The International Traffic in Arms Regulations (“ITAR”)¹ comprise but one of many U.S. export controls with surprisingly broad reach. ITAR, implemented pursuant to the Arms Control Export Act (the “ACEA”) in furtherance of “world peace and security and foreign policy of the United States,” governs, among other things, the export of “defense articles.”² ITAR defines the terms “export” and “defense article” very broadly, such that the applicability of ITAR is by no means limited to companies who manufacture and ship weapons to foreign military entities. To the contrary, under ITAR, even day-to-day activities, such as e-mailing and Internet downloading, can potentially constitute “exports,” and commonplace objects that intuitively may seem unrelated to military use, such as eye goggles and radios, will in some cases be considered “defense articles.”

The United States Department of State Directorate of Defense Trade Controls (the “DDTC”) vigorously enforces ITAR, and companies that violate their ITAR compliance obligations may find themselves subject to crippling fines or their principals subject to jail time. Thus, it is crucial that every company examine whether its business activities may be governed by ITAR.

This article will provide a compliance starting point for any company that may be unaware of ITAR’s requirements. The article is intended as a basic overview of ITAR only and does not purport to address all relevant trade compliance issues (whether related to ITAR or otherwise) that may pertain to a
particular company. Note that ITAR is only one of many U.S. trade controls, and there may be other laws or regulations in addition to or in lieu of ITAR — including, by way of example, the Export Administration Regulations, 15 C.F.R. §§ 730- 774 — that may apply to a company’s exporting activities.

From Automatic Weapons to Safety Goggles: ITAR ‘s Broad Definition of Defense Articles

The United States Munitions List (the “USML”) is the section of ITAR that contains descriptions of all defense articles, technical data and defense services regulated by ITAR.³ The USML is comprised in large part of firearms, other armaments and ammunition that, by nature, seem defense-related.

Other items, such as scuba equipment and cameras, are considered “defense articles” whenever they are designed, modified or configured for military application.⁴ As a general rule, any item, including each of the following items listed below, that is designed, modified or configured for military
application will be covered by the USML:⁵

• Electronics or components
• Switches
• Aircraft and/or component parts
• Wiring
• Chemicals
• Temperature-control devices
• Software
• Metals
• Protective equipment (including eye wear)
• Navigation devices (including GPS components)
• Dyes
• Scuba equipment
• Fabric
• Medical equipment
• Energy storage devices (including batteries)
• Engines or power transmission equipment
• Generators
• Tooling

Even the slightest modification made to an item for the purpose of meeting military specifications can potentially transform an item into a defense article. For example, U.S. Army fatigues traditionally have been fungible with their civilian version. However, the issue item now incorporates infrared reflective squares. The purpose of these squares is to enable soldiers to discriminate between “friend and foe” using night-vision equipment. The incorporation of these squares turns ordinary clothing into “defense articles.”

The United States Department of State Directorate of Defense Trade Controls vigorously enforces ITAR, and companies that violate their ITAR compliance obligations may find themselves subject to crippling fines or their principals subject to jail time.

An item that contains a “defense article” as a component part may itself be considered a “defense article.” Also, the intended use of the article or service after the export (i.e., whether it will be used for a military or civilian purpose) is generally irrelevant in determining whether that item is a “defense article” or “defense service.”⁶ For example, toothbrushes manufactured for issue by the Marine Corps would probably not be considered a defense article, because even though the toothbrushes are intended for military use, the brushes would not have been designed, modified or configured
for military use.⁷

It can be difficult to determine whether a particular item or service falls within the definition of “defense article” set forth in the USML. If, after reviewing the USML, a company is unsure whether its items or services are covered by ITAR, it may wish to request guidance from the DDTC in
the form of a Commodity Jurisdiction Request (CJR).⁸ Unfortunately, the processing time for CJRs
can significantly delay business dealings, since the processing will take at a minimum 95 days, and an item under commodity jurisdiction review by the DDTC should not be exported unless and until the DDTC renders its decision.

