International Trade Law News

The U.S. Government today imposed a $100 million criminal penalty on ITT Corporation (ITT) for "knowingly and willfully" illegally exporting military night vision goggle systems and related technical data to the People's Republic of China, Singapore, the United Kingdom and Japan and willfully omitting statement of material facts in arms export reports. The $100 million is one of the largest penalties ever paid in a criminal case. ITT Corporation will also be the first major defense contractor convicted of a criminal violation of the Arms Export Control Act.

According to count one of the Information, between March 2001 and August 2001, ITT exported or caused to be exported defense-related technical data to the People’s Republic of China, Singapore, and the United Kingdom without having first obtained a license or written authorization from the U.S. Department of State's Directorate of Defense Trade Controls. The technical data included information about a laser counter measure known as a “light interference filter” for military night vision goggle systems. These night vision goggles are designated as defense articles on the U.S. Munitions List, and companies are required to have a State Department license or written authorization before exporting them.

Count two of the Information charged that between April 2000 and October 2004, ITT left out material facts from Arms Exports Required Reports. The omission of these material facts made the reports misleading. The U.S. Government alleged that ITT was aware that it was violating its export licenses for night vision goggles but failed to take significant corrective action to stop the ongoing violations until shortly before it informed the Department of State about the violations.

ITT Corporation today entered into a Plea Agreement with the U.S. whereby ITT will plead guilty to counts one and two of the Information as described above. As part of the Plea Agreement, ITT will enter into a deferred prosecution agreement with the U.S. "whereby the U.S. will defer prosecution of counts three and four for five years." [Note: the reference to count four is contained in the Justice Department's Press Release. However, the final version of the Information contained only three counts]. In return, ITT must accept full responsibility for its illegal actions and must successfully implement an extensive Remedial Action Plan.

As part of the $100 million penalty, ITT Corporation will pay a $2 million criminal fine, a $50 million deferred prosecution penalty, and will forfeit $28 million to the United States as the proceeds of its illegal actions. ITT Corporation will also pay a $20 million monetary penalty to the Department of State.

Payment of the $50 million deferred prosecution penalty will be suspended for five years, subject to certain conditions. ITT Corporation can reduce this penalty on a dollar-for-dollar basis by investing $50 million toward the acceleration, development and fielding of the next generation in advanced night vision technology.

In addition, as part of its obligations under the Plea Agreement, ITT also agreed to implement a Remedial Action Plan that includes specific provisions relating to compliance management, compliance education and training, mandatory reporting of violations, internal compliance investigations and audits. The Remedial Action Plan also requires the CEOs of each ITT business unit and the CEO of ITT Corporation to sign an annual export compliance certification.

According to the Statement of Facts issued today in connection with the Plea Agreement, the U.S. Government's criminal investigation of ITT began on August 1, 2001, when Special Agents of the U.S. Department of Defense, Defense Criminal Investigative Service (DCIS) were made aware that a classified government document designated "Secret" "NOFORN had been illegally sent to an unauthorized facility in the United Kingdom by employees of ITT Night Vision, a division of ITT, located in Roanoke, Virginia. As a result of a referral from the DCIS and U.S. Customs in 2002, the U.S. Attorney for the Western District of Virginia assigned a federal prosecutor to the criminal investigation. During the course of the criminal investigation, the government uncovered at ITT a pattern of violations of U.S. export control laws spanning from the 1980s to 2006.

The Statement of Facts, which is a must read, is particularly disturbing since it reveals a culture of noncompliance, both by in-house ITT compliance personnel and the company's outside counsel with respect to the $8 million civil Consent Agreement that ITT reached in October 2004 with the State Department's Directorate of Defense Trade Controls (DDTC) for engaging in the unauthorized export of night vision products, technical data and defense services.

John Brownlee, the U.S. Attorney for the Western District of Virginia, today issued a statement that was particularly damaging to the company and to the company's outside counsel. Brownlee said that ITT "fought the government's investigation" and attempted "to essentially run out the clock on the statute of limitations." He said ITT's posture changed in 2005 when new CEO, Steven R. Loranger, hired new outside counsel and instructed the company to cooperate with the investigation. Mr. Brownlee said that "Mr. Loranger's cooperation and strong leadership may have saved ITT from permanent ruin."

