Canada: A Measure Of Relief: US Amends ITAR Export Controls For Dual Nationals And Third-Country Nationals

Last Updated: August 15 2011
Article by Paul D. Conlin, R. Luc Beaulieu, Sébastien Beauregard and Richard A. Wagner

The US Department of State has finalized and published amendments to the International Traffic in Arms Regulations (ITAR) regarding dual nationals and third-country nationals employed by recipients of controlled goods and technology. These amendments take effect on August 15, 2011, and will provide a measure of relief to companies using ITAR-controlled goods and technology. While the relief in new ITAR section 126.18 can apply in various countries, this update will focus on the effect of the amendments on Canadian end-users.

ITAR treats a transfer of defence articles to a national of a country as equivalent to a transfer to that country itself. Because there are "Canadian" exemption provisions to ITAR,1 a Canadian citizen may, under certain circumstances, access controlled material, but a Canadian employee who is also a national from a prohibited country on the ITAR restricted list may not.2

Prior to the new amendment coming into force, Canadian employers seeking to comply with ITAR may have been required to impose workplace measures that raised concerns under human rights legislation, such as denying employees of certain nationalities access to work-related materials based solely on their nationality. This in turn may have limited the type of work dual-national and third-country national employees could perform. This nationality-based approach created administrative burdens and friction with existing human rights legislation.

The Dual Nationals and Third-Country Nationals Employed by End-Users3 amendments are designed to address these restrictions by providing for a separate process whereby companies employing dual nationals and third-country nationals of ITAR-prohibited countries may access ITAR-controlled goods and technology by screening employees against set criteria, thus focusing the test on the risk that an employee is "likely to divert" ITAR-controlled technology, as opposed to proceeding with a nationality test. Guidelines were issued by the US Department of State on July 25, 2011.

This new exemption is subject to a number of administrative hurdles and conditions, chief among these being companies that use ITAR-controlled goods and technology are required to have in place "effective procedures" to prevent diversion. For these procedures to be considered effective, employers must either obtain a Government of Canada security clearance or screen employees for "substantive contacts" with prohibited countries and maintain a comprehensive technology/security plan, and share this plan and the screening reports with US authorities upon request.

The Controlled Goods Directorate (CGD) at the Department of Public Works and Government Services Canada is of the view that companies registered in the Controlled Goods Program (CGP) can meet the "effective procedures" requirement through registration and compliance with CGP requirements.

To date the United States government has yet to officially acknowledge that CGP registration and compliance is sufficient to satisfy these new requirements. However, an agreement between Canadian and US officials has reportedly been reached and will become public in mid-August. As it remains a US responsibility to determine whether the CGP may constitute "effective procedures" for ITAR purposes, companies may wish to take interim steps to independently ensure compliance with the US rules until an official acknowledgment of Canada's position is made by the US.

Application of the new exemption

The new exemption brought about by the amendments5 has two main requirements.

First, the transfer of unclassified defence articles and technical data by a foreign business entity (e.g., a Canadian company) that is an approved end-user or consignee for those items can only be "to dual nationals or third-country nationals who are bona fide, regular employees, directly employed by the foreign business entity..." The terms "bona fide, regular employees" and "directly employed" are not defined, except to the extent that the final rules expressly include workers who have long-term contractual relationships with the approved foreign end-user. However, only contract employees who work full-time and exclusively for the company, at the company's facilities, under their direction and control, and execute non-disclosure certifications will meet the definition. Further, where a staffing agency has seconded the individual, the agency must not have a role in the work the individual performs and must not have access to any controlled technology. Persons not falling under the bona fide, regular employee category are not provided for under the exemption, and will continue to be treated according to nationality/citizenship.

Second, for the exemption to apply, the transferor must have "effective procedures" in place to prevent diversion. These procedures are the most contentious aspect of the new rules. The rules stipulate that the end-user company or consignee must:

  • Either obtain the appropriate security clearance for employees from the Canadian government, or;
    1. Have in place a process to screen employees and have executed a non-disclosure agreement that provides assurances that the employee will not transfer any information to unauthorized parties; and
    2. Maintain a technology/security plan that details the procedures for screening employees for such substantive contacts and maintain records which must be made available to US authorities on request.

Canada's CGD has been developing an Enhanced Security Strategy (ESS) and announced in May 2011 that it was developing a set of standards and procedures to be followed when assessing security risk. The new CGD Security Assessment Standards are specifically designed by CGD to meet the new requirements outlined in ITAR section 126.18 regarding dual nationals and third-party nationals exemptions.

