The terrorism ban for companies and its waiver

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1. The ban applies to companies too

Section 40 of the Arms Export Control Act does not stop at government action. It also bars American persons from four kinds of conduct involving a country whose government the Secretary of State has found to have repeatedly supported acts of international terrorism (22 U.S.C. 2780(b)(1) and 22 U.S.C. 2780(d)). Each determination is published in the Federal Register (22 U.S.C. 2780(e)). The government side of the ban is covered in how the terrorism ban binds the government.

An American person may not export any munitions item to a covered country (22 U.S.C. 2780(b)(1)(A)). Nor may it sell, lease, lend, grant or otherwise provide any munitions item to a covered country (22 U.S.C. 2780(b)(1)(B)). The term covers every Munitions List item, imported, exported or neither (22 U.S.C. 2780(l)(1)).

2. Indirect supply and facilitation

The third bar covers supply through others (22 U.S.C. 2780(b)(1)(C)). An American person may not provide a munitions item to a recipient outside the covered government and country, if it has reason to know the item will be made available to a covered country. The standard is reason to know.

The fourth bar covers any other action that would facilitate the covered government’s acquisition of a munitions item, directly or indirectly (22 U.S.C. 2780(b)(1)(D)). It also reaches acquisition by anyone acting on that government’s behalf. Here too the person must have reason to know that the action will facilitate the acquisition. This bar is narrower than the others in one respect. It concerns the government and its agents, while the section otherwise covers acquisition by any person in the country (22 U.S.C. 2780(c)).

3. Subsidiaries and conduct abroad

An American person is liable for its foreign subsidiaries (22 U.S.C. 2780(b)(2)). It violates the section if a corporation or other person it controls in fact takes a barred action outside the United States. Control in fact is determined under regulations the President must issue.

The bars apply inside and outside the United States to citizens, permanent resident aliens and American businesses (22 U.S.C. 2780(b)(3)). An American business here means any sole proprietorship, partnership, company, association or corporation with its principal place of business in the United States, or organized under American law (22 U.S.C. 2780(l)(3)(B)). Any other person is covered for actions while in the United States (22 U.S.C. 2780(l)(3)(C)).

Regulations may extend the definition further (22 U.S.C. 2780(l)(3)(D)). To the extent the Secretary of State provides, it can cover a foreign subsidiary or affiliate controlled in fact by an American business, or any person otherwise subject to American jurisdiction. Those persons are covered for actions while outside the United States. Geographically, the United States means the states, the District of Columbia, Puerto Rico, the Northern Mariana Islands and any territory or possession (22 U.S.C. 2780(l)(2)).

4. The presidential waiver

The President may waive the prohibitions for a specific transaction (22 U.S.C. 2780(g)). Two conditions apply. The President must determine that the transaction is essential to American national security interests (22 U.S.C. 2780(g)(1)). The test is stricter than the one for the antiterrorism cooperation bar described below (22 U.S.C. 2781(b)). At least 15 days before the transaction, the President must consult the House Committee on Foreign Affairs and the Senate Committee on Foreign Relations (22 U.S.C. 2780(g)(2)(A)).

The President must also send a report to the Speaker of the House, the House Committee on Foreign Affairs and the chairman of the Senate Committee on Foreign Relations (22 U.S.C. 2780(g)(2)(B)). It names any country involved, any recipient of the items and their expected use. It describes the munitions items, with their market value and the actual sale price at each step, or how they will be provided if not sold. It gives the reasons the transaction is essential and its justification, and the expected date. It names every government agency, every foreign government and every private party with significant participation. The information should be unclassified as far as possible, with any classified material in an addendum.

5. Penalties

Willful violations are crimes (22 U.S.C. 2780(j)). Each violation can bring a fine of up to $1,000,000, imprisonment for up to 20 years, or both. Civil enforcement draws on the powers in sections 11(c), 11(e), 11(g) and 12(a) of the Export Administration Act of 1979, on the same terms as under that Act (22 U.S.C. 2780(k)). Section 11(c)(2)(B) of that Act does not apply. The Secretary of State may assess civil penalties under regulations, and may bring a civil action to recover them. The civil penalty for each violation may not exceed $500,000.

Penalties and debarment under the export regulations are covered in penalties, debarment and the presumption of denial. The ITAR’s own country list is covered in the ITAR policy of denial.

6. Where the ban gives way

Two limits apply on this side as on the government side. Transactions subject to the reporting requirements of the intelligence oversight title of the National Security Act of 1947 fall outside the ban (22 U.S.C. 2780(h)). If the special waiver in section 614(a) of the Foreign Assistance Act is used instead, its written justification must carry the same details as a section 40 waiver report (22 U.S.C. 2780(i)(2)).

7. Related bars in the same Act

Three shorter provisions of the Arms Export Control Act also cut off sales. No defense article or service may be sold or licensed for export in a fiscal year to a country the President certifies is not cooperating fully with American antiterrorism efforts (22 U.S.C. 2781(a)). The certification goes to Congress by 15 May of the calendar year in which that fiscal year begins (22 U.S.C. 2781(a)). The President may waive that bar for a specific transaction found important to the national interests (22 U.S.C. 2781(b)).

The Act bars letters of offer, credits, guarantees and export licenses for a country the President finds engaged in a consistent pattern of intimidation or harassment of individuals in the United States (22 U.S.C. 2756). The President must report any such finding promptly to the Speaker of the House, the House Committee on Foreign Affairs and the chairman of the Senate Committee on Foreign Relations. A less developed country may divert development assistance to military spending, or its own resources to unnecessary military spending, to a degree that materially interferes with its development (22 U.S.C. 2775(a)). If the President so finds, it becomes immediately ineligible for further sales and guarantees under sections 2761 to 2764 (22 U.S.C. 2775(a)). It stays ineligible until the President is assured the diversion will stop.

Key terms

American person	A citizen, permanent resident alien or American business, and others while in the United States.
Reason to know	The knowledge standard for indirect supply and facilitation.
Controlled in fact	The control test that makes a parent liable for a foreign subsidiary.
Waiver report	The report sent at least 15 days before a waived transaction.
Civil penalty	A penalty of up to $500,000 per violation, assessed by the Secretary of State.

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.

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