Northrop Grumman Agrees to $15 Million Penalty for a Jurisdiction Mistake - Export Compliance Training Institute

So, you got some commercial hardware controlled by the Export Administration Regulations, and then you load some military software on to it. What do you have? You have an item that is now controlled by the International Traffic in Arms Regulations.

And even if the Commerce Department gives you many licenses for many exports of those things, you still have ITAR violations.

That seems to be what happened in this case in which Northrop Grumman Corp. reached a settlement agreement related to exports that Northrop Grumman discovered after it acquired Litton Industries in 2001. The violations Northrop discovered occurred from 1994-2001. According to documents provided to the State Department from Northrop the company had committed over 110 violations involving sales of 73 aircraft navigation systems. Northrop Grumman discovered the violations as it was working to install its compliance procedures in its new acquisition.

Here is a rundown of the charges from the proposed charging letter:

• Charge 1: Export of SME source code like that used on Air Force One to Russia
• Charges 2-28: Export of SME to 126.1 countries (China, Angola, Ukraine, Indonesia)
• Charges 29-55: Failure to notify DDTC re: exports to 126.1 countries
• Charges 56-110: Various violations including
  • 46 exports of SME to Austria, Brazil, Brunei, Greece, Israel, Malaysia, Singapore, South Korea, Thailand, UK, Yemen
  • 1 violation when provided defense services to Brazil, Indonesia, Israel, Malaysia, Singapore
  • 1 export of SME technical data in form of software to Canada
  • “[One time]” Litton Canada reexported without authorization SME including embedded software to Romania, South Korea, Indonesia, and UK
  • Five times exported SME software to UK
  • “[One time]” failed to get DSP-83 for export and reexport of SME software

A few interesting notes from the list of charges:

1. It is never good to have a violation involving source code like that used on Air Force One. If I were a lawyer, I would call the fact that the source code is like that used on Air Force One, an aggravating factor. Even though I am not a lawyer, I would still say that I think that violation probably aggravated the White House.
2. Violations involving the ITAR 126.1 prohibited countries also fall into the aggravating category.
3. Charges 29-55 are based on ITAR 126.1(e) which says it is an additional violation if you do not tell the State Department that you have illegally export to the 126.1 countries – the illegal export is one violation, failure to tell the State Department is a second violation for the same illegal export. Finally, the last violation on the list is for failure to get a DSP- 83-bet you never thought you could get a violation for merely failing to get a DSP-83.

Northrop agreed to pay a $10 million fine and spend an additional $5 million to improve its export compliance program. In addition, it agreed to allow DDTC to conduct compliance audits with minimal notice. As is often the case now, NG also agreed to appoint a Special Compliance Officer who is responsible for watching the company’s export activities and then reporting everything to DDTC. Finally, NG also agreed to implement a wide range of other burdensome compliance measures that are described in an 8-page annex to the consent agreement.

If you want to get an idea of the details of what you will have to do if you have significant ITAR violations, take a look at that 8-page “Annex of Compliance Measures.” For that annex and a copy of the consent agreement and the proposed charging letter, go to pmddtc.state.gov/ca_northrop_grumman_corporation.htm.