From Overseas Shipments to Internet Downloads: ITAR ‘s Broad Definition of Exports

ITAR defines “export” very broadly to include, among other things, (a) the sending or taking of a defense article outside of the U.S. in any manner; (b) the transfer or oral or visual disclosure of technical data to a foreign person, whether in the U.S. or abroad; and (c) the performance of a defense
service on behalf of, or for the benefit of, a foreign person, whether in the U.S. or abroad.⁹ The term “foreign person” refers to a natural person who is neither a U.S. citizen nor a U.S. permanent resident alien, and any foreign corporation, business association or other entity or group that is not organized to do business in the U.S.¹⁰ With these definitions in mind, depending on the circumstances, any of the following may be considered to be “exporting”:

• having a conversation with a foreign national employed
  by your company in your U.S. office in which you discuss
  technical specifications for a type of fabric used to
  manufacture medical face masks;
• sending an e-mail to a non-U.S. citizen that contains
  drawings for a piece of equipment;

The amount and type of penalty imposed for an ITAR violation is determined in the DDTC’s sole discretion.

• discussing software development plans with an employee
  or intern who is a foreign person;
• providing maintenance services to foreign users of software;
  and
• the downloading by a non-U.S. citizen of a PDF file
  containing technical data from an online data room set
  up by a U.S. company.

Clearly, the definition of “export” is not limited to traditional overseas shipments. Almost any communication, transport or delivery can potentially constitute an “export” under ITAR.

ITAR Registration and Licensing

ITAR provides that any person intending to export a defense article to a foreign person must register with the DDTC and apply for a license.¹¹ The license application may take anywhere between two weeks and two months or longer to process, depending in part on whether the DDTC involves other federal agencies in the review of an application. Companies should be aware that approximately 15 percent of all license applications are returned without action because “some required documentation is missing or because DDTC does not have confidence in some specific aspect of the transaction.”¹² Roughly 30 percent of license applications are approved subject to specific conditions or provisos, while only one percent of license applications are denied.¹³

ITAR Violations

Violations of ITAR — even if inadvertent — can have devastating consequences. The AECA provides that civil violations of ITAR are punishable by a maximum penalty of $500,000 per violation.¹⁴ Violations of ITAR may also result in the immediate suspension of all trade activities (called “debarment”) and the seizure of any articles (and the vessel carrying such articles) in transport to a foreign person.¹⁵ The DDTC takes ITAR violations very seriously. Over the last few years,
the U.S. State Department has imposed the largest administrative fines in history for violations of the AECA and ITAR, including the following:

• Boeing Company ($15 million)
• EDO Corporation ($2.5 million)
• General Motors/General Dynamics ($20 million)
• Goodrich/L3 ($7 million)
• Hughes Electronics ($32 million)
• ITT ($8 million)
• L3 Communications Corporation ($1.5 million)
• Lockheed-Martin ($3 million)
• Loral ($20 million)
• Raytheon ($25 million)¹⁶

The amount and type of penalty imposed for an ITAR violation are determined in the DDTC’s sole discretion. Because the exportation of defense articles is considered a sensitive matter involving national security, the DDTC’s decisions regarding ITAR violations are final and not subject to judicial review.¹⁷ In addition to civil penalties, the AECA provides that “willful” violation may result in criminal penalties in the amount of $1,000,000 per offense or up to 10 years imprisonment.¹⁸ Criminal violators, like their civil counterparts, are also subject to debarment.¹⁹

Conclusion

Because of the broad reach of ITAR, companies may be surprised to find that they are subject to ITAR even if their business dealings seemingly involve no international activity or defense-related transactions. Unfortunately, the AECA subjects ITAR violators — including unintentional violators — to
steep fines, debarment and, in some cases, even imprisonment. These potential consequences should prompt every company to examine its business dealings to determine what its ITAR or other U.S. trade-compliance obligations may be.

Endnotes