A double-edged sword? Parliament passes major reforms to Australia’s export controls

Parliament has passed significant reforms to Australia's export control laws, introducing new offences, while liberalising defence trade between Australia, the United States and the United Kingdom. Australian companies dealing in controlled goods and technology should take note and prepare for these changes.

Key takeaways

1. On 8 April 2024, the Defence Trade Controls Amendment Act 2024 (the Amendment Act) received royal assent and passed into law. It is expected to be complemented by comparable changes to US and UK law.
2. The Amendment Act creates new offences relating to supplying controlled technology to a foreign person, re-exporting controlled goods from places outside Australia, and supplying services in respect of controlled goods and technology.
3. At the same time, the Amendment Act will introduce a license-free environment between the members of AUKUS, largely removing the need for export control approvals in respect of defence trade between Australia, the US and the UK.
4. While the liberalisation of trade between AUKUS members will come as a welcome change to some, the new offences will create additional risk and compliance burden for many companies trading with other markets.
5. The changes will require all Australian companies dealing in controlled goods and technology, including dual use goods and technology, to carefully review their export control compliance systems. This will likely require a cross functional response from legal, compliance, production, sales, information security and human resources teams.  

Australia’s current export controls framework

Australia, like many countries, controls the export of defence and strategic goods and technology. These controls are part of national security measures designed to protect Australia’s defence capability, promote domestic and international security, and limit the proliferation of conventional, biological, chemical and nuclear weapons and weapon delivery systems.

At their most basic, Australia’s export controls prohibit the export of tangible goods on the Defence and Strategic Goods List (DSGL), unless approval is first obtained from the Defence Minister. The DSGL lists all controlled goods and technology for the purpose of Australia’s export control laws.

The existing controls also extend to the unapproved supply of DSGL technology (including blueprints, designs, specifications and software) to places outside Australia, as well as the publication of such technology.

Approvals are granted via a permit or license system overseen by Defence Export Controls (DEC), a division of the Department of Defence responsible for monitoring and promoting compliance with the export controls regime.

The new export control offences

On 8 April 2024, the Defence Trade Controls Amendment Act 2024 received royal assent and passed into law.   

One of the purposes of the Amendment Act is to close existing loopholes, thereby maintaining the general approach of regulating all possible dealings unless specifically permitted or exempted. As discussed below, this is designed to align the regimes between members of the AUKUS trilateral security partnership, facilitating a licence-free environment between them.

To achieve this, the Amendment Act introduces 3 new offences into the Defence Trade Controls Act 2012 (Cth) (the Act) that cast a wide net of potential liability for:

• supplying DSGL technology in Australia to a foreign person (deemed export offence);
• supplying certain DSGL goods and technology from a place outside of Australia to another place outside of Australia (re-export offence); and
• providing DSGL services outside Australia (services offence).

Deemed export offence

Perhaps the most significant change is the introduction of the deemed export offence. The deemed export offence prohibits a person supplying DSGL technology to a foreign person in Australia without an in-force permit granted under the Act.

This offence will catch any unauthorised supply to a person who is not an Australian governmental authority, permanent resident, citizen or body corporate. In this way, certain domestic supplies of DSGL technology are deemed to be exports.

The offence specifically extends to supplies by an Australian employer to a foreign employee.

Re-export offence

The re-export offence prohibits the supply of certain DSGL military or dual-use goods or technology from one foreign country to another where these goods or technology were previously exported from within Australia to outside Australia.

This offence intends to capture secondary suppliers of DSGL goods and technology after these items have been supplied to a recipient outside Australia (i.e., any person who receives a lawful supply or export and subsequently supplies those items without a proper permit or authorisation).

Services offence

The services offence makes it illegal for Australian suppliers to provide DSGL services to a foreign person outside of Australia without an in-force permit granted under the Act.

“DSGL services” means the giving of assistance (including training) in relation to, among other things, the design, production and use of any DSGL goods or technology.

The AUKUS licence-free environment

There are a number of exemptions and exceptions to the Act’s amended offence regime.

The most important exemption relates to the supply of DSGL goods, technology or services to the United States and the United Kingdom, or to US or UK nationals or companies. The primary reason for the reforms was to create parity and facilitate cooperation between members of AUKUS by creating a licence-free environment. It follows the United States passing into law the 2024 National Defence Authorization Act, which facilitates key aspects of the AUKUS trade partnership, and the United Kingdom’s Department of Business and Trade concluding a review of its export control regime.

Practical implications for Australian companies

This AUKUS licence-free environment is intended to remove significant barriers for Australian defence companies doing business with the US and UK, thereby increasing investment and innovation, and making Australian companies more competitive on the international stage.

However, in doing so, the 3 new offences significantly increase the risks of supplying goods and technology listed on the DSGL.

In many cases, Australian companies servicing markets outside AUKUS may simply experience an increased compliance burden given existing business practices may contravene the new offences. For example, unless an exception or exemption applies:

• supplying (or re-supplying) DSGL technology to employees who are not permanent residents or citizens may breach the deemed export offence and/or the re-export offence;
• existing contractual arrangements requiring the provision of DSGL technology or goods to foreign consultants or subcontractors may breach the re-export offence; and
• the width of the services offence may result in foreign subject matter specialists terminating or ceasing to perform their design, build or production obligations – potentially raising unique ‘change of law’ or ‘force majeure’ issues. 

The re-export offence also has ‘long-arm jurisdiction’ and applies to conduct carried on outside Australia. Thus, non-Australians may find themselves within the scope of these laws where they deal in Australian controlled technology outside of Australia’s borders.

These changes will require all Australian companies dealing in DSGL goods and technology, including dual use goods and technology, to carefully review their export control compliance systems. This includes systems for classification of DSGL goods and technology, screening of customers and end-users, and management of controlled technology. It may also require changes to employee and supplier onboarding processes. This will likely require a cross functional response from members of legal, compliance, production, sales, information security and human resources teams.

How we can help

Given the scope and complexity of the expanded export control regime, there is an increased risk profile associated with activities involving listed items on the DSGL. We can assist to mitigate and manage those risks, including by:

• reviewing existing practices and conducting due diligence to identify risks of any compliance gaps;
• providing education and training to boards and stakeholders to increase awareness their obligations;
• providing advice on risk assessments and compliance measures for current and future activities; and
• reviewing contract templates to ensure they are fit for purpose and appropriately allocate risk.

This article was originally published on 10 April 2024 and updated on 18 April 2024.

The authors would like to thank Maddison Allerding, Paralegal, for her assistance researching this article.