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It's Only Common Sense: Finally, State Dept Shows its Teeth on ITAR

I love it! A good friend of mine sent me this article he received in an email from the law firm of Williams Mullins. Read it and weep ITAR offenders! Law abiding companies, rejoice.

Check this out:

State Department Announces Another Major ITAR Enforcement Case and $30 Million Penalty

By: Thomas B. McVey

On April 25, 2018 the Directorate of Defense Trade Controls (“DDTC”) announced another major enforcement case for violations of the International Traffic In Arms Regulations (“ITAR”). The case, involving FLIR Systems, Inc. (“Respondent”), involved a wide range of alleged violations and resulted in a $30,000,000 civil penalty. This case is a sobering reminder of DDTC’s serious commitment to investigate ITAR violations and provides an important compliance lesson for U.S. and foreign companies.

The Respondent is a manufacturer of advanced sensors used to protect borders, gather intelligence and protect critical infrastructure. DDTC alleged that the Respondent engaged in multiple violations of the Arms Export Control Act (“AECA”) and ITAR Part 127 including:

• Failure to apply for and manage export licenses
• Failure to comply with terms, conditions and provisos of licenses
• Poor management of use of license exemptions
• Inaccurate or incomplete shipping documents
• Improper actions at trade shows
• Failure to obtain Non-transfer and Use Certificates
• Failure to properly decrement or report quantities of items shipped
• Failure to properly record shipments
• Failure to return items to the U.S. under temporary export licenses
• Failure to file reports of payments of contributions, fees and sales commissions as required under 22 CFR Part 130
• Multiple recordkeeping violations

DDTC also identified significant alleged violations by the Company for permitting certain of its employees who are foreign or dual nationals to have access to ITAR-controlled technical data stored in the Company’s computer system. DDTC alleged that the Company failed to have adequate controls in the data system to prevent foreign national employees from accessing controlled files through their use of the system. In addition, DDTC stated that the Respondent failed to collect citizenship information necessary to determine licensing requirements for its foreign-person employees, including employees holding nationalities from more than one country.

As many of you know, this is one drum that I have been beating to death for many years now. Look, I am a free trade guy. I believe that in the true sense of capitalism, all good American companies should be able to fend for themselves. They should be able to make it work on any level, or at least fairly level, playing field. But I never abide cheating, and when companies violate ITAR rules, they are cheating, and they should face the consequences.

For far too long in this country, certain companies, both OEMs and CEMs, have been playing fast and loose with ITAR laws, especially when it comes to printed circuit boards. They have repeatedly tried to plead to our government that our U.S. board capabilities have diminished to the point where they have to go offshore (read my column from last July) to buy their boards.

Or, up until recently, they argued that the bare PCB is too lowly a component to earn ITAR protection. Fortunately, IPC did finally convince the DDTC that bare PCBs were an integral part of proprietary products and got them written into the rules, as I discuss in that same column. So, now there is no longer a gray area. It is right there in black and white that PCBs are ITAR-protected, and when the callout is for ITAR PCBs, they had better be built in the good old USA. Or, like our friends at FLIR, they are going to be punished.

Hooray! I have had too many of my PCB sales friends telling me stories about actually losing military programs to offshore vendors because their customers chose to go offshore to buy their PCBs—PCBs that needed to be built in an ITAR-compliant facility. In one such incident, a company I was working with mistakenly got the wrong copy of a military RFQ and noticed that instead of getting their own, they got the one intended for a Taiwanese PCB fabricator. When the inside salesperson called the buyer to point this out and further note that this was an ITAR job, which means that the RFQ data package should never even leave the country, the buyer became furious and cut us off from quoting the package!

This story indicated to me that the true ITAR violators are not really the non-ITAR companies taking the orders and building the boards, but rather the OEMs and CEMs who buy the boards from them in the first place.

It is hard enough to make a living selling boards in the United States without having to deal with this illegal unfairness. And what the DDTC did with FLIR this week should be a loud and clear warning to any other companies that are considering getting their ITAR boards from a non-ITAR supplier.

It’s only common sense.