On April 30,2021, FLIR Systems, Inc., agreed to a settlement of $307,922 with the Department of Commerce on what are being called egregious violations of the Export Administration Regulations (EAR), Section 764.2.g.
The Department of Commerce settlement alleges FLIR, between November 2012 and December 2013, made “inaccurate or incomplete representations, statements, or certifications to the Bureau of Industry and Security (BIS) and other U.S. Government agencies regarding a certain anti-tamper mechanism while seeking an official determination from the Department of Commerce on a newly developed Uncooled Focal Plane Array (UFPA) under the EAR versus the ITAR for export control purposes”- a violation clearly not seen in the compliance world with any frequency.
FLIR claimed in their Commodity Jurisdiction (CJ) submission of April 7, 2013, that the newly developed Uncooled Focal Plane Array (UFPA) was subject to the EAR rather than the International Traffic in Arms Regulations (ITAR). FLIR categorized the UFPA as developed specifically for insertion into commercial smartphones and stated they understood the need to prevent the diversion of the UFPA’s to other uses other than smartphones. Initially, the government agencies agreed with the information provided by FLIR and provided their classification determination of 6A002.a.3.f on December 4, 2013.
While the Department of Commerce continued to uphold the 2013 classification determination, they had concerns about the information provided in the CJ based on a series of discussions with FLIR and the company’s eventual submission of a Voluntary Disclosure, where the company acknowledged inaccurate and incomplete statements were made related to the CJ. Once that information came to light, the Department of Commerce believed FLIR misrepresented the application of the UFPA to obtain a favorable classification under the EAR.
It was during the on-going review that it was discovered that, as early as 2012, FLIR was internally contemplating other markets for the product – including military applications such as nano reconnaissance drones. FLIR, in December 2013, then knowingly sold the same application to a Norwegian customer for the exact type of drones, which would be ITAR-controlled. Additionally, the Department of Commerce discovered FLIR represented that the UFPA incorporated a novel type of anti-tampering encryption protection device to protect against diversion, but had never actually developed or included such protections on the item that would protect against diversion to end-users of concerns.
In the Settlement, FLIR agreed to pay the assessed penalty along with conducting two (2) internal audits based on the BIS Export Compliance Program (ECP) model. Both of these conditions of the settlement must be met for FLIR to continue to receive approval for export licenses, use of license exceptions, or any other permission, or privilege granted to the company.
Not only did FLIR’s mistakes cost them a lot of money, they could also damage their reputation.
Here are some steps your company can take to protect you from making similar mistakes:
- Involve Trade Compliance up front when developing new product, or upgrading a previously manufactured product, to assist in the classification process. Doing so will allow you time to determine any export controls up front and before any sales or transfer of technology takes place.
- Follow the Order of Review outlined by the Department of State and Department of Commerce to ensure you have accurately determined the correct jurisdiction and corresponding level of controls.
- Document your self-classification to support a government agency review. This should include the process followed, as well as a rationale that explains how you came to that classification. The rationale should include information regarding any emails, notes, specifications and product literature reviewed that helped you make that decision. It should also document the decision-making process followed.
- Communicate to your internal stakeholders the importance of full disclosure of all facts, which include future intentions of how the products will be used. Annual export compliance training is an excellent way to do this.
- Do not obfuscate the facts; it could all go wrong for you and your company! If you discover an error has been made, submit a voluntary disclosure as soon as possible to help mitigate any fines and penalties.
If you need assistance in reviewing in submitting a CJ or reviewing the classifications of your products, contact Export Solutions for a free consultation.
Beverly Demma is a Sr. Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.