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Export Control for Government Contractors - ITAR

Posted by Mike Anderson on Mon, Jul 07, 2014 @ 06:00 AM

Many government contractors are subject to the International Traffic in Arms Regulations (ITAR) but may not realize the implications of these regulations.  Some people are under the impression that the regulation only applies to the export of products outside the United States.  The regulations, in fact, also cover technical data and software.   This includes not only design data but covers training manuals, classified information, consulting, engineering, technical services and data.  The regulations also cover this information even if it does not leave the United States physically.  For instance, if a foreign visitor in a US facility is exposed to covered items, or an oral description to a foreign person would constitute a violation of the regulations. Violation of the ITAR regulations can result in stiff penalties, including:

  • Criminal Sanctions - including up to 20 years in prison
    • Against Company
    • Against Officers & Directors
    • Against employees in their individual capacities
  • Fines - up to $1,000,000 per violation
  • Press Release
  • Debarment
    • From exporting defense articles & services
    • From government contracting

So how does a small business government contractor know when the regulations apply and when they should do something?  The best policy is to interpret conservatively to avoid still penalties. You should review your contract for the following terms:

The key is the US Munitions List which is part 121 of the ITAR (22 CFR 121).  If your product or service is listed on the USML (regardless of what your contract says) you will be required to register as a manufacturer or broker (even if you don't export the item) and will be required to obtain an export license if you plan on exporting the item either physically or by showing to a foreign person in the US.  Even if you plan on importing an item on the USML, you will be required to obtain registration from the Direcotorate of Defense Trade Controls (DDTC).  This process requires the following steps for a manufacturer:

  • A complete, but unsigned, DS2032 Statement of Registration
  • A completed, and signed, DS2032 (electronic signature not accepted)
  • Additional Documents
    • Articles of incorporation, business license, articles of organization or partnership agreement
    • Electronic payment confirmation
    • Annual brokering report, if applicable
  • Applicable Registration Fee (3 tier fee - first time $2,250)

There are also requirements for record retention related to ITAR controlled items.  Generally the mandatory requirement is to keep these records for a minimum of 5 years.  Each company should take these regulations seriously, especially if you are contracting with the DoD, NASA, DoE, Department of State, DHS or other agency with the potential of having an item listed on the USML.  So what is a minimum strategy for a small government contractor?  At a minimum, the contractor should:

  • Review all your company's products and service offerings to see if they are listed on:
    • USML
    • Commerce Control List
    • End Use Based Controls (15 CFR 744)
  • Apply, as needed:
    • DDTC registration
    • DDTC export license
    • BIS export license
  • Develop a company compliance program
    • Written policies & procedures
    • Documented training
    • Retain adequate records
    • Qualified export personnel
    • Identification of end use, ultimate destination & intermediate users prior to exporting anything

As you can see, ITAR restrictions are serious business.  This is not a clause in your contract to ignore or take lightly. 

 

Topics: ITAR, USML