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Defense Company Fined $20 Million, Subject to Extensive Remedial Measures for Export Violations

Monday, March 10, 2014
Sandler, Travis & Rosenberg Trade Report

The State Department issued March 5 an order imposing a $20 million fine and extensive remedial measures against a Washington-based aerospace and defense manufacturing company to settle a total of 282 charges that entities the company acquired over the past decade committed the following violations of the Arms Export Control Act and the International Traffic in Arms Regulations.

- unauthorized transfers of technical data and manufacturing know-how to foreign person employees and foreign suppliers

- unauthorized exports and temporary imports of defense articles, services and technical data

- failure to report fees or commissions paid to a foreign agent for sales of defense articles

- violations of the terms and conditions of export licenses or approvals

- exports of defense articles in excess of authorized quantities and values

- improper use of exemptions

- failure to file or filing of incorrect documentation through the Automated Export System

According to State, these violations can generally be characterized as improper classification of goods, failure to properly administer licenses and agreements, and incomplete or poor recordkeeping. They were the result of insufficient understanding and knowledge of the ITAR as well as corporate oversight and a corporate export compliance program that were insufficient to prevent the alleged violations. State notes that a generally favorable external audit conducted in 2009 and 2010 failed to identify persistent compliance issues and inadequacies in the company’s compliance program.

When determining the charges to pursue in this matter, State considered various mitigating factors, including the company’s voluntary disclosures, the fact that many of the violating transactions likely would have been approved had they been the subject of properly submitted license requests, self-initiated remedial compliance measures implemented prior to and during the course of the department’s review, cooperation during the review, and the absence of the disclosure of sensitive technologies or harm to national security.

Half of the $20 million fine will be suspended provided the company spends that money on remedial measures, including the following.

- appoint a qualified outside individual to serve as a special compliance official who will monitor, oversee and promote the company’s AECA and ITAR compliance

- have an outside consultant with expertise in AECA and ITAR matters (a) conduct within 12 months an audit that assesses the overall effectiveness of the company’s ITAR compliance programs and focuses on those actions undertaken to address the problems identified above and (b) complete within 30 months a second audit to confirm whether the company has addressed the compliance recommendations from the first report

- conduct an internal review of the AECA and ITAR compliance resources throughout its ITAR-regulated business units within 120 days

- strengthen corporate AECA and ITAR compliance procedures focused principally on the company’s business operations within 12 months

- implement a comprehensive automated export compliance system to strengthen internal controls for AECA and ITAR compliance

- complete within 12 months a comprehensive review of the automated compliance systems of its foreign operating divisions, subsidiaries and business units engaged in AECA and ITAR activities

- implement a system to alert users to AECA and ITAR requirements on electronic transmissions of ITAR technical data

- continue to promote and publicize the availability of its program for internal reporting of possible export violations without fear or of recrimination or retaliation

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