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$25 Million Penalty, Enhanced Compliance Procedures for Illegal Arms Exports

Tuesday, August 27, 2013
Sandler, Travis & Rosenberg Trade Report

The State Department announced Aug. 23 that a U.S. company that is an indirect wholly-owned subsidiary of a British company will be assessed a $25 million penalty as part of an administrative settlement to resolve 67 alleged violations of the Arms Export Control Act and the International Traffic in Arms Regulations. A department press release states that these violations largely involved the unauthorized export of defense articles, including technical data; the unauthorized provision of defense services; violation of the terms of provisos or other limitations of license authorizations; and failure to maintain specific records involving ITAR-controlled transactions.

The press release notes that the company disclosed nearly all of the violations at issue (the majority of which occurred prior to its acquisition of certain subsidiaries), acknowledged their serious nature, cooperated with department reviews and implemented or has planned extensive remedial measures. At the same time, the department considered various aggravating factors, including the long-standing nature of violations within the acquired subsidiaries, those subsidiaries’ unfamiliarity with and apparent disregard of ITAR compliance, and the fact that one disclosure was a directed disclosure.

According to the press release, $3 million of the penalty will be paid in installments and the remainder will be suspended on the condition that State approves expenditures for self-initiated, pre-consent agreement remedial compliance measures and consent agreement-authorized remedial compliance costs. The parent company will engage an internal special compliance official to oversee the consent agreement, which will also require it to implement additional compliance measures, including enhanced policies and procedures; to review external audit programs and conduct audit measures pursuant to the agreement; to review jurisdictional determinations of commodities; and to report on system upgrades and improvements. However, State has determined that an administrative debarment or suspension of the company is not appropriate at this time.

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