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25 October 2006
[Federal Register: October 25, 2006 (Volume 71, Number 206)]
[Proposed Rules]
[Page 62407-62415]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25oc06-14]
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DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 161
[DoD-2006-OS-0039; 0790-AI04]
DLA Procedures for Eligible Purchasers of Munitions List/Commerce
Control List Items
AGENCY: Department of Defense.
ACTION: Proposed rule.
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SUMMARY: This proposed rule identifies the Defense Logistics Agency
(DLA) proposed new procedures for determining the eligibility of
applicants seeking to obtain excess and surplus United States Munitions
List (USML) and Commerce Control List (CCL) items from DLA. These new
procedures will provide greater safeguards to protect national security
interests before releasing such property into commerce. Applicants who
do not meet the standards established herein will not be eligible to
receive USML or CCL property.
DATES: Consideration will be given to all comments received by December
26, 2006.
ADDRESSES: You may submit comments, identified by docket number and or
RIN number and title, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Federal Docket Management System Office, 1160
Defense Pentagon, Washington, DC 20301-1160.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
Federal Register document. The general policy for comments and other
submissions from members of the public is to make these submissions
available for public viewing on the Internet at http://www.regulations.gov
as they are received without change, including any
personal identifiers or contact information.
FOR FURTHER INFORMATION CONTACT: Mr. Mark Vincent, Defense Logistics
Agency Criminal Investigations Activity, 8725 John J. Kingman Road,
Suite 2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-mail
mark.d.vincent@dla.mil.
SUPPLEMENTARY INFORMATION: The use of the Qualified Trading Partner
(QTP) is intended to limit transfers of USML/CCL to those who have been
assessed and determined to have the capacity and propensity to properly
handle, control, and lawfully dispose of or export USML/CCL. The
process is intended to reduce risk without adversely impacting lawful
commerce of these items. Use of the QTP application will reduce the
likelihood that recipients present a risk to misuse the material and
help ensure the applicants have the capability to properly handle such
items. Implementation of QTP application criteria will improve the
assessment process. Where the QTP Application needs to be done only
once each 5 years, continued use of the EUC allows visibility of each
transaction and the specific factors associated with just that
transaction.
Executive Order 12866, ``Regulatory Planning and Review''
It has been determined that 32 CFR part 161 is not a significant
regulatory action. The rule does not:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy; a section of the
economy; productivity; competition; jobs; the environment; public
health or safety; or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another Agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs, or the rights and obligations of
recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
this Executive Order.
Unfunded Mandates Reform Act (Sec. 202, Pub. L. 104-4)
It has been certified that this rule does not contain a Federal
mandate that may
[[Page 62408]]
result in the expenditure by State, local and tribal governments, in
aggregate, or by the private sector, of $100 million or more in any one
year.
Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)
It has been certified that this rule is not subject to the
Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if
promulgated, have a significant economic impact on a substantial number
of small entities. The Defense Logistics Agency (DLA) is instituting
new procedures for determining the eligibility of recipients when
transferred United States Munitions List (USML) and Commerce Control
List (CCL) items. The purpose of these new procedures is to provide
greater safeguards regarding the release of these items when released
into commerce by DLA.
The procedures are intended to reduce the likelihood that USML or
CCL property are transferred to individuals or organizations that may
use such items to harm the U.S. or its citizens.
Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)
Sections 161.1 and 161.5 of this proposed rule contains information
collection requirements. DoD has submitted the following proposal to
OMB under the provisions of the Paperwork Reduction Act (44 U.S.C.
Chapter 35). Comments are invited on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of DoD, including whether the information will have
practical utility; (b) the accuracy of the estimate of the burden of
the proposed information collection; (c) ways to enhance the quality,
utility, and clarity of the information to be collected; and (d) ways
to minimize the burden of the information collection on respondents,
including the use of automated collection techniques or other forms of
information technology.
Title: Defense Logistics Agency Qualified Trading Partner (QTP)
Procedures for Eligible Purchasers of United States Munitions List/
Commerce Control List Items (Application Process).
Type of Request: New requirement.
Estimated Annual Number of Respondents: 2,040.
Responses per Respondent: 1.
Estimated Total Annual Responses: 2,040.
Average Burden per Response: 1 hr.
Annual Burden Hours: 2,040.
Needs and Uses: The information collection is needed to ensure that
disposal of excess and surplus personal property is administered in a
manner consistent with U.S. laws, regulations, and policies governing
exports and related transfers of technology, goods, services, and
munitions, as well as with other laws, regulations, and policies
relating to the disposal of such property.
Applicants will provide application information in letter format
addressing the following factors:
(1) Applicant must demonstrate it operates an established business
enterprise or provides certification of valid personal use.
(2) Applicant must establish it is a registered business and/or has
adequate export management controls in place to preclude improper
transfers of USML and CCL items.
(3) Applicant must demonstrate a history of compliance with export
control laws.
(4) Applicant does not have a history of acts involving fraud,
misrepresentation and deception or other serious offenses reflecting
negatively on the applicants credibility and trustworthiness.
(5) Applicant does not have a history of acts involving violence,
terrorist activity, corruption with respect to commercial dealings or
matters pending before any adjudicative court or tribunal, violation of
U.S. trade or immigration laws, or other acts contrary to U.S. National
Security interests.
(6) Applicant does not have a history of insolvency and/or lack of
financial capacity adequate to ensure it has the financial means to
properly manage, control, and oversee the use of export controlled
property transferred to it by DLA or its contractors.
(7) Applicant must demonstrate a history of cooperation and
compliance with contract terms and conditions.
(8) Applicant must certify it has the legal capability and capacity
to contract with the U.S. Government to trade USML items.
Upon receipt of the QTP application, the DLA Trade Security Control
Assessment Office will ensure the application is complete and will
conduct a Trade Security Control Assessment. A Trade Security Control
Assessment is a pre-award assessment made by a U.S. Government agency
verifying that the destination, end-user, and end-use of controlled DoD
property conform to export license or end-use certificate requirements.
