MITIGATING FACTORS AVAILABLE UNDER A VOLUNTARY SELF DISCLOSURE (“VSD”) WHEN AN ITAR VIOLATION HAS OCCURRED

ITAR and Export legal compliance is a niche area of law with numerous requirements that mandates compliance of companies and individuals who export products or information which is defense related or otherwise, in the best interest of the United States to regulate.

When a company or individual violate ITAR, they must self-report the infraction to the Directorate of Defense Trade Controls (DDTC). The disclosure is known as a “Voluntary Self-Disclosure” (VSD).

The law which governs VSDs is found at 15 CFR Section 764.5.  A VSD must disclose the date when the ITAR violation first happened, must provide the product or information which was improperly disclosed, and must provide the names of the parties involved in the violative transaction.

A VSD is the preferred method to disclose an ITAR violation occurrence or occurrences. Self-Disclosing reduces the possibility of criminal sanctions and helps minimize economic costs.

Penalties that may be imposed because of an ITAR violation include loss or suspension of export trade license, criminal referral to the Department of Justice, economic fines based on the egregiousness of the transaction, an admonishment letter, or a No-Action notice.

The DDTC considers eight mitigating factors to assess penalties.

1. Whether the violation was willful and reckless or intentional.
2. If the violation occurred by a company, was the violation done with the knowledge of senior management with the intent to profit from the transaction.
3. Whether the violation resulted in any harm to the United States. Particularly important is whether the agency would have approved the transaction.
4. The size and sophistication of the company. DDTC will often expect larger companies to have more sophisticated export compliance operations.
5. Whether the company had an export compliance program. An export compliance program includes having a designated compliance officer with written processes and training in place that assist employees in identifying compliance issues.
6. The remedial actions which the company has taken to assure that the violation does not happen again.
7. Whether the company fully cooperated with the DDTC to resolve the violation and has the company done full disclosure.
8. Whether there are any prior infractions even if said infractions are unrelated to the current Voluntary Self-Disclosure.

In compliance, it is important to have the necessary processes in place to identify potential issues before they become a problem. Having the processes in place, however, is not enough. Knowledge of the processes must be disseminated throughout the corporation so that individual employees are empowered to understand and identify potential export compliance issues and to help the employees understand the resources which are available. As part of the available resources, the company should identify an Export Compliance Officer which is charged with export compliance and who is independently empowered to enforce compliance even upon senior management.

Even with a good compliance program, issue may arise, including possible violations. When a violation or potential violation occurs, it is highly recommended to work with an experienced Law Firm with a track record in minimizing sanctions and complying with the disclosure requirements.

The Law Firm of Arcadier, BIGGIE AND Wood, PLLC, through its managing partner, Maurice Arcadier, has over 20 years of experience with ITAR and BIS legal compliance and has successfully helped individuals and corporate clients minimize their legal and economic exposure.

If you have an ITAR related issue, call our Law Firm to set up an ITAR consult. All consultations are confidential and are covered by the attorney/client privilege and work product privilege.