The ESS will come into force on October 1, 2011. As part of its implementation, the CGD is developing a series of revised standards and procedures for examining, possessing or transferring controlled goods that meet the standards under the new ITAR exemptions. The CGD will issue notices and communiqués to all program registrants in the coming weeks, detailing the parameters of the ESS along with its implementation plan.

Most importantly, the ESS will be phased in over three years. Until companies are contacted and receive instructions over the next three years, CGD requests that they proceed under the status quo. CGD's main priority is to avoid undue burdens and hardships in this implementation.

CGD is of the view that registration in the CGP and compliance with its requirements is sufficient to satisfy the "effective procedures" requirement in ITAR 126.18. Clearance of employees in accordance with CGP requirements may therefore be sufficient to qualify for the exemption without the need for additional screening processes, signing of non-disclosure agreements, or technology/security plans.

Canadian and US government officials have reportedly reached an agreement whereby the US government will acknowledge that Canada's CGP constitutes "effective procedures." Until such an agreement is official, companies receiving ITAR-controlled goods and technologies may wish to ensure that they meet the effective procedures criteria listed above independently of the CGP process, by having in place a screening process with non-disclosure agreements and technology security plans.

In determining if an employee has had "substantive contacts" which would render him or her ineligible for the exemption, the amendment establishes seven criteria:

  • Regular travel to a prohibited country;
  • Recent or continuing contact with "agents, brokers and nationals of such countries";
  • Continued "demonstrated allegiance" to such countries;
  • Maintaining a residence in such countries;
  • Maintaining business relationships with persons from such countries;
  • Receiving salary or compensation from such countries; and
  • Acts that otherwise indicate a risk of diversion.

Although the rules stipulate that nationality may not, in and of itself, prohibit access to defence articles, an employee who has substantive contacts with persons from prohibited countries is presumed to raise a risk of diversion, unless the US Department of State's Directorate of Defense Trade Controls (DDTC) determines otherwise. Furthermore, contacts with government officials and agents of governments of prohibited countries, whether family or not, will trigger increased scrutiny.

DDTC has clarified that an affinity, loyalty, or allegiance to interests of a third country or its government may cause an individual to breach rules or release proprietary or controlled articles or technology without authorization. As per the stated purpose of the new amendment, citizenship, particularly one that cannot be renounced, will not necessarily lead to disqualification.

With respect to the newly required technology security/clearance plan, procedures for screening employees must be established and all records maintained for five years. The plan and records must be made available to the DDTC upon request for civil and criminal law enforcement purposes. These provisions may lead to friction with existing domestic privacy and anti-discrimination frameworks.

Finally, the exemption does not apply to classified technical data, nor does it apply to academic institutions. The transfer of defence articles must also take place completely within the physical territory of the country where the end-user is located or the consignee operates, and must be within the scope of an approved export licence, other export authorization or licence exemption.

Privacy and human rights risks

The new amendments have the benefit of removing the express ITAR distinctions based on nationality or place of origin, and further implement a neutral "substantive contacts" test. Nonetheless, ITAR-compliant employers may still face claims that substantive contacts screening, although seemingly neutral, has a discriminatory effect on dual nationals or third-country nationals from proscribed countries.

Depending on how the substantive contacts criteria are implemented, many dual nationals or third-country nationals who maintain routine contacts with family and friends in proscribed countries could be ineligible for the exemption, giving rise to claims of de facto discrimination on the basis of nationality or place of origin. While the final rules clarify that contacts with family members will not automatically disqualify a person when it is not likely to lead to a diversion of controlled materials, family contacts and personal travel in proscribed countries must nonetheless be identified in the screening process.

Consequently, the amendments will inevitably raise concerns about compliance with Canadian federal and provincial privacy legislation. While legislation protecting privacy generally allows collecting personal information only for specifically defined purposes, in this case collected information may potentially be found to be overly broad.

Because a Canadian company may choose to exercise the multiple options for meeting ITAR under a single technical assistance agreement or manufacturing license agreement, it is the responsibility of the applicant end-user to coordinate which option will be applicable and include the appropriate language in its agreement.

