BAES to Pay $79M for AECA & ITAR Violations, Limited Policy of Denial
On May 16, 2011, BAE Systems PLC (BAES), of the United Kingdom, entered into a civil settlement with the State Department and will pay an aggregate $79 million civil penalty for alleged violations of the Arms Export Control Act and the International Traffic in Arms Regulations. A policy of denial will also be imposed on three BAES non-U.S. subsidiaries.
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(BAES is a global defense, security and aerospace company, and is Europe's largest defense contractor.)
BAE to Pay Largest Civil Penalty in DOS History, but $10M May be Suspended
Under the four-year term of the Consent Agreement with the State Department (DOS), BAES, including its businesses, units, subsidiaries, and operating divisions and their assignees and successors -- except BAE Systems, Inc. and its subsidiaries --will pay an aggregate civil penalty of $79 million in fines and for remedial compliance measures, the largest civil penalty in DOS history.
DOS agreed to consider suspension of $10 million of this amount for qualified pre-and post-Consent Agreement remedial compliance measures. BAES also agreed to conduct oversight and auditing of its export compliance program for the duration of the Consent Agreement.
Allegedly Committed 2,600 Violations in Unauthorized Defense Brokering, Etc.
According to the Proposed Charging Letter, BAES allegedly committed an estimated 2,591 violations of the ITAR in connection with unauthorized brokering1 of U.S. defense articles and services, failure to register as a defense broker, failure to file annual broker reports, causing unauthorized defense brokering, failure to report the payment of fees or commissions associated with defense transactions, and failure to maintain records involving ITAR-controlled transactions..
(The violations were identified by DOS during a review of BAES’ conduct following its criminal conviction in March 2010, where BAE was ordered to pay $400 million in criminal fines for making false statements about it Foreign Corrupt Practices Act compliance program and for participating in a conspiracy to violate the AECA and the ITAR. See ITT's Online Archives or 02/16/11 news, 10021620, for BP summary.)
Policy of Denial for New Licenses & Apps by 3 Non-U.S. BAES Subsidiaries
The Consent Agreement outlines a policy of denial that DOS will impose on three non-U.S. BAES subsidiaries because of their substantial involvement in activities related to the conviction. These subsidiaries are BAE Systems CS&S International, Red Diamond Trading Ltd., and Poseidon Trading Investments Ltd., including their divisions and business units, and successor entities.
All licenses and other approvals granted prior to May 16, 2011, where any of the three referenced subsidiaries of BAES are a party are still valid. However, new applications for licenses or other approvals submitted to the Directorate of Defense Trade Controls (DDTC) that involve any of the these three BAES subsidiaries will be presumed to be denied and may be denied or returned without action, unless a request is made for an exception and an exception is granted.
The DDTC will accept on a case-by-case basis requests for exceptions to the policy of denial and will consider the following in its review: (i) whether the exception is warranted by overriding U.S. foreign policy or national security interests; (ii) whether the exception would further law enforcement interests consistent with the foreign policy or national security interests of the U.S., or (iii) if there are compelling existing circumstances that are consistent with the foreign policy or national security interests of the U.S.
Exporters wishing to apply for an exception to the policy of denial, known as a “Transaction Exception” (TE), should provide this exception request, including the relevant justification, either prior to or with their application.
Policy of Denial and Statutory Debarment to be Published in Federal Register
The Consent Agreement also outlines that as a result of BAES' March 2010 conviction for conspiracy to violate the AECA and the ITAR, a statutory debarment was imposed on BAES, and then immediately rescinded, and an administrative hold was imposed on BAES-related license authorization requests, which DOS states is also being released. A notice will be published in the Federal Register regarding this statutory debarment and reinstatement, as well as the policy (or presumption) of denial.
1Under the ITAR, "broker" means any person acting as an agent in negotiating or arranging contracts, purchases, sales, or transfers of defense articles or services. "Brokering activities" includes any action to facilitate the manufacture, export, or import of a defense article or service.
DDTC notice on its policy of denial is available here.
DOS notice on the statutory debarment and reinstatement, and policy of denail for BAES is available here.