary of State to require “timely reporting” of political contributions, gifts, commissions, and fees. Likewise, we did not find any indication in the legislative history surrounding the 1976 enactment of Section 39 that Congress intended that “timely reporting” required reporting of Part 130

14 22 U.S.C. § 2776(b)(1). This reporting requirement of the AECA was included by Congress as part of the 1976 Act in the same section of that Act containing the reporting requirement leading to ITAR Part 130 and now codified at 22 U.S.C. § 2779. See Pub. L. 94-329, Title VI, 604(a).

15 See S. Rept. 94-876, International Security Assistance and Arms Export Control Act of 1976-1977, 94th Cong., 2d Sess., at 64 (May 1976) (describing the AECA’s amendment of Section 36 of the former Foreign Military Sales Act “relating to reports on military exports, to require these reports to include data on political contributions, gifts, commissions, and fees paid or offered in connection with sales of military equipment” and noting that “the Secretary of State is required to collect” such data). As part of our review, we examined the Part 130 information disclosed in publicly available portions of congressional notifications submitted since January 2018 by the U.S. Department of Defense, Defense Security and Cooperation Agency on behalf of the President pursuant to Section 36(b)(1). We found that in each of the more than 145 notifications submitted to Congress and set forth in the Federal Register since January 2018, the DSCA reported that no Part 130 fees had been paid. In identical or near identical language in all congressional notifications publicly available in the Federal Register, the DSCA reported the following: “Sales Commission, Fee, etc., Paid, Offered, or Agreed to be Paid: None.” We respectfully recommend that the appropriate officials of the Departments of State and Defense consult to ensure that the DSCA is reporting fully and accurately to Congress the Part 130 information currently available to the Executive Branch.

16 22 C.F.R. § 130.9(a)(1).

17 22 C.F.R. § 130.9(b).

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information at the time of each export license application or on a sale-by-sale basis. The legislative history of Section 39 of the AECA is relatively scant.

That said, the legislative history surrounding enactment of the AECA makes clear that Section 39 arose as a result of concurrent congressional efforts from 1975 through 1977 to deter, disrupt, and disclose corrupt payments to foreign officials highlight the importance of accuracy and transparency in the enactment of Section 39 of the AECA. For instance, in the Senate Report accompanying the legislation the U.S. Senate Committee on Foreign Relations summarized the origins of the provisions of Section 39 of the AECA in the following manner:

“The need for this provision arose from facts developed during investigations and hearings by the Subcommittee on Multinational Corporations of the Senate Foreign Relations Committee and the International Economic Policy Subcommittee of the International Relations Committee of the House. Uncovered was information that contributions, payments, and gifts were made not only directly, but, more frequently, indirectly, through agents, consultants, their employees and through various shell corporations frequently established in countries with laws prohibiting disclosure of information on corporate operations.”18

Given the importance of that historical context, brief summary of the concurrent congressional efforts from 1975 through 1977 is warranted.

The AECA and Section 39 were enacted in 1976 in the context of more general congressional inquiry and investigation of the “foreign corporate payments problem” involving multiple industries including the defense trade industry and impacting adversely U.S. foreign policy and national security interests and the stability of allied governments. As summarized well by one legal commentator, multiple governmental efforts in the mid-1970s led to Congress’ inquiry of corrupt payments by U.S. and foreign businesses to U.S. and foreign public officials to secure and maintain sales and business:

“Discovery of the foreign corporate payments problem in the mid-1970s resulted from a combination of work by the Office of the Watergate Special Prosecutor, included related follow-up work and investigations by the Securities and Exchange Commission (SEC) and Senator Frank Church’s Subcommittee on Multinational Corporations (Church Committee).”19

* * *

“Between 1975 and 1977, Congress held numerous hearings as to the so-called foreign corporate payments problem. Testimony at these hearings was given by, among others, representatives from the Department of State, Department of Defense, Department of

18 S. Rept. 94-876, International Security Assistance and Arms Export Control Act of 1976-1977, 94th Cong., 2d Sess., at 65 (May 1976).

19 Koehler, ”The Story of the Foreign Corrupt Practices Act,” 73 Ohio State L. J. 929, 932 (2012).

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Justice, Department of Commerce, Department of the Treasury, and the Securities and Exchange Commissions.”20

In most relevant aspect, “the Church Committee held separate hearings regarding Gulf Oil, Northrop, Mobil Oil, and Lockheed” in 1975 which revealed, among other payments to foreign officials, “payments to a Saudi Arabian general,” payments to Japanese Prime Minister Tanaka, Prince Bernhard (the Inspector General of the Dutch Armed Forces and the husband of Queen Juliana of the Netherlands), and Italian political parties.”21 In addition, the congressional hearings revealed that the U.S. Government through the Central Intelligence Agency also used and paid funds to the very same sales representatives and agents used by the defense trade and other multinational companies to solicit and obtain sales, such as in the instance of a “principal” intermediary or sales representative in Japan.22

The practices led, in the words of Senator Church, to “a serious foreign policy problem,”23 including the fall of allied governments in Italy and foreign public officials in Japan and elsewhere, expropriation of property of U.S. companies in several countries, the rise of adversary “political forces that are no friends of ours, whether a Qaddafi in Libya, or the Communists in Italy,”24 and support in foreign nations for the public policies and laws of “extreme nationalists or Marxists” who maintained “that American businesses operating in their country have a corrupting influence on their political systems.”25

Ultimately, Congress in 1977 enacted the Foreign Corrupt Practices Act (FCPA), which was the “first law in the world governing domestic business conduct with foreign government officials in foreign market[s].”26 The centrality and importance of accuracy and transparency in reporting payments as required by Section 39 of the AECA comes more sharply in focus in that historical context.

