Australia’s Defence Trade Controls Act – new offences and exemptions

Important updates to Australia’s Defence Trade Controls Act include new offences like re-exports and deemed exports, and a broader exemption for fundamental research.

In connection with the AUKUS partnership, the Australian Government recently passed legislation that will significantly change Australia’s export control landscape. While some of these amendments may facilitate collaboration with businesses and researchers in the United States and the United Kingdom, the amending legislation also introduces a series of new export controls. We explain what these new controls are, how they will affect industry and the higher education and research sectors, and some of the measures that may need to be adopted to comply with them.

The existing export control regime

Australia’s export control regime is seen by the Australian Government as a key part of its protective security framework. The purpose of this regime is to prevent ‘controlled’ goods and technology from being exported to individuals, states or groups that have interests prejudicial to Australia’s security, defence or international relations.

There are two key laws which underpin this regime: the Customs Act 1901 (Cth) (which deals with exports of tangible goods) and the Defence Trade Controls Act 2012 (Cth) (DTCA) (which deals with exports of intangible technology).[1]

At a high-level, these laws require that, unless an exception applies, a person or entity must hold a permit to:

• export tangible ‘controlled’ goods from Australia;
  
  
• supply intangible ‘controlled’ technology Australia to a person outside Australia (including by providing a person located overseas with access to controlled technology);
  
  
• publish controlled military technology; or
  
  
• broker controlled military goods and technology (e.g. acting as an intermediary between two or more persons outside Australia in relation to the supply of controlled military goods and technology).

This regime only applies to ‘controlled’ goods and technology, which are goods and technology within the scope of Australia’s Defence and Strategic Goods List 2021 (Cth) (DSGL). Importantly, the DSGL extends beyond goods designed for a military purpose – the DSGL also specifies goods that have a commercial use but could also serve a military purpose (e.g. cryptography systems).

The amendments to the Defence Trade Controls Act 2012

On 27 March 2024, the Australian Government passed legislation which will amend the DTCA. These changes will come into effect on 1 September 2024, with the new offences to come into effect a further six months later. The changes will significantly alter Australia’s export control framework in a way that more closely resembles the regime in force in the United States.

New offences

The first set of amendments is the introduction of three new offences (in addition to the existing offences). At a high-level, these new offences will require a person or entity to hold a permit (unless an exception applies) to do any of the following:

• supply controlled technology to a ‘foreign person’ located in Australia (deemed export). A ‘foreign person’ is defined as any person or entity that is not an Australian citizen or permanent resident, a corporation registered in Australia, or an Australian federal, state or territory government or government authority;
  
  
• re-supply certain controlled goods and technology from a location outside Australia to another location outside Australia (where the technology was originally exported from Australia) (re-export);[2] and
  
  
• provide controlled services to a foreign person outside of Australia. Controlled services are those that relate to the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarisation, destruction, processing or use of controlled military goods (controlled services).

Failure to comply with any of these new (or the existing) requirements is a criminal offence and can result in a penalty of 2,500 penalty units (AUD $782,500 as at the date of this publication), imprisonment for 10 years, or both.

Importantly, the amended legislation specifies that an entity is taken to ‘supply’ controlled technology for the purposes of the DTCA including if the supply is from an employer to an employee – previously the supply of intangible technology within the same corporate entity was not a ‘supply’.

Expanded exceptions

While the amendments will introduce stricter export control requirements for businesses, researchers and other entities, the amendments also expand the scope of certain exceptions. Two of the key expanded exceptions are:

• the creation of a licence-free environment for the supply of controlled technology from Australia to each of the UK and the US, or to a UK or US citizen, corporation, government authority or government. This exception is intended to improve the speed and scale of technology transfer between AUKUS partners, (with the United States and United Kingdom also reviewing their respective export control regime to create a similar licence-free environment); and
  
  
• the expansion of the ‘fundamental research’ exception. This will allow entities to supply goods or technology that has been produced in the course of, or for the purposes of ‘fundamental research’. An entity may also provide controlled services in relation to such goods or technology. The amended DTCA defines fundamental research as:
  
  basic or applied research conducted in circumstances where the results of the research:
  
  (a) are intended for public disclosure, or would ordinarily be published or shared broadly; and
  
  (b) are not subject to any restrictions on disclosure (however imposed) for purposes connected with the security or defence of Australia or any foreign country.[3]

