Background

AUKUS is a trilateral security partnership between Australia, the United Kingdom (UK) and the United States (U.S.), formed in 2021. The intention behind AUKUS is to strengthen the ability of each government to support security and defence interests.

AUKUS comprises of two ‘pillars’: Pillar 1 relates to Australia’s acquisition of its first conventionally armed, nuclear-powered submarine fleet (comprising of the SSN-AUKUS, a tri-laterally developed submarine class, as well as Virginia-class nuclear-powered submarines purchased by Australia from the US).  Pillar 2 involves developing ‘advanced capabilities’ (which include areas such as  artificial intelligence, hypersonic missiles and quantum technologies (amongst other things)). Relevantly, much of Pillar 2 revolves around cooperation between the AUKUS members, including by sharing technology and increasing interoperability between armed forces.

In Australia, the supply and export of military and dual-use technologies is regulated by the Defence Trade Controls Act 2012 (Cth) (DTC Act). Broadly speaking, the DTC Act currently creates a regime under which permits are required in order to supply, export, broker, and publish items on the Defence and Strategic Goods List 2021 (Cth) (DSGL). The DSGL is a list specifying the military and dual-use goods and technologies which are captured under Australia’s export control regimes. It is generally an offence to supply, broker, or export DSGL technology from Australia without a permit.

Licence-free environment for AUKUS members

As part of the commitment between Australia, the UK and the U.S. to streamlining the flow of defence trade between AUKUS partners, the Defence Trade Controls Amendment Act 2024 (Cth) (Amendment Act) introduces a new national exemption to the UK and the U.S. from Australia’s export control permit requirements under the DTC Act (amongst other things).

While it is generally an offence to supply DSGL goods and technology, or DSGL services without a permit, the Amendment Act introduces a number of exceptions to these offences. One of these exceptions is where the supply of DSGL goods or technology, or DSGL services, is to the UK or the U.S. “DGSL services” refers to the giving of assistance (including training) in relation to the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarisation, destruction, processing or use of DSGL goods that are, or DSGL technology that is, within the scope of Part 1 of the DSGL (DTC Act, section 4).

The result of the exceptions is that the need to acquire a permit to transfer DSGL goods and technology is largely removed for those in the U.S. and the UK (except in certain circumstances prescribed by regulations or specified by the Minister by legislative instrument). Similarly, DSGL services may be provided without a permit to AUKUS allies (as well as fellow Five Eyes allies, Canada and New Zealand).

Ultimately, the effect of the Amendment Act is to create a licence-free environment with the U.S. and UK. In doing so, the Amendment Act will remove the requirement for approximately 900 export permits valued at AU$5 billion per year, which would otherwise be required in order to export from Australia to the U.S. and UK. Similar easing of export controls are being implemented in parallel by the U.S. and UK.

Additionally, on 1 May 2024, the Department of Defence released an exposure draft of amendment regulations to the Defence Trade Controls Regulation 2013 (Cth) (DTC Regs), which included additional proposed details in relation to Australia’s defence trade regime. Notably, the draft regulation 5B prescribes that in order for a person to make a supply of DSGL goods or technology, or provide DSGL services under the licence-free exceptions, they must obtain an AUKUS Defence Export Control Client Registration Number issued by the Department of Defence. While the regulations have not yet been finalised, consultation on the exposure draft closed on 31 May 2024.

Other DTC Act changes - new criminal offences

Aside from the ‘license free’ exceptions for AUKUS members, the Amendment Act also introduces a number of other changes, including the introduction of three new offences under the DTC Act (amongst other things).

The Amendment Act creates the following three offences under the DTC Act:

1. Supply of DSGL technology in Australia to foreign persons

The Amendment Act creates a new offence provision at section 10A of the DTC Act. Generally, a person will commit an offence if they make a supply of DSGL technology to a foreign person within Australia without a permit (exceptions apply). Relevantly, subsection 10A(3) provides that if the supplier is not an individual (i.e. it is an entity) and supplies DSGL technology to an officer or employee of the supplier, the supply is taken to be a supply by the supplier to another person (that other person being the officer or employee). This means that in effect, domestic supplies of DSGL technology by an Australian employer to a foreign employee will be captured by this offence provision unless an exception applies.

This offences carries a penalty of imprisonment for 10 years or AU$782,500, or both (for an individual), or AU$3,912,500 for a body corporate.  

2. Re-supply of DSGL goods or DSGL technology

The Amendment Act introduces a new offence provision at section 10B of the DTC Act, intended to regulate the secondary supply of DSGL goods and technology after they have been supplied to a recipient outside of Australia.

Broadly speaking, under the new provision, a person commits an offence if they make a:

• supply of DSGL goods or technology (other than firearms) to another person; and
• the supply occurs outside Australia; and
• the goods or technology are within:
  • the scope of Part 1 of the DSGL;
  •  the Sensitive List of Dual-use Goods and Technologies in Part 2 of the DSGL; or
  • the Very Sensitive List of Dual-use Goods and Technologies in Part 2 of the DSGL; and
• the supply is made to a foreign person or a foreign country; and
• the supply was made without a permit or authorisation; and
• the DSGL goods or DSGL technology were previously exported or supplied from within Australia to a place outside Australia.

As with the offence in section 10A, re-supply by an entity to a foreign employee may be captured under this provision (DTC Act, section 10B(2)).

This offences carries a penalty of imprisonment for 10 years or AU $782,500, or both (for an individual), or AU $3,912,500 for a body corporate.      

3. Supply of DSGL Services

Interestingly, the Amendment Act establishes a new offence provision at section 10C of the DTC Act, which criminalises the supply of DSGL services outside Australia to a foreign person without a permit (unless an exception applies).

This offences carries a penalty of imprisonment for 10 years or AU$782,500, or both (for an individual), or AU$3,912,500 for a body corporate.  

Other AUKUS Developments

As noted above, similar changes to defence trade controls are being implemented by the U.S. and UK.

In the US, an Interim Final Rule was published on 19 April 2024 by Department of Commerce’s Bureau of Industry and Security (BIS), which removed licence requirements for many export, re-export or transfer of items on the Commerce Control List to Australia or the UK. Additionally, on 1 May 2024, the Department of State issued a proposed rule to amend the International Traffic in Arms Regulations (ITAR) to create an exemption for certain users in Australia and the United Kingdom from the requirement to obtain a license or approval from the Directorate of Defense Trade Controls prior to any export, re-export, re-transfer, or temporary import of defense articles. For more information regarding these developments, please refer to our previous article on this topic.  

Meanwhile, on 1 May 2024, the UK published a draft open general licence for the AUKUS partnership,  which would cover the equivalent range of goods and technology covered by the national exemptions to export controls implemented by Australia and the US.  The draft OGL is open for comment until 1 July 2024. 

Next steps

The amendments to the DTC Act will commence within six months of receiving Royal Assent (i.e. by 8 October 2024) and the offence provisions will commence a further six months from the commencement date (Amendment Act, Schedule 1, item 47). Additionally, consultation on the exposure draft regulations to the newly amended DTC Act recently closed on 31 May 2024.

Businesses which deal in DSGL goods, technology and services should review their processes to ensure continued compliance with the DTC Act, particularly given the introduction of the new offence provisions.

Additionally, businesses operating in the defence sector should keep abreast of further updates in relation to the implementation of AUKUS-related trade control reforms.

Authored by Mandi Jacobson, Danielle Kuti, and Bonnie Liu.