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Episode 95
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Substantive Law
Primed for Export: The Risks of Inadvertent Breaches of the International Traffic in Arms Regulations
Law as stated: 11 August 2023
What is this?
This episode was published and is accurate as at this date.
Join Travis Shueard as he dials into Curiosity from Adelaide on a subject close to his heart - the extraterritorial reach of the International Traffic in Arms Regulations (US) and how they impact Australians and the Australian defence industry.
Substantive Law| What area(s) of law does this episode consider? | International Traffic in Arms Regulations (ITAR) and their impact on Australia’s defence industry. |
| Why is this topic relevant? | The International Traffic in Arms Regulations are a set of United States’ regulations that control the export of defense articles, defense services, and technical data from the US. They are an artifact of the Cold War designed to control where US defense tech ends up and they have extensive extraterritorial reach. The ITAR are a major concern for the future of the AUKUS agreement and the proposed transfer of nuclear submarine technology to Australia. |
| What legislation is considered in this episode? | International Traffic in Arms Regulation (ITAR) |
| What are the main points? |
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| What are the practical takeaways? |
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| Show notes | Tim O’Callaghan, Travis Shueard, Laura Coppola, AUKUS, ITAR, Export Control Reform and the Australian Defence Industry (2023) |
David Turner = DT; Travis Shueard = TS; Ross Davis = RD
| 00:00:00 | DT: | Hello and welcome to Hearsay the Legal Podcast, a CPD podcast that allows Australian lawyers to earn their CPD points on the go and at a time that suits them. I’m your host David Turner. Hearsay the Legal Podcast is proudly supported by Lext Australia. Lext’s mission is to improve user experiences in the law and legal services and Hearsay the Legal Podcast is how we’re improving the experience of CPD. The International Traffic in Arms Regulations, we’ll be calling them ITAR in this episode, are a set of United States regulations that control the export of defense articles, defense services and technical data from the United States. They find their origins in the Cold War and they’re designed to control where US defence technology ends up and they have extensive extraterritorial reach. Now you might be forgiven for thinking that with the close relationship that Australia has with the United States, both members of AUKUS, both members of the Quad, we might be excluded from the operation of those regulations. But you’d be wrong. In fact, the ITAR is a major concern for the future of both the AUKUS and Quad agreements and its proposed transfer of nuclear submarine technology to Australia under the former. Now joining us today is Travis Shueard, a senior associate with Piper Alderman in Adelaide. Travis has a keen interest in the defence industry and is currently a serving board member of the Defence Teaming Centre, Australia’s leading defence industry advocacy body. Travis has also conducted seminars on ITAR for Australian defence industry leaders in the past. Travis; thank you so much for joining me today on Hearsay! |
| TS: | Thank you very much for the opportunity to speak with you today. | |
| DT: | Now, Travis, tell us a bit about how you got into this area of the law. How do you end up being an intellectual property lawyer also working on international arms trade? | |
| 00:01:54 | TS: | I started out quite innocuously to be honest. I started out initially in general commercial litigation as a graduate lawyer and worked in that majority of my time as a solicitor. I eventually started at Piper Aldermen several years ago. I’ve always had an interest in the defence industry. I’ve always had an interest in the military. Members of my family have served in the military. I’ve got friends that have served in the military. I’ve just got that general interest in history and technology, that kind of thing. The way I just transitioned into it is taking steps to educate myself in particular areas such as ITAR and the defence industry in Australia. Eventually, I started to work more towards that industry including being appointed to the Defence Teaming Centres Board. It wasn’t like it was just dropped on my desk one day. It’s one of those things where I just found it interesting. The name itself, International Traffic in Arms Regulation, is a pretty hardcore title and I thought, I’m an intellectual property lawyer. I’m a litigator. But I can still educate myself here and up still and start to learn more about it which I have and as a result, I’ve been writing about it. I’ve been presenting on it and some work on it as well. |
| DT: | That’s great. Is there much of an overlap between your other intellectual property work and ITAR? Is it really something that you’ve cultivated that’s quite distinct from the rest of your practice? | |
| TS: | Well, I guess it’s how you conceptually see ITAR and other export controls or defence export controls. So ITAR at its core is about protecting what the US considers to be confidential and sensitive information, intellectual property relating to defence, right? Obviously, it’s related to effectively military technology secrets. I get that. But intellectual property protection, when you take a step back and look at it broadly, they’re broadly similar concepts. So intellectual property protection is about ensuring commercially sensitive information and intellectual property is properly protected for a particular company, right? So an intellectual property lawyer is often engaged in protecting trademarks, patents, confidential information, copyright and infringement. And so the benefits of strong intellectual property protections, obviously, is that only the right people or the authorised people can use it for their benefit,okay? And preventing infringers from using it without authorisation. In a way, ITAR is not that far removed from what an ordinary intellectual property lawyer works in, to an extent. Yes, ITAR is very complex, it’s broadly drafted and it concerns US military technology. It’s first and foremost a geopolitical piece of legislation. But where it works with me is that, or with Piper Alderman, is that we help to untangle the web of ITAR, demystify it, so to speak. That’s the term I like to use, and help companies understand what ITAR might be covering, what confidential information might be in issue here and the problems that can occur with non-compliance and then effectively educate them on the regulation. | |
| DT: | Something that I really like about this specialisation in ITAR that you’ve created is that I think a lot of lawyers, when they specialise, they tend to specialise by drilling into something that they’re already practising in, you know? If you practice in the M&A team, you become a specialist in M&A for automakers or M&A for pharmaceuticals. You develop this narrower and narrower scope of practice to identify yourself and distinguish yourself from your competitors. But what you’ve done is kind of broaden your practice by specialisation. You’ve identified something that is conceptually similar to intellectual property practice that doesn’t sit within the traditional scope of it, but you’ve kind of taken those skills and adapted them and broadened your scope of practice by specialising. I think that’s really cool. | |
