On April 27, 2021, Honeywell International, Inc. ("Honeywell") entered into a consent agreement with the U.S. Department of State Directorate of Defense Trade Controls ("DDTC") for alleged violations of the Arms Export Control Act ("AECA") and the International Traffic in Arms Regulations ("ITAR").1 Specifically, Honeywell, a defense contractor based in Charlotte, North Carolina, allegedly exported and retransferred ITAR-controlled technical data without required authorization.
Under the 36-month consent agreement, Honeywell is required to pay a civil penalty of $13 million, though DDTC will suspend $5 million of this amount if Honeywell directs those funds toward DDTC-approved corrective measures to strengthen Honeywell's compliance program. The consent agreement also requires Honeywell to engage an external "Special Compliance Officer" to oversee the consent agreement for at least 18 months.
The requirements and penalties under the consent agreement are significant in part because DDTC found that the unauthorized exports of technical data to China threatened U.S. national security by including drawings for certain parts and components of the F-35, F-22, and B1-B aircraft platforms and the CTS800 engine platform.
DDTC considered mitigating factors, including Honeywell's submission of voluntary disclosures of the alleged violations in 2016 and 2018, cooperation with DDTC requests, and entering into two agreements to toll the statute of limitations for violations under the AECA and ITAR. Aggravating factors include the recurrence of similar violations that were disclosed in 2016, the harm to national security, and the involvement of a proscribed destination (China) and 'Significant Military Equipment' technical data. 2
The Honeywell consent agreement highlights DDTC enforcement priorities and provides numerous lessons for companies registered with the DDTC. Four key takeaways:
- Follow Internal Procedures
If your company submits a voluntary disclosure, it is imperative that you implement any described remedial measures and audit these corrective measures to ensure they are followed by company personnel. (For a further discussion of this topic, see our previous article Disclose. Promise. Just Don't Forget.) This advice holds true for other communications with DDTC, including license applications and directed disclosure responses.
- RFQ Responses May Result in Transfers of Technical
Make sure to apply the same level of export compliance measures to your company's quoting process as you would for exports of finished products. The alleged violations disclosed by Honeywell involved the Request for Quotation ("RFQ") process.
- Classify and Safeguard Your Technical
DDTC-registered companies that do not export hardware are still very much susceptible to ITAR export violations. The alleged violations that triggered the Honeywell consent agreement did not involve the export of hardware. Domestic manufacturers of defense articles could encounter similar violations if they fail to properly classify ITAR technical data.
- Pay Special Attention When Dealing with China (Or Any
Other § 126.1 Country)
Pay special attention to transactions with China, whether these transactions involve subsidiaries, affiliates, or non-related parties. Failure to audit these Chinese companies and vet their Chinese suppliers can easily lead to violations that DDTC takes more seriously because they involve a proscribed destination.
1. See In the Matter of: Honeywell International Inc., Order, United States Department of State Bureau of Political-Military Affairs (April 27, 2021), available at https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=9d3eab0b1bb764902dc36311f54bcb3f.
2. See In the Matter of: Honeywell International Inc., Proposed Charging Letter, United States Department of State Bureau of Political-Military Affairs, available at https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=113eab0b1bb764902dc36311f54bcb42 (last visited May 5, 2021).
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