In an effort to deal with its ever increasing backlog of license applications and agreements, DDTC announced on Friday that it was locking up all its licensing officers in their offices and throwing away the keys until the backlog was cleared. Well, not exactly.

Instead, DDTC said that the Response Team would handle all incoming calls. They also made clear that licensing officers won’t be picking up their phones anymore:

We ask that you refrain from contacting licensing officers directly, as voice mail messages will simply direct you to the Response Team.

While efforts to rein in the out-of-control and growing backlog problem are commendable, the prospect of being remitted to the euphemistically monikered “Response Team” is not exactly inviting. I suppose that “Response Team” isn’t completely inaccurate in the sense that “Responses” are provided; the problem is that these “Responses” are often wrong. I’m sure we all have anecdotes of erroneous information coming from the Response Team, but my current favorite involves a member of the team telling an overseas agent that he didn’t have to register as a broker because he was not a consignee of the goods involved!

Perhaps the ultimate goal here is that by denying access to the licensing teams, more license applications will be deficient from the outset and can simply be returned without further action by the staff.

L-3 entered into a Consent Order last week for export violations of its subsidiary Titan. L-3 acquired Titan in June 2005 several years after the violations had occurred. The violations at issue were the failure by Titan to report commissions paid by Titan in connection with three sales of ITAR-listed items to Sri Lanka, France and Japan in 2000, 2002 and 2003 respectively.

The Draft Charging Letter starts with a recitation of Titan’s violation of the Foreign Corrupt Practices Act. As is well known by now, Titan was convicted in March 2005 for the payment of more than $2 million to the re-election campaign of the President of Benin in order to induce Benin to award Titan a contract to build and to operate a wireless telephone network. Hmmm. A wireless telephone network? Is that a defense article? Umm, no. So why is DDTC putting that in the Draft Charging Letter? The answer appears to be for no apparent reason other than to suggest that if Titan is capable of violating the FCPA, it is capable of violating the Arms Export Control Act as well. It’s a good thing that DDTC doesn’t normally have to argue things in court because this kind of argument wouldn’t make it very far in front of a real judge.

The real violations charged by the Draft Charging Letter have nothing to do with the FCPA or the Benin bribes. Instead the violations arise solely from three commissions that weren’t reported by Titan as required by Part 130 of the ITAR. The unreported commissions related to three separate export license applications to Sri Lanka, France and Japan mentioned above.

As anyone has struggled with interpreting the requirement of ITAR’s Part 130 to report commissions knows, the issue is always whether a payment to an agent is is instead exempted from reporting under section 130.5(b)(4) because it is a “payment made . . . for . . . technical, operational or advisory services, which payments are not disproportionate in amount with the value of the goods or services actually furnished.” All commissions are arguably paid for technical, operational or advisory services, so the question is always whether or not they are disproportionate. Needless to say, “disproportionate” is an extremely vague standard. In one of the charged violations, the commission falls pretty far on the other side of disproportionate — $1.2 million on a $2.5 million dollar sale (48%). However, in the other two cases — $109,000 on a $870,000 sale (12.5%), and $958,000 on a $7.4 million sale (12.9%) — it is a bit harder to conclude that the payment is disproportionate.

In the Consent Order, L-3 agreed to pay a fine of $1.5 million. That fine consisted of a $1 million dollar cash payment and a $500,000 credit against the costs of the compliance program that L-3 agreed to conduct pursuant to the Consent Order. The good news for L-3, relatively speaking at least, is that DDTC agreed in the consent order to suspend the application of ITAR section 120.1(b) which made L-3 ineligible for export licenses due to its FCPA conviction. DDTC also declined to impose debarment as a penalty for Titan’s failure to report the commissions at issue.

In the continuing D-Trade saga at DDTC, part of ELLIE vanished yesterday. ELLIE was the electronic predecessor to D-Trade. DDTC announced that, effective October 12, 2006, ELLIE may no longer be used to file DSP-5, DSP-61 and DSP-73 license applications. ELLIE may now only be used for Form DSP-119 used to amend licenses.

On the same date, DDTC issued updated downloadable versions of forms DSP-5, DSP-61 and DSP-73. By doing so, DDTC implicitly acknowledged that many, if not most, ELLIE users will now download those applications and file them on dead trees rather than through the unnecessarily burdensome and problem-plagued D-Trade system.

The three new license forms, which can be found here, are in Microsoft Word format, rather than in the Fillable PDF format which is used by most federal agencies for downloadable forms. Completed Word forms are more easily saved on computers than their PDF counterparts; on the other hand, Word forms can be harder to fill out properly and allow for more user error than PDF forms.

These new downloadable forms supersede their antiquated carbonless NCR paper versions. DDTC indicates that only one copy of these applications must be filed as opposed to the prior requirement of an original and 7 copies.

Now that DDTC has gotten rid of the last of its carbonless NCR paper forms, it may well be that the only federal agency still using NCR paper forms is BIS, DDTC’s counterpart and arch-rival at the Department of Commerce. BIS’s Form 748P is only available in a non-downloadable version on NCR paper. One wonders why agencies that deal with high-tech licensing issues seem so wedded to antiquated technologies.

In response to industry complaints about increased processing times for license applications at DDTC, Robert Maggi, the Managing Director of DDTC, said last week to an industry group that D-Trade would soon make everything better:

Robert Maggi, DDTC chief, agreed with many of the complaints, and promised that improvement is at hand. A computer-based system called D-Trade should speed up and increase consistency in the licensing process, Maggi told an audience of defense company representatives and congressional staffers Sept. 22.

Although the D-Trade system has been in operation for more than two years, it is only gradually making a dent in DDTC’s workload, Maggi said.

By Christmas, D-Trade will have processed about 7,000 arms export license applications. That’s out of about 70,000 the directorate receives each year, he said.

The system has developed “way more slowly” than expected, Maggi conceded, but “I’m pretty optimistic” it will improve the licensing process.

Mr. Maggi admits that almost three years in D-Trade, only 10 percent of all license applications are filed through the system. This should be considered an admission that D-Trade, by any conceivable measure, is an abject failure. Rather than continuing to “happy-talk” the system and hope that things will improve, DDTC needs to try to figure out why the system doesn’t work and why 90% of applicants, when given the choice, file their licenses on the “dead tree” forms.

I know of at least one reason many applicants don’t use D-Trade: the digital signature requirement is burdensome and unwieldy. When the procedure for obtaining digital certificates is explained to potential applicants, I know a number who have opted instead to file paper forms with old-fashioned ink signatures. In case you don’t believe that the process of getting a certificate is cumbersome, take a look at this 15-page instruction sheet provided by one of DDTC’s approved vendors of digital certificates.

What makes this all the more baffling is that there is no need for a digital certificate to sign D-Trade applications. The digital certificate verifies that the signature on the electronic document is authentic, but DDTC has never required any proof of authenticity for signatures on paper licenses. If D-Trade applications could be signed by submitting a certification letter in pdf format, I suspect that more applicants would use the system.