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ITAR Penalties

by Jason Olinger

This post is part of the student blogger project from the summer session of Space Security Law.

Jason Olinger is a second year law and graduate student working towards a Certificate in Remote Sensing, Air, and Space Law and a Masters in Global Business. Prior to attending law school Jason graduated from the University of Alabama with a degrees in Political Science and Economics. He is a former NCAA Baseball Academic All-Conference athlete and currently works in the aviation industry.

To better understand how to limit the civil and criminal liability of companies falling under ITAR’s regulatory umbrella, we delve into the black letter law. Generally items are “included in the Munitions List when they are designed principally for military, as opposed to commercial, applications.”1 In these circumstances a license is required for any defense related items listed.2 The penalties for not obtaining this licensing in the proper situations can be grave. The consequences for violating ITAR can be imprisonment, fines up to $1 million per violation, or both.3

Boeing Company was made a recent example. Boeing paid more the $15 million in fines for the unlicensed foreign sales of commercial aircraft including a gyroscopic microchip listed on the US Munitions List (ML) and falling under the regulatory power of ITAR.4 This was the fourth in a series of violations committed by Boeing in trying to sell their aircraft.5 In selling their product Boeing effectively exported sensitive technological information to foreign nationals.

It is important to understand when a company has exported to a foreign national under the ITAR definition in order to avoid costly situations such as Boeing experienced. Exportation is defined by government as disclosing or transferring any information or items to a foreign person in the United States or abroad.6 Further, information can be anything required for design, development, production, manufacture, assembly, operation, repair, testing, maintenance, or modification of [items on the Munitions list alluding to the aforementioned].7 ITAR continues to broaden in its authority with every stroke. Companies are additionally liable, not only for their sale to foreign nationals, but for the potential sale of others to foreign nationals within their chain of commerce. Simply put, if Boeing were to sell an aircraft to Bill Gates and Bill Gates in turn sold it to Liang Wengen, Boeing could very well be in violation of the ITAR regulations. The risk of violating ITAR in a complicated global structure under which US companies are participatory, places extreme burden on those that do international business, be it hiring employees, transferring items intra-company, or engaging in global commerce.

There will have to be a relaxation of the chokehold ITAR has over American Industry. Relaxing policies could allow American Industry to better compete in the global technology market, and as a result enhance domestic research discovery through additional revenue and investment. Whether such a strategy would reinvigorate an eroding technological lead, once undeniably held by the United States, is extremely debatable. However, understanding that a relaxation on business regulation administered under the ITAR umbrella will result in less financial burden and greater incentives to do business with United States industry currently hindered by ITAR, is a gleaming fact. Further, it is extremely likely that industry will self-regulate out of selfish interests that result in at least the same level of national security. If the United States is a worthy customer as believed, businesses will not want to take actions, such as exporting technology, that would hurt its customer relationship to such an extent as to financially shoot itself in the foot.
1 Christopher F. Corr, “The Wall Still Stands! Complying with Export Controls on Technology Transfers in the Post-Cold War, Post-9/11 Era,” 25 HOUS. J. INT’L L. 441, 464 (2003)
2 C.F.R. §§ 125.2, 125.3.
3 11 CFR § 127.4
4 “Boeing Company Arms Export Control Act Violation(QRS-11 Gyrochip),” Federal Contractor Misconduct Database.,73,222,html?CaseID=913. Retrieved 18 July 2012.
5 Id.
6 22 C.F.R. § 120.17
7 22 C.F.R. § 120.10.