2/2/09 10:15 AM6 min read

Luxembourg-based Company and Affiliates Pay $25 Million Fine to US Government

2009/02/02

By: Danielle McClellan, Maarten Sengers and John Black

Qioptiq S.a.r.l (Qioptiq), the owner of a night vision equipment producer in Singapore and related affiliates in the UK and the US, recently agreed to pay $25 million in fines for US International Traffic in Arms (ITAR) violations. The bulk of the 163 charges relate to Qioptiq Singapore activities, including disclosure of unlicensed US night vision technology to its own employees in Singapore, the export of ITAR jurisdiction technology to a variety of countries, and the manufacture and unlicensed export of night vision assemblies using US origin ITAR data to a variety of countries. The large fine is due to the fact that the majority of the violations involved illegal transfers to China (or Chinese national employees) and Iran, two countries that are subject to particularly restrictive ITAR proscribed country status.

SPECIAL NOTE: The Export Compliance Training Institute will discuss the case in detail and look at practical steps companies may take to avoid such fines at its upcoming seminars on US export and reexport controls in Singapore on March 1-4, 2009. Details available at: http://learnexportcompliance.com/seminars/ecti-2010-singapore-seminar.pdf

Qioptiq obtained several Thales High Technology Optic Group companies, including Thales Electro-Optics Pte Limited, Singapore (Thales Singapore), Avimo Singapore (predecessor to Thales Singapore), Thales Optical Coatings, Limited, UK and Thales Optem, Inc., NY (Thales NY) in December 2005. (For the purpose of this article we often will refer to the collective group of companies in Singapore as Qioptiq unless otherwise specified, and not make the distinction between whether violations occurred when the entity was Thales or Qioptiq.) The companies’ primary business is the manufacturing of optical components used in both commercial and military applications. Before the purchase, Thales voluntarily disclosed some of the ITAR violations to the US Government and agreed that its successor company Qioptiq would conduct a thorough review of ITAR compliance over the preceding five years, (and further in some situations). Because of the Thales agreement with the US Government Qioptiq inherited many of the violations when it acquired the Thales companies.

Overview of the Violations by Singapore Companies

Qioptiq’s violations involved the transfer of ITAR-controlled technical data and hardware to certain people in Singapore and to other countries. The ITAR controls US origin technical data and hardware. The ITAR also asserts jurisdiction over any “derivative” technology, technical data, or hardware that is developed in Singapore using US technical data. If a company in Singapore uses information from a US drawing to develop a new drawing in Singapore, the ITAR controls the Singapore drawing just as strictly as the original US drawing.

Some of the violations involved Qioptiq transferring “derivative” technical data and items made using that “derivative data, while other violations involved transferring US origin technical data and hardware. We will refer to both US origin and “derivative” items as ITAR-controlled while we take a quick look at a summary of the violations by Qioptiq:

A large part of the violations involved Qioptiq transferring ITAR-controlled technical data to its own employees in Singapore who were nationals of countries other than, or in addition to Singapore. The ITAR prohibits a Singapore company from sharing ITAR-controlled technical data with its employees who are citizens of a country other than Singapore or who have another citizenship in addition to Singapore citizenship. According to the US Government, Qioptiq violated the ITAR when it allowed its employees who are located in Singapore and are citizens of China, Myanmar, India, Indonesia, Germany, and Malaysia to have access to US technical data.

Another substantial portion of the violations involved Qioptiq transferring ITAR-controlled technical data to subcontractors in Singapore and in China.

A third group of violations involved Qioptiq transferring ITAR-controlled technical data and equipment to a wide range of countries including NATO member countries, Switzerland, Israel, Egypt, Russia, Cyprus, Pakistan and Iran.

Overview of the Violations by Companies outside of Singapore

The following are short explanations of some of the other alleged violations:

Qioptiq in New York illegally exported ITAR-controlled technical data to Singapore. Qioptiq in New York had a State Department-approved Technical Assistance Agreement (TAA) to export to Singapore but it exported technical data that was not authorized by the approved TAA and it exported before the approved TAA was signed by all involved parties.

Thales California, now Qioptiq Polymer California, illegally exported ITAR controlled lenses, technical data and defense services from the United States to Israel. Thales California also exported the lenses to Singapore and France without obtaining the proper licenses.

Qioptiq UK illegally transferred ITAR-controlled technical data to subcontractors in Belgium, Germany, Netherlands, Singapore, Switzerland, and the UK.

Avimo Thin Films Technology and Thales Optical Coatings Limited in the, UK knowingly used classified night vision filter specifications that ITT Night Vision illegally exported from the United States to manufacture filter coatings even though they were not authorized as a secure facility.

Thales Optische Systeme GmbH in Germany illegally transferred ITAR controlled drawings to a Thales company in Hungary who then illegally transferred the ITAR controlled drawings to a company in Germany and a company in Russia.

DDTC specifically mentioned in the charging documents that Thales Singapore’s had been involved with ITT Night Vision, who has pled guilty and reached a settlement agreement that included a $100 million penalty, the largest US ITAR fine ever. In that case ITT illegally exported defense-related technical data involving night vision goggles to Singapore and the UK and ITT technical data illegally ended up in the hands of Chinese citizens. Thales Singapore worked with ITT to help create ITT’s Enhanced Night Vision Goggle (ENVG) program, it might even be the case that that they were one of the companies to which ITT illegally exported as part of ITT’s $100 million penalty case.

After Qioptiq conducted its thorough review of the records of Thales Singapore, Thales UK, and Thales US it was said in the charging letter that the units had, “limited or no ITAR training and a longstanding lack of support for ITAR.”

Ten million dollars of the $25 million penalty will be suspended and must be used to apply remedial compliance measures. The Department was sure to include in the charging letter that, “Had the Department not taken into consideration as significant mitigating factors the Respondents [Qioptiq] voluntary disclosures…the Department could have charged the Respondent with additional violations, and could have pursued more severe penalties.”

So Why the Huge Fine?

This $25 million dollar settlement agreement is among the highest ever for activities conducted primarily outside of the United States. In addition to the fact that there are 163 alleged charges, there are two other key reasons for the large penalty.

The first reason is the case involved illegal transfers to Iran and China—it is difficult to imagine any countries that are more sensitive in terms of US defense trade policy. I don’t have a list of countries for which I recommend violations (although UK and Canada come to mind), but clearly Iran and China are the worst possible countries for ITAR violations.

The second reason is that the US Government claims that it discovered a clear pattern that shows that the companies involved did not really want to try to comply with the ITAR, or, in the words of the State Department, the companies demonstrated “a longstanding lack of support for ITAR.” The State Department’s draft charging letter includes a fairly long list of factors that appear to show that the companies’ primary objective was to minimize the burdens of complying with the ITAR, and, I might add, ignoring the ITAR and not spending money and resources on ITAR compliance is an effective way to minimize compliance burdens—until you get caught. Once the State Department knows about your violations, a record of “lack of support” for ITAR compliance is going to cost you a lot more in extra monetary penalties in addition to a larger amount of US Government scrutiny of your company after you paid the fine. Nobody wants to pay big fines, and even worse, nobody wants the US Government watching their every move after they pay the fine.

Additional details from the State Department: