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J.E. Bartlett: “A New DDTC Consent Agreement Says: ‘Train Your Empowered Officials!’”
* Author: James E. Bartlett III, Partner & Director, firstname.lastname@example.org.
If your U.S. company employs a Licensed Customs Broker and an Empowered Official under the International Traffic in Arms Regulations (ITAR), you have comfort in knowing that your Customs Broker had to study for months to pass a difficult government examination to get that broker’s license. But what about your ITAR Empowered Official? There is no examination, and no specific study or certification is required. To become an EO, ITAR § 120.25(a) requires only that the EO be a U.S. person (ITAR § 120.15), and:
(1) is directly employed by the applicant or a subsidiary in a position having authority for policy or management within the applicant organization;
(2) has been empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant;
(3) understands the provisions and requirements of the various export control statutes and regulations, and the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and the ITAR; and
(4) has the independent authority to:
(i) inquire into any aspect of a proposed export, temporary import, or brokering activity by the applicant;
(ii) verify the legality of the transaction and the accuracy of the information to be submitted; and
(iii) refuse to sign any license application or other request for approval without prejudice or other adverse recourse.
So a company might get away with pointing at a company salesman, a shipping clerk, an office admin, or even the company plumber without any export control training, and say, “Our former ITAR Empowered Official retired yesterday, and we haven’t hired a replacement yet, so congratulations! Here is your written empowerment designation letter. You are our new ITAR Empowered Official. Now sit down and sign all these export license applications.”
For compliance trainers, there’s nothing better than a bad example, like former Univ. of Tennessee professor John Reese Roth, Ph.D., sentenced to 4 years in prison for ITAR violations, or that beautiful slide created years ago by Mark Menefee of BIS/OEE containing dozens of corporate logos of companies fined for export violations. But until a few weeks ago, we did not have an example of a company being punished for not appointing an Empowered Official who was well trained enough to understand export control regulations.
Now we have a new bad example: R.E. Darling Industries settled DDTC charges that the ITAR-registered company failed to appoint a qualified EO. Specifically, DDTC charged that R.E. Darling’s EO “was not in a position of having authority for policy or management within R.E. Darling’s organization … [and] did not understand the provisions and requirements of the various export statutes and regulations.” It appears that the EO “prepared, signed, and submitted license applications that reflected a deficient understanding of the licensing process and the regulations.” DDTC charged Darling Industries with six ITAR violations, including appointing an EO who did not meet the ITAR § 120.25(a) requirements. Under the Consent Agreement, the company settled for a fine of $400,000 (with $200,000 permitted to be used for remedial compliance measures) and other remedies, including appointing a Special Compliance Officer, undergoing a mandatory external compliance audit, and ensuring “that adequate resources are dedicated to ITAR compliance.”
DDTC does not require specific training or a certification process for the EO position, but companies must take the appointment of an EO seriously. That person must have the qualifications listed ITAR § 120.25(a) before acting as the company’s EO. Companies must also spend the time and money necessary to keep that EO trained and knowledgeable about these requirements. The R.E. Darling consent agreement should serve as a timely warning to all ITAR registered companies.