The Senate Report accompanying the AECA made clear that “confidential business information” was to be protected and not publicly disclosed, thereby not “to expose U.S. firms

20 Id. at 930 n.1.

21 Id. at 934.

22 Id. at 935.

23 Id. at 934, quoting the statement of Senator Frank Church from Multinational Corporations and United States Foreign Policy: Hearings Before the Subcommittee on Multinational Corporations of the Senate Committee on Foreign Relations, 94th Cong., at 2 (1975).

24 Id. at 940, quoting statement of Senator Church from Protecting the Ability of the United States to Trade Abroad: Hearing Before the Subcommittee on International Trade of the Senate Committee on Finance , 94th Cong., at 9 (1975).

25 Id. at 943, quoting a 1976 U.S. Senate Report, S. Rep. No. 94-1031, at 3-4 (1976).

26 Id. at 930.

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to competitive disadvantage with foreign firms.”27 The Senate Report explained that the President and Secretary of State were provided broad discretion within Section 39 with the expectation the regulations would require recordkeeping and reporting to “insure traceability of the funds” paid to sales agents. In the words of the Senate Committee in its May 1976 Report:

“The Secretary of State is required to collect information necessary for adequate and timely reporting of these transactions and the ultimate facts involved. The Secretary is also given authority to prescribe appropriate regulations that, for example, guarantee U.S. Government access to agents and consultants and others they employ and their documents and records to insure a complete description of the transactions involved.

. . .

The President is given the authority to prohibit, limit or prescribe conditions with respect to these transactions in the furtherance of this act. The committee contemplates that the President will prescribe regulations that insure traceability of the funds.”28

The text of the AECA and the available legislative history, therefore, support the conclusions that (1) Congress provided the State Department with flexibility and discretion to vary from the requirement that Part 130 reports be submitted on a sale-by-sale basis and (2) Congress intended that the State Department would implement regulations most conducive to accurate reporting to “insure traceability” of payments made to promote and solicit the foreign sales of arms.

3. “Timely reporting” means reporting at a suitable time to achieve the purposes of Section 39.

As noted above, neither the AECA text nor its legislative history defines “timely reporting.” If one looks to the dictionary definition of the word “timely,” one finds the following:

“Timely” means “happening, done, said . . . at a suitable time” or an “opportune” time.29 “Timely” further means “appropriate or adapted to the times or the occasion.”30

A suitable or an opportune time for the filing of Part 130 reports, therefore, should be viewed from the perspective of improving the accuracy and transparency of Part 130 reporting as well as the ease of availability for those within the U.S. Government to access the reporting.

Consistent with this definition of timely reporting to mean reporting at a suitable or appropriate time for the underlying purposes of Part 130 to be served, DDTC has interpreted and implemented Section 39 of the AECA to allow flexibility in the timing of reports. In the initial version of Part 130 which was promulgated and adopted in 1976 and continuing until today,

27 S. Rept. 94-876, supra, at 64.

28 Id.

29 Webster’s New World College Dictionary (4th ed. 2005).

30 Webster’s Ninth New Collegiate Dictionary (1985 ed.).

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DDTC has interpreted the “timely reporting” requirement to allow, with “satisfactory” explanation, a later submission of Part 130 information than with the license application where “the information cannot be furnished at that time”.31 Plainly, Section 39 of the AECA does not impose a rigid requirement that detailed Part 130 information be provided at the time of the license application submission.

C. Recommendations

In summary, the Working Group makes three recommendations:

1. Industry Education – Update the December 2013 Part 130 Guidance with FAQs and Additional Illustrative Examples.

2. Part 130 Reporting Cadence and Timeliness – Allow for periodic annual reporting at the time of registration renewal rather than transactional or sale-by-sale reporting to improve the accuracy of reporting, to facilitate electronic Part 130 reporting, to clarify the timing of Part 130 reporting, and to make Part 130 information more readily available in one location for relevant government officials.

3. Refine the Scope of Reporting – Make one update and two clarifications within ITAR Part 130 to improve the accuracy and consistency of Part 130 reporting.

1. Industry Education

As described above, DTAG explored and reviewed the facts and circumstances that bring about challenges in driving accurate and timely reporting. There was concurrence among the Working Group that Updating the December 2013 Guidance with FAQs and Additional Illustrative Examples could help industry determine, as a primary matter, when Part 130 is applicable and when it is not.

DTAG offers that a partnership with industry to draw up examples and allow the Department to concur or not with their Part 130 applicability could be a good path to illustrate real-life challenges faced by industry. Areas the Working Group would like to see covered include, but are not limited to:

• Information on any new periodic reporting or other flexibility adopted per recommendations 2 and 3 below, to the extent they are adopted;

• Examples of applicability drawn from recent Consent Agreements or other enforcement actions;

• “Vendor” expectations, notification and reporting duty;

31 22 C.F.R. § 130.9(a)(1). Apart from the reference to the Director of the Office of Munitions Control rather than the Director of DTCL in the current version, the original September 1976 version of Part 130 in that regard is substantively identical to the current version. See 41 Fed. Reg. 40607, 40609 (Sept. 20, 1976) (Section 130.11(a)(1)).

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• Information required from 3rd parties;

• Breadth of promotion and solicitation (what is and isn’t applicable);

• Reporting triggers; and

• Values to use when presented with complex sales.

2. Annual Part 130 Reporting – An Alternative or Replacement to the Current Transactional and Sale-by-Sale Reporting

DTAG has concluded that Part 130 reporting on an annual basis at the time of registration renewal for the prior year’s activity would greatly increase accuracy, lower the burden on industry, and result in increased compliance to the Regulation and, ultimately, the AECA.

Industry would be more complete in their submissions, largely able to depend on actual payments rather than applying some level of estimate methodology. The timeliness factor would all but be resolved allowing for flexibility for companies based on their Registration Renewal date, rather than having to juggle multiple dates across any number of authorizations.