The application review will involve a ``risk analysis'' process
somewhat akin to the manner in which technical proposals in negotiated
procurements are evaluated.
Affected Public: Individuals, Households, Business or for Profit
entities, and not for Profit Institutions.
Frequency: One Time.
Respondent's Obligation: To obtain or retain benefits.
OMB Desk Officer: Ms. Hillary Jaffe.
Written comments and recommendations on the proposed information
collection should be sent to Ms. Jaffe at the Office of Management and
Budget, DoD Desk Officer, Room 10102, New Executive Office Building,
Washington, DC 20503, with a copy to the DLA POC Mr. Mark Vincent,
Defense Logistics Agency Criminal Investigations Activity, 8725 John J.
Kingman Road, Suite 2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-
mail mark.d.vincent@dla.mil. Comments can be received from 30 to 60
days after the date of this notice, but comments to OMB will be most
useful if received by OMB within 30 days after the date of this notice.
You may also submit comments, identified by docket number and
title, by the following method: Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Instructions: All submissions received must include the agency
name, docket number and title for this Federal Register document. The
general policy for comments and other submissions from members of the
public is to make these submissions available for public viewing on the
Internet http://www.regulations.gov as they are received without
change, including any personal identifiers or contact information.
To request more information on this proposed information collection
or to obtain a copy of the proposal and associated collection
instruments, please write to Mr. Mark Vincent, Defense Logistics Agency
Criminal Investigations Activity, 8725 John J. Kingman Road, Suite
2358, Fort Belvoir, VA 22060, (703) 767-2507 or e-mail
mark.d.vincent@dla.mil.
Executive Order 13132, ``Federalism''
It has been certified that this rule does not have federalism
implications, as set forth in Executive Order 13132. This rule does not
have substantial direct effects on:
(1) The States;
(2) The relationship between the National Government and the
States; or
(3) The distribution of power and responsibilities among the
various levels of Government.
List of Subjects in 32 CFR Part 161
Munitions.
Accordingly, 32 CFR chapter I, subchapter G is proposed to be
amended by adding part 161 to read as follows:
[[Page 62409]]
PART 161--DLA QUALIFIED TRADING PARTNER (QTP) PROCEDURES FOR
ELIGIBLE PURCHASERS OF UNITED STATES MUNITIONS LIST/COMMERCE
CONTROL LIST ITEMS
Sec.
161.1 Purpose.
161.2 Scope.
161.3 Background.
161.4 Policy.
161.5 Technical requirements.
161.6 Administrative procedures.
161.7 Appeals.
161.8 Definitions.
161.9 Responsibilities.
Authority: 40 U.S.C. 101(3).
Sec. 161.1. Purpose.
(a) This part sets forth policies and procedures to ensure disposal
of excess and surplus personal property is administered in a manner
consistent with U.S. laws, regulations, and policies governing exports
and related transfers of technology, goods, services, and munitions, as
well as with other laws, regulations, and policies relating to the
disposal of such property.
(b) This part sets forth procedures for determining the eligibility
of recipients of United States Munitions List (USML) and Commerce
Control List (CCL) items. These procedures are intended to provide
greater safeguards and controls regarding the release of these items
into commerce.
(c) The criteria for eligibility are intended to limit transfers of
USML/CCL to those who have been assessed and determined to have the
capacity to properly handle, control, and lawfully dispose of or export
USML/CCL without adversely impacting lawful commerce in those items.
This will reduce the likelihood that recipients present a risk to
misuse the material and ensure they have the capability to properly
handle such items. In addition, these procedures will create an
application and review process to pre-qualify prospective recipients of
USML/CCL.
Sec. 161.2. Scope.
(a) This part sets out policies and procedures for approving
applications made by individuals, corporations, or other entities
seeking to purchase excess/surplus personal property designated as USML
items or CCL items from DLA.
(b) The use, disposition, export and re-export of this property is
subject to all applicable U.S. Laws and Regulations, including but not
limited to the Arms Export Control Act (22 U.S.C. 2751 et seq.); Export
Administration Act of 1979 (50 U.S.C. App. 2401 et seq.) as continued
under Executive Order 12924; International Traffic in Arms Regulations
(ITAR) (22 CFR 120 et seq.); Export Administration Regulations (EAR)
(15 CFR 730 et seq.); Foreign Assets Control Regulations (31 CFR 500 et
seq.) and the Espionage Act (18 U.S.C. 793 et seq.).
Sec. 161.3. Background.
(a) The DLA and its Commercial Venture (CV) sales contracting
partner sell surplus property formerly owned by various components of
the DoD. DLA sells items through contracts awarded by the Defense
Reutilization and Marketing Service (DRMS) directly to purchasers. Most
of DRMS' usable property inventory, once it has undergone review by
other DoD activities, other Federal agencies, and eligible donation
customers, is sold by DRMS or their CV sales partner.
(b) The property sold includes USML and CCL items (dual use items--
military, commercial and other strategic uses--including equipment,
materials, electronics, software and technology). Trade in such items
is highly regulated under various laws and regulations including the
ITAR for USML items and under the EAR for CCL items. DoD's surplus
inventory includes hundreds of thousands of items that may be of
legitimate use to many thousands of end users. DLA's contractors and
representatives do not have the resources to become personally familiar
with the businesses of all the persons and entities to which USML and
CCL items are sold.
Sec. 161.4 Policy.
(a) End Use Certificate. In the interest of protecting national
security and ensuring the DLA is able to maintain an effective and
compliant export control policy, the DLA and the DRMS require all
purchasers of USML and CCL property to complete an End Use Certificate
(EUC). This form requires potential purchasers to explain and certify
the intended end uses of the specific property acquired in every sales
transaction involving USML or CCL property.
