Military Embedded Systems

ITAR fines can cripple your business


May 25, 2012

John McHale

Editorial Director

Military Embedded Systems

Export regulations such as the International Traffic in Arms Regulations (ITAR), if taken lightly, levy heavy fines for unapproved military exports.

Many in the defense industry community are familiar with export regulations such as the International Traffic in Arms Regulations or ITAR and the nasty punishments the government will level against those who neglect to comply or fail to obtain the proper licenses. However, newcomers to this market might not know how severe the penalties for export compliance missteps can be.

Recent punishments have ranged from $20,000 to as much as $78 million. Yes, you read that correctly – $78 million. Not only that: If you are being investigated for a potential ITAR violation, the State Department can shut down your operation, preventing you from shipping or receiving products. While the Obama administration is exploring various export reform initiatives, the increased enforcement of these regulations is unlikely to abate any time soon. There is also no shortage of enforcement officers, and they like to keep busy.

Detailed listings of fines and ITAR violations can be found at this State Department website: I’ve summarized a couple of the larger one’s fines/punishments here, such as the hefty $78 million civil penalty that was leveled against BAE Systems in 2011.

The Department of State charged BAE Systems plc – not the North America subsidiary, BAE Systems Inc., – with violations of the Arms Export Control Act (AECA) and ITAR – 2,591 violations in total and as far back as 1995. Some of the violations included failure to obtain U.S. State Department approval “to engage in brokering activities of the U.S. systems or subsystems” on platforms including the Hawk Trainer aircraft, the EF-2000 Eurofighter Typhoon, and the Saab Gripen aircraft prior to the sale of those aircraft to multiple foreign nations, according to the Department of State proposed charging letter to BAE Systems from May 2011. In other words, any time electronics on the U.S. Munitions List (USML) are added or modified, proper approval must be obtained before companies can export the systems.

Companies are not the only perpetrators that get nailed by the government for export violations. Individuals charged under AECA or ITAR can get extensive jail time because this is a crime. The victim of the crime is the soldier, marine, sailor, pilot, or airman whose life might be endangered by American technology falling into the wrong hands.

Examples where jail time was handed out can be found on the State Department’s website in a Justice Department pdf document that covers major U.S. export enforcement and embargo criminal cases dating back to 2007 ( Check it out, it reads like a police blotter.

One of those cases, dated December 3, 2010, details the illegal sale of radiation-hardened (rad-hard) semiconductor components to China. Lian Yang of Woodinville, WA, was arrested and charged with conspiracy to violate the AECA by attempting to purchase and export from the U.S. to China 300 rad-hard, programmable semiconductor devices, which are classified as defense articles under the U.S. Munitions List. According to the Justice Department document, Yang and his co-conspirators were busted in an undercover operation when they wire-transferred $60,000 to undercover agents for partial payment on some of the devices. Agents from ICE, CBP, and the FBI conducted the investigation. (To read about law-abiding rad-hard electronics suppliers, see our Mil Tech Trends section, beginning on page 20.)

U.S. export controls, while useful in protecting American technology from rogue nations, have also been a detriment for defense technology suppliers wanting to be competitive on a global scale – especially in the commercial satellite industry. The DoD and industry are currently lobbying Congress to have satellites and related devices not containing technology vital to the U.S. military taken off the U.S. Munitions List and designated as dual-use items on the Commerce Control List (CCL). This would be a huge boost to U.S. satellite component designers who want to grow their business but feel handcuffed by ITAR regulations. The effort is called the 1248 Report and is covered in our Special Report on ITAR compliance, beginning on page 16. Also in that article, export attorney Kay Georgi of Arent Fox, LLP, talks about the latest enforcement trends and gives tips on how to set up a compliance program.

The best tip I heard was from an attendee at an ITAR panel discussion a few years ago: Assume everything is ITAR-controlled and cover your back because you don’t want to get that letter from the State Department.

John McHale [email protected]


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