The Directorate of Defense Trade Controls (DDTC) has entered into a Consent Agreement with L3Harris Technologies, Inc. (“L3Harris”) for violations of the International Traffic in Arms Regulations (ITAR). In its Proposed Charging Letter, DDTC alleged a total of one hundred thirty-one (131) violations. The violations fall into the following categories:
- Unauthorized Exports of Technical Data in the form of Software
- Unauthorized Exports of Tactical Radios
- Unauthorized Exports of Military Electronics to Canada
- Unauthorized Exports of the T7 Remote Controlled Vehicle (“T7 RCV”), the AN/PLM-4 Radar Signal Simulator (“PLM-4”), and Jagwire Software Plugin
- Unauthorized Exports of Technical Data Related to Night Vision Equipment and Tactical Radios
- Providing a False Part 130 Statement on a Technical Assistance Agreement
- Violation of License Provisos
- Violation of the Terms or Conditions of Licenses and Agreements
- Violations Caused by Systemic Administrative Issues
All of the above categories of violations are interesting and deserve close review by the defense exporting community, however, there are several occurrences that stuck out to me and deserve special mention.
First, it’s interesting to note that the violations were discovered and substantiated through Directed Disclosures and Voluntary Disclosures. The first indication of violations originated from the Defense Technology Security Administration (DTSA) which initially raised concerns to DDTC in 2015. DDTC initiated a Directed Disclosure to L3Harris, which resulted in the submission of three (3) additional disclosure cases. While these may have been considered “Voluntary Disclosures,” DDTC judged the violations disclosed as directly related to the Directed Disclosure that had been handed down to L3Harris. The result was that any mitigating influence from a Voluntary Disclosure may have been negated by the fact that they originated from a Directed Disclosure. It’s also worth noting that L3Harris submitted an additional seven (7) Voluntary Disclosures that DDTC deemed were unrelated, and therefore, these disclosures do seem to have had a mitigating effect on the final outcome for the company.
My second observation is that one of the categories of violations addresses the internal Systemic Administrative Issues within L3Harris with respect to the company’s DSP-73 licenses. These types of violations are not new to Consent Agreements. However, with L3Harris, the range of violations involving DSP-73s was sufficiently noteworthy to bear the title “systemic.”
Next, although rarely seen in Consent Agreements, this time we find L3Harris being cited for failure to report a Part 130 payment on a Technical Assistance Agreement. The question in particular states: “The applicant or its vendors have not paid, nor offered, nor agreed to pay, in respect of any sale for which a license or approval is requested, political contributions, fees or commissions in amounts as specified in 22 CFR 130.9(a).” L3 Harris later submitted a revised Part 130 letter disclosing that a commission in an amount that required reporting had, in fact, been promised to an international marketing representative for facilitating the agreement subject to a covered TAA.
The total penalty assessed for these violations is $13 million, of which, $6.5 million will be suspended to institute remedial actions and a robust compliance program. L3Harris must name a Special Compliance Official for two years and the option of an Internal Special Compliance Official for one year – and both of these officials must be approved by DDTC. In addition, the company must have two audits conducted by an outside consultant with expertise in AECA and ITAR matters, along with the usual list of corrective and remedial requirements.
While the entire Proposed Charging Letter and Agreement are well worth a review, the real “take home” for me is the issue over Directed and Voluntary Disclosures. The key word here is (and has always been) “voluntary.” However, choosing not to go forward with a disclosure assumes the risk that the U.S. Government will not find out about the problems on its own – and this, as seen here, can only succeed in compounding the issues a company faces if/when the government does find out. DDTC encourages Voluntary Disclosures and the filing of Initial Notifications, even when suspected violations are uncovered. Such practices do not merely become a safety net for the company’s protection, but they also provide the mitigation of penalties which can be a monetary and reputation savings to a company.
Initial notifications and Voluntary Disclosures underscore the compliance commitment of a company and should be exercised as a precaution to more dire actions by the U.S. Government. As L3Harris found out, “voluntary” disclosures filed after Directed (i.e., “mandatory”) Disclosures have little to no mitigating value in the end.
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Jim McShane is a Sr. Consultant, Trade Compliance for Export Solutions -- a full-service consulting firm specializing in ITAR and EAR regulations.