ITAR violations have produced high profile defense export penalties

WASHINGTON, 13 July 2009. When a small company violates the International Traffic in Arms Regulations (ITAR), it does not typically make a ripple in the news industry, yet over the years there have been a few cases that grabbed the world's attention.

By John McHale

WASHINGTON, 13 July 2009. When a small company violates the International Traffic in Arms Regulations (ITAR), it does not typically make a ripple in the news industry, yet over the years there have been a few cases that grabbed the world's attention.

Export compliance (see ITAR compliance: ignorance of defense export regulations is no excuse) made headlines about in 2003 when Loral Space & Communications Corp. Boeing, and Hughes Electronics allegedly provided satellite launch rocket integration & failure analysis services in China during the 1990s, says Kay Georgi, partner at the Arent Fox law firm in Washington. Boeing acquired Hughes in the interim.

The problem was that the satellites themselves were commercial but the launch vehicles are defense items and fell under the ITAR, Georgi says. The process of integrating the satellites with the launch vehicles and determining the causes of launch failure subjected the services to the ITAR, she says.

In reaction to these investigations, Congress placed virtually all commercial satellites and space equipment under ITAR controls, Georgi says.

The most high profile of fines hit ITT Corp. in 2007, she says.

ITT was charged with illegally transferring classified and export controlled night vision technology to foreign countries, according to a Department of Justice (DOJ) letter from John Brownlee, U.S. Attorney for the Western District of Virginia on the ITT case. The company had to plead guilty to two felony charges and pay $100 million in fines and forfeitures, according to the DOJ release.

ITT had to pay $100 million in fines forfeitures -- $20 million fine to the Department of State (DOS), $2 million statutory fine as part of the guilty plea; $28 million forfeiture to the U.S. government -- some of which will be shared with state, local, and federal law enforcement agencies for their work during this investigation--; and "$50 million in restitution to the victims of their crimes - the American soldier," stated the DOJ document.

DOJ suspended the $50 million fine for five years, during which ITT must invest and develop night vision technology for the U.S. military and the U.S. government maintains "Government Purchase Rights" to all technology developed -- meaning the government can share any of the ITT technology with competing defense contractors for future contracts, the DOJ document states. The money spent on the technology must also be approved by the U.S. Army Night Vision & Electronic Sensors Lab in at Fort Belvoir, Va. Any of the $50 million unspent after five years must be paid to the U.S. government.

In 2008 Lockheed Martin and Northrop Grumman were also charged with major ITAR violations. More information on ITT, Lockheed Martin, and Northrop Grumman can be found on the State Department website at http://www.pmddtc.state.gov/compliance/consent_agreements.html.

In 2008 the Department of State charged Lockheed Martin Corp. with violations of the Arms Export Control Act and the ITAR for providing classified and unclassified technical data related to the sales of Hellfire missiles to the United Arab Emirates in 2003 -- 2004.

The letter states that Lockheed Martin officials had thought that "because the UAE already possessed inventory of the missiles an export license to export the associated technical data (i.e. performance specifications) must have already been in place." The State Department letter also states that Lockheed Martin took "steps to secure the return of the classified material to the U.S."

According to the State Department Order document Lockheed Martin had to pay a civil fine of $4 million and provide full disclosure to the State Department DOS.

Also in 2008 Northrop Grumman was nailed for unauthorized export of controlled parts and technology for commercial inertial navigation units, according the State Department website. According to the State Department Order document on the website Northrop Grumman was ordered to pay a civil fine of $15 million and an additional $5 million in remedial compliance measures.

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