State Dept. Sees Uptick in Closed End-Use Checks
The State Department’s Directorate of Defense Trade Controls was able to close significantly more end-use checks in 2021 compared with 2020 despite some continued travel restrictions caused by the COVID-19 pandemic. In its annual Blue Lantern report released this month -- which details the agency’s end-use monitoring efforts on controlled defense articles and services -- DDTC said it closed checks on 256 export licenses or applications during fiscal year 2021, an increase of more than 38% from FY 2020.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The agency closed 77 cases, or 30%, as “unfavorable,” which was in line with the average rate of unfavorable outcomes for the past five fiscal years. The most common cause of an unfavorable finding was “derogatory information,” DDTC said, or finding that the foreign party was an “unreliable recipient” of a U.S. Munitions List item. The second-most common cause was the end-user refusing to cooperate, followed by an “unlicensed party.” DDTC didn't find any cases of potential or actual diversion but documented four cases of unauthorized reexports or retransfers resulting from “poor compliance” with U.S. export control laws.
In total, the agency initiated Blue Lantern checks on 281 export licenses in 2021, which was “generally in line” with 2020’s 272 end-use checks. DDTC has increased its end-use checks both years since 2019 partly because the agency transferred certain gun export controls to the Commerce Department, freeing up some of its resources (see 2107070010). But the agency still fell short of its 2018 number of 466 checks.
Because of the pandemic, the agency continued to conduct virtual end-use checks, which required foreign recipients of U.S. exports to present “photographic evidence of serial numbers and control measures.” The virtual checks reduced expenses by about 40% compared with 2020, according to the report. The agency reported a cost of about $25,747 for inquiries closed in FY 2021, compared with $41,500 in 2020.
Due to pandemic-related travel restrictions, DDTC’s Country and End-Use Analysis Division didn’t spend much money and conducted just a few in-person site visits, the agency said. All CEA trading in 2021 was held virtually with “no associated expenses.”
But DDTC did spend $63,000 on a new project with the Foreign Service Institute on a “first-of-its-kind distance learning course” on the agency’s Blue Lantern program. The online course, which launched in January, provides agency employees, contractors and other “locally employed staff” with “comprehensive guidance” on conducting end-use checks. DDTC said it “strongly” encourages staff to complete the course annually.
The agency updated about 1,889 entries and added nearly 1,500 new entries to its Watch List, an internal DDTC screening tool that includes more than 224,000 entities that receive “extra scrutiny” when they appear on a license application. DDTC also continued an initiative begun in 2020 to “systematically” share its Watch List with the Commerce Department’s Bureau of Industry and Security, which has improved BIS’s ability “to regulate items it controls, especially those items formerly controlled on the USML.”
The State Department also released the Defense Department’s end-use monitoring report on items transferred through the agency’s Foreign Military Sales program. The agency’s Golden Sentry program reviewed more than 545 letters of offer and acceptance and other transfer agreements in 2021, similar to the previous year. The Defense Department also conducted more than 2,400 “physical security checks” of storage facilities and carried out “accountability inventories” of more than 206,000 controlled defense items.