Executives: Be Wary of Export Regulations

By McVey, Thomas B. | National Defense, January 2016 | Go to article overview

Executives: Be Wary of Export Regulations


McVey, Thomas B., National Defense


One of the important legal requirements facing defense contractors is compliance with International Traffic in Arms Regulations and export controls.

ITAR are the Department of State rules that govern the defense industry's exports. Companion controls promulgated by the Department of Commerce's bureau of industry and security, known as the Export Administration Regulations, spell out the rules to export commercial and dual-use items.

These apply beyond export transactions to include many domestic activities of U.S. defense firms - they can apply even if the company's only customer is the U.S. government.

Due to the potential civil and criminal liability involved, it is imperative for defense firms to understand these laws and have procedures to comply with them.

Export laws create legal risk not just for corporate entities but also for their officers and directors in their personal capacities as well.

One recent case exemplifies this risk for individual officers and directors. A South Carolina company and two of its executives were charged with export control violations in connection with the sale of armored vehicles to the United Arab Emirates and other countries.

According to charging documents, the U.S. company and its two UAE affiliates transferred U.S.-origin vehicles retrofitted with ballistic steel and bulletproof glass to the UAE and other countries in at least nine instances in violation of U.S. export laws. The alleged violations include exporting the controlled vehicles to Canada with knowledge that the vehicles would be re-exported to other countries without the requisite re-export authorization, and the re-export of U.S.-origin vehicles from the UAE to other destinations without requisite re-export authorization.

What is noteworthy in the case is that the company's chief executive officer and a vice president were also charged in their individual capacities. Charges against the individuals included causing, aiding and abetting unlicensed transfers and a false statement to the bureau in violation of the Export Administration Regulations. The individuals each had separate charging letters, enforcement orders, settlement agreements and penalties.

The parties - entities and individuals - agreed to a total of $3.5 million in penalties, of which $1.5 million was suspended subject to the respondents not committing further export violations during a three-year probationary period.

This case is yet another example of U.S. government officials pursuing claims against individuals as additional leverage in enforcing the export laws. Other recent cases involving persons individually charged for export violations resulted in prison sentences in addition to fines. In some cases, the individuals were acting in their capacities as employees or officers of exporting companies, and in others they were acting alone.

In one instance, the employee was a senior export compliance officer and empowered official of a major U.S. defense contractor. Many of the cases against individuals are criminal prosecutions with significant financial penalties and prison sentences. …

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