On September 19, 2019, the U.S. Directorate of Defense Trade Controls ("DDTC") entered into a consent agreement with L3Harris Technologies, Inc. ("L3Harris") for alleged violations of the Arms Export Control Act ("AECA") and the International Traffic in Arms Regulations ("ITAR"). L3Harris, an aerospace and defense technology company, allegedly committed violations that involved the unauthorized export of defense articles and technical data, as well as a failure to provide accurate and complete reporting and violations of licenses.1
The L3Harris consent agreement with DDTC provides five valuable takeaways for all defense exporters:
1. Voluntary Disclosures Must Be Voluntary
While L3Harris described many of its alleged violations in voluntary self-disclosures ("VSD") submitted to DDTC, the government did not find every VSD to be a mitigating factor. DDTC began its investigation by sending L3Harris a directed disclosure after DDTC was informed by the Defense Technology Security Administration ("DTSA") – an agency of the Department of Defense ("DoD") that establishes technology security policies for international transfers of defense goods, services, and technologies – of potential export control concerns.
DDTC found that the VSDs that L3Harris submitted in response to DDTC's directed disclosure were not mitigating because they were made in response to DDTC's own inquiry. By comparison, those that L3Harris submitted for separate matters not addressed originally by DDTC were considered mitigating. This is an interesting aspect of this consent agreement because DDTC's stance could ultimately disincentivize companies from making voluntary self-disclosures following a directed disclosure.
2. Consent Agreements Apply to Future Owners of the Company
Among the penalties for its 131 alleged violations, L3Harris faces a civil penalty of $13 million, of which $6.5 million can be suspended if the company puts the money towards remedial compliance costs in accordance with the agreement. It is important to note that the penalties in the agreement apply to the "assignees and successors" of the company, meaning that the consent agreement terms apply to the buyer even if the company is sold or is part of a merger.
3. The Cost of Consent Agreements Can Extend Beyond Financial Penalties
So, what is a consent agreement and why is it significant? A consent agreement outlines the "measures required to enhance compliance programs."2 It is not an admission of guilt, but rather a settlement between the government and the company. Each consent agreement is different, depending upon the pervasiveness of the alleged violations committed by the company and whether the company has any compliance programs in place. But each consent agreement involves allegations of serious failures and often willful or knowing violations. Consent agreements are also relatively infrequent: typically DDTC does not enter into very many consent agreements per year, if any at all, and the L3Harris agreement is only the second one of 2019.
Importantly, in some instances consent agreements can lead to DDTC revoking a company's privilege to export defense articles, a punishment often worse than a monetary penalty. Additionally, consent agreements are made public and posted to DDTC's website, so they come with considerable reputational harm in addition to the financial burden.
4. Robust Compliance Programs Help Prevent Violations and Mitigate Future Penalties
The L3Harris consent agreement demonstrates the importance of establishing a strong compliance program both to prevent export violations and to act as a mitigating factor in instances where an inadvertent error occurs despite the presence of a well-maintained compliance program. As the L3Harris agreement makes clear, VSDs alone may not necessarily mitigate alleged violations in all circumstances. Companies must take the necessary steps to comply with the relevant regulations and must also be diligent when it comes to reporting any mistakes or errors. If not, consent agreements can serve as a public and expensive reminder of a company's compliance failures.
5. Government Regulators Actively Share Information
Another important note from the L3Harris consent agreement is the fact that DDTC's investigation originated from a tip from a DoD agency, DTSA. Companies should be aware that regulatory agencies within different executive departments can and will communicate with each other to further shared export control compliance goals. If DTSA will communicate with DDTC, then DDTC can likewise communicate with the Department of Commerce's Bureau of Industry and Security ("BIS") regarding matters that fall under the jurisdiction of that agency.
The L3Harris consent agreement serves as a reminder to companies involved in defense manufacturing or exporting that their export compliance programs should be holistic and address all potential regulations affecting trade from relevant agencies, including but not limited to, DoD, DDTC, BIS, the Department of Treasury Office of Foreign Assets Control, which administers U.S. sanctions regulations, and the U.S. Census Bureau, which administers the U.S. Foreign Trade Regulations.
 See In the Matter of: L3Harris Technologies, Inc., Order, United States Department of State Bureau of Political-Military Affairs (September 19, 2019), https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=43579882db44c0107ede365e7c9619cc.
 Defining Consent Agreements, Penalties and Oversight Agreements, Directorate of Defense Trade Controls, https://www.pmddtc.state.gov/ddtc_public?id=ddtc_kb_article_page&sys_id=384b968adb3cd30044f9ff621f961941.
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