| 00:05:04 | TS: | Oh, thank you. I tell you how I sort of see how the defence industry sort of works for lawyers, generally speaking. Like, there’s a host of work out there, but it’s all supplemental to what you already do in a way, if it makes sense. So there’s giant projects going on all the time, obviously. And so for a project and infrastructure lawyer, they supplement their practice with defence industry specific legal knowledge. For me, that’s sort of the thing that I’m doing here is I’m trying to supplement my intellectual property practice with something that is also conceptually similar, but also allows me, as you said, to broaden my scope and utilisation by clients. |
| DT: | And a little bit later in the show, we’ll talk about how some of our listeners might be able to get involved in some of that work. Learn a bit more about it as you have. Let’s drill into ITAR now. Broadly, what sort of subject matter does ITAR cover and why is it significant for businesses and other clients that you work with in Australia to know about? | |
| TS: | Right, so ITAR, I guess it’s important to understand just the background for it, right? So it’s a regulatory regime implemented by the United States and part of its wider Arms Export Control Act of 1976. So it’s part of controlling defence technology, right? Created to implement unilateral arms export controls and their technology. So in short, the US government has to permit equipment information being exported to non-US citizens, companies or governments, right? What it broadly covers is three categories defined within the legislation themselves. So the first one is “defense articles” and those are items described in what’s known as the US Munitions list and that’s also part of ITAR. It’s this gigantic document that lists all the items that cannot be exported without authorisation from the US Department of State. And then the next category is “defense services” and that’s – what a defense service is, is it’s furnishing the assistance to foreign persons in the design, development, etc. of a defense article. So you can see the layers in the regulation. And the next part is technical data. So ITAR covers technical data as well which is the classified information relating to those defense articles and defense services. So the US Munitions List, it’s this big broad list comprises about 20 categories of defense articles and their associated defense services and technical data. So these categories cover everything from firearms, which is category one, to ballistic missile technology, to nuclear weapons. And that’s how the United States, I suppose in a way, sets out what it considers to be restricted and prohibited.A simple way to sort of explain these categories in a way is through a defense article, we might consider an M16 assault rifle, it’s a US weapon,okay, that’s the defense article itself. The defence service would be the assistance to develop or design it, for example. And then the classified information, which makes up the technical data, that makes up the design of the rifle, that’s the technical data, if that makes sense. So you have the item, the defense article, you have the defence service, which is helping to develop, design and maintain it, etc. And then you have the classified information underneath it, which is the design of that particular article. So ITAR applies to persons or organisations conducting business with US defence organisations. So if you’re not dealing with the United States and you’re not dealing with the United States military technology, you’re not going to be dealing with ITAR. Very unlikely, right? In essence, US organisations which want to export ITAR controlled defence technology to foreign persons are covered by ITAR, generally speaking, provided it’s on that list. Why it’s significant for Australia and other allies in the United States is because we obviously obtain a large amount of our military technology from the United States, and we have a close collaboration with them in defence,okay? So Australian companies that deal with American defence companies, whatever it might be, aerospace, naval, whatever it might be, are almost certainly going to be dealing with ITAR in some capacity. And this will only increase as AUKUS projects proceed in earnest. | |
| DT: | So to work with an example, suppose Thales in Australia, well-known private enterprise that works with the Australian defence sector, wanted to import, manufacture a version of the M4 rifle, the AUS M4, for example. That would be both a defense article, the object itself, a defence service, the expertise and services involved in developing that variant and then maintaining the design. And there would also be technical data there in terms of, I suppose, the manner of manufacture of the M4, is that right? | |
| 00:09:18 | TS: | Yes, broadly speaking, yes. The easiest way to see it is three categories there. The item is the defense article, the assistance is the service and the information is the technical data. |
| DT: | But I guess all of those layers, whether that’s the goods, the services or the intangibles, they all very closely layer together and overlap in the sense that if you are dealing with one, you’re very likely to be dealing with another, especially in the context of these large projects. | |
| TS: | Absolutely will be. There’s often an overlap, almost certainly. When you buy something, you still need to be able to maintain it, for example. You might need a license to reproduce it or something like that. Right. So there’s always going to be some kind of degree of overlap. | |
| DT: | And are those categories treated differently under ITAR? Do different restrictions apply under ITAR to defense articles, defense services and technical data? | |
| TS: | No, not really. Broadly speaking, it would be a defense article, defence service or technical data. If they’re associated with each other, they just are not able to be exported to foreign persons. So for the purposes of this discussion, no, there’s no real difference. | |
| DT: | Got it. Now, again, as someone who doesn’t know a lot about the Australian defence industry, I’m again thinking of the really well-known players in that industry like Thales, where I could really see ITAR playing a big role in their business, but without naming them, of course, describe some of the clients that you’re working with when it comes to ITAR regulations. Who needs to know about this stuff in Australia and who does it affect? | |
| 00:10:34 | TS: | Well, I mean, any Australian company dealing with a US defence contractor is going to have to some extent understand about ITAR, but where the value lies, I guess, is probably in the smaller companies, I guess, because the massive companies or bigger mid-tier companies, they will have a range of export contract managers, export control managers, and they’ll better understand and unpack the ITAR regulations. But where the value lies, I suppose, as a solicitor is with the SMEs that might be dealing with this kind of thing, because they often don’t have that legal understanding or the resources to really pull it apart and properly understand it’s such a complex regime and how it may apply and the problems that may occur if you breach ITAR, whether by accident or by design. For us, that is where a lot of the value comes. |
