ITAR and Controlled Goods Restrictions on Canadian Dual Nationals is Lifted

Before 2011, Canadian businesses and universities dealing with ITAR related controlled goods and technologies, referred to as “defense articles” by the U.S., had a serious problem. Employees, researchers, students and others who held dual nationality with specific U.S. restricted countries were not allowed to access these items and had to be removed from projects dealing with them. These countries are listed in ITAR §126.1 and include “…Belarus, Cuba, Eritrea, Iran, North Korea, Syria, and Venezuela. This policy also applies to countries with respect to which the United States maintains an arms embargo (e.g., Burma, China, and the Republic of the Sudan)…”

One of the provisions of the controlled goods regulations is that Canadian firms and universities dealing with ITAR items and technologies are required to follow all of the ITAR specifications and any associated export licenses. In this case, it wasn’t that the U.S. government was just forbidding the shipment of their defense articles to restricted countries. They were prohibiting any citizen of these countries from possessing defense articles, including persons holding dual nationality with Canada and one of the restricted countries. This caused outrage among dual national employees and was seen both as a discriminatory insult and a threat to their career paths by excluding them from important projects. Some barred employees sued their employers, claiming violations of the Charter of Rights and Freedoms. This left Canadian employers in a difficult position. If they violated the ITAR restrictions and allowed dual nationals of restricted countries access, they faced losing the controlled goods or technologies. If they removed these individuals from the projects, they risked legal action.

The Government of Canada was long aware of this problem and had been in negotiations with the United States to find a solution. In 2011, the two parties reached an agreement. A new section was added to the ITAR, §126.18, effective May of 2011. It states, in part, “…nationality does not, in and of itself, prohibit access to defense articles…” This stipulates that the ability to examine, possess or transfer controlled goods is based solely on a person’s security assessment and removes the former restrictions on dual nationals, news that was enthusiastically received by both dual national employees and employers alike.

But, of course, there’s no free lunch. The new access comes with the price of increased diligence in security assessments conducted by designated officials.

According to ITAR §126.18, a foreign [Canadian] business that receives a defense article “…must have effective procedures to prevent diversion to destinations, entities or for purposes other than those authorized by the applicable export license or other authorization (e.g. written approval or exemption) in order to comply with the applicable provisions of the Arms Export Control Act and the ITAR.” This is accomplished by “A security clearance approved by the host nation government for its employees.” or “…a process to screen its employees and to have executed a Non-Disclosure Agreement that provides assurances that the employee will not transfer any defense articles [controlled goods] to persons or entities unless specifically authorized by the consignee or end-user.”

The Americans continue to be concerned about dual nationals of restricted counties. In making a security assessment, the designated official must consider “substantive contact” with any such country with respect to “”…travel to such countries, recent or continuing contact with agents, brokers and nationals of such countries, continued demonstrated allegiance to such countries, maintenance of business relationships with persons from such countries, maintenance of residence in such countries, receiving a salary or other continuing monetary compensation from such countries, or acts otherwise indicating a risk of diversion.” Substantive contact does not forbid the possession of ITAR regulated controlled goods, but a designated official must take these factors into account in conducting a security assessment and may return a negative assessment or place restrictions on a positive one because of the findings. ITAR §126.18 goes on to state, “… an employee who has substantive contacts with persons from countries listed in §126.1(a) shall be presumed to be a risk of diversion…”

As the “…host nation government for its employees…” the Canadian Controlled Goods Directorate has made changes to the regulations in the form of an Enhanced Security Strategy. As the directorate states, this was “developed in consultation with Canadian industry and other government stakeholders. The ESS is a more robust approach to meeting domestic industrial security needs and will be implemented through a phased-in approach over three years beginning October 1, 2011.” This effects applications for registration, security assessment applications for owners, authorized individuals, designated officials, officers, directors and employee as well as security assessment applications for temporary workers. These forms are more detailed in the data retrieved. There are enhanced consideration of foreign contacts, the use of a risk matrix assessment procedure and the requirement to conduct a criminal background check on all applicants whether they report criminal activity or not. These new rules apply to every applicant, not just those holding dual nationality.

Enhanced security requires more work on the part of a designated official and more expense for criminal background checks, but it allows dual nationals of restricted countries access to controlled goods and establishes a more secure environment to protect controlled goods in Canada.

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