If there’s a silver lining in every cloud, then the recent ITAR penalties levied against Aeroflex, Inc. and its subsidiaries can hold some valuable lessons for other companies. On July 25, DDTC charged the microelectronics manufacturer with 158 violations of the AECA and ITAR. The alleged violations cover an extensive time period – more than a decade – and, according to the State Department, are indicative of “systemic and longstanding” problems at Aeroflex.
Although the exact specifics of this case are unique to the company and its business, there are some good reminders that apply to any organization trying to adhere to ITAR and EAR regulations:
- Always Ask. Never Assume. One of the core problems for Aeroflex was the company’s (incorrect) assumption that some of its radiation-hardened circuits were subject to EAR instead of ITAR controls. Even after receiving Commodity Jurisdiction (CJ) requests that stated these circuits were controlled under USML Category XV, the company “viewed the CJ response narrowly” and did not believe the rationale applied to certain other of its product lines. This approach, and the failure to clarify the classifications of its commodities with State, caused Aeroflex to export thousands of products over a period of many years without the correct licenses.
- Internal Communication is Key. DDTC’s charging letter asserts that Aeroflex did not adequately communicate the results of its CJ response within the organization. This caused subsequent self-classifications at other divisions of the company to be improperly applied, leading to more violations. This is a good reminder for compliance officers and legal counsel. If you are currently operating in a “silo,” perhaps it’s time to take the export compliance show on the road. Reach out to all of your internal stakeholders and make sure they know what role to play.
- China! China! China! Aeroflex allegedly exported thousands of circuits without the proper licenses to countries like Belgium, France, Germany, South Africa and the UK. All of these are violations in and of themselves. However, there is no question that the company’s exports of ITAR-controlled microelectronics to China served as a significant aggravating factor in determining the penalties for this case. According to DDTC, these exports “directly supported Chinese satellites and military aircraft, and caused harm to U.S. national security.”
Bottom Line: If you’re going to liberally self-classify your products as “NLR,” do not … repeat, do not … ship them to China!
- Canada! Canada! Canada! A quick reminder: the Canadian exemption in ITAR § 126.5 is not a blank check for you to send all of your products to Canada without a license. DDTC tacks this on, almost as an afterthought (but still worthy of three charges): “Misuse of the Canadian exemption resulting in unauthorized exports.”
In addition to these lessons, the last one is perhaps the easiest to understand, and yet the most difficult to swallow: Aeroflex must pay an $8 million civil penalty, and commit to a long list of compliance oversight activities, including the appointment of a special compliance officer, audits, on-site visits, classification reviews and more.
Tom Reynolds is the President of Export Solutions, a consultancy firm which specializes in helping companies with import/export compliance.