| 00:11:15 | DT: | And I suppose not just in those sort of SMEs dealing directly with the defence industry, but even in, I’m thinking of sectors where there has been over the last few years, quite a bit of activity in terms of venture capital and startups in aerospace and even outer space based startups. There’s, I imagine, quite a lot of sort of technological overlap between the technology needed for those businesses to operate and things that might be on the Munitions List. |
| TS: | Yes, that is true. At the end of the day, when you come back to the basic principle, is that if you’re dealing with these kinds of technology, whether it’s technical data, defense services, defense articles under ITAR, you’re going to have to know about it. So as these companies that you’re referring to expand, if they need to deal with a military defence contractor and they’re going to be dealing with defence technology that may become under ITAR, then yes, they certainly need to know about that. And that’s going to become more relevant and pertinent again as AUKUS projects and other collaborations with the United States military start to expand. | |
| DT: | Now, this is a little bit unusual in that you’re an Australian lawyer, you’re practising in Adelaide, but you’re dealing primarily with US legislation. Is there an Australian implementation of ITAR? How does that interact with domestic legislation here? | |
| TS: | Well, when you’re dealing with ITAR as an Australian company, you’re effectively submitting to the jurisdiction in the United States, right? So, say you’re working with a defence contractor and you need to go and get your authorisation from the Department of State and the Director of Defence Trade Controls of the United States. You enter into an agreement, a good example is the technical assistance agreement, and there will be statutory clauses in there whereby you basically consent to the jurisdiction in the United States in respect of that technology that you might be dealing with, effectively submitting to that. | |
| DT: | So that really is quite unusual in that you and your team, you have to be familiar with the US legislation, with the US jurisdiction, and you’re really sort of almost advising as a foreign lawyer. | |
| 00:13:01 | TS: | Not necessarily. At the moment, it’s more about educating people that when they’re about to enter into this agreement, it’s what it’s about, okay?. One of the main issues that Australian companies, particularly smaller companies, have is they just don’t understand what it means. They will see this reference to US arms controls and regulations, so they will be nervous that they’re going to do the wrong thing and they really just need some education so they can approach this process with confidence, if that makes sense. |
| DT: | I get it. I get it. ITAR effectively puts in place this export prohibition. That export prohibition is addressed through a contractual arrangement that defence contractors can put in place. But to understand that defence contractors’ contractual arrangement, to which US law applies, they’re really coming to you for that contract law advice, essentially. | |
| TS: | Effectively, yeah. Basically, the translation of their obligations, yes. | |
| DT: | Well, yeah. And that is a specialised task in itself, given the American contract drafting paradigm, which is very legalese. Whenever I read an American legal document, I’m struck by how much further our profession has come in terms of plain language drafting, although we’ve got a long way to go yet. | |
| TS: | Yeah, I absolutely agree. | |
| DT: | And Travis, a lot of our discussion about ITAR today has been and will be about ITAR in the context of projects that are taking place under the AUKUS agreements. Can you tell us a little bit about AUKUS and those projects that are being pursued under it? | |
| TS: | Okay. So, important to understand exactly what AUKUS is: it’s a trilateral security alliance that was announced in September 2021 between Australia, the United Kingdom and the United States. The purpose of it, intending to anyway, boost defence capabilities between the respective countries, accelerate technological integration between said countries’ defence capabilities, and expanding the defence industrial capacity of all three nations. So this is a very close partnership between three traditionally close allies, Australia, the United Kingdom and the United States. The purpose of AUKUS, the way I understand it anyway, putting on my amateur geopolitical hat, is that it was created due to rapidly changing situations in the Indo-Pacific region, escalating tensions, realignment of geopolitical influence, and also an intention by the US, at least from what I can understand, where they want to be able to pivot their foreign policy more towards the Pacific. As a result, our country appears to be rapidly changing its approach to defence and national security, including procurement and defence capability, based in relation to the AUKUS alliance and the geopolitical changes. One of the examples, for example, is Defence Strategic Review, which was released late April 2023, making recommendations to the restructuring of the Australian defence force. | |
| DT: | And I suppose a well publicised example of some of those procurement changes is probably the, well, I won’t use any political labeling there, but a change in policy or a reversal of a decision to acquire submarines from a French supplier in favour of the AUKUS deal. | |
| 00:15:48 | TS: | Yeah, well, obviously the nuclear submarine project is probably the most famous part of the AUKUS alliance, yes. So before that we were building conventionally powered submarines to replace the Collins-class submarines, which have been in service for a long time now. And with the introduction of the AUKUS alliance, the nuclear submarine project is now being kicked off and the conventional submarine project has been terminated due to much publicity. I won’t go any further into that, obviously. And that submarine project is going to be colossal, is going to be an acquisition of, I believe, about three Virginia-class nuclear submarines from the existing US naval infantry. The possibility to buy two more from America. And then we are going to be building a new pattern of submarines unseen before called the SSN-AUKUS, which will be, as it’s touted, one of the most advanced nuclear submarines in the world, which will integrate Australia and the United States and the United Kingdom technology. It’s based off a UK design, but there will also be, from what I understand anyway, United States technology integrated into it. |
| DT: | No clunkers, I think was how the submarine deal was described. | |
| TS: | Yeah. We won’t go any further than that. | |
| DT: | Yeah, absolutely. Now, are there any specific areas of concern when it comes to ITAR for Australia? You mentioned before AUKUS, there’s been a lot of media coverage around the nuclear submarine project, which is being undertaken in your home state. | |
