Five tips to avoid costly ITAR violations
By Kevin Presley
If you are a U.S. government supplier, you know failure or ignorance is not an option when it comes to following the International Traffic in Arms Regulations (ITAR). Individuals who knowingly violate the law may receive multimillion dollar fines, debarment from exporting, and possibly jail time. Individuals and corporations who unknowingly violate the law can still pay significant penalties.
In 2014, a California-based semiconductor manufacturer was fined $10,000,000 for failing to establish ITAR jurisdiction over its radiation-hardened and tolerant integrated circuits. It had mistakenly assumed that the products were subject to the U.S. Department of Commerce’s jurisdiction, and had exported the circuits to countries that are banned from receiving U.S. defense-related products and services.
Your products do not have to be weapons or military vehicles to fall under ITAR jurisdiction. Detailed information about products subject to the ITAR can be found on the U.S. State Department website. If you are exporting products outside of the U.S., you need to make sure you are complying with the correct set of export laws.
To become ITAR compliant, you will first need to register with the Directorate of Defense Trade Controls (DDTC). The form DS-2032 and a licensing fee are required. The DDTC will review your form and send an ITAR registration number upon approval.
Next, understand ITAR compliance, and follow these five tips to avoid costly mistakes:
1. Work with a consultant to write your compliance manuals:
Hiring a consultant or lawyer will help you know you are abiding by the right guidelines from the very beginning. The government is not friendly when it comes to ITAR violations, and, as mentioned earlier, the results can be costly. Raytheon, a weapons manufacturer, agreed to pay a whopping $8,000,000 penalty in 2013 for ITAR violations that included improper document management and transferring unauthorized missile components to foreign militaries.
It is critical for each department in your organization to have a compliance manual that is useful, easy to follow, and relevant to its role. Send compliance reminders to your employees whenever you update your manuals or procedures.
2. Determine which projects are subject to ITAR or Export Administration regulations (EAR):
The U.S. Department of State has export control jurisdiction over the export of defense items under the ITAR, while the U.S. Department of Commerce has export control jurisdiction over the export of dual-use items and items that have strictly civilian or commercial uses under the EAR. Determining which jurisdiction your project falls under is essential. If you are having trouble classifying your program as EAR or ITAR, submit a commodity jurisdiction request, and the U.S. Department of State will make a determination for you. Obviously this is a much longer process than doing self-determination, so it is best to exhaust your other options first. You may also ask a consultant or lawyer for guidance on classifying your project. Remember it is your responsibility to classify your project, not your customers or suppliers.
3. Put the right procedures in place:
The U.S. State Department DDTC expects ITAR-registered companies to follow their compliance program procedures. Procedures should define compliance processes for your staff, departments, and activities within your organization.
A common mistake is placing foreign-national employees on multiple projects subject to ITAR. You might believe that once your foreign-national employees are licensed for one project, they are licensed for all. In fact, you will need to have each individual licensed for every unique project.
4. Train your staff:
Once you have written your compliance manual, understood your jurisdiction, and put the right processes in place, it is critical to train your staff. Incorporate ITAR training into your new-hire orientation. Select a champion in your company who is responsible for knowing and advocating for ITAR training. Exporting does not just mean shipping your product to another country. Even a conversation with a foreign national could be considered an export, and your training should make this clear.
5. Audit your projects often:
If you find a possible violation, run it by your ITAR committee and consultants first. If you are all in agreement that a violation occurred, submit a voluntary disclosure to the DDTC. This disclosure includes a description of the violation, how it occurred, and what you are doing to solve the problem.
Putting your company’s resources toward compliance is a no-brainer. It is obvious that failing to comply with ITAR regulations can cause serious liabilities. A well-constructed compliance program will keep you out of trouble and make you more attractive to both the federal government and other contractors.