What counts as brokering

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1. Brokering has its own statute and its own part

Brokering is controlled separately from exporting. Section 38 of the Arms Export Control Act "provides that persons engaged in the business of brokering activities shall register and pay a registration fee as prescribed in regulations" (22 CFR 129.1(a)). It also bars anyone from engaging in that business without a license issued under the Act. Part 129 of the regulations implements that requirement.

The rules reach further than the Munitions List. They apply equally to the articles and services on that list and to the items on the Justice Department’s Munitions Import List (22 CFR 129.1(b)).

2. Who can be a broker

A broker is any person engaged in the business of brokering activities who falls into one of three groups. The first is any American person, wherever located. The second is any foreign person located in the United States. The third is any foreign person outside the United States that is owned or controlled by an American person (22 CFR 129.2(a)).

Ownership and control are defined. Ownership means more than 50 percent of the voting securities. Control means the authority or ability to set or direct the general policies or day-to-day operations of the firm. Control is presumed, subject to rebuttal, where American persons own 25 percent or more of the voting securities, unless one foreign person holds an equal or larger share (22 CFR 129.2(a)).

3. What counts as brokering

The definition is wide. "Brokering activities means any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, reexport, or retransfer of a U.S. or foreign defense article or defense service, regardless of its origin" (22 CFR 129.2(b)). Foreign-origin items are included, so an American intermediary arranging a sale of foreign-made equipment between two other countries is still within the definition.

The regulation gives two families of example. One is financing, insuring, transporting or freight forwarding defense articles and services. The other is soliciting, promoting, negotiating, contracting for, arranging or otherwise helping with the purchase, sale, transfer, loan or lease of a defense article or service (22 CFR 129.2(b)(1)).

A single deal is enough. "For the purposes of this subchapter, engaging in the business of brokering activities requires only one occasion of brokering as described in paragraph (b) of this section" (22 CFR 129.2(c)).

4. What does not count

The definition then lists activities that are not brokering (22 CFR 129.2(b)(2)). They include purely domestic sales or transfers by an American person in the United States, and the official work of government employees. They also include the work of regular employees acting for their employer, and activities between affiliates on each other’s behalf. The employee exclusion extends to regular employees who are dual nationals or third-country nationals, where they meet the conditions of the separate exemption for such employees (22 CFR 129.2(b)(2)(iii)).

Administrative support is excluded too. Activities that do not go beyond administrative services, such as office space, hospitality, advertising, clerical, visa or translation services, fall outside the definition. So do collecting product and pricing information to answer a request for proposal, general goodwill promotion at trade shows, and legal advice from an attorney (22 CFR 129.2(b)(2)(iv)).

Two further exclusions concern licensed end users and Commerce items. Acting as the end user of an article exported under a license, or later as its approved reexporter or retransferor, is not brokering. Nor is facilitating the manufacture in the United States, export or approved onward movement of items subject to the Export Administration Regulations (22 CFR 129.2(b)(2)). The employee exclusion does not protect activity involving proscribed countries or persons.

5. The duty to register, and who is exempt

Anyone who engages in brokering activities must register with the Directorate of Defense Trade Controls, subject to limited exemptions. "Registration under this section is generally a precondition for the issuance of approval for brokering activities required under this part 129 or the use of exemptions" (22 CFR 129.3(a)).

Two groups need not register, seek approval, keep records or report (22 CFR 129.3(b)). The first is foreign governments and international organizations, and their employees, acting officially. The second is persons exclusively in the business of financing, insuring, transporting, customs brokering or freight forwarding, whose activities go no further. The regulation’s examples are carriers and forwarders that merely transport or arrange transport for licensed articles, and banks that merely provide commercially available lines or letters of credit.

The logistics exemption is narrow. A bank or other financier must register when it or its employees are directly involved in arranging transactions, or when it holds title to defense articles, even without physical custody (22 CFR 129.3(b)(2)). Exempt persons also remain subject to the policy on embargoes and other proscriptions, which requires prior approval for any brokering involving proscribed countries or persons (22 CFR 129.3(c)).

6. One registration can cover a corporate group

A company already registered as a manufacturer or exporter need not file a separate broker registration or pay a separate fee for its American or foreign subsidiaries and affiliates that broker. Those entities must be majority owned or otherwise controlled by the registrant, and listed and identified as brokers on its statement of registration. All the other brokering rules still apply to them (22 CFR 129.3(d)).

7. What this means for logistics and sales intermediaries

A carrier or forwarder that only moves licensed goods is exempt from registration. One that also arranges or negotiates the deal goes beyond transporting or forwarding, which the exemption does not cover. Sales agents and consultants who help close transactions are brokers from their first deal. How approval is obtained for a specific brokering transaction is described in getting approval for a brokering transaction.

Key terms

Broker	An American person, a foreign person in the United States, or an American-owned or controlled foreign person that brokers.
Brokering activities	Any action on behalf of another to facilitate a transfer of a defense article or service, whatever its origin.
Transport exemption	The exemption from registration for firms whose activity goes no further than financing, insuring, transporting or forwarding.
Statement of registration	A registrant’s filing, which can list affiliates as brokers without a separate registration.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

How Sentfore supports this

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