Employers who choose to forego the new exemption and proceed under the pre-existing framework may continue to be exposed to claims before provincial human rights tribunals, as happened in the past to Canadian employers. Despite previous cases brought before human rights tribunals, however, employers who continue to rely upon the pre-existing framework are not without defences. For example, under provincial human rights legislation, employers may have a valid defence based on the constitutional principle of interjurisdictional immunity. In other words, provincial human rights legislation would be inapplicable in relation to employers' efforts to comply with ITAR, as this is an exclusively federal matter.

It is also noteworthy that Canada and the US Department of State negotiated agreements whereby the State Department revised its export authorizations for the public sector. Under the agreements, access to defence articles and services exported under ITAR would only be granted to Department of National Defence, Communications Security Establishment Canada, Canadian Space Agency and National Research Council personnel who are Canadian citizens, including dual nationals, on a need-to-know basis and then only to individuals who had obtained a minimum secret-level security clearance. These agreements now ensure that sensitive areas of intergovernmental military cooperation are insulated from a legal challenge under the Canadian Charter of Rights and Freedoms or the Canadian Human Rights Act. However, these agreements do not mitigate the challenges faced by private sector employers who must reconcile competing human rights and ITAR compliance obligations, and particularly employers who choose to bypass the new framework brought about by the new amendment.

Integration with Canadian requirements

Understanding that the integration of Canada-US defence production activities requires co-ordinated laws and policies concerning security of information, Canada amended its laws in 2001 to create the Controlled Goods Regulations (CGR), which met US demands that Canada have laws that strictly regulate the release of ITAR-controlled goods and technical data. Both CGR and ITAR requirements are designed to ensure goods and technical data that have potential military or strategic applications are not made available to countries, groups or persons that pose a security threat.

The CGD continues discussions with the DDTC to ensure that Canada's CGP will meet the requirements of the new ITAR exemption, and written confirmation of an agreement with DDTC is expected to be released in mid-August.6 The new US rules do not yet expressly recognize an exemption for CGP registrants, nor for any other national domestic frameworks, such as industrial security clearances; however, it is likely that some accommodation will be reached.

DDTC's licencing guidelines note that the current Canada-specific standard agreement clause is predicated on the issuance of a security clearance by the Canadian government. (Such security clearance need not be a secret or top secret clearance.) Furthermore, where companies are implementing the new ITAR rule, these clauses are no longer necessary for unclassified transfers as the requirements are met by the security clearance. Where classified transfers are concerned, the agreement clause is still relevant.

Conclusion and future challenges

Canadian companies will continue to face challenges complying with overlapping Canadian and US legal requirements, including Canadian privacy and human rights law. While the amended regulations provide a course of action for dual nationals or third-country nationals, significant compliance challenges remain for employers, particularly around the presumptive ineligibility of employers with dual nationals and third-country nationals revealing "substantive contacts." The practical implementation of a screening process may well also generate many legal issues for employers. Employees who are negatively affected may challenge the reliability of the process on various grounds, such as abuse of rights, unfair distinctions, mistakes in application, etc. If employees are removed or disqualified from projects because of ITAR ineligibility, they may claim they have been constructively dismissed by their employers.


1 CFR, s.126.5.

2 The list of ITAR-restricted countries includes: Afghanistan, Burma, Belarus, China, Côte d'Ivoire, Cuba, Cyprus, Democratic Republic of Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Liberia, Libya, North Korea, Sierra Leone, Somalia, Sri Lanka, Sudan, Syria, Venezuela, Vietnam, Yemen and Zimbabwe.

3 CFR Parts 120, 124, and 126.

4 The proposed amendment does not apply to "defence services." We understand that the regulations applicable to defence services may be addressed in a separate proposed amendment.

5 CFR, s.126.18.

6 Public Works and Government Services Canada, "Notice to Controlled Goods Program Registrants Regarding International Traffic in Arms Regulations Amendment," May 17, 2011; Norton Rose has also confirmed that negotiations are ongoing—a potential agreement could be signed by early August 2011.

Norton Rose OR LLP

Norton Rose OR LLP is a member of Norton Rose Group, a leading international legal practice offering a full business law service to many of the world's pre-eminent financial institutions and corporations from offices in Europe, Asia Pacific, Canada, Africa and the Middle East.

The Group's lawyers share industry knowledge and sector expertise across borders to support clients anywhere in the world. The Group is strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences.

Norton Rose Group has more than 2600 lawyers operating from 39 offices in Abu Dhabi, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Brisbane, Brussels, Calgary, Canberra, Cape Town, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta.

Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose OR LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.