Export Penalty Case Highlights Need for Continual Review of Compliance Efforts
A recent $30 million settlement illustrates that even sophisticated exporters need to continually review, evaluate, and enhance their export compliance programs.
This case involves the world’s largest commercial company specializing in thermal imaging cameras and sensors, which received 3,740 export licenses authorizing $9.9 billion worth of shipments between January 2012 and December 2016. The State Department’s Directorate of Defense Trade Controls charged this company with 347 violations of the Arms Export Control Act and the International Traffic in Arms Regulations, including the following.
- unauthorized exports to foreign national employees at 22 non-U.S. facilities, including some with the nationality of prohibited countries under 22 CFR 126.1
- failing to collect and maintain records of reexports of technical data on its information technology systems
- misrepresenting and/or omitting material facts in license applications
- providing inaccurate information concerning implementation of anticipated corrective actions
- failing to retain records or obtain endorsements by U.S. Customs and Border Protection on temporary export licenses
- causing the loss or theft of temporarily exported defense articles
- failing to ensure foreign forwarders correctly identified defense articles as significant military equipment in electronic export information filing
- failing to maintain complete or legible export control records related to shipping
- failing to incorporate export control statements as integral parts of the bill of lading, air waybill, or other shipping document
- including statements in export documents misrepresenting that the ITAR shipment was subject to the Export Administration Regulations
- attempting to use an ineligible party as a party to the export
- failing to provide accurate and complete reporting of political contributions, commissions, and fees in connection with commercial sales or defense articles or services
To settle these charges the company has agreed to pay a $15 million civil penalty and spend another $15 million on remedial compliance measures, which will include (1) conducting an internal review of AECA and ITAR compliance resources and ensuring sufficient resources are in place, (2) appointing a qualified special compliance officer with specified monitoring, oversight, and reporting authorities and responsibilities, (3) instituting strengthened corporate compliance procedures, (4) continuing its review of functional processes pertaining to AECA and ITAR-regulated activities to verify that they are effective, (5) implementing a comprehensive automated export compliance system to strengthen its internal controls, and (6) having outside consultants perform two audits to review compliance efforts.
DDTC states that it considered a number of mitigating factors, including the respondent’s 18 voluntary disclosures acknowledging a portion of the charged conduct and other potential ITAR violations and its institution of a number of self-initiated compliance program improvements. On the other hand, aggravating factors included significant compliance program and internal control deficiencies that directly contributed to the violations; deficient ITAR expertise and senior leadership oversight during time periods covered by voluntary disclosures; failure to effectively investigate, uncover, and disclose violations; the frequency and repetitive nature of the same violations; and failure to implement remedial compliance measures represented to DDTC.