Compliance Management: The Defining Factor Between Success and Failure

Estimated reading time: 2 minutes

Compliance management in the defense industry can be the defining factor between financial success and costly mistakes. This short article highlights some of the risks and implications of failing to comply with U.S. Defense export and import regulations.

"A company supplying an article to a supply chain of a product purchased by the U.S. Department of Defense (DOD) must be aware of the strict compliance that DOD places on all export and imports. The consequences can be severe, and there are no excuses. One cannot simply claim that one did not know, as it is your responsibility to know," says  Didrik Bech, CEO of Elmatica.

No Option for Shortcuts

Compliance management in the defense industry can be the defining factor between financial success and costly mistakes. When procuring components, printed circuits or materials to the defense industry, there are no such thing as assuming or relying on questionable interpretations of rules and regulations.

There are no options for shortcuts, whether your supplier follow the regulations or not. You must know the country of origin down to the component, the printed circuit or material level of your products, and the bill of materials (BOM) should encompass a country of origin for every article. Otherwise, you risk not only jeopardizing your customers’ business, exclusion from delivering to the U.S market, but substantial penalties to your own company.

The What, How, Where and to Whom

DFARS Subpart 225.7 prohibits all procurement of PCBs from Mainland China. DFARS Subpart 225.10 and 225.003 states that foreign acquisition can only be conducted from NATO countries or allies of the United States. Any exemption from this regulation requires a deviation approval, according to DFARS Subpart 201.4.

Transparency, compliance methodology and clear communication with your partners ensure that correct information regarding the what, how, where and to whom articles are produced and delivered, are addressed.

"We want to face the challenges of export control, sanctions and regulations, by sharing our knowledge and experience, so we increase cooperation on compliance," says Bech.

Do Not Risk Imprisonment

FAR, DFARS and ITAR specifically relates to defense programs of the U.S. Government. The consequences of not following the regulations are severe. Violations of the U.S. export control laws may lead to civil and criminal penalties of up to $1 million, or twice the value of a transaction, imprisonment, administrative penalties and suspension or debarment from U.S. government contracting.

DOD requires that a clause, mandating strict compliance with U.S. export and import control laws and regulations, is included in all DOD solicitations and contracts, including contracts between prime contractors and subcontractors.

This requirement highlights, as we have said for a long time, the importance of close communication with manufacturers and sub-suppliers down to the tiniest part of your products to ensure compliance.