On April 24, 2018, FLIR Systems, Inc. (“FLIR”) entered into a consent agreement with the Directorate of Defense Trade Controls (“DDTC”) for alleged violations of the International Traffic in Arms Regulations (“ITAR”). FLIR manufactures and exports advanced sensors and integrated sensor systems for various military and commercial platforms used to protect borders, gather intelligence, and protect critical infrastructure. Notably, the consent agreement was reached after FLIR submitted 18 voluntary self-disclosures (“VSD”) between 2008 and 2017.

As part of the agreement, FLIR is required to pay a civil penalty of $30,000,000.[1] FLIR is also required to appoint a designated Special Compliance Officer (“SCO”) for consent agreement compliance and oversight.  The alleged violations include: unauthorized exports to foreign person employees; unauthorized provisions of defense services to various countries, including proscribed destinations; failure to properly apply for and manage licenses and exemptions (violations of provisos, terms and conditions of licenses); and undisclosed payments under Part 130 of the ITAR.

Between April 3, 2008 and August 24, 2012, FLIR submitted four VSDs describing the unauthorized export of technical data and defense articles[2] and the unauthorized provision of defense services to dual national and third country national employees from 15 countries. In 2014, however, FLIR disclosed they had not previously reported the full scope of the violations. Among the many violations, FLIR did not collect the citizenship information necessary to determine licensing requirements for its foreign person employees. Further, the manner in which FLIR granted employees permissions to the IT system resulted in unauthorized access to ITAR-controlled technical data. Specifically, FLIR reported that approximately 1,350 foreign person employees had access to ITAR-controlled technical data located on the company’s servers in 22 non-U.S. facilities. Foreign persons had access to technical data at their assigned worksites, as well as at FLIR’s worksites in foreign countries.

In addition, FLIR had submitted VSDs related to the unauthorized exports of defense articles, the failure to comply with terms and conditions of authorizations, the misuse of exemptions, inaccurate or incomplete shipping documents, and the failure to obtain proper license endorsements. Between 2007 and 2013, one or more violations occurred with regards to each of 32 licenses reviewed by DDTC. This included inaccurately reporting the quantities of items shipped, the failure to record shipments at all, failure to return items to the U.S. prior to license expiration, and the destruction or retransfer of defense articles without authorization.

FLIR also failed to reflect a corporate reorganization in new license submissions and existing licenses and agreements. As a result, FLIR exported defense articles and provided defense services in licenses and agreements that did not reflect the new subsidiary’s role in violation of the ITAR.

Finally, in 2011 FLIR disclosed violations related to the failure to report payments of political contributions, fees, and commissions as required by Part 130 of the ITAR. However, in 2016 with respect to 19 technical assistance agreements involving the maintenance or installation of FLIR’s thermal imaging systems, FLIR failed to submit reports concerning payments of political contributions, fees, and commissions. The DDTC found that FLIR had not implemented the promised corrective measures from 2011, and the reports covered $8,000,000 of actual fees or commissions paid by FLIR.

In assessing the penalty, DDTC considered a number of mitigating factors such as the submission of VSDs, the company’s agreement to toll the statutory period, and self-initiated compliance program improvements during the course of DDTC’s review. Nevertheless, DDTC also considered aggravating factors such as significant compliance program and internal control deficiencies; lack of ITAR expertise and senior leadership oversight during time periods covered by VSDs; failure to properly investigate, uncover, and disclose violations; the frequency and repetitive nature of the violations; and failure to implement compliance measures represented to DDTC in VSD submissions.

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Companies should not get too comfortable submitting multiple VSDs to DDTC without properly conducting in-depth internal reviews designed to uncover all violations.  As seen in the FLIR case, a company’s failure to fully disclose all violations, even in cases of VSDs, can be considered an aggravating factor. Further, if your company has recently submitted a VSD, you should ensure all promised corrective measures are fully implemented. In cases of multiple VSDs, you should compile a list of all the VSD submissions along with the corrective measures described in each and audit your internal procedures to ensure these corrective measures have been fully implemented. You should also ensure the instituted corrective measures have worked in preventing or detecting recurring violations, and if they are not, consider developing and rolling out new procedures as soon as possible.

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