Importantly, the change to the timing and cadence of reports would result in no changes to the information DDTC current collects. Amounts, Dates, Kinds of Payments (including offers/promises to pay); relevant Foreign Nations / End-Users; Foreign Military Programs; Payor; and Aggregate Amounts could all still be supplied at the same level of transparency as currently required under Part 130. Also unchanged would be the duty to collect information from all “Vendors.” Furthermore, the shift in timeliness would allow prime contractors and subcontractors in the defense trade industry to better standardize collection of the information throughout their supply chains.

Perhaps most critically to the Department, DTAG believes that adopting a periodic approach to reporting actually improves the ready availability of information for the use of appropriate U.S. government officials. For those within the Government, all information relating to a particular company or a particular international sales agent known to be associated with a particular company or companies would be much easier to identify and assemble than currently. Such greater availability would improve efficiency of internal governmental searches as well as increasing the likelihood that relevant government officials would undertake such reviews and inquiries. In summary, annual Part 130 reporting by each registrant should result in a decrease in the costs of compliance of defense trade both inside and outside of the government.

As noted in the legal discussion above, the Working Group recognizes that there remains a statutory Congressional Notification requirement which would continue to require transactional reporting in the instance of certain FMS matters pursuant to AECA § 36(b)(1). That said, such matters are relatively few in number and, based on a review of publicly available notifications, appear to require reporting by relatively few registrants. Thus, Part 130 reporting for such limited number of FMS should not raise any significant administrative challenges.

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DTAG offers that periodic reporting could be implemented on a trial or pilot basis with the allowance for continuation of transactional reporting for defense trade companies with few sales involving relevant license application or FMS. The point being, the flexibility exists for the Department to allow on a temporary or permanent basis multiple reporting tracks. DTAG believes this would not put undue burden on the U.S. government.

The Regulation, as it exists today, in 130.9(a)(1) recognizes the discretion to allow subsequent Part 130 reporting post-license application, and DTAG submits this could be used as a potential avenue to permitannual reporting on an elective basis. Of course, the Department could also pursue an ITAR Amendment adding a subsection to Part 130 allowing for an alternative or mandatory annual reporting at time of renewal of registration. DTAG would be happy to provide additional language or drafts of such regulatory language which the Working Group believes could readily accomplish the recommended revision.

3. ITAR Part 130 – An Update and Two Clarifications

i. Update the Threshold Amount for Reporting

The first requested update is simple. DTAG requests that the Department increase the reporting threshold to account for inflation over time. Given the past changes, the Working Group believe the change from $500,000 to $1,000,000 is warranted. There has been no increase in the threshold reporting amount for more than 25 years since 1993. This increase would be consistent with prior increases and reflect the material increase in defense trade sales and exports since 1993.

The original 1976 reporting threshold was $100,000. Eight years later in 1984 that threshold was more than doubled to $250,000. Finally, in 1993, DDTC doubled again the threshold reporting amount to $500,000. Particularly in relation to the collection of information from multiple “vendors” as required under Part 130, the increase to $1,000,000 would reflect the current reality of the U.S. defense trade and continue to capture all parties who reasonably may be anticipated to have paid or offered or agreed to pay any political contribution, fee, or commission in respect of any covered sale of defense articles or defense services.

ii. Clarify Scope of Technical, Operational, and Advisory Services Exemption, ITAR § 130.5(b)(4)

Secondly, the clarification of the scope of “Technical, Operational or Advisory Services” would greatly aid industry in determining Part 130 applicability and what fees/commissions to report. “Fee or Commission” per Section 130.5(a) may capture payments to 3rd parties who provide technical, operational, or advisory services and, in so doing, promote or secure sales. DTAG believes that non-contingent, regular payments to certain 3rd parties are not intended to be Part 130 reportable.

As a solution, the Working Group submits that the Department clarify that “Fee or Commission” does not include payments to a Consultant where:

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1. The payments are made at “annual” or monthly rate;

2. There is no “contingent compensation;”

3. A written agreement exists between the parties;

4. The party or consultant is not retained solely for “any particular sale;” and,

5. Payments are principally and predominantly for technical, operational, or advisory services and “not disproportionate in amount with value” of services furnished.

Notably, the limits set forth above in quotation marks follow the limits or exclusions already in place currently at Section 130.5(b). Following the numbering above, those limitations or exclusions from the term “fee or commission” may be found at: 1. Section 130.5(b)(2); 2. Section 130.5(b)(2); 3. Section 130.5(b)(2) (written agreement parallels “a regular employee of an applicant”); 4. Section 130.5(b)(3); and 5. Section 130.5(b)(4).

In summary, these Payments follow other regular, non-contingent payments already excluded by 130.5(b) which are not made because of a sale or attempted sale. Thus, even if an applicant, supplier or vendor makes payment to a third party consultant whose technical, operational or advisory services may promote a sale, such payment has not been given with principal and predominant purpose of securing a sale. The exclusion of such payments to such third party consultants would also materially increase the accuracy of reporting for many registrants.

Such third party consultants often serve multiple programs in multiple nations over the course of the year. As a result, allocation of payments to particular sales and particular programs is problematic, particularly so because payments to such consultants are not dependent upon any sale. Accordingly, to be safe, defense trade companies over report and double report such payments across programs, across years, and across foreign buyers. This results in (a) double reporting of payments due to allocation difficulties (multiple programs, multiple nations) and (b) over-reporting due to inclusion of payments for the entire length of the license/authorization or the term of consultancy. In short, exclusion from the term “fee or commission” of payments to the above-described consultant who provides technical, operational, or advisory services would materially increase the accuracy of reporting without reducing any transparency in relation to payments to sales agents and representatives who receive payment to promote and solicit sales.

iii. Clarify “Substantially Different” for Supplementary Reports per Section 130.11(a)(2)

Per Section 130.11(a)(2), a Supplementary Report is due where “subsequent developments cause” initial information “to be no longer accurate or complete,” e.g., the actual payment is “substantially different in amount” from prior estimate or agreed upon amount. The Working Group contends that a broad reading of this statement means that any time a 3rd party changes an address, for example, a supplementary report is required. We recommend guidance be provided to further define when a supplementary report is required.

