DDTC issued proposed rules yesterday dealing, mostly, with the conundrum of what to do with U.S. citizens who work, either in the U.S. or abroad, for foreign defense contractors. Since most normal people (viz., natural persons) do not pore over the ITAR in their spare time, it often comes as a surprise to them, particularly if they are working for foreign defense contractors who don’t care much about the ITAR, that they can go to jail for undertaking such employment in certain circumstances, unless they register with, and get advance permission from, the State Department’s Directorate of Defense Trade Controls.

The proposed rules ease up on this restriction, at least for U.S. citizens who work for foreign defense contractors in a “NATO or EU country, Australia, Japan, New Zealand, and/or Switzerland.” The end-users for the defense articles involved must be in one of those countries, and no U.S. defense articles can be involved. Oh, and no SME either, meaning the foreign defense article cannot be defined on the United States Munitions List as “Significant Military Equipment,” which includes not just obvious things like bombers and missiles but also less obvious things like certain lasers.

Before you run off and email your job application to BAE, there’s one more thing. Although U.S. persons in such situations do not need prior DDTC approval for such employment, they still need to register with DDTC. There is an exemption for people working for DDTC-registered companies but, obviously, this may not be the case for the scenario of a U.S. person working for a foreign defense company.

Two additional things should be pointed out about the proposed rules: one is useful and the other is, frankly, rather hilarious. Let’s take the useful one first. As most readers will know, there has been a bewildering lack of clarity about which subsidiaries can be included on a registration statement, particularly inasmuch as section 122.2 allowed such inclusion for subsidiaries that were more than 50 percent owned by the registrant or were “otherwise controlled.” It’s always those “otherwises” that keep lawyers employed. The proposed rules add a note to say that “otherwise controlled” can be

rebuttably presumed to exist where there is ownership of 25 percent or more of the outstanding voting securities if no other person controls an equal or larger percentage.

Now for the somewhat hilarious one. In order to allow U.S. citizens to work for foreign defense contractors, but not to create a new exemption for U.S. companies in their dealings with these foreign companies, DDTC has decided that it needed to say that this exemption is restricted to “natural persons.” And, because “natural person” seemed to them apparently to be an incomprehensible and esoteric term, the new rules actually define natural person. It means, in case you were wondering, an “individual human being.” Of course, “human being” probably needs to be defined as well.  I, for one,  know plenty of people who are not really “human beings.”  For example, New York Yankees fans aren’t human beings. They’re animals, pure and simple.

Are you an individual residing in the United States? Do you have no ownership interest in any foreign enterprise? Have you filed yet a Form BE-10 with the Bureau of Economic Analysis (“BEA”) informing them that you don’t have any ownership interest in any foreign business? No, you haven’t? Well if you don’t file that form with the BEA by May 29, 2015, you can be fined $10,000. You’re welcome.

So get to it and get that BE-10 Claim for Not Filing filed. You can file it electronically here. Oh, and where else but in DC would you have to file a claim for not filing?

Now, it may not actually be the case that you have to file, but that is not what BEA’s regulations say. They say clearly that you have to file. The relevant section is 15 C.F.R. § 801.8, which establishes the mandatory filing requirement for U.S. persons with respect to their interests, or lack thereof, in foreign business enterprises. It says this:

(a) Response required. A response is required from persons subject to the reporting requirements of the BE-10, Benchmark Survey of U.S. Direct Investment Abroad—2014, contained herein, whether or not they are contacted by BEA. …

(b) Who must report. (1) A BE-10 report is required of any U.S. person that had a foreign affiliate—that is, that had direct or indirect ownership or control of at least 10 percent of the voting stock of an incorporated foreign business enterprise, or an equivalent interest in an unincorporated foreign business enterprise, including a branch—at any time during the U.S. person’s 2014 fiscal year.

(2) If the U.S. person had no foreign affiliates during its 2014 fiscal year, a “BE-10 Claim for Not Filing” must be filed by the due date of the survey.

This couldn’t be much clearer, could it? Everyone must file who is required to report, even if they are not contacted by BEA. And section (b) which defines “who must report” includes in subsection (2) U.S. persons without foreign affiliates and therefore must file a BE-10 Claim for Not Filing.

It is possible, indeed quite likely, that what BEA meant to say, but could not manage to actually say, is that the BE-10 Claim for Not Filing only must be filed by persons contacted by BEA to file and who did not have a 10 percent or greater interest in a foreign enterprise. So even though section (b) purports to define “who must report” that definition only means to cover people described in (b)(1) — who have a 10 percent interest — and not those described in (b)(2) who don’t.

First moral of the story: Economists shouldn’t write regulations and lawyers shouldn’t run the economy

Second moral of the story: If you are a U.S. person (business or individual) and you do have an 10 percent in a foreign enterprise, you have to file a BE-10 by May 29, 2015, something which I suspect many companies don’t know right now