By Jim McShane, Export Solutions

For any industry, the “cost of doing business” inevitably increases over time. For companies engaged in ITAR-controlled work, the cost of not doing business compliantly is about to skyrocket.

DDTC has announced that, effective August 1, 2016, the maximum amount that can be levied as a Civil Monetary Penalty will change. Most notably, for each violation of 22 U.S.C. 2778 charged, the potential civil penalties will increase from $500,000 to $1,094,010. That’s an increase of more than 100% per violation.

The reason for this increase? Under the Federal Civil Penalties Inflation Adjustment Act of 2015, the Department of State was mandated by the Congress to make a one time “catch-up” adjustment to their Civil Monetary Penalties in order to account for inflation. The last time such an increase occurred was in 1985.

It gets better (or worse) depending on the level of compliance of your company. The new penalty amount ($1,094,010) is retroactive and can be charged against each violation regardless of when the actual violation occurred. So, a violation committed in 2012 and charged by DDTC in August of 2016 will not be at the $500,000 per violation penalty that existed in 2012, but instead will be the $1,094,010 which becomes effective on August 1 of this year. Also, this is not a one-time increase. DDTC will begin an annual adjustment for inflation to be implemented no later than January 15th of each year.

To put this into perspective, let’s say that in 2014 a company received a Proposed Charging Letter from DDTC alleging 282 violations. The Civil Monetary Penalties (in 2014) could have totaled $141 million. If the company were to receive this same Proposed Charging Letter after August 1, 2016, those 282 violations would carry a potential Civil Monetary Penalty of more than $308 million. (That’s more than the GDP of some countries.)

The good news is that, although DDTC is required to increase its maximum Civil Monetary Penalties, the agency still has the discretion to assess a lower penalty than the maximum amount. However, reducing a potential penalty of $500,000 per violation to (let’s say) $70,000 is much more easily accomplished and justified than reducing from $1,094,010 to the same amount.

So, as stated above, the cost of not doing business compliantly is going to get a whole lot more expensive. And yes, this mandate does not apply to DDTC alone. You can expect to see similar actions from other U.S. government regulatory agencies going forward.

Jim McShane is a Sr. Consultant, Trade Compliance for Export Solutions -- a full-service consulting firm specializing in ITAR and EAR regulations.