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To that end, DTAG recommends that a statement in Part 130 Guidance or a FAQ which defines “substantially different” as pertaining only to a payment amount or the addition of new reportable 3rd parties is appropriate. In relation to the payment amount, we recommend that DDTC should state that only a certain percentage change in payment of 20% or more from the previously reported amount requires supplemental reporting.

IV. SUMMARY OBSERVATIONS AND RECOMMENDATIONS

DTAG believes it has verified that Part 130 reporting presents implementation challenges to industry that frequently result in less accurate, less transparent, and less compliant results than desired by Congress, DDTC and industry. Simply, the factual complexity of international transactions makes the applicability of Part 130 reporting hard to assess and the transactional timeliness imposes unnecessary pressure for industry to invoke estimate methodology which decreases transparency and accuracy. Based on its research, the Working Group believes that the Department has the regulatory discretion to implement changes and flexibility which would materially improve compliance with Part 130 requirements and, in doing so, better satisfy the intent of Congress in enacting Section 39 and amending Section 36 of the AECA.

DTAG recommends that DDTC institute an option for annual reporting at the time of a registrant’s renewal of registration, make several relatively minor updates and clarifications to the regulations, and update the existing Part 130 guidance. In doing so, the Working Group believes that the Department will achieve its goal of promoting greater accuracy, transparency, and compliance with ITAR Part 130 requirements.

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Exhibit B

Part 130 Reporting- Forms October 2020

1

DEFENSE TRADE ADVISORY GROUP Plenary Session – October 22, 2020

Working Group 3 White Paper Annual Part 130 Reporting Forms

The Defense Trade Advisory Group (DTAG) was tasked in August 2020 to assist the State Department’s Bureau of Political-Military Affairs, Directorate of Defense Trade Controls (DDTC) by proposing reporting forms which may implement annual Part 130 reporting.1

In connection with the May 2020 DTAG Plenary Session and in addition to other revisions to Part 130 of the International Traffic in Arms Regulations (ITAR), the DTAG recommended a new, alternative approach to reporting Part 130 information, i.e., annual reporting of Part 130 information. In August 2020, DDTC specifically tasked DTAG as follows:

“DDTC requests the DTAG to suggest draft forms that could be used to support such an alternative reporting approach (e.g., annually) to ensure that the reports capture relevant information. Specifically, DDTC requests the DTAG to prepare a draft (a) form or attachment that indicates Part 130 information will be reported at a later date (e.g., annually, but in a separate filing, at the same time as the company's registration), and (b) Part 130 (annual) report form. There is an opportunity to advance this topic to implementation of practical changes.”

DTAG Working Group 3 undertook the above tasking. Working Group 3’s summary report and presentation during the October 22, 2020 DTAG Plenary Session, this memorandum or White Paper, and the accompanying draft Guidelines for Annual Reports of Information Pursuant to 22 CFR § 130 present the DTAG’s observations and recommendations in response to the above taskings.

In summary, DTAG makes the following recommendations in response to the two taskings noted above. First, in relation to notification by a party of its choice to submit an annual Part 130 Report, DTAG recommends that DDTC – with slight modification -- take advantage of the current Part 130 reporting mechanism within the DSP-5 Vehicle and other license application forms by adding an additional selection option or radio button which would allow a license applicant to select Annual Part 130 Reporting.

Second, in relation to an annual Part 130 report form, DTAG recommends that annual Part 130 reporting be completed through two Tables. The first table (Table A) would present a listing per recipient of all reportable Part 130 payments over the preceding 12 months. The second table (Table B) would present a listing of those recipients to whom a registrant during the preceding 12 months offered or promised to pay reportable Part 130 payments but no actual payments were yet made in the preceding 12 months on such offer or agreement. Accompanying this memorandum as an Attachment is a proposed “Guidelines for Annual Reports of Information Pursuant to 22 CFR § 130.” Included within those draft Guidelines are Table A and Table B as described above as

1 Letter of August 20, 2020 from Michael F. Miller, Deputy Assistant Secretary, Defense Trade Controls, U.S. Department of State.

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well as explanation for their completion and submission at the time of a registrant’s annual renewal of registration with DDTC.

I. Introduction

A. Arms Export Control Act of 1976 -- Statutory Requirement of “Timely” Reporting of Political Contributions, Gifts, Fees, and Commissions

As part of the Arms Export Control of 1976 (AECA), Congress enacted a provision requiring the reporting to the Department of State of political contributions, gifts, commissions, and fees in relation to the international sales of defense articles and defense services.2

Under Section 39(a) of the AECA, Congress required that the Secretary of State “shall require adequate and timely reporting on political contributions, gifts, commissions and fees paid, offered or agreed to be paid, by any person” in relation to certain sales of defense articles/defense services.3 Congress further directed that “regulations shall specify the amounts and the kinds of payments, offers, and agreements to be reported, and the form and timing of reports, and shall require reports on the names of sales agents and other persons receiving such payments.”4 Beyond those general requirements, Congress did not impose more specific requirements in relation to the “timely reporting of political contributions, gifts, commissions and fees paid, or offered or agreed to be paid, by any person in connection with” international sales of defense articles or defense services made as part of an authorized Foreign Military Sales (FMS) program or a licensed direct commercial sale (DCS).5

In short, The text of the AECA and the available legislative history support the conclusion that (1) Congress provided the State Department with flexibility and discretion to vary from the requirement that Part 130 reports be submitted on a sale-by-sale basis and (2) Congress intended that the State Department would implement regulations most conducive to accurate reporting to “insure traceability” of payments made to promote and solicit the foreign sales of arms.6

B. ITAR Part 130 – A Transactional Approach to Reporting Information regarding Political Contributions, Commissions and Fees

Part 130 of the ITAR, 22 C.F.R. § 130, implements Congress’ direction that “the Secretary of State shall require adequate and timely reporting on political contributions, gifts, commissions

2 International Security Assistance and Arms Export Control Act of 1976 Act, Pub. L. 94-329, § 604(b) (adding a new Section 39 to the Military Sales Act), 22 U.S.C. § 2779 (“Fees of military sales agents”). 3 22 U.S.C. § 2779(a). 4 Id. 5 Id. 6 The May 2020 White Paper and PowerPoint presentation of DTAG Working Group 3 provide background and detailed information and analysis of Section 39 of the AECA and its legislative history.