(b) Trade Security Controls (TSC) Assessment. Potential purchasers
must submit certain information to DLA for establishing initial
eligibility to acquire USML or CCL items from DRMS and its contractors.
These potential purchasers then undergo a DLA TSC assessment to
establish their ability to meet the Agency's Qualified Trading Partner
standards for purchasers of these items, as specified in Sec. 161.5. A
TSC assessment is a pre-award assessment of the integrity and
reliability of the prospective recipient made by DLA. The TSC
assessment also verifies the proposed destination and intended use of
the property conforms to export license requirements. TSC assessments
are conducted by the Defense Logistics Agency Criminal Investigations
Activity, Trade Security Controls Assessment Office located at: 74 N.
Washington Ave., Room 2-4-30, Battle Creek, MI 49017. Once the DLA
gives a favorable assessment, these purchasers will be eligible to
receive USML and CCL items subject to the understanding that future
EUCs for specific transactions will also be reviewed to ensure
compliance with export control laws. Additionally, regardless of a
bidder's status, background, and assessment results, the DLA, DRMS and
its sales contractor(s) reserve the right to refuse to complete any
sale or transfer when the purchaser or transferee cannot affirmatively
establish certain criteria. These include the intended transaction and
ultimate end use of the property to be transferred is consistent with
the export control laws of the United States and any third country in
which the DLA/DRMS and their contractor(s) sell or transfer DoD surplus
property (i.e., those countries referred to as ``host nations'' under
many DoD policies and agreements).
(c) In addition to establishing initial eligibility in accordance
with the standards specified in these procedures, purchasers must
continue to meet the criteria specified in Sec. 161.5. The Agency may
revoke a previously granted Qualified Trading Partner (QTP) status upon
receipt of any information that would affect the issuance of a QTP
status under these standards. In such cases, purchasers will be advised
of the basis for such a determination and advised of their rights in
accordance with Sec. 161.6 and Sec. 161.7.
(d) TSC assessments will determine whether an Applicant has been
``USML Approved;'' ``CCL only;'' or ``CCL conditionally approved.'' The
same criteria are reviewed with respect to all Applicants seeking to
buy regulated commodities. There are varying standards depending on the
status under consideration.
(e) This part contains the criteria and procedures to be used in
assessing prospective purchasers of USML/CCL property. The technical
requirements are contained in Sec. 161.5. The administrative
procedures are contained in Sec. 161.6. Applicants seeking approval as
trading partners eligible to receive USML or CCL property under the
eight criteria (and applicable standards) stated in Sec. 161.5 are
referred to herein as ``Applicants.'' Once a party has received a
favorable assessment to acquire USML and/or CCL property, it
[[Page 62410]]
may be considered a ``Qualified Trading Partner.'' This designation is
valid for 5 years unless terminated or revoked. There is no application
or qualification fee. These procedures apply to purchasers of property
sold by DRMS directly or through the DRMS contract with its CV sales
partner, to persons buying from the CV sales partner.
(f) Requests for information on the DLA QTP application process
should be addressed to the Defense Logistics Agency, ATTN: DLA Criminal
Investigations Activity (DCIA), 8725 John J. Kingman Road, Suite 2358,
Fort Belvoir, Virginia 22060-6221.
Sec. 161.5. Technical requirements.
(a) Criteria. (1) These criteria are intended to address eight
specific areas of eligibility to purchase USML or CCL property. A QTP
applicant receiving property from the CV contracting partner will
submit a properly completed application to the CV contracting partner
Government Liquidation, LLC, 15051 North Kierland Blvd., Third Floor,
Scottsdale, AZ 85254-2185, Attn: Jim Cash, Operations Department, Phone
(480) 609-3280. A QTP applicant receiving property directly from DLA
will submit a properly completed application to the applicable Sales
Contracting Officer at 74 N. Washington Ave., Battle Creek, MI 49017,
Room 2-4-5, Attn: Justin Low, DRMS-NOP, Phone (269) 961-5294. The DLA
TSC Assessment Office will validate the application complete and then
conduct the assessment. The application review will involve a ``risk
analysis'' process. The review will be an overall evaluation of the
Applicant information with respect to all the criteria. Absent a clear
inability to meet the eligibility requirements, such as not meeting the
Item 8 ``legal capacity'' standard, or significant negative information
regarding the criminal/civil history criteria (e.g., recent significant
export law violation), the TSC Assessment Office will conduct an
overall qualitative review of all eight eligibility areas.
(2) In this procedure, even if there are no absolute disqualifiers
to granting a favorable assessment, but there are several significant
risk areas or areas where lack of information provided creates a risk
in determining whether an Applicant will be able to successfully and
safely manage export controlled materials, the TSC Assessment Office
may, in its discretion, determine that QTP status should be denied.
(b) Areas of eligibility to purchase USML or CCL property.
(1) Factor 1: Applicant must demonstrate it operates an established
business enterprise or provide certification of valid personal use. The
Applicant can demonstrate experience or that it is an established
business enterprise that engages in the sale of trade of USML or CCL
items. If an Applicant seeks to buy USML and/or CCL items for its own
use, it must identify the types of items it will be seeking to obtain
and establish a legitimate and lawful purpose for its use of same.
Since USML represents the greatest risk, an applicant who applies for
and are favorably assessed to acquire USML items i.e., DoD
Demilitarization Code ``B'' items) will also be considered favorably
assessed to acquire CCL property. Persons who do not wish to acquire
USML items, but whose trade involves only CCL or unregulated items, may
apply for approval to acquire only CCL (or DoD Demil Code ``Q'')
property and not USML items.
(2) Factor 2: Applicant must establish it is a registered business
and/or has adequate export management controls in place to preclude
improper transfers of USML and CCL items.