The amendments also introduce a mechanism which will facilitate the further expansion of certain exceptions. For example, while it is an offence for an entity to supply controlled technology to a person (including an employee) who is a foreign national, there is an exception if the individual is a citizen or resident of a country that has been ‘whitelisted’ by Australia’s Defence Minister (provided the supply occurs in the course of the individual’s employment duties).[4]

Record-keeping requirements

The amended legislation also expands the scope of an entity’s record-keeping requirements. Currently, records are only required to be maintained for exports made under a permit. The amended DTCA expands this obligation by requiring an entity to maintain records of all exports of controlled goods, technology and services (even if the export is made without a permit). This includes supplies, deemed exports, re-exports, and the provision of controlled services.

The expanded record-keeping obligations should assist the Minister for Defence if it exercises its information gathering powers under the DTCA (e.g. if investigates a potential breach of the DTCA).

Implications for industry, higher education and research industries

The introduction of a licence-free environment for the supply of controlled technology between Australia, the United States and the United Kingdom should streamline the exports compliance issues in collaborations between businesses, researchers and individuals located in those countries. For researchers, the expanded definition of fundamental research may also provide greater scope and certainty on when research may be exempt from the permit requirements.

However, the new offences add additional layers of diligence that companies ought to undertake when dealing with controlled technology, including:

• assessing which employees, contractors and other individuals may have access to controlled technology. If any individual is located overseas or is a ‘foreign person’, it may be necessary to apply for an export permit to ensure continued access to that technology (including in circumstances where a permit was not previously required);
  
  
• determining what ‘controlled’ technology is held by the entity. This is largely a technical exercise and involves a review of the DSGL. A permit may be required if any of that technology needs to be exported or supplied to a foreign national (inside or outside Australia);
  
  
• reviewing template employment agreements to ensure there is clarity on the scope of each employee’s duties. Certain exports to employees will only fall within an exception if the supply occurs in the course of the individual’s employment duties (and other conditions are met);
  
  
• reviewing or preparing internal operating procedures to ensure that they impose appropriate controls on supplies and exports of controlled technologies and controlled services and other compliance measures (e.g. record keeping, staff training, onboarding and offboarding) and implementing those procedures;
  
  
• reviewing the contractual conditions imposed on overseas recipients of controlled technology to ensure the recipient is contractually prohibited from further disclosing the technology in a way that may cause the recipient (but potentially also the disclosing entity) to be in breach of the re-export offence; and
  
  
• for researchers (and commercial research partners), assessing whether the scope of existing research falls within the definition of ‘fundamental research’. Where the results of research are unlikely to be made public, (e.g. if the research or elements of it must not be published), the parties will need to be prepared to apply for an export permit and ensure they are able to comply with it.

If any technology (and proposed export) is within the scope of the DSGL and not subject to an exception, it will be important for an entity to apply for an export permit from Defence Export Controls in advance of the proposed export. Where an entity has an export permit in place when the amendments come into effect, that permit will remain effective until its expiry. However, it may be necessary to apply for a new permit in light of the introduction of the deemed export and re-export requirements.

Once a permit is issued, processes should be put in place to help ensure compliance with the relevant permit and the associated obligations (e.g. record-keeping and training).

_{[1] Exports requirements also exist under Australia’s sanctions laws (the Autonomous Sanctions Act 2011 (Cth) and the Charter of the United Nations Act 1945 (Cth)) and the Weapons of Mass Destruction (Prevention of Proliferation) Act 1995 (Cth) (which gives the Minister for Defence the power to prohibit the supply or export of goods and/or the provision of services that may assist or be used in a weapons of mass destruction program).}

_{[2] The re-export offences only apply to Part 1 DSGL goods and technology (military goods) and Part 2 DSGL goods and technology that are included on the “Sensitive” or “Very Sensitive” list of the DSGL.}

_{[3] There is currently a research-related exception in the DTCA, with relates to “basic scientific research”. This is where goods or technology are experimental or theoretical work undertaken principally to acquire new knowledge of the fundamental principles of phenomena or observable facts, not primarily directed towards a specific practical aim or objective.}

_{[4] In the context of the exceptions to “brokering”, the Minister for Defence specified the following countries: Austria, Belgium, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, United Kingdom and United States. It’s possible that the same countries will be “whitelisted” when the amended DTCA commences.}