A press release published today on the State Department website revealed that the Directorate of Defense Trade Controls exacted a consent decree from Aeroflex in Plainview, NY, under which, among other things, Aeroflex will pay $8 million in fines as a result of alleged violations of the International Traffic in Arms Regulations. Half of that amount will be suspended if DDTC approves various compliance expenditures by the company including the retaining of a special compliance official to conduct two internal audits.

The consent agreement and related documents have not yet been posted on the DDTC website so full details of what got Aeroflex into hot water are not immediately apparent. However, the press release indicates that “nearly all” of the violations were voluntarily disclosed by Aeroflex to DDTC, making this a drastic departure from the way DDTC normally treats voluntary disclosures. The press release also states that the exports at issue largely resulted “from the failure to properly establish jurisdiction over defense articles and technical data,” suggesting that Aeroflex did not have internal procedures to classify its products before exporting them.

One statement in the press release, however, is particularly interesting. The State Department accused Aeroflex of “causing unauthorized exports of ITAR-controlled microelectronics by domestic purchasers.” I am not at all sure what that means but my guess is that it may mean that Aeroflex “caused” unauthorized exports by domestic purchasers by selling them goods without identifying them as ITAR controlled, probably because Aeroflex had not classified the items itself and did not itself know that they were ITAR-controlled. If this is the case, domestic producers of defense articles best run for cover since a vast number of them sell ITAR-controlled products to domestic purchasers without making specific disclosures that the items are export controlled. Now companies should be concerned that the failure to make such a disclosure to domestic purchasers can lead to substantial fines.

We will have a better idea of what is involved here once the underlying documents are released, and I will post on them once that happens.

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