(i) The Applicant must establish that it is registered with the
Department of State (DoS) Directorate of Defense Trade Controls and has
an established export management policy or, if DoS registration is not
required for its particular business, the Applicant can establish that
it has adequate controls in place to ensure compliance with export
control laws. Examples of the kinds of controls and compliance programs
the Agency will be looking for in this process are:
(A) An organizational structure that describes the Applicant
defense trade functions and its management and control structures for
implementing and tracking compliance with U.S. export controls.
(B) Applicant commitment and policies to comply with and understand
the ITAR and EAR, as well as the internal controls to make this happen.
(C) Applicant ability and methodology used to identify, receive and
track ITAR items and technical data.
(D) Applicant procedures for obtaining DoS approval for re-export
or retransfers.
(E) Applicant procedures for screening carriers, resale customers
and countries regarding restricted/ prohibited exports and transfers.
(F) Applicant recordkeeping procedures.
(G) Applicant internal monitoring program regarding its compliance
program.
(H) Evidence of a training program on these issues.
(ii) If an Applicants business includes trade with other than U.S.
Government entities, Applicant must establish it has appropriate
controls in place to ensure its transactions do not result in illegal
exports or transfers. This can be accomplished by demonstrating
adequate information collection, screening of transactions to ensure
transfers are lawful; background checks on its purchasers; purchaser
certifications, etc. If the Applicant is not registered with the DoS,
it can still gain approval by establishing that it trades only with
U.S. Government entities, or its trade occurs in the U.S. and involves
only transfers to U.S. persons.
(iii) Applicant must establish it has adequate management controls
to preclude improper transfers (CCL only transferees). Applicant must
describe its trade involving CCL items and provide documentation
establishing that it has effective controls in place to ensure export
control compliance. This must be demonstrated by restricting its trade
to domestic transactions not required to be licensed, or through an
established export management program to ensure compliance with export
licensing and other export control requirements.
(3) Factor 3. Applicant must demonstrate a history of compliance
with export control laws.
(i) The Applicant (and if organized in any business format, that of
any principals or officers thereof) does not have a history of
violating any statutes identified in the ITAR (see 22 CFR 120.27) or
any export control law or regulation including, but not limited to:
(A) Section 38 of the Arms Export Control Act (22 U.S.C. 2778);
(B) Section 11 of the Export Administration Act of 1979 (50 U.S.C.
app. 2410);
(C) Sections 793, 794, 798 of title 18 U.S.C. (relating to
espionage involving defense or classified information);
(D) Section 16 of the Trading with the Enemy Act (50 U.S.C.
App.16);
(E) Section 206 of the International Emergency Economic Powers Act
(relating to foreign asset controls; 50 U.S.C. 1705);
(F) Section 30A of the Securities Exchange Act of 1934 (15 U.S.C.
78dd-1) or section 104 of the Foreign Corrupt Practices Act (15 U.S.C.
78dd-2);
(G) Chapter 105 of title 18, United States Code (relating to
sabotage)
(H) Section 4(b) of the Internal Security Act of 1950 (relating to
communication of classified information; 50 U.S.C. 783(b));
(I) Sections 57, 92, 101, 1094, 222, 224, 225, or 226 of the Atomic
Energy Act of 1954, 942 U.S.C. 2077, 2122, 2131, 2134, 2272, 2274,
2275, and 2276;
[[Page 62411]]
(J) Section 601 of the National Security Act of 1947 (relating to
intelligence identities protection; 50 U.S.C. 421);
(K) Section 603(b) or(c) of the Comprehensive Anti-Apartheid Act of
1986 (22 U.S.C. 5113(b) and (c));
(L) Section 371 of title 18, United States Code (when it involves
conspiracy to violate any of the statutes mentioned under factor 3;
(M) Any other export control, armaments transfer, or related laws
of United States of any nation in which the U.S. Government generates
or transfers surplus property;
(N) Convictions and settlements reflecting conspiracy, attempts, or
other incomplete acts shall be considered as serious as if the
underlying offense were completed. A criminal conviction, civil
judgment or other settlement for an alleged violation of any of the
statutes, laws and regulations identified in factor 3, will be
considered conclusive proof of a violation.
(ii) When considering an Applicants qualifications under this
criterion, the size and scope of the Applicant business in handling
USML/CCL items shall be considered and evaluated. A single or minimal
offense, or one of a non-criminal nature, may not bar qualification if
found within the history of a large organization conducting significant
successful trade in such articles. The same offense may, however, be
disqualifying if found within the history of a firm that has completed
only a few transactions involving such property, especially if the
offense suggests a lack adequate controls or experience to preclude
negligent occurrence of violations.
(4) Factor 4. Applicant does not have a history of acts involving
fraud, misrepresentation and deception or other serious offenses
reflecting negatively on the applicant credibility and trustworthiness.
The Applicant (and if organized in any business format, that of any
principals or officers) does not have a history of committing actions
involving fraud, misrepresentation, falsification or destruction of
records, collusive bidding or other similar offenses. A criminal
conviction, civil judgment or other settlement for an alleged violation
of any factors will be considered conclusive proof of a violation. The
Agency plans to consider any such acts committed within the last 7
years. Due to the significant risks involved in trading USML and CCL
items, offenses occurring more than 7 years ago may be considered on a
case-by-case basis.
(5) Factor 5. Applicant does not have a history of acts involving
violence, terrorist activity, corruption with respect to commercial
dealings or matters pending before any adjudicative court or tribunal,
violation of U.S. trade or immigration laws, or other acts contrary to
U.S. national security interests.