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and fees.”7 In so doing, Part 130 adopts a transactional approach to set the timing of reports disclosing certain political contributions, commissions or fees.

At the time of a license application or authorization request for a DCS, Part 130 requires each “applicant”8 to the DDTC for a license or approval in relation to any sale of “defense articles” or “defense services” valued in an amount of $500,000 or more which are to be sold to or for the use of foreign “armed forces” or an international organization to inform DDTC of certain “political contributions” and “fees or commissions.”9 Within 30 days of an FMS contract award, Part 130 requires each “supplier” or person who contracts to sell defense articles or defense services valued in an amount of $500,000 or more to the U.S. Department of Defense pursuant to a FMS program10 to inform DDTC of certain political contributions and fees or commissions.11

Although DDTC has adopted to date a transactional approach to the timing of Part 130 reporting, the ITAR has recognized since 1976 and the promulgation of Part 130 that the DDTC maintains discretion to vary the timing of Part 130 reporting. For instance, in the initial 1976 version of Part 130 and continuing until today, DDTC has interpreted the “timely reporting” requirement of the AECA to allow, with “satisfactory” explanation, a later submission of Part 130 information than with the license application where “the information cannot be furnished at that time”.12 Plainly, the DTAG believes Part 130 reporting may be permitted on an annual basis rather than at the time of an application for an export license or within 30 days of an FMS contract award.13 The DTAG’s position is that Section 39 of the AECA does not impose a rigid requirement that detailed Part 130 information be provided on a transactional basis, either at the time of an export license application or within 30 days of an FMS contract award.

7 22 U.S.C. § 2779. 8 We have placed quotation marks on the principal terms within Part 130 that are further defined within the ITAR. 9 22 C.F.R. § 130.9(a) (“Obligation to Furnish Information to the Directorate of Defense Trade Controls”). 10 22 U.S.C. § 2762. 11 22 C.F.R. § 130.9(b). 12 22 C.F.R. § 130.9(a)(1). Apart from the reference to the Director of the Office of Munitions Control rather than the Director of DTCL in the current version, the original September 1976 version of Part 130 in that regard is substantively identical to the current version. See 41 Fed. Reg. 40607, 40609 (Sept. 20, 1976) (Section 130.11(a)(1)). 13 Additional factual and legal support for this assessment is set forth in Working Group 3’s May 2020 White Paper and PowerPoint presentation.

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II. DTAG’s Approach to the DDTC Tasking

A. DTAG Working Group Members

Fred Alvarado (co-chair) Red Mountain Arsenal LLC

Steven Pelak (Co-Chair) Holland & Hart LLP

Bryce Bittner McKinsey & Company

Ari Novis Pratt & Whitney

Gregory Creeser ITC Strategies

Daniel Perrone Raytheon Technologies Corporation


Darren Riley Riley Trade Law PLLC

Matt Dursa W.S. Darley & Co.


Keith Jolly SAIC International

B. Methodology

Over a series of four group discussions, the Working Group met (telephonically) to discuss and review the tasking, the statutory and regulatory elements of Part 130 reporting, the alignment of Part 130 reporting with the annual registration renewal process, the meaning and challenge of reporting Part 130 payments “offered or agreed to be made,” and other specific issues which may arise under annual Part 130 reporting. In doing so, the Working Group built upon the efforts and observations of the prior Part 130 Working Group which delivered its recommendations in May 2020.

Chief among those prior efforts was the survey undertaken of DTAG members regarding their experiences and challenges in reporting Part 130 information in an accurate and timely fashion. The Working Group reviewed those results to understand more fully (a) the multiple challenges faced by industry, compliance professionals, and even the U.S. Government under the current method of Part 130 reporting and (b) how one may compose an annual reporting form to mitigate such challenges while maintaining the current substantive requirements imposed by Part 130. To assist us in developing a draft annual Part 130 Report which provided a practical and readily implemented solution to the challenges of Part 130 reporting, we composed a draft Guidelines to annual Part 130 reporting. We revised the draft Guidelines as our discussions progressed. In doing so, we confronted and considered during our discussions several practical issues and challenges in annual Part 130 reporting.

In addition to such factual and practical challenges, the Working Group reviewed and discussed several legal issues. For instance, we reviewed the substantive elements of reporting as required by Section 39 of the AECA and by Part 130 of the ITAR. Among other elements, we

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reviewed and discussed the significance of the requirement to report not only political contributions, commissions and fees actually paid but also such items “offered or agreed to be paid.”

Finally, we consulted with DDTC officials Catherine Hamilton and Terry Davis (DDTC, Licensing) in undertaking our review. Ms. Hamilton and Mr. Davis provided us excellent background information to understand more fully DDTC’s practices and experience in its receipt of Part 130 reports.

III. Discussion

A. Notification of Annual Part 130 Reporting

Notification in DCS Matters: In response to DDTC’s first tasking to propose a draft form or attachment which indicates that Part 130 information will be reported on an annual basis, we recommend a slight amendment to the Part 130 portion of the DSP-5 Vehicle and other license and authorization requests forms. DDTC already has in place well established selection options within the DSP-5 form for informing DDTC whether the license application involves a sale meeting the threshold of Part 130 reporting and whether reportable payments have been made, or offered or agreed to be made.

