The Directorate of Defense Trade Controls (“DDTC”) within the US State Department recently issued a number of announcements regarding submissions related to Mergers, Acquisitions, and Divestitures (“MAD”) of US businesses regulated under the International Traffic in Arms Regulations (“ITAR”). These changes by DDTC were prompted by the COVID-19 crisis and end the need for parties in MAD transactions involving ITAR-regulated entities to submit hard copies to DDTC.
By way of background, ITAR Section 122.4(b) requires parties involved in MAD transactions where an ITAR-regulated entity will be owned or controlled by a non-US party to notify DDTC at least 60 days before transaction closing. Entities involved in manufacturing, exporting, or temporarily importing defense articles or furnishing defense services are required to register with DDTC on an annual basis, and MAD transactions involving such entities may trigger ITAR Section 122.4(b). This DDTC notification requirement is separate from other licensing or approval requirements under the ITAR as well as transaction-review processes imposed by the Committee on Foreign Investment in the United States. In addition, ITAR Section 122.4(a) requires entities to update their registrations with DDTC within five days of changes to the information in such filings (e.g., entity name, entity address, ownership or control). In the MAD context, ITAR Section 122.4(a) is triggered when a transaction closes. (Similar ITAR notification requirements apply to brokers of defense articles under ITAR Section 129.8.)
Electronic Submissions of MAD-Related Notifications and MAD-Specific FAQs
On July 23, 2020, DDTC announced that 5-day notifications of changes to registrations resulting from MAD activities submitted pursuant to ITAR Section 122.4(a) will be accepted via DDTC’s electronic portal – the Defense Export Control and Compliance System. Previously, the 5-day notifications related to MAD transactions had to be submitted in hard copy.
On the same day, DDTC also announced that it has established a new mechanism for electronic submission of 60-day advance notifications pursuant to ITAR Section 122.4(b). Parties submitting such notifications and/or supporting documentation (e.g., organizational charts, ITAR compliance program materials in Microsoft Word format) are encouraged to send such materials via email to PM-DTCC-MAD@state.gov, without corresponding hard-copy submissions. Letters should be on company letterhead and signed by a US-person senior officer listed on the submitting entity’s registration with DTCC. The 60-day notifications related to MAD transactions previously had to be submitted in hard copy via registered mail/overnight delivery, in addition to sending the materials via email to specific DDTC officials.
These steps mark DDTC’s transition to full electronic submission of all MAD-related notifications. To aid registrants in submission of registration-related notifications, DDTC has also updated its Registration FAQs page to include a list of MAD-specific questions and answers under the new subheading titled “Mergers, Acquisitions, and Divestitures.”
Addition of DS-6004 “Other” Type
On July 16, 2020, DDTC announced that it add an “Other” category to Block 4 of the agency’s DS-6004 Reexport/Retransfer Application. According to DDTC, industry should select the “Other” category when submitting General Correspondence requests related to MAD transactions, US and Foreign Entity Name/Address Changes or Registration Code Changes, US Persons Providing Defense Services Abroad, End-Use/End-User Change Requests, and Amendments to existing General Correspondence approvals.
DDTC advised that it will continue to accept paper submissions for these requests but paper submissions may result in extended processing times. Applicants making paper submissions are advised by DDTC to provide an email address in the transmittal letter so that DDTC can respond through email.
The authors thank Michelle Zhao for contributing to this blog post.