| 00:17:08 | TS: | Yes. So the nuclear submarine project is going to be colossal for Australia, assuming it goes all the way through and it doesn’t change to some capacity between now and the end, it’s going to be colossal, right? One of the initial stages of the AUKUS nuclear submarine project will be the purchase of Virginia-class nuclear submarines from America, because we need to fill that naval capability gap sooner than later. And they’re going to be, as far as I understand anyway, that we’re going to be purchasing them sometime in the early 2030s and getting at least two, and they’ll be coming over here and Australian contractors are going to need to be able to, well, maintain them, repair them, etc. So there’s going to need to be a transfer of information from United States to Australia. And the thing about getting ITAR authorisation is that it’s bureaucratic at the end of the day, right? Companies need to go and they need to go and get their authorisation. They need to make sure they can deal with it. Once the transfer happens, they can work on it at their heart’s content, provided they don’t go outside the boundaries of what they’re allowed to work on. Some of these delays, for example, could really slow down the process. It could really slow down a contractor being able to work on it efficiently. It also raises concerns about properly understanding their obligations under ITAR. So there’s minimal unnecessary breaches of ITAR. Really it’s about the transferring of technology and restrictions by ITAR being given that it’s a very broad, far ranging, sticky legislation that really delays proper implementation of these projects and success of these projects. If you’ve got a contractor trying to work on the Virginia-class submarines, and they come over or try to learn how to operate them etc. and they need to have that certain clearance. If it takes weeks or months to get its authorisation, as only bureaucracy can, that by itself creates its own issues. The ITAR regime does not really promote an efficient or positive collaboration between countries. It’s by itself a very restrictive regime, if that makes sense. So I guess one of the main issues is being able to ensure that when we’re transferring technology over, it’s not subject to unnecessary bureaucratic delays and bureaucratic controls, but also keep in mind that if you get hold of some technology you’re offering in the United States and you’re working on it and you want to re-transfer it within Australia to someone else who doesn’t have ITAR authorisation, they themselves also need to go and get authorisation as well, right? So there’s a step by step process where everything needs to be kicked off the whole time. The US’s objective obviously is to ensure that everything’s being controlled and it’s not being sold off to countries they don’t consider to be friendly, without authorisation of course, but those steps in the chain really slow things down. |
| DT: | Yeah, absolutely. And that policy objective makes complete sense, right? It’s not a regulation designed to promote efficient collaborative work. When we’re dealing with ballistic missiles and nuclear weapons, we probably want it to be a bit of a slow, bureaucratic, very careful process, but you can see how we’re talking about a 10-year project at least. | |
| TS | And the rest! | |
| DT | Well, yeah, I suppose 10 years is stage one. And as massive public infrastructure projects often do, they often go over budget and over time and I suppose you can see when so many actors, so many players in the Australian economy might be contributing directly or indirectly to this enormous infrastructure project, how ITAR approvals could really contribute to some of those delays if they’re not handled proactively. | |
| 00:20:18 | TS: | Yeah, absolutely. And it’s not just the delays. I mean, delay is only one thing, right? I’m probably mischaracterising a bit here, but it’s also an intimidation factor by companies in Australia, particularly the smaller ones that aren’t quite aware of what this all means. Think about this hypothetical. You’re a company that makes one widget and you make that widget well, right? And you need to work on a project that’s going to consider US defence technology of some description. You’re going to work with a US defence contractor. You might have 50 people. You then realise; “oh, what’s this ITAR thing I need to go and get involved in?”. And you do some curious research because you’re not legally trained, you’re a business person and you’re focused on that, making your widget and installing it and that kind of thing. And you realise; “oh, hang on a second. If I breach this, I could go to jail or I could get fined or I could get blacklisted”. It’s that kind of intimidation factor too, with disincentivised collaboration because not every company has a range of internal lawyers, contract managers, export control managers. It’s that kind of thing as well. It can be a barrier to entry. And that’s where we found is that it’s intimidation, I guess, or uncertainty on these kinds of export control regimes. |
| DT: | Yeah. A barrier to competition as well in a way in that we often talk about the misnomer around military grade. Military grade is the cheapest possible supplier that fits the specification, right? So I suppose the large incumbents who, as you say, have export managers, they’re well-equipped to handle ITAR compliance. They’re likely to be the ones submitting tenders for these sorts of procurement processes to be involved in projects like this. But with better knowledge of those ITAR regulations, with a little less intimidation coming from looking at those risks that might come with not complying with it, you do get those smaller, more dynamic, maybe best in class, if not very broad in their offering sorts of contractors who could contribute and contribute something really valuable to a project like that. | |
| TS: | One hundred percent. One aspect too that’s problematic is the definition of export and how easy it is for someone who’s not quite across the legislation and how easy it is to unintentionally breach it. Export under the ITAR is not just chucking in a box and sending it overseas. It can constitute a conversation on the phone, okay? So let’s say you’re a US defence contractor, I’m an Australian defence contractor, we’ve got all ITAR authorisation for certain objects, right, whatever that might be. We ring each other and we’re talking through a project and then you start talking to me about items that you haven’t been authorised under ITAR to discuss. That’s technically an export to a foreign person without authorisation. | |
| DT: | Wow. | |
| TS: | Right? So what I’ve found just through my research is that a lot of the common unintentional breaches are simply through an employee, an engineer, shooting off an email without thinking it through or they’re not aware that they’re doing the wrong thing. And these unintentional breaches, you then enter this situation where you could be voluntarily disclosing to the US that you’ve breached it by accident and then you go through the whole process of; is it intentional? Is it bad? What do we have to do to fix it? And that by itself is a problem, right? Because if you just think that export is chucking it in a box and sending it overseas or whatever the case may be, you might very well accidentally breach ITAR without even meaning to. And then all of a sudden your organisation is going to have to fix it and remedy it with the United States. That makes sense, right? | |
