Multiple agencies dealing with lifted Vietnam arms embargo underscores complex compliance

By: Anna Sayre, reporter 
Date: June 2, 2016

Trade between the US and Vietnam has grown exponentially within the last two decades. US exports to Vietnam increased by 23 percent in 2015 alone, and Vietnam is now the biggest Southeast Asian exporter of goods to the US. Effective May 23, 2016, the US government lifted its historical 50-year arms embargo against Vietnam, further opening the door to increased trade between the two countries. With relations continuing to improve, the importance of becoming more familiar with the nuances of relevant US sanctions regulations and how they relate to trade dealings with Vietnam has been underscored.

In trying to cope with US export regulations to Vietnam, exporters and compliance professionals now face a myriad of agencies, laws, and regulations. With growing trade between the US and Vietnam, it is important for compliance professionals to understand which US agencies currently administer sanctions policy relating to Vietnam as well as how financial and non-financial institutions can seek to be fully compliant.

Which US agency administers trade with Vietnam?

There are a number of agencies and regulators who administer and regulate trade dealings with Vietnam, each with their own set of laws and regulations. Which regulations are specifically applicable will depend on the kinds of goods and/or services that are being exported, namely whether they are classified as defense articles, , or “dual use” items and technology that can have both civil and military uses.

Defense Articles and Services – the ITAR and US Munitions List

The US State Department’s Directorate of Defense Trade Controls (DDTC) is the US agency that monitors and regulates defense trade activities and administers the International Traffic in Arms Regulations (ITAR), which regulates defense articles (including hardware items, software and technology) and services for use in a military setting, including certain space related items and technology. The enabling legislation for the ITAR is the Arms Export Control Act, which, thus, also governs US trade in military items. Included in the ITAR is the US Munitions List, a comprehensive list of all defense articles and services subject to the ITAR and control by DDTC. For the full list, click here.

Section §126.1(l) of the ITAR states, “It is the policy of the United States to deny licenses or other approvals for exports or imports of defense articles and defense services destined for or originating in Vietnam”. However, in a recent Industry Notice, DDTC says that, “effective immediately, the Department of State’s policy prohibiting the sale or transfer of lethal weapons to Vietnam, including restrictions on exports to and imports from Vietnam for arms and related materiel, has been terminated. Consequently, in accordance with the Arms Export Control Act, the Directorate of Defense Trade Controls (DDTC) will review on case-by-case basis applications for licenses to export or temporarily import defense articles and defense services to or from Vietnam under the International Traffic in Arms Regulations (ITAR). DDTC will soon publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.” Thus, although the regulatory change has yet to be made, the arms embargo was terminated and DDTC will now review requests for authorization for USML exports to Vietnam.

Commercial Items and “Dual-Use” – The EAR and CCL

In contrast with DDTC, the Department of Commerce’s Bureau of Industry and Security (BIS) administers and enforces a separate export control regime for so-called “dual-use” items software and technology, and for certain less sensitive military items. BIS’s regulations are known as the Export Administration Regulations (EAR). The EAR primarily regulates items designed for commercial purposes, such as computers or software, including hardware, software, and technology, but that could also have potential military applications.

It should be noted, however, that the countries listed as subject to US arms embargoes in the EAR are drawn from Section 126.1 of the ITAR. Therefore, any change to ITAR implemented by DDTC in relation to Vietnam will also have the effect of removing Vietnam from the list of US arms embargoed countries contained in the EAR. BIS recently stated that it, too, will issue a new rule to reflect the new US policy vis-à-vis Vietnam.

Similarly to that of DDTC, BIS also has a list of items that are regulated called the Commercial Control List (CCL). The full CCL can be found by clicking here. Note that BIS also regulates civil items not identified on the CCL, so-called “EAR99” items.

How to comply –DDTC

If articles or services are found on the USML, a manufacturer or exporter must register with DDTC and obtain authorization for export from DDTC, through either a license or license exemption, in order to be compliant with the ITAR. As noted in the above-excerpted industry notice on Vietnam, DDTC will now review applications for licenses to export to or from Vietnam on a case-by-case basis. It is the responsibility of the manufacturer or exporter to take the necessary steps to certify that they have complied with the relevant regulations. Further information in relation to compliance with the ITAR can be found here.

Currently, civil fines for non-compliance with ITAR can be as high as $500,000 and criminal violations can carry jail time of up to 10 years per violation, whereas civil fines for non-compliance with EAR can reach $250,000 and criminal violations can carry prison time of up to 20 years per violation.

What about OFAC?

The US Treasury Department’s Office of Foreign Assets Control (OFAC) does not administer sanctions on Vietnam. Though OFAC does enforce sanctions compliance, and did in fact administer sanctions against Vietnam in the past, its involvement ended when President Clinton lifted the Vietnam trade embargo in 1994. If a transaction under the ITAR happened to involve a person designated by OFAC, then US persons would still be barred from involvement with such a transaction. Accordingly, it is important to screen all proposed transactions for involvement by OFAC Specially Designated Nationals, or other restricted parties (such as BIS’s Entity List and Denied Parties Lists, and other such lists).

At present, there are not many individuals or entities from Vietnam listed on OFAC’s Specially Designated Nationals and Blocked Persons List, but that list, as well as lists of other parties of concern are updated frequently.

Further specifics with regard to history of the Vietnam arms embargo are discussed in the first part of this article, posted on June 1, 2016 on

Recent Articles