Sep
Sep
Sep
 
Complying with ITAR Dual/Third Country National Requirements and Israeli Law - By Adv. Gil Remeny and Etai Biran
 
In our article of July 13th 2011 - "ITAR’s Dual/Third Country National Rule is Amended – What Does it Mean?" we noted that at the time, the DDTC had not yet published guidelines on how it would implement the changes to the ITAR’s dual/third country national rule, which came into effect on August 15.This article takes a brief look at the guidance DDTC has since published on July 28, examines some of the Israeli legal difficulties arising from complying with the dual/third country national rule and suggests some solutions. 

DDTC posted its guidance on its website in the form of a document titled “Guidelines, Implementation Considerations”
http://www.pmddtc.state.gov/licensing/documents/D-TCN_AG_GuidanceFinal.pdf,
a set of answers to Frequently Asked Questions –
http://www.pmddtc.state.gov/faqs/documents/D-TCN-FAQFinal.pdf
and a sample technology compliance plan –
http://www.pmddtc.state.gov/licensing/documents/D-TCN_Policy_ImplementationFinal.pdf

DDTC’s guidance makes clear that the amendment to the ITAR is not a replacement of the previous rule regarding access of dual/third country national employees to ITAR controlled information, rather it is intended to supplement the previous rule with respect to ITAR controlled technical information that has not been security classified by the U.S. Government. Non-U.S. recipients of unclassified ITAR controlled material now have three options for clearing their dual/third country national employees for access to ITAR controlled material. They may take upon themselves the responsibility of vetting their dual/third country national employees to ensure that there is no risk of diversion of ITAR-controlled defense articles to unauthorized persons, countries or uses.

Alternatively, non-U.S. companies may elect to continue to apply the previous rule and ask DDTC to approve specific nationalities or persons within ITAR agreements (Technical Assistance Agreements, Manufacturing License Agreements, Warehouse Distribution Agreements). Finally, non-U.S. recipients may also, if they are uncertain as to whether a particular dual/third country national they have vetted poses a risk of diversion, write to DDTC and ask it to clear the specific employee.

In order to use any of the options, the ITAR agreement must contain specific language prescribed by DDTC in order to activate the option selected. ITAR agreements may be drafted with the wording for one, two or all three options included so that if an ITAR agreement is drafted accordingly, the non-U.S. recipient may choose all three methods of having dual/third country national employees cleared for receipt of ITAR controlled information. 

The amendment to the ITAR will not have a retroactive effect, so ITAR agreements that were approved prior to the change in rules will not automatically allow non-U.S. recipients to vet their own employees in connection with ITAR controlled information they received under those ITAR agreements. Non-U.S. recipients wishing to take advantage of the change in the ITAR for an existing agreement must convince all parties to the agreement to sign an amendment that will incorporate revised language provided by DDTC’s guidance.

Whether or not the change in the rule offers an advantage is an issue that needs to be looked at closely by analyzing what obligations there are on the non-U.S. party. The amended ITAR provides that employees that have been provided with security clearances from their government will be considered as duly vetted and DDTC clarified in its guidance that there is no minimum level of security clearance required. This certainly makes life much easier for Israeli companies whose workforce have Israeli Government security clearances. However, for Israeli companies that cannot take advantage of government security clearances, things are still uncertain.
 
While DDTC elaborated a little in its guidance on what might be considered as evidencing risks of diversion (including the individual's history of trustworthiness, reliability, and adherence to company rules and policies) and “substantive contact” (which includes contacts with foreign government or military officials, agents or proxies, business contacts and family contacts under certain circumstances), DDTC did not provide any concrete guidance on the extent that a foreign recipient must pry into a particular employee’s private life to fulfill the requirement of screening them. DDTC did provide a sample questionnaire that employees may be given in which they are asked to provide various details about their private and professional backgrounds. Some of the questions are ridiculous and are the equivalent of simply asking an employee if he is a spy for another country and might steal sensitive U.S. information. DDTC did not elaborate as to the extent an employer would have to go to in order to verify the information provided in the questionnaire.
 
