When it comes to DOD ITAR compliance requirements and compliance penalties, the Justice Department government has no doubt increased oversight for government contractors, commercial organizations, and individuals for potential EAR vs ITAR laws breaches and non-compliance with import-export regulations.
- Companies such as Lockheed, Motorola, Boeing, and Northrup Grumman have all been penalized for violations.
- The government will assess ITAR compliance penalties unless your company is committed to being compliant.
There are mandatory measure that contractors and businesses must have in place. An example would be submission to external audits and appointment of compliance officers.
- Failure to meet ITAR requirements can result in debarment from a future exporting activity.
- Companies must also have disclosure policies in place for failure to be ITAR compliant.
US law states that “no person, by fraud, gross negligence, or negligence, may enter or attempt to enter merchandise into the commerce of the United States…by means of a document or electronically transmitted data which is material and false, or by any omission of information that is material.”
19 USC Section 1592(a)(1) provides: (1) General rule Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negligence, or negligence—
(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of— (i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or (ii) any omission which is material,
or (B) may aid or abet any other person to violate subparagraph (A). 19 USC 1592(a)(1). That provision was the same in 2004, when the merchandise at issue here was imported. Section 1592 goes on, among other things, to specify procedures for enforcement of the quoted prohibitions and to provide penalties for violations, the authorized penalties depending on whether a violation involves fraud, gross negligence, or negligence. 19 USC 1592(b), (c).
Federal Involvement Can Drive High Civil Fines: The U.S. Department of State continues to hover over companies for ITAR EAR penalties and possible import-export regulation violations. The State Department imposes penalties for civil violations of the ECCN and International Traffic in Arms Regulations (ITAR). For example, in the case of Esterline Corporation, the company agreed to pay $20 million in civil penalties and remedial expenditures to resolve its violations.
Meeting EAR Certification and ITAR Compliance Requirements is a Must
To meet DOD ITAR certification and compliance requirements, a business must register with the U.S. State Department’s Directorate of Defense Trade Controls (DDTC). Understanding EAR certification and ITAR compliance laws are a must for all businesses subject to the rules.
The key for DOD contract companies seeking to decrease, or avoid fines for penalties and violations is to:
- Implement adequate internal administrative controls;
- Strengthen their oversight practices including voluntary audits.
- Develop rigorous training programs that withstand federal investigations and scrutiny.
Foreign employer ITAR requirements and ITAR compliance statements: Under Section 126.18 of the International Traffic in Arms Regulations (lTARS) a foreign employer who is itself an authorized consignee or end user may allow a dual or third country national who is a bona fide “regular employee” (as defined in Section 120.39 of the ITAR) to have access to unclassified defense articles (including technical data) without prior written approval if:
(a) the employer has in place a process as set forth in Section 126. I 8(c) of the ITAR to screen its employees for substantive contacts with restricted or prohibited countries listed in Section 126.1 of the ITAR and to have its employees execute a Non-Disclosure Agreement providing assurances that the employee will not transfer any defense articles to persons or entities unless specifically authorized by the employer; and
(b) the employer determines through that process that the employee does not have substantive contacts with a restricted or prohibited country listed in Section 126.1 of the IT AR.
Impacted Industries Under Import-Export Regulations: Understanding ITAR Regulations and the Export Administration Regulations (EAR Vs ITAR certification compliance) can impact industries involved in the manufacturing, sales and distribution of technology. Regulations focus on controlling the disclosure or transfer of sensitive information to a foreign national. This is why companies must submit an ITAR compliance statement. Find out more about eccn number ear99 requirements.
EAR & ITAR Requirements & ITAR Compliance Penalties
The EAR primarily covers the exporting of “dual-use” commodities, software and technologies. Dual use items are those that have predominantly commercial uses, but that may also have the potential for military application.
Section 734.2(b)(5) of the EAR states: “Any release of technology or source code subject to the EAR to a foreign national of another country is a deemed reexport to the home country or countries of the foreign national. However, this deemed reexport definition does not apply to persons lawfully admitted for permanent residence.”
When companies violate foreign import and export controls regulations and compliance laws, ITAR requirement and compliance penalties can be staggering. For example, if there is a mistake with EAR99 designations, ITAR fines and penalties can be both civil and criminal.
- Assessments can include $500,000 per violation while criminal penalties include fines of up to $1,000,000 and ten years incarceration per violation.
- Under EAR laws, maximum civil fines can reach $250,000 per violation.
- Criminal penalties can be as high as $1,000,000 and 20 years incarceration per violation.
An example of the severe consequences in ITAR compliance violation cases is in 2010 when BAE Systems plc (BAES) pleaded guilty in U.S. District Court.
BAE conspired to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act (FCPA) compliance program, and to violate the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). See information about US Export Control laws and the importance of conduct in litigation.
Other Court Decisions: With the recent Fourth Circuit Court decision in United States v. Brian Keith Bishop, No. 13–4356, 2014 WL 292695 (4th Cir. Dec. 11, 2013), the Fourth Circuit joined other circuits, holding that proof of general knowledge of the illegality of the conduct is sufficient to convict a person of a willful violation of US export laws. See information on the Mandatory Disclosure Rule.
Companies subject to DOD regulations should develop programs and solutions that not only meet the minimum legal ITAR requirements but also to save the corporation’s bottom line by reducing exposure.