| DT: | That’s such a good point. I didn’t really even think of that. It reminds me a bit in another domain of the very broad definition of insider trading in Australia. You’ve got that price sensitive information. Often we think that’s getting a tip off from someone who works inside a public company that something’s about to happen, but that can be overhearing something on the train or it doesn’t have to be your typical mental model of what the regulation actually covers. In the same way, ITAR covering a phone conversation about the technical data or about the service that you wouldn’t think is formal enough or commercial enough to fall within your mental model of export could really get you into trouble. | |
| 00:24:16 | TS: | Absolutely. So export under ITAR includes obviously actual shipments out of the United States, for example, but it also can include things like just releasing technical data and that can be by email of course, or it can be by text message, something like that. It can mean transferring the registration of an aircraft or a vessel or something like that. It can be anything basically where information is being conveyed out of the United States to a foreign person. And it’s designed to be broad. It’s designed to be broad because the United States wants to capture as much as it can. And that’s completely understandable from a foreign policy perspective. But one of the things that I believe anyway is that a lot of Australian defence contractors who have to deal with the United States defence contractors in some capacity, they’re not educated on this, right? They have to find out by other means. They find out by conferring with a US defence contractor. They might go and get a lawyer. They might do their own research, that kind of thing. There needs to be, in my view anyway, more education on what this will mean as we go forward into AUKUS because the projects will be colossal. The nuclear submarine’s only one aspect of it. There’s another pillar to AUKUS that doesn’t get anywhere near as much coverage. That’s pillar two, I believe it’s called. And they’re concerned to collaborate between the United States and Australia in relation to things like future technologies; AI, quantum computing, hypersonic technology and counter hypersonic technology. That is also going to be a massive transfer of information and technology between the two countries. And when you think about how complex these technologies are – not that I’m a technology expert, obviously – but when you think about how complex these technologies are, the potential for a company to unwittingly breach regulations is huge, right? And so I think one of the things we need to do as a country, generally speaking, is better educate companies and our industry and people involved in it on what ITAR is. Assuming it doesn’t get reformed, of course. |
| DT: | Yeah, you’re right. I suppose when I think of those AUKUS projects, I do think of the submarines. I suppose a lot of people do. There’s been a lot of coverage. But when you talk about some of that military advances in AI, quantum computing being shared under that agreement, you know, there’s a real tension there because I suppose a lot of the people who might conceivably be working on some of those projects within Australia and for that matter within the US are coming from a background where sharing information, collaborating on projects, open source is the culture, especially in AI. A lot of advances are released to the community, even if not release of model weights and the under the hood data, there’s a lot of release of learning about the process to get there. So I suppose there is a lot of learning to do there, especially for some people who might be at a quite indirect level participating in some of these projects around what can be shared and what can be considered a breach of those rules. | |
| 00:27:05 | TS: | One hundred percent. So if you look at pillar two, one of those aspects there, for example, as I said, is quantum computing technologies. You’re dealing with source code, you’re dealing with algorithms and they’d be incredibly complex. Again, not that I’m a software engineer, but I could just only speculate, incredibly complex, a lot of potential there for something to go wrong with someone to accidentally hear something they’re not thinking about, that’s outside of what they’re authorised to deal with or not authorised to deal with. The potential there as these technologies start to become mature and they start to be transferred back and forth in the United States and Australia is huge. |
| DT: | And I suppose the challenge there is also that because we’ve never really had projects of this size and scope before, for a lot of the contractors involved, they’ll be dealing with ITAR for the first time in the sense that it’s not a single incumbent Australian defence contractor who’ll be working on this. There’ll be a broader economy impact. There’ll be broader participation from more actors in the economy who will be dealing with these regulations for the first time. | |
| TS: | Yeah. As any industry, again, I’m not an economist, but any industry that expands, more and more players come in, right? And to be blunt, there’s a lot of money that’s in defence, right? And a lot of companies want to get a piece of the pie, alright? And they’re going to want to be more involved in this as the projects proceed. So you’re going to see companies that are traditionally on civil works are going to try and get into the defence sector. And when that starts to work on, maybe US technology, whether it be the submarines or something else, you’re right. You’re going to see a broader spectrum of society or broader spectrum of industry being exposed to these regulations and they need education on it in order to be compliant with it. | |
| 00:28:30 | DT: | And just on this education piece again, where do you think that education is going to come from? Are there many ITAR lawyers like yourself? Is that an area that we as a profession will need to upskill on to advise these sorts of infrastructure providers? I’m thinking of people like maybe construction lawyers, for example, or infrastructure project lawyers who are traditionally working with government. |
| TS: | Yeah. I think lawyers certainly have a part to play because they interpret legislation regulations everyday, right? That’s our job. And ITAR at the end of the day is just another regulation. Once you work through it and you start reading it, you realise it’s just another regulation you’re able to comply with. Yeah, it’s very complex. But it also can be education from the training from the government. There’s nothing stopping government putting on training sessions and education. There’s nothing stopping industry bodies doing the same kind of thing. So I think it’s not just lawyers. Lawyers obviously should be involved where they can in terms of if they’re working on these kinds of projects or they get asked to help out with these kinds of deals. But at the same time, I think the government – without trying to proselytise too much – the government should be stepping up as these programs start to mature a bit more and provide as many training opportunities as they can, whether it be through industry bodies or directly through the government. | |
| DT: | Now, ITAR of course applies to exports to foreign persons. What is a foreign person? Because I imagine it can sometimes apply in ways that seem counterintuitive. | |
