By: John Black and Brooke Driver
DDTC described Aeroflex Inc. as having a “Corporate-wide failure to properly determine export control jurisdiction. Despite the fact that in 2006, DDTC issued to Aeroflex a Commodity Jurisdiction determination showing how DDTC considers Aeroflex’s product to be on the U.S. Munitions List, Aeroflex failed to apply that rationale while classifying other products and failed to share that information broadly among all units of the company.
Certainly, two obvious practical lessons are 1) If a CJ shows you how DDTC wants you to classify your products, you should use that as clear guidelines to follow to classify products. 2) If one part of your company gets that CJ guidance, DDTC considers that your whole company received the guidance, so you should make sure you share important government classification rulings broadly within your company, because the government will hold everybody in your company responsible for knowing, even if many people were never told.
The technical aspects of the wrong classifications are an interesting read and relate to certain electronic components with performance capabilities that make them particularly useful in space applications. In short, Aeroflex argued that since an electronic component did not meet the five hardening criteria in USML Category XV(d), the electronic component was not on the USML. DDTC countered with the argument that the components are not in XV(d), but their performance characteristics mean they are specifically designed for space applications, so they are controlled in Category XV(e).
An interesting aspect of this case is that many of Aeroflex’s charges were based on Aeroflex causing other parties to illegally export or reexport its components, because the company told those parties that the components were not on the USML. As a result, many of the sensitive components ended up going to sensitive users and sensitive countries—yes, China. So we see that inaccurate classifications not only can cause you to export or reexport illegally; they can give you violations, because inaccurate classifications cause you to cause others to export or reexport illegally.
Aeroflex has agreed to settle with the State Department concerning its whopping 158 alleged ITAR violations, occurring between the years of 1999 and 2009. Throughout this time period, Aeroflex business units disclosed hundreds of ITAR violations, mainly due to a failure to correctly establish jurisdiction over defense articles and technical data.
While the two-year Consent Agreement technically states that Aeroflex will pay a civil penalty of $8 million, DDTC has agreed to suspend $4 million if Aeroflex uses that amount to improve its compliance program, including extensive improvement of compliance policies and procedures, the engagement of an Internal Special Compliance Official, two audits of its compliance program during the two-year Agreement term and compliance training for staff and principals. DDTC said that debarment was unnecessary at this time, because:
- Aeroflex disclosed most of its violations
- Cooperated with Department reviews
- Implemented or planned extensive remedial measures since 2008
It seems that Aeroflex has learned its (expensive) lesson, and although the price is high, the Department’s relative leniency proves that, in this case, Aeroflex made the right decision by choosing to own up to its mistakes.