By: John Black
Three articles addressing this critical issue follow. The first analyzes the ITAR and laws, the second discusses a formerly posted DDTC website notice, and the third provides the current DDTC RRT advice:
Effects of Conviction of BAE Systems plc of Conspiracy to Violate AECA/ITAR
by Louis K. Rothberg, Esq., Dilworth Paxson LLP, 202-452-0900, lrothberg@dilworthlaw.com
On March 1, 2010, BAE SYSTEMS PLC (BAES) pleaded guilty in US District Court in the District of Columbia to a Criminal Information which charged BAES with conspiracy under 18 USC §371 to violate several US laws, including conspiracy to violate the Arms Export Control Act [22 USC §2751 et. seq. (AECA)] and the International Traffic in Arms Regulations [22 CFR Parts 120-130 (ITAR)].
BAES was convicted and sentenced to pay a fine of $400 million.
However, in addition to payment of that fine, the status of BAES under the ITAR has changed. This Memorandum explains the ramifications for any exporter in dealing with BAES and its subsidiaries.
EFFECT ON PENDING LICENSE AND AGREEMENT APPLICATIONS – “DEBARMENT”
Pursuant to ITAR §127.7(b)(1) [22 CFR 127.7(b)(1)], a conviction of conspiracy to violate the AECA is a basis for statutory debarment under ITAR 127.7(c) [22 CFR 127.7(c)].
ITAR 127.7(c) and the AECA prohibits the issuance of licenses to persons and entities who have been convicted of violating certain statutes [the list of these statutes is contained in ITAR §120.27], including conspiracy to violate the AECA.
ITAR § 127.7(c) plainly states that it is the policy of the US Department of State not to consider applications for licenses or requests for approvals involving any person who has been convicted of conspiracy to violate the AECA, for a period of three years following conviction.
Accordingly, as the matter stands today, and based on a review of the ITAR provisions specified above, the Department of State will not consider applications for licenses or requests for approvals involving BAES, for a period of three years following conviction, i.e., until March 1, 2013.
However, the Department of State has discretion in the issuance of licenses in this matter and the Department may publicly announce a new or different policy on § 127.7(c) statutory debarment with specific reference to the BAES conviction of conspiracy to violate the AECA if certain statutory requirements are met.
EFFECT ON EXISTING LICENSES AND AGREEMENTS – “INELIGIBLE”
In addition to being a basis for statutory debarment and its effects on pending license applications discussed above, a person or entity convicted of conspiracy to violate the AECA, becomes immediately “ineligible” within the meaning ITAR §120.1(c) [22 CFR 120.1(c)] as a result of such conviction.
Pursuant to ITAR §127.1(c)(1) and (2), it is unlawful for a person with knowledge that BAES is “ineligible” pursuant to ITAR § 120.1(c), to directly or indirectly, in any manner or capacity, without prior disclosure of the facts to, and written authorization from the Departments of State’s Directorate of Defense Trade Controls, apply for, obtain, or use, any “export control document” for such “ineligible” person.
“Export control document” is exhaustively defined in ITAR §
127.2(b) and includes: an application for a permanent export or temporary import license; Shipper’s Export Declaration; invoice; purchase order; bill of lading; airway bill; or any other document used in the regulation or control of a defense article or defense service or technical data for which a license or approval is required by ITAR.
Accordingly, if you currently have an approved export license or approved Technical Assistance Agreement [TAA]/ Manufacturing Licensing Agreement [MLA] in which BAES appears “in any manner or capacity” you CANNOT now export or use such license or agreement without prior disclosure of the facts to, and written authorization from the Departments of State’s Directorate of Defense Trade Controls. This would be accomplished by submitting to DDTC a General Correspondence [GC] letter, explaining the particulars of the transaction you wish to engage in with BAE and requesting specific DDTC authorization to proceed with the transaction under the “export control document” in question.
DDTC/State Announces Temporary Hold on Applications Involving BAE Systems and Subsidiaries, and Then Hides the Announcement from the Public
by John Black
DDTC put the notice below on its website in early March 2010. The notice said DDTC was putting all applications involving BAE and its affiliates on hold and the hold will remain in place until further guidance is published in the Federal Register.
At some point took the notice off of its website. DDTC has not announced what, if anything, it plans to do to BAE.
This is not transparent government. Hopefully I don’t get shot or tazed for putting this notice here.
When the notice was on the DDTC website it was at: http://pmddtc.state.gov/documents/WebNotice_BAEplc20100301.pdf
Here is the text of the notice:
Web Notice - Licenses and Other Approvals Involving BAE Systems plc
On March 1, 2010, BAE Systems plc (BAES) pled guilty in the U.S. District Court for the District of Columbia to one count of conspiracy involving several violations of U.S. law, including violations of the Arms Export Control Act (AECA). BAES pled to conspiring to impede the lawful functions of the Departments of Defense and State by making false statements to the Departments of Defense and Justice about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act (FCPA), and by paying hundreds of millions of dollars in commission payments and not disclosing them in violation of U.S. export control laws. BAES was found to have intentionally failed to put appropriate, anti-bribery preventative measures in place, contrary to the representations it made to the United States government, and then made hundreds of millions of dollars in payments to third parties, while knowing of a high probability that the money would be used to influence foreign government decisions to favor BAES in the award of defense contracts. BAES failed to disclose these payments to the State Department, as it was required to do under U.S. law and regulations.
The Department of State is currently reviewing the plea agreement to determine what steps will be required under the AECA and the International Traffic in Arms Regulations (ITAR) with regard to license applications involving BAES and its subsidiaries. Until this review is completed, the Directorate of Defense Trade Controls has placed a temporary hold on all licenses or other approvals where BAES, or any of its subsidiaries, is an applicant, consignee, end user, manufacturer or source. This hold is effective immediately and will remain in place until further guidance has been published in the Federal Register.
DDTC RRT Tells Exporters to Ignore BAE’s ITAR Ineligible Status and Continue to Use Approvals
By John Black
On March 19, 2010, I sent an email to the Rapid Response Team (“RRT”) at DDTC and asked if I can “ignore” the part of the ITAR 127.1(c) and 127.2(b) that says that I cannot use ITAR approvals (licenses, agreements, exemptions) to deal with BAE Systems because BAE Systems is an ineligible person.
RRT told me in its email reply, “There is a hold on pending license applications involving BAE, but at present, all previously approved licenses and agreements involving BAE are still valid and may be used.”
RTT said when the US Government reaches a final settlement with BAE, DDTC will post further guidance on its website and in the Federal Register.
(RRT didn’t say if DDTC would remove that website guidance notice after it posted it. Haha)
The email from RRT had the standard disclaimer at the bottom that says if the advice given in the email is wrong, it is my problem, not DDTC’s problem.
DDTC apparently has received thousands of inquiries regarding the BAE situation. I would think a simple (unremoved) notice on the DDTC website would have eliminated most of those inquiries—but nobody asked me, probably for good reason.