| 00:29:43 | TS: | Yeah, well, exactly. So under ITAR, a foreign person is defined, and I’m broadly speaking, as any person who is not a lawful permanent resident of the United States. That includes foreign corporations, business associations, international organisations, individuals, diplomatic missions and consulates. It also includes dual and third country nationals, right? So any release out of the United States to a foreign person of ITAR controlled material is deemed to be an export to all the countries to which the person has held or holds citizenship or holds a permanent residency. So if you think about a country as multicultural as Australia, and many people do have a dual citizenship or they’re a recent migrant, that raises a whole host of issues or can raise a whole host of issues. So the thing about ITAR is it expects a certain level of discrimination against employees, which can be counterintuitive to Australian equal opportunity and anti-discrimination employment law. I’m not an employment lawyer, so I’m not going to go into the details of that, but you can get exemptions under those acts or ITAR to be able to handle that situation there in case you are not able to work on it because you’re a dual citizen for whatever reason. |
| DT: | Because otherwise that might constitute discrimination on the grounds of nationality. | |
| TS: | Yeah, effectively yeah. TIP: By way of example of a profession which is impacted by this, according to Engineers Australia, over half of Australia’s engineering workforce is made up of individuals born overseas, and each year, about two-thirds of engineers joining the industry come from outside the country. A number of defence contractors, including six located in South Australia where those submarines are set to be built, have been granted exemptions from Australia’s anti-discrimination laws. The exemption allows them to reject potential employees based on their nationality and country of birth in order to comply with this rule around exportation and foreign persons under ITAR. Additionally, Australian personnel involved in the subs projects will be required to obtain security clearances for their participation. | |
| DT: | What happens when the foreign person is a citizen of the United States and of another country, and they’re ordinarily resident in that other country? | |
| TS: | Well, it still constitutes an export. Because an export to someone with a dual citizenship, it constitutes an export to both those countries. So if you’re a citizen of the United States and you say you’ve got permanent residency in Australia, or wherever it might be, it’s still an export technically to that country as well. | |
| DT: | Well, I suppose a lot of people, especially US corporations that might have Australian subsidiaries, might be operated, those Australian subsidiaries by American citizens who’ve been living in Australia for a long time, might be caught out by that. | |
| 00:32:24 | TS: | Exactly. Exactly. And that’s something to consider for companies in Australia. If you’ve got citizens with dual citizenship, you need to consider that there’s technically an export to both countries. And if you need to get an exemption or the like under ITAR, under equal opportunity legislation, then you need to take legal advice on that from dedicated employment lawyers. So you don’t accidentally fall foul of either legislation. |
| DT: | Now, we were talking before the show about how difficult it is to talk through sort of examples in practice of this regulation, because if you’ve dealt with them, you probably cannot talk about them at all. We’ve just spent 15 minutes talking about how much you can’t talk about them. But one that I think we could talk about – assuming you haven’t advised on this one, Travis – is the proposed transfer of Australia’s F/A-18 Hornets to Ukraine as part of the support for the Ukrainian military in its war against Russia. Now, those F/A-18 Hornets are Australian-owned, I suppose. They were acquired by Australia from the United States, but they are United States military technology that’s now being transferred to a non-US government. So how would that work from an ITAR perspective? | |
| TS: | Again, it would go back to basics. You have a company in Australia that would have to seek authorisation from the United States Directorate of Defense Trade Controls and the Department of State in order to be transferred to a foreign person, in this case Ukraine. That is the process and that authorisation will have to go through the general process effectively. If the United States don’t just flat out authorise it through legislation and regulations, I imagine there might be someone out there that would allow this to occur without needing to go through all that kind of administrative process. But again, at the same time, with that kind of technology, it’s often subject to other geopolitical aspects as well beyond ITAR. It’s also the fact that it might be vetoed just basically because it’s not part of the unified defence strategy for Ukraine as well. Not wanting to escalate. That’s my understanding, is why those fighter jets haven’t been transferred to Ukraine is because we’re concerned about escalation with Russia. | |
| DT: | Got it. So theoretically, there’s a way that this could take place through ITAR. But as you said, at the top of the episode, really, ITAR has a primarily geopolitical objective and there are a whole range of other geopolitical instruments at play. There are policies, there are regulations, there’s legislation specific to the war in the Ukraine that might adjust the way those F/A-18 Hornets are dealt with and indeed, that might prevent that from an escalation perspective. | |
| TS: | Yes. That’s how I understand it to be. Yes. One thing about the F/A-18s that have been retired is that the US defence company that actually, from what I understand, has the right to dispose of those planes on behalf of the RAAF, okay? So that by itself, they would probably have to go through an ITAR process wherever it would be in Ukraine, they’re transferring it to, along with any relevant Australians here. | |
| DT: | Yeah, absolutely. TIP: The retired F/A-18s are sitting in a hangar somewhere outside Newcastle and are meant to be scrapped or sold to a private US aviation company to be used as “enemies” for aviation training. As of this episode being released, no deal has been struck but according to The Australian Financial Review, the US is positively inclined to grant Australia permission to give Ukraine the F/A-18s. Now, we’ve been talking about all the ways that you can breach ITAR. And you touched on a couple of the ways that you might be sanctioned for breaching ITAR, blacklisted, imprisoned. What are some of the consequences of a breach of ITAR? Especially, I suppose, for someone who’s an Australian citizen or an Australian business? | |
