On 30 November 2023, the Defence Trade Controls Amendment Bill 2023 (Bill) was introduced into the Australian federal parliament, proposing amendments to the Defence Trade Control Act 2012 (Cth) (DTC Act). The Bill has been sent to a Parliamentary Committee for review with the Committee’s report due in April 2024.
Some proposed changes 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. However, the Bill will also introduce three new offences, which would require businesses that handle Defence and Strategic Goods List (DSGL) subject matter within and from Australia to implement enhanced compliance mechanisms.
Three new offences
The Bill will amend the DTC Act through the insertion of three new criminal offences for engaging in the following conduct without a permit, unless an exception applies:
- Deemed Export Offence: Supplying technology listed on the DSGL to a foreign person within Australia. A supply by an entity of DSGL technology to its “foreign person” officer or employee is capable of being a supply within the scope of this offence.
- Re-Supply Offence: Supplying goods or technology listed on the DSGL from a place outside Australia to (i) a foreign person or (ii) a foreign country, where such DSGL goods or DSGL technology requiring a permit were previously exported or supplied from Australia to a place outside Australia. As with the Deemed Export Offence, a re-supply by an entity to its “foreign person” officer or employee is capable of falling within the scope of the Re-Supply Offence.
- Services Offence: Supplying certain services in relation to munitions goods or technology listed in Part 1 of the DSGL to foreign persons. This offence may constrain the ability of companies to utilise subject matter experts from Australia.
Under the Bill, the maximum penalty that can apply for a contravention of each of the new offences is 10 years’ imprisonment and / or 2,500 penalty units for an individual (AUD 782,500 at the current penalty unit rate), or 12,500 penalty units for a body corporate (AUD 3,912,500 at the current rate).
Exceptions
A number of exceptions apply to the new permit requirements, including exceptions for:
- supplies covered by the “AUKUS exception” (broadly meaning supplies between Australian persons, UK and US citizens and permanent residents, body corporates and governments that meet the relevant supply rules);
- supplies by an entity to its officer or employee who is a citizen or permanent resident of a country specified in the Foreign Country List, and, in the case of the Re-supply Offence, supplies by an entity to its officer or employee if they are an Australian citizen or permanent resident;
- supplies made in compliance with the terms of the Australia-United States Defense Trade Cooperation Treaty;
- supplies to a person who holds a relevant security clearance; and
- with respect to the Services Offence only, limited specific assistance by way of performing maintenance, or providing training to perform maintenance, in relation to a lawfully authorised supply of DSGL goods or technology.
There is scope for further exceptions to any of the new offences to be prescribed by regulation.
Practical considerations
The new offence provisions would require businesses to have due diligence screening for supplies within Australia (as well as expanding existing practices for screening for overseas counter-parties and supply arrangements). For example, businesses will need to be aware of when they would be making DSGL subject matter or services available to “foreign persons” within Australia. The compliance burden is likely to increase even where an exception applies, including with respect to record-keeping and screening subject-matter, employees and officers, projects, and transactions.
Next steps
The Bill raises significant complexity, as well as a variety of practical and interpretation challenges. There has so far been only a very short industry consultation on an earlier draft of the Bill, which it has now been referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report. The Committee is accepting submissions until 1 February 2024, and is expected to report by 30 April 2024. The page for the Bill on the Defence website states that the Australian Government will consult with stakeholders on additional exceptions to be included in the Defence Trade Controls Regulation 2013 (Cth) and the DSGL from December 2023 to early 2024.