We recommend that DDTC simply build upon that established process and add an option to notify DDTC of a party’s determination to report Part 130 information on an annual basis. An additional radio button or option may be added to the DSP-5 form and other relevant license application forms to notify DDTC in the following terms:

“The Applicant will submit any reportable Part 130 information as part of an Annual Report at the time of the renewal of its registration.”

In addition, we also recommend that a standard statement be included with the Letter of Transmittal or Explanation which accompanies a license application or authorization request. Such standard statement would read:

“Information regarding whether the applicant or its vendors have paid, offered or agreed to pay political contributions, fees or commissions in amounts specified in 22 CFR § 130.9(a) in respect of any sale for which this application is submitted shall be included within the applicant’s annual Part 130 Report accompanying its registration renewal.”

This notification may be accomplished through the DSP-5 Vehicle and other relevant license forms by inserting the above notification statement as number 4 within the portion of the DSP forms concerning “Compliance with 22 CFR § 130.” A revision of that portion of the DSP-5 Vehicle and other relevant license forms may read as follows:

“Compliance with 22 CFR § 130

This transaction does not meet the requirements of 22 CFR § 130.2.

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This transaction meets the certification of 22 CFR § 130.2. The applicant or its vendors have not paid, nor offered, nor agreed to pay, in respect of any sale for which a license or approval is requested, political contributions, fees or commissions in amounts as specified in 22 CFR § 130.9(a).

The applicant or its vendors have paid, or offered, or agreed to pay, in respect of any sale for which a license or approval is requested, political contributions, fees or commissions in amounts as specified in 22 CFR § 130.9(a). Information required under 22 CFR § 130.10 is attached.

Information regarding whether the applicant or its vendors have paid, offered or agreed to pay political contributions, fees or commissions in amounts specified in 22 CFR § 130.9(a) in respect of any sale for which this application is submitted shall be included within the applicant’s annual Part 130 Report accompanying its registration renewal.

I am not authorized by the applicant to certify the conditions of 22 CFR § 130.9(a). Please see the attached letter for such certification.”

In the above, we have suggested a new additional radio button at number 4 and moved the current number 4 to 5. The above approach allows for the choice of an annual report to be made through DECCS directly. Such an approach may allow DDTC and the Registrant to search all license and authorization applications submitted by the Registrant to assist in reconciling annual payments to licenses.

As referenced above, accompanying this memorandum as an Attachment is a proposed “Guidelines for Annual Reports of Information Pursuant to 22 CFR § 130.” We set forth in those draft Guidelines further description of the process by which an Applicant would notify DDTC whether it will submit Part 130 information on a transactional basis in relation to a particular license application or on an annual basis. As a consensus view, the Working Group recommends that DDTC allow an Applicant to submit Part 130 information on either a transactional or consolidated annual basis. The Working Group did so in recognition that for certain DDTC registrants with only a handful of license applications each year, transactional reporting may be more efficient. That said, one may envision that alternative means of reporting may result in some confusion regarding the reporting requirement and some reduction in the benefits of consolidated Part 130 information submitted at one time through a single reporting mechanism. DDTC may wish to allow such alternative reporting on a trial basis as it assesses the relative advantages and disadvantages of allowing both transactional reporting and consolidated annual reporting of Part 130 information.

Notification in FMS Matters: For relevant sales in connection with an FMS program, we suggest requiring a letter submission within 30 days of an FMS contract award notifying DDTC of the intent to use the annual reporting method. As an alternative to such letter notification, DDTC may simply require a registrant at the time of its next registration renewal to select its method of reporting Part 130 information for sales of defense articles/services valued at $500,000 or more under an FMS contract award.

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Finally, if a registrant will not renew its registration or if its registration is terminated, then we recommend that DDTC require a final Part 130 Report within 30 days of that non-renewal or termination.

B. Annual Part 130 Reporting Form – Table A and Table B

In undertaking our review and consideration of an Annual Part 130 Report form, we were ultimately guided by several principal aims. First, we sought to ensure that all current substantive elements of Part 130 reporting as required by the AECA and ITAR were maintained. Second, we sought to describe and align the information to be reported in a manner consistent with current business practices and experience in the defense trade. Finally, we sought to propose an Annual Part 130 Report which would result in more accurate, transparent, and compliant Part 130 reporting.

We set forth below our recommended Annual Part 130 Report form. It consists of two parts, Table A and Table B, which would be submitted annually with a DDTC Registrant’s renewal of registration. Table A presents information required by ITAR Section 130.10 for all reportable Part 130 payments made during the 12 months preceding the month a DDTC Registrant submits its annual renewal of registration. Table B presents information required by Section 130.10 relating to reportable Part 130 payments which were offered or agreed to be paid in an upcoming year and which have not yet been made.

Consistent with the requirements of ITAR §§ 130.9 and 130.10 and covering the preceding 12-month period, Table A presents information concerning reportable Part 130 payments made and Table B presents information concerning reportable Part 130 payments offered or promised but not yet made. In other words, Table A provides information in response to this question: To which persons did the Applicant / Supplier make Part 130 reportable payments during the preceding 12 months? While Table B provides information in response to this question: To which persons did the Applicant / Supplier during the preceding 12 months offer or agree to pay Part 130 reportable payments but no payments were yet made?

For consideration and potential use by DDTC, we have prepared a draft “Guidelines for Annual Reports of Information Pursuant to 22 CFR § 130.” The draft Guidelines, which accompany this memorandum as Attachment A, are modeled after the general Part 130 Guidelines publicly issued by DDTC in December 2013. The attached draft Guidelines include descriptions of the obligation, process, and content of consolidated annual Part 130 reporting. The draft Guidelines also include instructions for the completion of the proposed Annual Part 130 Report and explanatory notes to assist a person completing the Report. Finally, the attached draft Guidelines include illustrative examples of Table A and Table B. Those illustrative tables appear immediately below.

