In January this year, we reported on substantial proposed changes to the Defence Trade Control Act 2012 (“DTC Act”) that would require businesses handling Defence and Strategic Goods List (“DSGL”) subject matter within and from Australia to implement enhanced compliance mechanisms. On 27 March 2024, the Australian federal parliament implemented these proposed changes by passing the Defence Trade Controls Amendment Act 2024 (“Amendment Act”). The bulk of the changes to the DTC Act will commence no later than 8 October 2024, although could commence any time prior to then if declared by proclamation.  

Some of the amendments will implement Australia’s commitments under the AUKUS agreement, by removing the need to obtain a permit for supply of most controlled items from Australia to the UK and US to facilitate technology transfer between AUKUS partners. More significantly, however, the Amendment Act will insert three new criminal offences into the DTC Act for engaging in certain conduct without a permit, unless an exception applies. Detail on the new offences (the “Deemed Export Offence”, the “Re-Supply Offence” and the “Services Offence”) is set out in our earlier post. The offences will take effect a further 6 months after the key changes in the Amendment Act commence, i.e., by 8 April 2025 at the latest.  

Changes from the first reading of the bill

The Amendment Act as passed still contains the same new offences as the bill (which was the subject of our initial reporting). However, following consultation with industry and other stakeholders, a number of amendments were made to the bill before it was passed by Parliament. While the changes are responsive to concerns raised with the initial bill, they add complexity for businesses in assessing whether particular activity is regulated and needs a permit as well as being able to assess and demonstrate that particular activity is not regulated. The most notable changes are as follows:

  1. Fundamental research exemption: The Amendment Act contains an exemption from the new offences (as well as the existing offence of supplying DSGL technology from within Australia to another person outside Australia without a permit), for “fundamental research”, i.e., basic or applied research conducted in circumstances where the results of the research (i) are intended for public disclosure and (ii) are not subject to any restrictions on disclosure for purposes connected with the security or defence of Australia or any foreign country.
  1. Specific controls for Australian Military Sales Program items: A new mechanism has been introduced to allow different regulatory controls to be placed on transfers of DSGL goods and technology that are sold or gifted through the Australian Military Sales Program (“AMSP”). For example, where DSGL goods or technology that have been designated as ASMP items are supplied under an agreement between Australia and a foreign country, such supply will be exempted from the permit requirements under the DTC Act. Some exceptions to the offences are also restricted from applying to AMSP items. The purpose of this mechanism is to allow different treatment of Australia’s sovereign DSGL goods and technologies.
  1. Exemption for supplies of DSGL technology to Foreign Country List countries: A supply of DSGL technology (but not DSGL goods) will be exempted from the permit requirements if the supply is to any foreign person from a country on the Foreign Country List, so long as the supply occurs within Australia.
  1. Carve-out for DSGL services provided to Five Eyes countries: The carve-out in the original bill for DSGL services provided to Australia’s AUKUS partners has been expanded to also apply to Canada and New Zealand, provided that the relevant DSGL services are received at a place in one of the Five Eyes countries.
  1. Limits on scope of the “Re-Supply Offence”: The scope of the new Re-Supply Offence has been narrowed, such that it will now apply to (i) munitions list items (Part 1 of the DSGL), and (ii) dual-use goods and technologies that are on the Sensitive List and Very Sensitive List in Part 2 of the DSGL (in contrast to the original drafting of the offence which saw it apply to the entire dual-use list).
  1. Additional exceptions to the new offences: A number of new exceptions to the three new offences have been added, notably:
    • An exception to the new Deemed Export Offence for DSGL technology supplied to a person who is producing (or is to produce) one or more components of DSGL goods, where the supply is made in connection with the production of the components. The purpose of this exception is to enable “build-to-print” manufacturing of components of DSGL goods.
    • A number of new exceptions to the Re-Supply Offence, including an exception for circumstances where relevant DSGL goods or technology are returning to Australia or transferring back to the original manufacturer. Different exceptions will be relevant to different business types and operations.

      There will also be a number of grandfathering mechanisms in place, for example to protect the provision of certain DSGL services in connection with a lawful supply of DSGL goods or technology that occurred before the commencement of the new Services Offence, where the services are provided “under a contract, agreement or arrangement” entered into before the commencement of the new offence provision. This is one example of a provision in the Amendment Act that may require further guidance (e.g., with respect to what can be treated as within the scope of an existing agreement).
  1. Changes to criteria for Foreign Country List: The criteria for the Foreign Country List will be amended to allow countries that are not members of the four multilateral regimes to be added to the list, where such additions are in the interests of Australia’s national security, economic prosperity or international relations. This change would (for example) enable Australia to add a close trading partner who is not a member of the relevant regimes (like Singapore) to be added to the Foreign Country List, which is relevant to the applicability of the new permit requirements.
  1. Additional record-keeping requirements: The Amendment Act as passed will also introduce a range of additional record-keeping requirements relating to transfers of DSGL goods and technology and the provision of DSGL services, even where an offence would not apply (for example, due to an exception being available). This requirement goes hand in hand with the fact that when seeking to rely on an exception to the permit requirements, suppliers and service providers will bear the evidential burden of demonstrating that such exception is available. In practice, this means that even where a business handling DSGL subject matter is not required to obtain a permit to do so, the changes to the DTC Act will nonetheless impose enhanced administrative and compliance burdens.

Key takeaways

The new offence provisions and the accompanying exceptions in the Amendment Act are complex.  It will be critical for businesses that handle DSGL subject matter within and from Australia to carefully work through how the new changes will apply to them, and consider what heightened record keeping and due diligence screening mechanisms will be required in order to ensure compliance. Businesses should also monitor for when the amendments and, in particular, the new offences take effect.