Canadian companies dealing in aerospace and military goods and
technology have long struggled with requirements under the US
International Traffic in Arms Regulations (ITARs) that
prohibit employees of certain nationalities or born in certain
proscribed countries from accessing US-controlled defence services
and technology in Canada. In order to comply with these
restrictions, Canadian companies have had to risk violating
provincial and federal anti-discrimination laws, as well as
exposure to human rights complaints, when denying employees access
to projects involving US-controlled defence items because of their
nationality or country of birth.
The proposal provides that no approval from the US State
Department Directorate of Defense Trade Controls (DDTC) will be
required for the transfer of defence articles within a foreign
business entity that is an approved end-user or consignee for those
items, "including the transfer to dual nationals or
third-country nationals who are bona fide, regular employees,
directly employed by the foreign business entity." Further,
the transfer must take place completely within the territories
where the end-user is located or where the consignee operates, and
must be within the scope of an approved export licence, other
export authorization, or licence exemption.
There are significant conditions, however, that Canadian
companies will have to satisfy in order to take advantage of this
exemption. They include:
obtaining security clearances for their employees from the
Canadian government or having a process in place to screen
employees and execute Non-Disclosure Agreements ensuring that the
employee will not transfer any information to unauthorized parties;
screening employees for substantive contacts with the
prohibited or restricted countries, and establishing and
maintaining a technology security/clearance plan for such screening
and related record-keeping (such plan to be available to the DDTC
The proposed amendments set out those considered to be
"substantive contacts" with the restricted countries, and
include recent or regular travel, recent or regular contact with
agents or nationals of such countries, continued allegiance to such
countries, or acts otherwise indicating a risk of diversion. An
employee with substantive contacts with persons from restricted
countries "shall be presumed to raise a risk of diversion,
unless DDTC determines otherwise."
Canadian companies dealing with aerospace and defence products,
technology or services should review these proposals carefully to
assess their potential impact on current and future operations. In
particular, the amendments appear to impose on Canadian companies a
significant due diligence burden with regard to the gathering of
information on employee activities outside of the workplace.
Even if these amendments are finalized, Canadian aerospace and
defence companies will continue to face challenges in ensuring they
are compliant with a patchwork of applicable US and Canadian law in
this area, including the ITARs, Canadian privacy and human rights
law, as well as Canadian defence controls under Canada's
Defence Production Act and Export and Import Permits
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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