(i) The Applicant (and if organized in any business format, that of
any principals or officers) does not have a history of committing
offenses of the type described in the above standard. These offenses
include, but are not limited to: Violations of 18 U.S.C. Chapter 113
relating to terrorist activity; murder; assault with intent to commit
murder; kidnapping; hostage taking; criminal sexual offenses;
extortion; crimes against property including robbery, larceny and
related offenses; sedition, treason, arson, bribery, espionage,
smuggling; firearms and/or weapons violations; violations of the
Racketeering, Influence and Corrupt Organizations Act (RICO) or related
corruption laws, whether State or Federal in nature; offenses related
to the unlawful possession, use, sale, distribution, purchase, receipt,
transfer, shipping, transporting, importing exporting, dealing, or
storing of an explosive device; distribution of, or possession of a
controlled substance with intent to distribute, or importation thereof.
A criminal conviction, civil judgment or other settlement for an
alleged violation of any of the offenses identified in this paragraph
will be considered conclusive proof of a violation.
(ii) Individuals who have been adjudicated mentally incompetent,
involuntarily committed to a mental institution, or have other
background factors evidencing the potential for harm to self or others
may likewise be excluded under this standard.
(6) Factor 6. Applicant does not have a history of insolvency and/
or lack of financial capacity adequate to ensure it has the financial
means to properly manage, control, and oversee the use of export
controlled property transferred to it by DLA or its contractors.
Although there are no absolute standards applicable to a review of
solvency and financial capacity, the Agency may review resources
applicable to a consideration of an Applicants solvency or financial
capability to manage the USML/CCL property transferred to it by
Government sources. Regardless of any potential ability to post a bond
or pay for any contemplated purchases of controlled items, DLA has an
interest in ensuring the Applicants have adequate financial means to
ensure the physical security of USML and CCL items transferred to them.
In addition, DLA has an interest in ensuring Applicants have the
resources to effectively manage, transfer, and oversee the uses of USML
and CCL items released to their control. Such consideration would
examine an Applicants financial capability relative to the size and
scope of its business involving trade in USML or CCL items, or its
personal solvency and credit worthiness in the case of individuals
obtaining USML/CCL items for personal use.
(7) Factor 7. Applicant must demonstrate a history of cooperation
and compliance with contract terms and conditions. The U.S. Government
may always consider an Applicants compliance under previous government
or similar contracts as a matter of establishing the Applicants
responsibility to receive and perform the contract under consideration.
The U.S. Government may also consider previous contract compliance when
evaluating an Applicants technical capability to perform the contract
under consideration. Due to the sensitive nature of USML/CCL items and
the on-going regulatory requirements governing the management and
transfer of such items, the Applicant must demonstrate a satisfactory
history of compliance with contract terms and conditions.
(i) The Applicant must establish a history of favorable compliance
and cooperation regarding changes in demilitarization codes or
inadvertent releases affecting USML or CCL items obtaining from DRMS or
the CV sales partner. Both DRMS and CV contracts contain terms
requiring return of demilitarization-required items or providing
subsequent transferee information when advised of a demilitarization
code change or the inadvertent sale of demilitarization required
property as non-controlled property by DRMS or the CV sales partner.
Failure to cooperate with the U.S. Government or its contractors, when
seeking to track or retrieve USML/CCL property deemed likely to present
risks to national security, may be considered unfavorably under this
criteria as may attempts to extract significant profits from Government
officials charged with seeking retrieval of such property. Applicants
acquiring USML/CCL items under these contracts must appreciate the
Government's interest in protecting national security and comply with
those terms now embodied in U.S. Government and CV contracts requiring
transferees to assist in tracking or return such items upon Government
request, in return for reimbursement covering their purchase price and
expenses incurred only,
[[Page 62412]]
without compensation for any expected or anticipatory profits.
(ii) The Applicant history must reflect cooperation and contract
compliance with respect to U.S. Government requests for records or
information regarding subsequent transfers or any matter relating to
compliance with the ITAR, EAR, and any other export control laws.
Likewise, if the Applicant has previously acquired USML/CCL property,
its history must reflect compliance with export control related terms,
such as those related to properly identifying items as USML/CCL and
perpetuating information about export control requirements to
subsequent transferees.
(8) Factor 8. Applicant must certify it has the legal capability
and capacity to contract with the U.S. Government to trade USML items.
(i) The Applicant must establish its status as an individual of at
least 18 years old and that Applicant, if an individual or business
operating as a sole proprietorship and all officers or officials of any
business organized in any other juristic form, are ``U.S. persons'' as
defined in the ITAR.
(ii) For Applicants seeking permission to become a trading partner
for CCL items only, the same requirement applies, except the Agency may
consider applications involving non-U.S. persons which may be approved
on a ``Conditional Only'' basis. Although a non-U.S. person may be
granted a favorable assessment to receive CCL items on a ``conditional
only'' basis, such a status does not indicate an entitlement to receive
additional CCL items sold by DRMS or CV partner. Although such status
may indicate the Government will not review the trading partner's
situation upon each subsequent sales/transfer request, non-U.S. persons
should be aware that even a favorable assessment will not mean they are
entitled to buy all items of CCL property, since the legality of such
transfers are fact-specific. The Government will review the purchaser's
application carefully to determine the appropriateness of any sale on a
case-by-case basis.
(iii) In addition, to be eligible under this factor the Applicant
must not appear on the General Services Administration (GSA) Excluded
Parties List, on any Directorate of Defense Trade Controls or
Department of Commerce, Bureau of Industry and Security lists of
entities banned from trade in USML or CCL items, nor can the individual
or firm be in a prohibited area under the Office of Foreign Assets
Control Regulations (OFAC) regulations.
Sec. 161.6. Administrative procedures.
(a) Application process. (1) Request for approval. The Applicant
will submit a letter to the Sales Contracting Officer (SCO) requesting
approval as a trading partner for USML or CCL items only (as
appropriate to Applicants intent). This letter will provide sufficient
detail to allow the Agency to review its background and conduct
relevant research regarding the criteria specified in Sec. 161.5, as
well as an EUC regarding the specific or immediate sales transaction in
question to the SCO. If access to a particular type of information,
such as bankruptcy or financial records, requires an authorization or
approval, the Applicant agrees to furnish such consent upon request by
the Agency. Applicants are encouraged to submit complete information,
including existing DoS registrations, other business licenses, and
evidence of experience in the defense article trade. Applicants are
responsible for notifying the SCO when there are changes to their
registrations, business operation or ownership, or business location.