| 00:35:52 | TS: | Yes. So some of the common breaches of ITAR, generally speaking, are accidental disclosure, such as an email or telephone conversation you shouldn’t be having where you just talk about something that you probably shouldn’t be doing. An intentional flagrant violation where you’re absolutely intending to breach ITAR and you’re trying to be your own James Bond-esque arms dealer. Or just, again, this is more of an accident, I suppose, omitting required information from the authorisation or agreement whether accidentally or by design, right? So once that happens, if you detect a breach, there are provisions under ITAR which require you to self-report the breach within 60 days. And that can be considered by the relevant body as a mitigation factor if you do so. So you detect it straight away, you get on the phone, or on the email, I guess, and say, “look, we’ve done the wrong thing by accident. We’re letting you know.” Likewise, if you don’t disclose it and they find out, that can be considered an adverse factor as to whether you get any penalties, okay? So ITAR does encourage voluntary disclosure, okay? But if you do stuff it up and you stuff it up big, let’s make some hypothetical up where you’ve absolutely sent some terrible piece of technology off to someone that’s not friendly to the United States and they take it badly, there’s a variety of penalties that can happen. So in the case of civil violations, that can be up to $1 million US per violation. And similar to the criminal violations, but also if you’ve been found to be criminally violated at ITAR, that can be up to 20 years of imprisonment in a federal US prison. Yes. So there’s also strategies employed by the United States to mitigate these or manage these; blacklisting from export privileges. So if your company’s primarily got business involved in the United States and you get blacklisted, that’s terrible. That’s problematic, isn’t it? There can also be requirements for a mandatory export process reform because a lot of the time, and what I understand anyway, is that businesses, when they make these accidental disclosures, because they haven’t properly educated all staff or the staff just made an accident and these things happen. It’s entirely honest. It’s just we’re human beings, we make mistakes, okay? And there may be a requirement that you review your processes and reform that. But again, people don’t often focus on those things. They focus on the gigantic fines or potential imprisonment, right? Which is where it comes back to companies being or individuals being intimidated by this regulation. |
| DT: | Yeah. I suppose the subject matter of the regulation really lends itself to focusing on those things like decades in a US federal prison, which for a small Australian business is probably going to loom large in your mind. But the more likely sanction there is something that you’re far more likely to see from an Australian regulator like the ACCC or ASIC, which is education on how to comply better in the future. | |
| TS: | One hundred percent. Absolutely. If it’s just an innocuous disclosure by accident, I can’t see you being chucked in prison for 20 years. That’s why it’s important for businesses to have proper processes in place to monitor and act on voluntary or accidental breaches of the ITAR. | |
| DT: | Yeah. Because that voluntary disclosure where something inadvertent has happened can make a big difference in terms of what the response is. | |
| 00:38:38 | TS: | Yeah, absolutely. So if you voluntarily disclose to the United States that you’ve done the wrong thing and you act on it promptly and you’re very cooperative, I can’t see why that’s going to be the biggest issue. I mean, it’s case by case, obviously, I get that. I’m trying to speak very broadly here. But if you sit on it and you hide it, it blows up the same as any problem, isn’t it? |
| DT: | Well, that’s right. Yeah. And so often it’s the cover up, not the initial breach that is the bigger problem. | |
| TS: | Absolutely. Absolutely. So having these processes in place which allow you to monitor these breaches and act on them promptly is very important for any organisation. And that’s where smaller companies might get stuck. | |
| DT: | Now, right at the top of the episode, you said that this is an area of the law that as these AUKUS projects ramp up over the next several decades, there’s going to be a lot of work for Australian lawyers to do in advising contractors and not just on ITAR, but on defence industry matters more generally. Let’s talk for a bit about how our listeners might be able to get involved in defence industry work, learn a bit more about how to advise Australian companies, businesses on their work with the defence industry. Because I’ve noticed even from our own show, we’ve recently had defence lawyers, aerospace lawyers, space lawyers on the show. So there’s absolutely, at least from my own anecdotal experience an increased interest in this as an area of law. How did you start learning about this area? | |
| 00:40:04 | TS: | It was purely interest. I decided that I wanted to learn more about the defence industry generally because I’ve got an interest obviously in military and the defence and technology and jets. I mean, my dad was in the RAAF, right, when I was very young. So for me, that was just a natural extension of where I want to take my practice eventually in some capacity, whether it be a minor amount or a large amount. And so I just started reading about it and trying to get involved, turning up to networking events in the industry, reading articles about it and deciding on what particular areas I really want to invest some time into developing knowledge. And ITAR was one of them, again, it was just the way I became aware of it was about reading it one day. My supervising partner was involved with the Defence Teaming Centre for a number of years. I raised this potential issue, which is ITAR, about it, did he know anything about it? And he said, “yeah, look, that’s an interesting area. By all means, get involved, learn about it, promote yourself there and try and get some work on it. Happy for you to do so.” So it really is about first and foremost just enthusiasm, okay? And it’s interest. Dedicate yourself to developing knowledge. The other part in my view is that lawyers look to supplement their practice if they can with defence industry specific areas. So if you’re an IP lawyer, right, ITAR got to make sense in a way or defence export controls make sense in a way, because it’s about protecting information about the industry and technology, which is, as I said at the start, conceptually what IP lawyers do. If you’re a projects and infrastructure lawyer, and if you want to work in defence contracts, getting to grips with something like the Australian Defence Contracting suite of templates, which is what the Department of Defence use, is an excellent way too. Having familiarity with the ASDEFCON suite is a good way to do so. And that is a very specialised template for the contracts, which are used by the Department of Defence directly with contractors, right? And there’s a range of different contracts, there’s a range of different terms, depending on acquisition the Department of Defence wants to make. That’s an excellent way for you to learn to upskill if you’re involved in that aspect. If you’re a litigator, you’ve already got a broad practice anyway, so there’s nothing stopping you learning more about the industry itself, so that when companies may come to you for a dispute resolution advice, you can provide industry specific recommendations to it. So for me, if you’re a junior lawyer and you want to get involved, think about how you can supplement what you’re already in with something in the defence industry and start getting out of there meeting people, start reading, start writing, start researching and start promoting yourself. That is how you develop any practice really, and it’s no different with the defence industry. |