Foreign recipients must maintain records of their screening for each employee for a period 5 years and make the records available to DDTC for civil and criminal law enforcement purposes upon request.

Many aspects of complying with the ITAR dual/third country national rule bring Israeli defense companies into difficulties with complying with important Israeli laws. 

Discrimination

Israeli law places great emphasis on the right to equality and not to be discriminated against. This includes the right not to be discriminated against in the workplace on account of, amongst other things, nationality and country of origin

Privacy

Israeli law also places great value on a person’s right to privacy. Employers may not cross a certain line and intrude into an employee or candidate’s private life without their freely provided consent. The private information collected may also not be forwarded to anybody else without the individual’s freely provided consent. Consent may be expressed explicitly or by implication, but for it to be considered as given freely, it must be given on a fully informed basis with full knowledge of all relevant facts. If consent is given when an employee or candidate was adequately informed, the consent cannot then be claimed to have been given unwillingly out of fear of negative consequences if the employee had refused to provide consent. The employer will also need to register with the government as a data base and comply with laws relating to how the personal information is kept.

Only in rare cases have the Israeli courts found that discrimination against employees or invasion of employees’ privacy without their consent was justified. Where these actions were found to be justified, they were based on issues related to national security. While ITAR has not been tested in the Israeli courts as a reason that justifies discrimination or invasion of privacy, it is highly unlikely that the courts would look upon such behavior favorably. After all, the ITAR does not automatically apply to Israelis, it is a foreign law that Israeli companies agree to take upon themselves basically for commercial reasons (i.e., comply with the ITAR and enjoy the fruits of the lucrative U.S. defense market). Therefore, Israeli defense contractors musty find a way of living with both the ITAR and Israeli law.

We recommend the following guidelines for Israeli defense contractors:

  • Do not treat employees and candidates differently based on citizenship or nationality. Undertake the same vetting procedures with respect to all candidates and employees that may require access to ITAR controlled information, not just dual/third country nationals. If the ITAR requires dual/third country nationals to sign an ITAR NDA, have all employees to be engaged on the affected program sign the same NDA.
  • On the first occasion that an employee or candidate is to be vetted ask for him or her to provide written consent to the vetting. Provide a full written explanation as to why the employee is being vetted, the nature of the vetting (including storage of personal information and possibility of being required to disclose it to DDTC) and explain that the employee is free to withhold their consent and make it clear in writing and verbally that this will not affect their treatment or continued employment prospects within the company.
  • Companies may consider nationality when determining employees’ assignments across programs, so long as the nature and quality of the work, pay and career prospects are not influenced by nationality (e.g. an engineer who cannot be assigned to work on an ITAR affected program, should be assigned to work as an engineer on non-ITAR affected assignments, but on otherwise the same terms as equivalent engineers who may work on the ITAR related programs, unless a difference in terms can be justified on another legal basis).
  • The fact that a dual national candidate refuses to consent to vetting should not influence the decision whether or not to employ them. If they are the most suitable candidate based on other legitimate considerations then they should be employed by the company, though they will not be assigned to ITAR affected programs.   

     
Clearly the world is not always so black and white and some situations will not be so easily resolvable. For example, if an Israeli company does not have any non-ITAR controlled work, it would be impossible to abide by the above principles and not breach ITAR or Israeli law. However, we believe that in a majority of cases, the above guiding principles will be the best way forward.  It is also hoped that DDTC will provide further guidance and clarifications regarding the lengths foreign companies will need to go to in order to verify the responses to questionnaires provided by employees and candidates. Such guidance may also come in useful for planning ITAR compliance that also complies with Israeli law.

Note: This article offers an insight into the difficulties of complying with ITAR and Israeli law. It should not be considered to be all encompassing advice.

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