Ever wonder why your license application is taking so long to be reviewed and approved? Many thoughts go through a Compliance Officer’s mind when the license process is taking longer than expected: “Did I make a mistake on the license application?” “Should I have provided more information?” “Did I miss something in my due diligence?”
The answer may be something else, something that you could not have done better when completing and submitting the application. The answer may be something that you have no control over. Your application could have been selected for a Blue Lantern check.
Blue Lantern Checks
The Directorate of Defense Trade Controls’ (DDTC’s) Blue Lantern End-Use Monitoring program verifies and validates export license transactions through pre-license, post-license/pre-shipment, and post shipment checks. End-use checks are largely conducted by U.S. embassy personnel at the request of the DDTC.
DDTC has just published its End-Use Monitoring of Defense Articles and Defense Services Commercial Exports report for FY 2018. During that time, the Blue Lantern group (five State Department full-time employees and six contractors) requested 466 Blue Lantern checks (268 pre-license, 89 post-shipment, and 109 containing both pre-license and post-shipment checks) in over 70 countries. These checks represent approximately 1.3 percent of the total 35,779 export license applications processed during that time period.
During FY 2018, DDTC closed 585 Blue Lantern cases (some were cases initiated in the prior fiscal year, but closed in FY 2018) and reported 417 (71 percent) as “favorable” results. A favorable result is achieved by verifying the defense articles were received and secured by authorized end-users, confirmation of the the bona fides of parties to the transaction (especially foreign intermediaries), and enhancement of the parties’ to the transaction understanding of U.S. export laws and regulations.
During the same period, 168 (29 percent) of the Blue Lantern cases as were closed as “unfavorable”. DDTC will deem a finding as unfavorable for a number of reasons:
- Uncooperative/failure to respond, meaning a foreign party failed to provide requested information in response to an end-use check. There were 68 export licenses wherein the end use check resulted in this unfavorable decision.
- Inability to confirm order or receipt of goods, meaning the information provided by the foreign consignee or end-user did not match up or was different than the details in the license/authorization application. There were 54 export licenses wherein the end use check resulted in this unfavorable decision.
- Derogatory information/foreign party deemed unreliable recipient of USML, meaning a foreign party failed to provide information requested (sometimes to multiple requests) in response to an end-use check. There were 52 export licenses wherein the end use check resulted in this unfavorable decision. DDTC noted that in FY 2018, there were indications of potential or actual diversion and three instances of unauthorized reexports/retransfers discovered through the Blue Lantern end use checks. A further breakdown of the types of cases leading to this category of unfavorable was provided by DDTC:
- Unlicensed party – 12 instances
- Physical security concern – 7 instances
- Inability to confirm existence of a foreign party – 3 instances
- Unauthorized reexports/retransfers – 3 instances
- Indications of potential or actual diversion – 1 instance
- Evidence of stockpiling – 1 instance
Of the 594 Blue Lantern checks closed in FY 2018, the highest portion involved license/authorization for US Munitions List Category I. There were 231 end use checks involving USML Category 1. Of those, 76 were identified as unfavorable. In their report, DDTC advised that “The unfavorable rate for checks involving US Munitions List Category I articles (nearly 33 percent) was slightly higher than the rate of unfavorable cases involving all US Munitions List categories (29 percent) combined.” This, of course, begs the question, “Are we really ready for the Export Control Reform transition of US Munitions List Category I items to the jurisdiction of the Export Administration Regulations?
Another facet of the Blue Lantern End Use Monitoring Program is the overseas outreach visits by Blue Lantern staff. Outreach visits entail visits to US Embassy staff, host government officials, and foreign businesses engaged in defense trade of ITAR-controlled items. The purpose of the outreach visits is to familiarize foreign defense trade partners with the Blue Lantern program and U.S. defense trade controls and policies, as well as fostering cooperation with the with U.S. end-use monitoring programs and the need for compliance with U.S. defense trade controls laws and regulations. In 2018, DDTC conducted outreach visits in Argentina, Brazil, Canada, the Republic of Korea, Singapore, and Ukraine.
The DDTC Watch List
So what could be the results of an unfavorable finding for an end use check? Results could range from criminal and/or civil action (through an administrative settlement – Consent Agreement) against the applicant and/or the foreign parties to the transaction; directed disclosures; and/or the addition of the entities involved to the DDTC Watch List.
The DDTC Watch List is an internal screening tool containing over 223,000 entities, ranging from the suspect entities to the sanctioned entities. All applications for licenses or other authorizations are automatically screened against the Watch List. A “hit” on any party listed in an application automatically “flags” that application for further review and possibly a Blue Lantern Check. During FY 2018, the Blue Lantern group screening resulted in 11,856 DDTC Watch List name matches, or “hits” (including false hits). Additionally, the Blue Lantern group inputted 2,168 new entries to the Watch List and modified 2,646 existing DDTC Watch List entries. By the way, before anyone asks, no you cannot have access to DDTC’s Watch List. There is no web site that you can go to screen against the Watch List. It is internal to DDTC and available to only DDTC’s staff; not even to other agencies such as BIS.
What Should I Do?
The next time you are wondering where your application is and you can determine no logical reason for the delay, it may be that your application is under a Blue Lantern review or possibly an end use check. Do yourself a favor though, DO NOT contact the DDTC Response Team or the Licensing Officer and ask, “Is my application under Blue Lantern Review or end use check?” First of all, you will probably not get an answer, but worse, you may give someone the idea that maybe the application should be.
Lastly, remember that if your application ends up the subject of an end use check, it does not necessarily mean that your pre-license application due diligence was flawed. One of the parties to your transaction may be on the DDTC Watch List because of a prior transaction involving an export application by another exporter.
If you need assistance in navigating the process of submitting an export license, please contact Export Solutions for a free consultation.
Jim McShane is a Sr. Consultant, Trade Compliance for Export Solutions -- a full-service consulting firm specializing in ITAR and EAR regulations.