In a press release issued today, Steven R. Loranger, chairman, president and chief executive officer of ITT said that "While this settlement relates to the actions of a few individuals in one of our 15 business units, we regret very much that these serious violations occurred. I want to reinforce, however, that the heart of our night vision goggles – the tube – is secure. No technical information regarding the tube was ever compromised." Loranger added, "Our renewed commitment to a culture of integrity and compliance applies to the entire company. ITT has a long track record as a trusted employer, supplier and partner, and we are firmly committed to ensuring that this will not happen again. These violations have made it clear that we had gaps in our compliance programs. The steps we are taking now will address these issues in a comprehensive way."

Specifically, ITT said that it is already begun implementing stricter new compliance measures such as:

• Insuring that all personnel understand and follow applicable regulations governing the export of critical technology
• Naming a new compliance officer
• Instituting a required ethics and compliance training program for all employees worldwide
• Developing a comprehensive computer tracking program to monitor all packages sent from ITT facilities
• Working with independent experts to refine and enhance the effectiveness of these measures.

Labels: DDTC, Export Controls

Today's Wall Street Journal reports on the increasing pressures faced by U.S. companies that continue to do business in Iran:

American companies that do business with countries subjected to U.S. trade sanctions face increasing financial and political pressure to stop as tensions between Iran and the United Nations Security Council worsen.

As a result, many companies are severing connections -- or plan to when current contracts end -- with customers in the 13 countries or regions penalized after the U.S. accused them of supporting terrorism, human-rights abuses or other unacceptable behavior.

The clamor spotlights how scores of U.S.-based companies manage to do business in sanctioned countries either through offshore subsidiaries or using export licenses granted by the Treasury Department. After seeing this traffic grow briskly for several years, companies now find lawmakers stepping up efforts to tighten restrictions and shareholders and fund managers steering investments away from countries in Washington's doghouse.

Labels: Sanctions; Iran

After a brief blogging hiatus, which was due to an ever-expanding caseload and lots of interesting overseas travel (including a trip to Zimbabwe), we have returned to the blogosphere. Thanks to all of our loyal readers, including the hundreds of subscribers, for the notes asking when we planned to resume our posts and other kind words. It's gratifying to know how many people actually read our posts and rely on International Trade Law News for news and information on international-trade related topics. In the coming weeks we hope to add additional contributors to ensure that the information on this site is updated as often as possible. As always, your comments and suggestions on topics of interest are always welcome.

Labels: General

A beautiful outdoor reception along the banks of the Miami River this evening was a great way to mark the beginning of the International Compliance Professionals Association's (ICPA) Fourth Annual Conference. The ICPA has come a long way in a very short period of time, and more than 500 trade compliance professionals are attending this year's sold-out conference. We look forward to attending the many interesting and informative import and export-related programs that will take place over the next few days. We also look forward to seeing many of our readers and subscribers in the coming days.

Labels: General

Labels: DDTC, Export Controls

As noted above, I recently returned from a trip to Zimbabwe. While a trip to spectacular Victoria Falls (the Smoke That Thunders) should be high on your travel "to do" list, the country is a mess due to the policies imposed by long-time leader Robert Mugabe. Zimbabwe's current claim to fame is the world's highest inflation rate, which is running at an annual rate of 1,700% and is predicted by the IMF to rise to 5,000%. Zimbabwe also has the third highest unemployment rate.

While the U.S. currently imposes targeted financial sanctions on the Mugabe regime, there is growing support for other countries, particularly those in Africa, to impose targeted sanctions on the Harare government. The Democratic Alliance, an opposition party in South Africa, today called for the Government of South Africa to "immediately end its quiet diplomacy and enact smart sanctions against Zimbabwean President Robert Mugabe, all members of his family and members of his government" and that the South African Government should "should stop 'pussy-footing' around the deepening humanitarian crisis in neighbouring Zimbabwe."

Labels: OFAC, Sanctions, Zimbabwe

Canada's The Globe and Mail newspaper today reports that ITAR "restrictions on military purchases are causing so much paralysis in Ottawa" that the Canadian Government proposed "scrapping its project" to purchase Sikorsky Cyclone helicopters to replace its aging fleet of Sea Kings. The paper reports that "the Canadian government is refusing to sign documents containing ITAR restrictions -- such as technical assistance agreements and export licences -- that are crucial to the production of the Sikorsky Cyclones."

The article also indicates that "some federal officials feel that a solution to ITAR is close to being made public. However, senior officials in the defence industry fear the new rules will favour only government bureaucrats, and that employees in the private sector will continue facing the same discriminatory measures."

Labels: Canada, Export Controls, ITAR