(2) Application review process. The TSC Assessment Office will
ensure the application is complete before conducting the TSC
Assessment. Applicants bear the burden of providing sufficient
information to establish that they meet the review criteria. Failure to
do so may result in the return of an application (without action) until
access to the requested information is provided and the information
reviewed. An application will not be deemed submitted or pending
relevant information pertaining to all the criteria addressed in Sec.
161.5 have been received by the TSC Assessment Office.
(3) Application assessment process. The review will be an overall
consideration of the Applicants information with respect to all the
criteria, absent a clear inability to meet the eligibility
requirements, such as not meeting the factor 8 ``legal capacity''
standard (see Sec. 161.5(b)(8)), or significant negative information
regarding the criminal/civil history criteria (e.g., recent significant
export law violation). In this procedure, even if there are no absolute
disqualifiers to granting a favorable assessment, but there are several
significant risk areas or areas where lack of information provided
creates a risk in determining whether an Applicant will be able to
successfully and safely manage export controlled materials, the TSC
Assessment office may, in its discretion, determine that the QTP status
should be denied.
(b) Notification to applicant. (1) Upon completion of the TSC
assessment, the DLA will notify the Applicant on whether it has been
granted QTP status. If QTP status is denied, the Agency will issue a
denial notice to the Applicant along with a copy to the SCO. The
Applicant must wait at least 90 days from the date of the notice before
reapplying.
(2) Issuance of denial notice includes:
(i) A statement that DLA has determined the individual/business was
not favorably assessed and is denied QTP status;
(ii) The basis for the denial determination; and
(iii) Information about the correction of records and appeal
process.
(3) Rejection of an application is not a permanent rejection. For
example, an Applicant that is disapproved because it lacked sufficient
experience with USML items may be able to reapply and show it has taken
affirmative action in the business or otherwise resolved deficient
aspects of its initial application.
(c) Revoking previously granted QTP status. (1) If the DLA receives
information that would merit removal of QTP status, the Agency will
immediately suspend QTP status and send the QTP a Notice of
Contemplated Removal, citing specific reasons for the proposed removal.
The QTP will have 15 business days from the date of the letter to
respond. Failure of the QTP to respond to the Notice of Contemplated
Removal within the 15 day period will result in immediate revocation of
QTP status. If the purchaser responds to the Notice within the 15 day
period, the DLA will evaluate the response, including proposed
corrective action, if any, and will determine whether revocation of QTP
status, retention of QTP status, or further action, applies.
(2) If an individual's QTP status is removed, there is specified
time limit for such removal. The removal period will be based on the
time necessary to document those changes necessary to correct the
problem(s) resulting in removal. If an individual's QTP status is
removed, once corrective actions have been taken to remedy the reasons
for removal, the individual may reapply for QTP status. A new letter
requesting QTP status must be filed, together with information
indicating the deficiencies resulting in the removal have been
corrected. If the DLA has removed QTP status, notice of such removal
and the reasons for it may be given to other interested Government
activities.
Sec. 161.7 Appeals.
(a) Scope. (1) This part applies to applicants who either have had
their
[[Page 62413]]
previously granted QTP status revoked or who have been issued an
initial Denial notice, concluding that they do not meet the standards
for QTP status, and who wish to appeal the decision.
(2) [Reserved]
(b) Denials and revocations. (1) Applicants whose requests for an
approved QTP status are denied or whose previously approved QTP status
has been revoked will be advised in writing of the Denial or
Revocation. The written Denial or Revocation will state the reasons for
the Denial or Revocation and the facts relied on in determining that
the Applicant does not meet the requirements for QTP status.
(2) [Reserved]
(c) Appeals. (1) An Applicant whose request for an approved QTP
status is denied or previously approved QTP status has been revoked may
file an appeal of the Denial or Revocation. A written appeal must be
filed directed to: Defense Logistics Agency, ATTN: DLA Criminal
Investigations Activity (DCIA), 8725 John Kingman Road, Suite 2358,
Fort Belvoir, Virginia 22060-6221. To be timely, an Appeal must be
received within 30 days after receipt of the Denial or Revocation. The
Denial or Revocation will be considered to be received when delivered
or within 10 days after mailing the Notice to the last known street
address if undeliverable or delivery is refused.
(2) DLA will appoint an Administrative Review Official (ARO) to
consider the Appeal when received. The ARO will be at a minimum, either
an individual at the GS-15 (civilian) or O-6 (military) level who was
not involved in the Denial or the Revocation.
(3) In its written appeal, the Appellant must demonstrate that it
meets the standards of the authorization for which it is applying in
Sec. 161.5, providing information and argument in support thereof. In
addition to any information and argument in opposition to the Denial or
Revocation, the Appeal must identify any specific facts or statements
contained in the Denial or Revocation which it disputes and identify
specific facts that contradict the identified disputed facts.
(4) The Appellant will be afforded the opportunity to present
information and argument to the ARO and to request a hearing to present
information or argument either in person or by teleconference. The
Appeal proceedings under this section will be conducted in a fair and
informal manner. The ARO may use flexible procedures to allow an
Appellant to present matters in opposition and in so doing is not
required to follow formal rules of evidence or procedure in creating an
Official Record upon which the ARO will base the decision to grant QTP
status to an Appellant.
(5) The ARO will provide the Appellant with any documents relied on
in making the Revocation or Denial, subject to any restrictions on the
release of the information provided by other agencies or other
necessary restrictions on the release of the documents, when requested.
The Appellant must present any documentary evidence it wants considered
to the ARO prior to the close of the Official Record.