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Table A – Part 130 Payments Made During the Previous 12 Months

Table A answers the question regarding to which persons did the Registrant (as an “Applicant” or “Supplier”) or its Vendors make reportable Part 130 payments during the 12 months preceding the month in which the Registrant renewed its registration.14

14 Given that the Annual Part 130 Report will be submitted with the renewal of registration, each registrant will be required to submit a consolidated Part 130 Report for itself and its subsidiaries and affiliates for which it serves as the registrant pursuant to ITAR § 122.2. To the extent that a corporate entity, whether a corporate subsidiary or parent, is registered alone in its own name, then it would submit a consolidated Annual Part 130 Report solely in relation to its own sales of defense articles and defense services.

[1] Recipient

[2] Recipient’s Address & Principal Place of Business

[3] Relationship to Applicant / Supplier

[4] Program/ Product [USML Category]

[5] Foreign Purchaser / End User – Address, Principal Place of Business

[6] Total Payments & Dates of Payments

[7] Payment Type & Mode of Payment

[8] Payer – Address, Principal Place of Business & Status

ABC International

[Address] Doha, Qatar

Sales Representative

XZ Program NASM System

Ministry of Defense, Address, Qatar

$22,500,000 3/7/2020 5/7/2020

Fees/ Commissions In cash

Defense Inc. [Address] and Applicant

Defense Consulting Company [C]

London, UK Sales Representative and Consultant

CD Program, ST System; and QR Program, RS System

Coast Guard, Address, United Kingdom

$4,200,000 9/10/2020 and Quarterly on the final day of each Quarter


Defense Inc. Applicant

International Consulting Company GMbH [B]

Munich, Germany

Sales Representative and Offset Service Provider

AB Program, ML System; and ST Program, XZ System

National Police, Address, Germany

$1,500,000 1/15/2020 4/17/2020 11/12/2020

Fees/ Commissions In cash and In kind

ABC Subsidiary Co. (a U.S. subsidiary of Defense Inc.) Supplier

Consultant International [A]

Arlington, VA

Consultant EF Program, NASM System, APG-X System, and ABC System

Ministry of Defense Germany, Saudi Arabia, Qatar, United Kingdom

$300,000 Monthly on the 15th day of each month


Defense Inc. Applicant and Supplier

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Table B – Part 130 Payments Offered or Agreed To Be Made

For the 12-month period preceding the renewal of registration, Table B answers the

question regarding to which persons did the Registrant (as an “Applicant” or “Supplier”) or its Vendors offer or agree to pay reportable Part 130 payments in respect of any relevant sale but not yet pay.15

15 As noted above in relation to Table A, each registrant will be required to submit a consolidated Part 130 Report for itself and, if any, its subsidiaries and affiliates for which it serves as the registrant.

[1] Intended Recipient

[2] Intended Recipient’s Address & Principal Place of Business

[3] Relationship to Applicant / Supplier

[4] Program/ Product [USML Category]

[5] Foreign Purchaser / End User – Address, Principal Place of Business

[6] Type of Payment Offered/Agreed & Mode of Payment Offered/Agreed

[7] Offeror / Promisor – Address, Principal Place of Business & Status

ABC International

[Mailing Address] Doha, Qatar

Sales Representative

AB Program EWR System

Ministry of Defense, Address, Qatar



Defense Consulting Company

London, UK Sales Representative

YZ Program, LM System; UV Program, ST System

Royal Air Force, United Kingdom



International Consulting Company GMbH

Munich, Germany

Consultant VW Program, BC System, EF System, and PT System

National Police, Germany


ABC Subsidiary (a U.S. subsidiary of Defense Inc.) Supplier

Consultant International

Arlington, VA

Consultant & Sales Representative

EF Program, NASM, APG-X, ABC, and ARM Systems; & DE Program, 9x System

Ministry of Defense, Germany, Saudi Arabia, Qatar, United Kingdom; & Royal Navy, United Kingdom


Defense Inc. Applicant & Supplier

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In summary, each of the columns in Table A and Table B reflect information currently reported pursuant to ITAR §§ 130.9 and 130.10. The headings for each of the columns reflect an abbreviated version of the information required. Fuller descriptions of the required information appear within the attached draft Guidelines in the Block-by-Block Instructions proposed for the Annual Part 130 Report. We will not repeat those descriptions here.

The Working Group believe that the above Annual Part 130 Report and its two tables provide several advantages to improve the accuracy and transparency of Part 130 reports, to increase the utility of Part 130 reports for the U.S. Government, and to reduce the time and costs consumed by the defense trade in completing Part 130 reporting.

First, the above Annual Report should result in increased accuracy and transparency by eliminating the need to report estimates of future anticipated payments and by reducing the current tendency to duplicate reporting of fees or commissions through multiple related license applications. The Working Group recognized that many of the inaccuracies, duplications, and misunderstandings surrounding Part 130 reporting arise in relation to the statutory requirement to report political contributions, gifts, commissions and fees “offered or agreed to be paid” in connection with sales of defense articles and defense services. To the extent that Part 130 payments have been made, then one may readily identify the total amount of payments, although significant uncertainty may arise in connection with attribution of certain payments among various sales. But, where a seller of defense articles offers or promises future payments in connection with a sale, the precise amount of future payment may not be readily ascertained, particularly so in contracts common in the defense trade involving indefinite quantity and price terms at the time of sale. In such instances, an Applicant / Supplier and its Vendors following the current transactional approach to Part 130 reporting must estimate and report future Part 130 payments which defy ready or reasonably definite estimation.

To reduce, if not eliminate, such inaccurate reporting of estimated future Part 130 payments, the Working Group arrived at the approach set forth in the two Tables. Under such approach, no estimated amounts need be reported. Instead, Table B reflects offers and promises made during the preceding 12-month period for which no payments have yet been made while Table A captures offers and promises made for which actual payments have been made during the preceding 12-month period. Table B reflects payments offered or promised to be made in the future, but there is no requirement that an estimated future amount be set forth in Table B. In short, where no payment is made during the reporting period, disclosure will still be made in a timely manner as required by the AECA for offers and agreements to pay future political contributions, fees or commissions. In turn, Table A will capture any and all reportable Part 130 payments made during the reporting period. Thus, in tandem, the two Tables will ensure that all offers and agreements to pay reportable Part 130 payments are disclosed fully while eliminating the current necessity of reporting estimated future, anticipated payments.