| DT: | But I think what you’re saying, and I think this is a great tip, not just for defence industry work, but really for carving out a niche or growing a practice in any area, is that you don’t have to find that specialisation within what you’re doing now. You can find that analogous area that’s close to what you’re doing, whether for you that’s ITAR as a conceptually similar area of practice to intellectual property. You might find that there’s defence industry work around projects that’s conceptually similar to the work that you’re doing in construction or that you’re doing in mergers and acquisitions, finding something that has that transferable skill set, even though it’s not within the area of practice that you’re working in right now. | |
| 00:43:05 | TS: | Yeah, one hundred percent And you always feel more comfortable learning about something that you’ve already got that conceptual background behind you anyway, right? Because you understand the general principles. I think that’s a good point. And for me, ITAR was one of those areas. I’ve got colleagues and friends who are quite proficient with the ASDEFCON contract suite because; one, they’ve done it through some work in the past somewhere, but also just generally because, well, at the end of the day, it’s still a contract. It’s just defence specific. So they understand those general principles and they get into and they learn specifically where it works and where it doesn’t. So I mean, some lawyers become experts in defence procurement, because defence procurement is its own area in a way, I mean, it’s quite complex, obviously due to sensitivities and the changing requirements of the government of the time. |
| DT: | Yeah. Well, I suppose that is true really in any sort of government work in that there is a whole range of regulatory policy-based rulemaking that might apply in that particular industry. I know Commonwealth procurement policies, they often don’t have the force of law, but they are a rule binding on that department. And as a consequence, if you’re advising companies that want to provide goods or services to the Commonwealth government, you really need to know those policies very, very well. | |
| TS: | Absolutely. One hundred percent. And it’s part of your just obligation as a lawyer to continually learn, continually educate yourself about what’s most relevant for your client. | |
| DT: | Are there organisations where you can learn more about the defence industry and how it might apply to law, or is it a matter of sort of doing your own private reading? | |
| 00:44:28 | TS: | Well, one, you can do your own individual research, of course, but you try and get involved where you can in defence industry member organisations. I’m part of the Defence Teaming Centre. We’re an advocacy body, right? The goal of the Defence Teaming Centre is to provide education, network, develop and advocate, right? What you find is that if you attend some of the networking events put on by defence industry organisations or companies or the like, you’ll often meet people. And the things that you will learn from speaking with people that are directly involved in the industry in a commercial fashion as a young lawyer are immense. I know that just from speaking with people in the industry, just from trying to get out there and meet people, what I’ve learned has been astronomical because there’s always things in an area of law that you don’t learn through the law, you learn only through the commercial practice, right? And that’s not just defence. It can be anything. And so getting out there and meeting people, whether it be in a defence industry, advocacy body networking event, whether it be just meeting people through defence companies and just going for a coffee with them, that kind of thing. That I find is one of the best ways to learn. |
| DT: | Yeah. I suppose that’s often a form of learning that we discount really, isn’t it? That network-based learning, I suppose, learning from the professionals in your network, learning from people who have trodden that path before you. | |
| TS: | Absolutely. Well, that’s how you learn law generally speaking is a person more experienced than you passing their knowledge down to you through practice and experience. | |
| DT: | That’s true. It is sort of an apprenticeship-based model in a way. We kid ourselves that there’s this highly academic training that we do first, but while we do it, it’s often not what we’re using in practice. | |
| TS: | Yeah, no. Absolutely agree. | |
| DT: | Now, Travis, we’ve covered a lot of ground today, both about ITAR, about Australia’s growing defence industry and all the opportunities for Australian businesses and Australian lawyers to work in that defence industry over the next several decades, really, as those AUKUS projects continue. We’ve talked a little bit about how young professionals, young lawyers can get involved in some of that. But if there was one thing you wanted those young lawyers and our student listeners to take away from this episode, what would that be? | |
| 00:46:23 | TS: | Follow your interest and don’t be afraid to step outside of your comfort zone to learn. For me, that was how I started. I had a general interest in the defence, in military, et cetera, and I have been trying since that time to upskill as much as I can, get involved in the work, promote myself and meet people that I think I can learn as much as I can from, whether it be lawyers who are already involved in the industry who have been great mentors or people directly in the industry in a commercial fashion and take from that and build a practice from it and supplement what I’m doing already. A junior lawyer, if they’ve got an interest in something, it might be they’ve got an interest in defence procurement, whatever it might be, start reading, start asking questions, start making connections, start turning up to events where you can. And before you know it, you will be heavily involved in it because there is so much work out there. There’ll be even more work out there as these big projects start to build up, hopefully. And those of us who are enthusiastic about any area, whether it be defence or something else, those who put the work in and those who have the genuine passion to do the right thing and learn about it are going to come off gold. |
| DT: | Great tip. Travis, thanks so much for joining me today on Hearsay. | |
| TS: | Thank you so much. | |
| 00:47:35 | RD: | As always, you’ve been listening to Hearsay the Legal Podcast. I’d like to thank today’s guest, Travis Shueard, for being a part of it. As you well know, if you’re an Australian legal practitioner, you can claim one Continuing Professional Development point for listening to this episode. Whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest this episode entitles you to claim a substantive law unit. More information on claiming and tracking your points on Hearsay can be found on our website. Hearsay the Legal Podcast is, as always, brought to you by Lext Australia, a legal innovation company that makes the law easier to access and easier to practice, and that includes your CPD. Hearsay is recorded on the lands of the Gadigal People of the Eora nation and we would like to pay our respects to elders past and present. Thanks for listening and see you all on the next episode of Hearsay! |
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