Exporting hardware and services is not for the faint of heart – the logistical aspects are consuming, identifying credible in-country representatives is challenging, and, above all else, payment is all but certain. On top of all of that, the U.S. regulations governing the permanent and temporary export of defense articles and defense services, the International Traffic in Arms Regulations (the ITAR), are highly complex. In fact, the ITAR’s complexity is such that it is almost inevitable that at some point an exporter or broker will make a mistake and overlook one of the ITAR’s requirements. It happens, and it happens to small businesses and multinational corporations alike.
When an ITAR violation does occur, though, it is critical that the exporter/broker be prepared to disclose the violation to the Office of Defense Trade Controls Compliance (DTCC) at the Department of State as soon as possible, as the likelihood of facing civil, administrative, or criminal penalties is significantly lower if an exporter/broker voluntarily discloses the violation (as opposed to doing so in response to a request from DTCC via a “directed” disclosure).
Section 127.12 of the ITAR addresses voluntary disclosures, and Subsection 127.12(c)(2) outlines the necessary contents of an effective voluntary disclosure, which are as follows:
A precise description of the nature and extent of the violation (e.g., an unauthorized shipment, doing business with a party denies U.S. export privileges, etc.);
The exact circumstances surrounding the violation (a thorough explanation of why, when, where, and how the violation occurred);
The complete identities and addresses of all persons known or suspected to be involved in the activities giving rise to the violation (including mailing, shipping, and e-mail addresses; telephone and fax/fascimile numbers; and any other known identifying information);
Department of State license numbers, exemption citation, or description of any other authorization, if applicable;
U.S. Munitions List category and subcategory, product description, quantity, and characteristics or technological capability of the hardware, technical data, or defense service involved;
A description of corrective actions already undertaken that clearly identifies the new compliance initiatives implemented to address the causes of the violations set forth in the voluntary disclosure and any internal disciplinary action taken; and how these corrective actions are designed to deter those particular violations from occurring again; and
The name and address of the person making the disclosure and a point of contact, if different, should further information be needed.
It is crucial that the foregoing information be included in a voluntary disclosure. Accordingly, if an exporter/broker cannot adequately collect such information at the outset, then it should file an initial voluntary disclosure with DTCC that describes the violation in general terms, conduct a “root cause analysis” and a thorough internal investigation, and submit a full disclosure within 60 days of the initial notification.
Of course, an exporter/broker cannot submit a voluntary disclosure if it is unaware in the first place that an ITAR violation has occurred. Check back in with us next week as we discuss practical measures exporters and brokers can implement to help ensure that they promptly detect potential violations.
About the Authors
Downrange authors Jennifer Huber and Adam Munitz are Partners in Fluet’s International Trade + Transactions Practice. Focusing primarily on the defense, security, and intelligence sectors, Jennifer and Adam help businesses translate their domestic successes into overseas growth and assist foreign entities with sensitive investments in, and acquisitions of, U.S. businesses.
Additional information regarding their capabilities and previous representations can be found on the International Trade + Transactions practice page.