esterline-department of state settlement summary
DESCRIPTION
The March 5th, 2014, Consent Agreement between the US Department of State (DOS) and Esterline Technologies Corporation (Esterline) has a variety of important takeaways for trade compliance professionals at all levels in an organization. This one-page summary captures the important points of the settlement. While trade compliance/export control practitioners are encouraged to read all the documents, many C-level executives don’t have the interest or time to digest them including the Proposed Charging Letter, Consent Agreement and Order. These one-page summaries are bite-size tools that have proven education and training benefits. They have also consistently proven useful in beefing-up audit and assessment checklists.As usual there are some key lessons learned in the settlement documents. Particularly noteworthy was a faulty audit that failed to identify persistent compliance issues and inadequacies in their compliance program. Another item of interest and a recurring problem in many of these settlements is incorrect jurisdictional determinations. Esterline had the mistaken belief that all its products and the related technical data were subject to control of the Commerce Department. Again, as the State Department emphasizes in the Consent Agreement: “…the Commodity Jurisdiction (CJ) process, set forth in Section 120.4 of the ITAR, is the only official mechanism by which questions regarding jurisdiction and categorization may be addressed.” As you read this Settlement Summary and the complete set of documents, ask yourself what your organization is doing in these same areas. If enforcement came knocking at your door, what would they find? Do you and/or your organization have similar issues? If so, what are you doing to close the gaps?If you want to expand your compliance perspective and better understand the current enforcement environment, always review US Government (USG) case settlements. They have proven to be invaluable in highlighting what the USG is looking for and concerned about. Other high-profile one-page settlement summaries are available. Some are included here on scribd. For additional information, questions or requests for other such documents, please contact John Priecko, 703-895-1110, [email protected].TRANSCRIPT
ESTERLINE TECHNOLOGIES CORPORATION (Esterline) [Consent Agreement (CA) Date: 3/5/2014]
United States Department of State (DOS) - Settlement Summary (As of 4/15/2014) Trade compliance professionals are encouraged to read all of the settlement documents at www.pmddtc.state.gov/compliance/consent_agreements/Esterline.html.
Charges
Charges Summary
Monetary Fines
General Remedial Measures - CA Highlights Actual Remedial
General
1-217 218-223 224-260 261-280 281
282
Two-hundred and eighty-two alleged violations of the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) for:
- Unauthorized exports of defense articles, including technical data, and furnishing of defense services to Brazil, Burkina Faso, Canada, Chile, Columbia, Dominican Republic, Ecuador, El Salvador, France, Honduras, India, Liechtenstein, Mexico, Spain, South Korean and the United Kingdom
- Unauthorized temporary imports of defense articles
- Violating agreement terms and conditions
- Exporting without first reporting required information
- Failing to inform the Directorate of Defense Trade Controls (DDTC) if Esterline and vendors were paid, offered or agreed to pay fees, or commissions of $100,000 or more
- Failing to include on its ITAR registration a US subsidiary engaging in manufacturing and/or exporting of defense articles
$20,000,000 (Civil Penalty)
* $10,000,000
- Appoint with approval of the Director, DTC Compliance (DDTCC) a qualified individual as a Special Compliance Official (SCO) for two years of the CA and then an Internal SCO (ISCO) for one year
- Incorporate these measures into any business acquisitions and notify purchaser or merging party in writing at least 60 days prior to a such sale, merger or divestiture that the purchaser or merging party is bound by the terms and conditions of the CA
- Within 120 days of the CA date, in coordination with the SCO, conduct an internal review of AECA and ITAR compliance resources throughout its ITAR-regulated business units and establish necessary actions to ensure sufficient resources are dedicated to ITAR compliance, including the use of additional resources from cross-trained employees on a part time basis
- Continue to promote and publicize the availability of Esterline’s program for internal reporting of possible AECA/ITAR violations without fear of recrimination or retaliation
- Implement a comprehensive automated export compliance system to strengthen internal controls for AECA/ITAR compliance
- Within 12 months of the CA date, institute strengthened corporate AECA and ITAR compliance procedures
- Within 12 months of the CA date, have an audit overseen by the SCO and conducted by an outside consultant with expertise in AECA/ITAR matters with the auditor and audit plan approved by the DDTCC
- Within 24 months of the CA date, have a second audit overseen by the SCO or ISCO to confirm Esterline has addressed the compliance recommendations from the first audit report with the auditor and audit plan approved by the DDTCC
SCO/ISCO REQUIREMENTS (partial list): “The SCO and ISCO will report to Respondent’s General Counsel and the DDTCC….” “The SCO or ISCO shall perform his/her responsibilities in consultation with DTCC….” [CA, item (10)(b), page 5] “…the SCO or 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, item (10)(h), pages 6-7] ”…have the authority to employ in a support capacity at the expense of the Respondent such assistants and other professional staff as are reasonably necessary for the SCO to carry out the SCO duties and responsibilities.” [CA, item (10)(j), page 7] SCO and ISCO oversight areas include: (1) Policy & Procedure [CA, item (10)(l)(1), pages 8-9]; (2) Specific Duties [CA, item (10)(l)(2), pages 9-10]; (3) Reporting [CA, item (10)(l)(3), pages 10-11] NOTABLE QUOTES: “Over the course of a multi-year review and through multiple disclosures, both voluntary and directed, Respondent and the Department (DOS) identified violations that occurred within Respondent entities and predecessors in interest and ongoing violations despite implementation of corrective measures.” [Proposed Charging Letter (PCL), page 3, Statement of Facts (SoF), A. Background, item 2, last sentence]. “In retrospect, however, the Department and Respondent agreed that the audit failed to identify persistent compliance issues at Esterline entities and inadequacies in Esterline’s Compliance Program.” [PCL, page 3, SoF, A. Background, item 3, last sentence] “…violations resulted from insufficient export controls and misclassification of its products due to a mistaken belief that all of its products and related technical data were subject to the control of the Export Administration Regulations… administered by the Department of Commerce (DOC).” [PCL, page 5, SoF, B. Nature of Violations, item 7, 2
nd sentence]
OTHER KEY POINTS: “…the Commodity Jurisdiction (“CJ”) process, set forth in Section 120.4 of the ITAR, is the only official mechanism by which questions regarding jurisdiction and categorization may be addressed.” [CA, page 18, item (21)] See all of item (21) for important defense services remarks. PRIOR DOS-ESTERLINE SETTLEMENTS: None (An online search did not find any other Departments of Commerce, Justice or Treasury Esterline settlements.) PROFILE: Esterline, founded in 1967, is a specialized manufacturing company principally serving aerospace and defense markets and headquartered in Bellevue, Washington. Esterline has approximately 12,000 employees worldwide and is listed on the New York Stock Exchange. (More at www.esterline.com)
There are no restrictions on distribution of this document exactly as is with complete/proper citation/attribution.
For changes, inputs, suggestions, please contact John Priecko, 703-895-1110 or [email protected]. Trade Compliance Solutions
* $10,000,000 is suspended
for self-initiated pre- and post- CA remedial measures.
This CA remains in effect for 3 years.
Total fine of $20,000,000 equates to $70,921.99 per alleged violation.
Actual total civil penalty is 14.2% of the maximum of $141,000,000 that could
have been imposed for 282 administrative violations.
A worse case fine for 282 criminal violations could have
been $282,000,000.