Furthermore, the proposed tables will eliminate the current practice of some registrants to report multiple times the same Part 130 payments. ITAR Section 130.9(a)(2) makes clear that the reporting obligation for DCS matters does not continue once the relevant Part 130 information “shall already have been furnished” to DDTC.16 As the DTAG’s internal survey and experience

16 22 C.F.R. 130.9(a)(2).

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confirmed, however, a common practice within the defense industry is to report the same fees or commissions in multiple license applications.

Particularly in relation to fees paid to consultants on a periodic basis rather than as sales commissions and paid to compensate activities covering multiple products and multiple foreign end users, an Applicant / Supplier may be unable to attribute readily (if at all) a portion of the fees to any particular sale or to promotional activity in relation to a single sale or a single foreign purchaser. To avoid underreporting and to reduce the frequency of subsequent supplemental Part 130 reports, an Applicant / Supplier often may report all fees paid to the consultant during an ill-defined time period when the sale was promoted or solicited. It is also not uncommon for an Applicant / Supplier to report those same fees in subsequent license applications arising from unrelated sales as well as related sales to which the consultant may have contributed services. Table A should minimize, if not eliminate, all such inaccurate and duplicate reporting of Part 130 payments. Instead, a registrant may simply list one time all reportable Part 130 payments to a consultant or sales representative during the preceding 12-month period and the foreign purchasers to which the relevant sales were made.

Second, consolidated annual Part 130 reporting should improve and facilitate the availability of Part 130 information for the State Department and other agencies of the U.S. Government as well as members of Congress. Rather than requiring a government official or investigator to examine multiple license applications to understand what payments were made when to an international sales representative, the government official or investigator may simply review the annual registration materials of the defense trade company or companies which may have contracted with the sales representative to promote or solicit sales of defense articles. Annual Part 130 reporting does not change or lessen in any manner the duty imposed by the ITAR on Applicants, Suppliers, and Vendors to “maintain a record of any information it was required to furnish or obtain under” Part 130 and “all records upon which its [Part 130] reports are based for a period of not less than five years following the date” of the reports.17

Third, consolidated annual Part 130 reporting should decrease the costs of compliance for defense trade industry because the timing of Part 130 will be more predictable, supplementary reports under ITAR Section 130.11 should be far less likely, the time expended with each export license application to attribute consultant payments to particular sales should be largely decreased, and the efforts necessary to estimate future payments should be greatly reduced. That said, the substantive Part 130 requirements are not lessened or diminished.

For instance, the obligation imposed upon an Applicant / Supplier under Section 130.9 remains unchanged to report certain political contributions, fees or commissions which the Applicant / Supplier or its Vendors have paid or offered or agreed to pay. An Applicant / Supplier also remains obligated to report the information required by Section 130.10.18 Likewise, an

17 22 C.F.R. § 130.14. 18 The only exception concerns the “Total Contract Price of the Sale” to the Foreign Purchaser. Including such information would, in effect, return annual reporting to the current transactional reporting approach. In any event, an application for an export license in the context of a DCS matter “must be accompanied by purchase documentation (e.g., purchase order, contract, letter of intent, or other appropriate documentation).” 22 C.F.R. § 123.1(c)(4). Furthermore, in “cases involving the Foreign Military Sales

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Applicant / Supplier remains obligated under Section 130.12 to obtain from each Vendor with respect to a relevant sale “a full disclosure by the vendor of all political contributions or fees or commission paid.”19 Furthermore, an Applicant / Supplier and its Vendors remain obligated under Section 130.13 to “obtain from each person, if any, to whom it has paid, or offered or agreed to pay, a fee or commission in respect of” a relevant sale a “full disclosure” of “all political contributions paid, or offered or agreed to be paid” by the person directly or through another.20 Thus, the reduced costs of Part 130 compliance upon the defense trade industry do not come as a result of less transparency or disclosure by the defense trade industry.

IV. Conclusion

DTAG recommends that DDTC institute consolidated annual Part 130 reporting at the time of a registrant’s renewal of registration, follow the recommended Annual Part 130 Report as set forth above, and publish the attached or similar Guidelines for annual Part 130 reporting. In closing, we also highlight the DTAG’s May 2020 recommendations for three relatively minor substantive clarifications of Part 130 to improve the accuracy and consistency of Part 130 reporting.21 With implementation of consolidated annual Part 130 reporting and the clarifications to Part 130 recommended by the DTAG during the May 2020 Plenary Session, the Working Group respectfully submits that DDTC will achieve its goals of promoting greater accuracy and transparency in Part 130 reporting and compliance with Part 130 reporting requirements.

program, a copy of the relevant Letter of Offer and Acceptance is required.” Id. Thus, DDTC and the U.S. Government will in all instances have available the contract price of the relevant sale. 19 22 C.F.R. § 130.12(a). 20 22 C.F.R. § 130.13(a) 21 Those three recommended clarifications or amendments were (1) an increase in the reporting threshold for sales from $500,000 to $1,000,000; (2) a clarification of Section 130.5(b) to exclude from the definition of “fee or commission” non-contingent, regular payments pursuant to written agreements to a consultant or third-party who is not retained solely for a particular sale; and (3) a clarification that the term “substantially different in amount” as used in Section 130.11 for supplementary reports pertains only to a percentage change of 20% or more from a previously reported amount of Part 130 payments. May 2020 DTAG White Paper on “Part 130 Relook,” at pages 14-16, https://www.pmddtc.state.gov/ddtc_public?id=ddtc_search&q=DTAG.

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