Freight Forwarding as Brokering Activity

By: Derrick Kyle, Associate
Date: 02/17/2017

This article briefly discusses the types of activities that trigger the brokering registration requirement under the International Traffic in Arms Regulations for freight forwarders.

In August 2013, the Directorate of Defense Trade Controls (“DDTC”) published an interim final rule that clarified some aspects of the requirement for broker registration under the International Traffic in Arms Regulations (“ITAR”).[1] The rule provides that a broker is any person that engages in the business of “brokering activities” and is 1) a U.S. person, 2) a foreign person in the U.S., or 3) a foreign person outside of the U.S. under the control of a U.S. person, e.g., a foreign subsidiary controlled by a U.S. parent corporation.[2] “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.”[3] Examples of brokering activity include financing, insuring, transporting, or freight forwarding defense articles and defense services. Based on these examples of brokering activities, it would seem that a freight forwarder would be engaged in brokering activities and would therefore be required to register with DDTC. However, there is an exemption in the rule at § 129.3(b)(2) that states the registration requirement does not apply to “Persons exclusively in the business of financing, insuring, transporting, customs brokering, or freight forwarding, whose activities do not extend beyond financing, insuring, transporting, customs brokering, or freight forwarding.” The exemption states, as an example, that an air carrier or freight forwarder that merely transports or arranges transportation for defense articles is a person that would not have to register as a broker.

But what if a freight forwarder’s business extends beyond mere freight forwarding to include multiple activities such as insurance or customs brokering in addition to freight forwarding? The rule is less clear on this point.

A freight forwarder is able to engage in multiple activities, like insuring and transporting defense articles, as long as it does not go beyond the scope of those activities to the point of facilitating the manufacture, export, permanent import, reexport or retransfer of U.S. or foreign defense articles or services. Occasionally, freight forwarders engage in the types of activities that would trigger the registration requirement for forwarders. An example of such activity is a freight forwarder acting as an intermediary that brings two parties together in a sale transaction of ITAR-controlled defense articles. Another example would be if a freight forwarder or its employees are directly involved in arranging transactions involving defense articles or hold title to defense articles for financing purposes.

The determination of whether a freight forwarder has “gone beyond” exclusively engaging in the exempted activities of §129.3(b)(2) is highly fact-specific. The main focus is whether the activity constitutes the “facilitation” of a deal. It is rarely the case that a freight forwarder acts as the broker for an arms deal, so only a very small subset of freight forwarders need to register with DDTC as brokers of defense items. Finally, section 129.9 provides a method by which freight forwarders (and others) can obtain guidance as to whether certain activities undertaken in the performance of a contract will be considered brokering activities such that registration with the DDTC is required.[4] To obtain this guidance from DDTC, a person must request it in writing, provide the name of the applicant and registration code and fully describe the contemplated activities. The applicant should also include a copy of any agreement or documentation between the requester and other persons who will be involved in the activity. DDTC is anticipating further revisions to the ITAR brokering regulations, possibly at some point in 2017, so continue to keep abreast of any changes in the ITAR over the next year.

If you or your business need assistance in determining the scope of your brokering activities or the applicability of the ITAR, please do not hesitate to contact us.


[1] Amendment to the ITAR: Registration and Licensing of Brokers, Brokering Activities, and Related Provisions, 78 Fed. Reg. 52,680 (Aug. 26, 2013) (to be codified at 22 CFR §129).

[2] 22 CFR §129.2(a).

[3] 22 CFR §129.2(b).

[4] 22 CFR §129.9(a).