(6) If an Appellant's presentation raises a genuine dispute over
facts material to the determinations made in a Denial or Revocation,
the ARO must conduct additional fact finding to resolve those facts.
Generally, a conviction of a criminal offense which was a material fact
in the determination of the Denial or Revocation is not subject to
dispute and will not require the conduct of additional fact finding.
(7) If fact finding is conducted, the Appellant and the Agency may
present witnesses and other evidence and confront any witness presented
by the other party and written findings of fact must be prepared for
the record. A transcribed record of fact finding procedures must be
made, unless both the Appellant and the Agency agree to waive it in
advance. If either party wants a copy of the transcribed record, they
may purchase it. The ARO may refer disputed material facts to another
official for findings of fact. The ARO may reject any resultant
findings, in whole or in part, only after specifically determining them
to be arbitrary, capricious, or clearly erroneous.
(8) The ARO will make a determination on the Appellant's
eligibility for QTP status based on all the information contained in
the Official Record. The Official Record includes:
(i) The Notice of Denial or Notice of Revocation and all material
relied on their issuance, along with all information submitted to the
Reviewing Official in support of the Denial or Revocation.
(ii) Any information or argument presented by the appellant under
these procedures in opposition to the Revocation or Denial.
(iii) Any transcribed record of fact finding.
(9) In any appeal under this section, the Agency must establish the
cause for a Denial or Revocation by a preponderance of the evidence.
(10) In any appeal under this section, the Agency has the burden to
prove that a cause for a Denial or Revocation exists.
(11) The ARO must make a written decision on an Appeal under this
part within 45 days of closing the Official Record. The Official Record
closes when the Reviewing Official receives final submissions and
information and findings of fact, if any. The Reviewing Official may
extend this period for good cause.
Sec. 161.8 Definitions.
(a) Affiliate. Persons are affiliates of each other if, directly or
indirectly, either one controls or has the power to control the other
or a third person controls or has the power to control both. The ways
used to determine control include, but are not limited to:
(1) Interlocking management or ownership.
(2) Identity of interests among family members.
(3) Shared facilities and equipment.
(4) Common use of employees.
(b) Civil judgment. The disposition of a civil action by any court
of competent jurisdiction, whether by verdict, decision, settlement,
stipulation, other disposition which creates a civil liability for the
complained of wrongful acts, or a final determination of liability
under the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-
3812). Conviction is defined as follows:
(1) A judgment or any other determination of guilt of a criminal
offense by any court of competent jurisdiction, whether entered upon a
verdict or plea, including a plea of nolo contendere; or
(2) Any other resolution that is the functional equivalent of a
judgment, including probation before judgment and deferred prosecution.
A disposition without the participation of the court is the functional
equivalent of a judgment only if it includes an admission of guilt.
(c) Commerce Control List (CCL) (formerly known as Strategic List
Item). Commodities and associated technical data (including software)
subject to export controls under the EAR. The EAR contains the CCL and
is administered by the BIS, Department of Commerce.
(d) Demilitarization code. A single-character code indicating
``USML'' or ``CCL'' and the degree of demilitarization necessary (if
any) or TSCs (if any) before release from DoD control.
(e) DoD excess and surplus personal property. DoD excess personal
property is property other than real property not needed by any DoD
activity, whether located inside or outside the United States. DoD
surplus personal property is property not needed by any Federal
activity. DoD foreign excess personal property (FEPP) is property
located
[[Page 62414]]
outside the United States, American Samoa, Guam, Puerto Rico, Palau, or
the U.S. Virgin Islands. The term ``excess property'' includes FEPP.
Foreign Military Sales, Military Assistance Program, or Grant Aid
Program excess personal property transferred by the DoD to a foreign
government that becomes excess to that government.
(f) End-use certificate (EUC). A DLA Form 1822 prepared by
prospective recipients of USML or CCL property which provides
identifying information, sales terms, acknowledgment of export
licensing requirements, and a statement indicating the intended
destination and disposition of the property.
(g) Export. The transfer of a controlled USML or CCL Item out of
the United States in any manner. Transfer of an USML or CCL Item in the
United States to a non-U.S. person may also be deemed an export in
certain circumstances.
(h) Indictment (for a criminal offense). A presentment, information
or other filing by a competent authority charging a criminal offense
shall be given the same effect as an indictment.
(i) Preponderance of the evidence. Proof by information that,
compared with information opposing it, leads to the conclusion that the
fact at issue is more probably true than not.
(j) Principal. An officer, director, owner, partner, investor or
other person within an organization with management or supervisory
responsibilities related to the transaction in question.
(k) Trade Security Controls (TSC). The controls on export, import
and demilitarization of personal property established by 22 U.S.C.
2778, 22 CFR parts 120-130, ``International Traffic in Arms
Regulations'' (ITAR), 50 U.S.C. Chapter 35, 15 CFR parts 730-799,
``Export Administration Regulations'' (EAR), 31 CFR parts 500-598,
``Office of Foreign Assets Control Regulations'' (OFAC)) and any
similar controls established by the Department of Homeland Security.
(l) TSC assessment. A pre-award assessment of the integrity and
reliability of the prospective recipient made by DLA. The TSC
assessment also verifies that the proposed destination and intended use
of the property conforms to export license requirements.
(m) TSC measures. Measures designed to preclude the improper or
unauthorized transfer of USML or CCL items, to any entity (i.e.,
person, organization or country) whose interests are unfriendly or
hostile to the United States. These measures shall also be applied to
other selected entities as designated by the Under Secretary of Defense
(USD(P)).
(n) Transfer. The sale, lease, loan, grant, exchange, trade,
barter, release, or donation of property from DoD to another person or
entity other than an agency of the United States Government.
(o) United States Munitions List (USML) personal property. Defense
articles, associated technical data (including software), and defense
services recorded or stored in any physical form, controlled by the
ITAR. The ITAR, which contains the U.S. Munitions List, is administered
by the Directorate of Defense Trade Controls, DOS.
