AAR INTERNATIONAL, INC. (AAR) [Consent Agreement (CA) Date: 071510] United States Department of State (DOS) - Settlement Summary (As of 083010)

Trade compliance professionals are encouraged to read all the available related documents at http://www.pmddtc.state.gov/compliance/consent_agreements/AARInternational.html.

Counts

Charges Monetary Fines

Mandated Action Plan Highlights Actual Remedial

General

1-12

13

Thirteen alleged violations of the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) for unauthorized export of defense articles including technical data by Presidential Airways, Inc., together with its affiliates Aviation Worldwide Services, LLC; Air Quest, Inc; STI Aviation, Inc; and EP Aviation LLC (hereafter collectively referred to as ”Presidential”).

- Presidential violated part 127,1(a)(1) of the ITAR, without authorization, exporting US Munitions List (USML) Categories VIII and XI articles 12 times to Afghanistan, the Bahamas, Burkina Faso and Iraq.

- Presidential violated part 123.10(a) and 127.1 of the ITAR once when they failed to obtain a Non-Transfer and Use Certificate (Form DSP-83) for the export and re-export of USML categories VIII and XI Significant Military Equipment (SME) defense articles.

None with this DOS settlement (see the NOTE below)

- Within 30 days of the CA, appoint and empower a qualified Internal Special Compliance Officer (ISCO) for the 18 month term of the CA to monitor, oversee and promote AECA and ITAR compliance in accordance with the CA

- Within 120 days of the CA in coordination with the ISCO conduct an internal AECA & ITAR review and establish actions to ensure sufficient resources are dedicated to compliance

- Within 12 months of the CA institute strengthened corporate export compliance procedures to address initial and ongoing general and focused training of all personnel at least annually

- Maintain complete training records - Implement or make improvements to a comprehensive

automated defense trade compliance system to strengthen internal controls for ensuring AECA and ITAR compliance

- Provide training to all employees to ensure that any type of electronic transmissions of ITAR-controlled technical data are sent in accordance with written policies and procedures

- Under ISCO supervision, have an outside consultant with AECA & ITAR expertise conduct an audit during the CA’s term

- Publicize the means of reporting concerns, complaints and violations via a compliance hot-line and anonymous reporting

- While the CA is in effect, arrange and facilitate with advance notice an onsite review by the State Department

- Prior to CA conclusion, submit a written certification that all CA mandated compliance measures have been implemented

ISCO RESPONSIBILITIES in three principal areas: Policy and Procedure includes: staffing, audits, classification and management of defense articles and services, screening, complying with terms, conditions and provisos, preventing, detecting and reporting violations services…. [CA, Items (a)1-21, pages 5-7]; Oversight includes: CA mandated compliance measures, executive level business plans, verifying reports, automated defense trade control and compliance systems, audits…. [CA. Items (b)1-8, pages 7-8]; Reporting includes: tracking, evaluating and reporting on ITAR violations and compliance resources, providing required reports to the Director, DTCC and AAR’s President and General Counsel…. [CA, Items (c)1-3, pages 8-9]; “The ISCO shall have full and complete access to all personnel, books, records, documents audits, reports, facilities and technical information relating to compliance with this CA.” [CA, Page 9. Para (14)]; “Presidential… shall take no action to interfere or impede the ISCO’s ability to monitor compliance with the CA.…” [CA, Item (15), page 9] NOTABLE QUOTES: “Prior to AAR Airlift’s acquisition of Presidential, Presidential was involved in several violations of the ITAR. Presidential’s disclosures demonstrated a lack of commitment to comply with the ITAR.” [See Proposed Charging Letter (PCL), Background, page 2, last paragraph (para)] “Presidential stated that this violation (the unauthorized export of an SME missile warning system) occurred because it was unaware of its legal and regulatory obligations when it exported the defense articles. This contention, however, was not supported by the record.” (See PCL, Unauthorized Exports of Defense Articles, including SME, page 4, 2

nd para). “Subsequently (between 2006 and 2009) Presidential discovered more ITAR violations and

submitted additional voluntary disclosures.” (See PCL, Unauthorized Exports of Defense Articles, including SME, page 4, 3rd

para) AAR DOS PRIOR SETTLEMENT HISTORY: None (AAR also has no settlement history with the US Department of Commerce, Bureau of Industry & Security). OTHER FACTS/ITEMS OF INTEREST: AAR is a public company and supplier of products and services to the worldwide aviation/aerospace industry. According to hoovers.com, AAR has more than 6,000 employees around the world and gross annual revenue in excess of 1 Billion dollars. Also NOTE: Presidental Airways, Inc., prior to AAR’s acquisition and before Blackwater’s name change to Xe Services LLC was doing business as Blackwater Aviation.

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Unlike previous successor liability cases, AAR, the buyer, did not incur any

monetary penalty.

The worse case fine could have been $13,000,000 for

13 criminal violations.

NOTE: The settlement does not mention the fact AAR

purchased Presidential from Xe Services LLC (formerly

Blackwater Worldwide).

Since the violations took place before AAR’s purchase and did not involve AAR in any way there will likely be a

subsequent settlement and fine(s) dealing with the

underlying alleged violations.