www.pwc.com/us/forensics Brokering Requirements for the Firearms Industry July 2012 Export Control Services Brokering 101: Section 129 of the International Traffic in Arms Regulations addresses the registration and licensing of brokers: • Section 129.1 “Purpose” references Section 39b()(1)(A)(ii) of the Arms Export Control Act • Section 129.2(a) defines “broker” • Section 129.2(b) defines “brokering activities” • Section 129.2(c) defines “foreign defense article or defense service” • Section 129.3 describes registration requirements • Section 129.4 describes Department of State Form DS-2032 (Statement of Registration) and fees • Section 129.5 gives policy on embargoes (see 126.1) and other proscriptions • Section 129.6 provides requirements for license/approval • Section 129.7 describes activities requiring prior written approval (license) of the Directorate of Defense Trade Controls (“DDTC”) (see (a)(1)(i) re firearms) • Section 129.8 describes activities requiring prior notification to DDTC • Section 129.9 outlines annual reporting requirements • Section 129.10 gives where to go for additional guidance DDTC PwC July 2012 2 Who is a “broker”? “Section 129.2(a) Broker means any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission or other consideration.” PwC July 2012 3 What is “brokering”? “Section 129.2(b) Brokering activities means acting as a broker as defined in Section 129.2(a), and includes the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import, or [sic] a defense article or defense service, irrespective of its origin.” PwC July 2012 4 Section 129.2(b) definition of “brokering” continued: “For example, this includes, but is not limited to, activities by U.S. persons who are located inside or outside of the United States or foreign persons subject to U.S. jurisdiction involving defense articles or defense services of U.S. or foreign origin inside or outside of the United States.” Section 129.2(c) defines “foreign defense article or defense service” “as “includes any non-United States defense article or defense service of a nature described on the United States Munitions List regardless of whether such article or service contains United States origin components.” PwC July 2012 5 Who is NOT a “broker”? Section 129.2(b): “But, this does not include activities by U.S. persons that are limited exclusively to U.S. domestic sales or transfers (e.g., no for export or re-transfer in the United States or to a foreign person). For the purposes of this subchapter, engaging in the business of brokering activities requires only one action as described above.” PwC July2012 6 Who is NOT a “broker” continued Section 129.3(b) provides the following exemptions from registration: (1) “Employees of the United States Government acting in official capacity.” (2) “Employees of foreign governments or international organizations acting in official capacity.” (3) “Persons exclusively in the business of financing, transporting, or freight forwarding, whose business activities do not also include brokering defense articles or defense services. For example, air carriers and freight forwarders who merely transport or arrange transportation for licensed United States Munitions List items are not required to register, nor are banks or credit companies who merely provide commercially available lines or letters of credit to persons registered in accordance with part 122 of this subchapter required to register….” PwC July 2012 7 Prior approval (licenses) are required Section 129.7(a)(1)(i) requires prior written approval from DDTC for “brokering activities relating to defense articles and services covered by or of a nature described by part 121” (U.S. Munitions List), to or from any country – “ automatic firearms and components and parts therefore.” PwC July 2012 8 Proposed new brokering requirements On December 19, 2011, the Department of State published a proposed rule on brokering. The public comment period closed on February 17, 2012. PwC July 2012 9 Export Control Services Contacts and Resources Philip D. Treccagnoli Jeannette L. Chu Partner Telephone: (646) 471-8191 [email protected] Director Telephone: (703) 762-7250 [email protected] Philip A. Charnas Director Telephone: (408) 817-8183 [email protected] Samar Aziz Manager Telephone: (646) 471-1265 [email protected] Ray T. Hirata Manager Telephone: (408) 534-2391 [email protected] PwC July 2012 10 © 2012 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This proposal is protected under the copyright laws of the United States and other countries. This proposal contains information that is proprietary and confidential to PricewaterhouseCoopers LLP, and shall not be disclosed outside the recipient's company or duplicated, used or disclosed, in whole or in part, by the recipient for any purpose other than to evaluate this proposal. 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