Sec. 161.9 Responsibilities.
The following authorities apply to this part:
(a) Federal Property and Administrative Services Act, as amended,
40 U.S.C. 101(3) \1\
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\1\ Information on the Federal Property and Administrative
Services Act can be found on the Internet at URL http://uscode.house.gov/download/title_40.shtml or http://epw.senate.gov/
fpasa49.pdf.
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(1) Sec. 101. [40 U.S.C. 751] General Services Administration. The
Administrator shall have authority to prescribe regulations to carry
out this Act.
(2) Sec. 203. [40 U.S.C. 484] Disposal of Surplus Property.
(i) Except as otherwise provided in this section, the Administrator
shall have supervision and direction over the disposition of surplus
property. Such property shall be disposed of to such extent, at such
time, in such areas, by such agencies, at such terms and conditions,
and in such manner, as may be prescribed in or pursuant to this Act.
(ii) The care and handling of surplus property, pending its
disposition, and the disposal of surplus property, may be performed by
the GSA or, when so determined by the Administrator, by the executive
agency in possession thereof or by any other executive agency
consenting thereto.
(iii) Any executive agency designated or authorized by the
Administrator to dispose of surplus property may do so by sale,
exchange, lease, permit, or transfer, for cash, credit, or other
property, with or without warranty, and upon such other terms and
conditions as the Administrator deems proper, and it may execute such
documents for the transfer of title or other interest in property and
take such other action as it deems necessary or proper to dispose of
such property under the provisions of this title.
(b) DoD Directive 4140.1, ``Supply Chain Materiel Management
Policy,'' April 22, 2004.\2\
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\2\ Information on the DoDD 4140.1, can be found on the Internet
at URL http://www.dtic.mil/whs/directives/corres/html/41401.htm.
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(1) The Under Secretary of Defense for Acquisition, Technology, and
Logistics shall:
(i) Develop DoD materiel management policies and ensure
implementation in a uniform manner throughout the Department of
Defense.
(ii) Develop and maintain DoD Materiel Management issuances to
implement the policies contained in this Directive.
(iii) Monitor the overall effectiveness and efficiency of the DoD
logistics system, and continually develop improvements.
(2) The Heads of the DoD Components shall implement the policies
and procedures in this Directive and all supporting DoD issuances.
(c) DoD 4140.1-R, ``DoD Supply Chain Material Management
Regulation,'' May 23, 2003.\3\
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\3\ Additional information on the DoD 4140.1-R is available on
the Internet at URL http://www.dtic.mil/whs/directives/corres/html/41401r.htm
.
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(1) The Director, DLA, shall administer the Defense Material
Disposition Program including reutilization, transfer, donation, sales,
loans, gifts, hazardous property disposal, precious metals recovery
program, demilitarization, and trade security controls.
(2) [Reserved]
(d) DoD 4160.21-M, ``Defense Materiel Disposition Manual,'' August
19, 1997.\4\
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\4\ To download additional information on the DoD 4160.21-M from
the Internet go to URL http://www.dtic.mil/whs/directives/corres/html/416021m.htm
.
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(1) The Federal Property and Administrative Services Act assigned
the responsibility for the supervision and direction over the
disposition of excess and surplus property to the Administrator of
General Services. The Act further assigned the responsibility for
supervision and direction over the disposition of DoD FEPP to the
Secretary of Defense.
(2) The Administrator of General Services delegated to the
Secretary of Defense the responsibility for the sale and final
disposition of surplus personal property which the Administrator
determines is not needed for transfer as excess to other Federal
agencies or for donation as surplus to authorized donees. The Secretary
of Defense also has the responsibility, under the ``Act,'' for internal
screening and redistribution of DoD property among the services and
[[Page 62415]]
defense agencies and for reporting such property as excess to the
General Services Administration (GSA).
(3) The Secretary of Defense has assigned to the Director, Defense
Logistics Agency (DLA), responsibility for the administration of the
Defense Materiel Disposition Program, to include the PMRP and the
Defense Demilitarization Program.
(e) DoD Instruction 2030.08, ``Implementation of Trade Security
Controls (TSC) for Transfers of DoD U.S. Munitions List (USML) and
Commerce Control List (CCL) Personal Property to Parties Outside DoD
Control,'' May 23, 2006.\5\ The Under Secretary of Defense for
Acquisition, Technology, and Logistics shall:
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\5\ To download additional information on the DoDI 2030.08,
reference URL http://www.dtic.mil/whs/directives/corres/html/203008.htm
.
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(1) Provide for the establishment of supplemental procedures and
TSC measures needed to implement this Instruction for dispositions of
DoD USML and CCL personal property under DoD Directive 4140.01.
(2) Direct the Director of the Defense Logistics Agency (DLA) to:
(i) Provide assistance to the DoD Components, according to this
Instruction, DoD 5105.38-M, ``Security Assistance Management Manual,''
October 3, 2003, and DoD 4140.01-R, in cases where they dispose of or
transfer personal property to parties outside DoD control. In such
cases, DoD Components remain ultimately responsible to ensure their
subordinate elements comply with this Instruction.
(ii) Develop and implement a TSC Enforcement and Investigative
Program within DLA.
(iii) Ensure all dispositions of DoD USML and CCL personal property
under DLA's control are executed according to this Instruction.
(iv) Provide oversight of the Demilitarization Program, according
to DoD 4160.21-M-1, ``Defense Demilitarization Manual,'' October 1991.
Ensure that DoD Components are provided the necessary instructions to
demilitarize all USML personal property properly before disposition to
prevent unauthorized use and/or potential compromise of U.S. national
security, except as otherwise permitted by law, regulation, and/or
policy.
Dated: October 19, 2006.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. E6-17848 Filed 10-24-06; 8:45 am]
BILLING CODE 5001-06-P