Consent Agreements

Arthur Shulman

Office of Defense Trade Controls ComplianceDirectorate of Defense Trade Controls

U.S. Department of State

SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

Overview

• Defense Trade Controls Compliance Organization

• Review and Adjudication of Violations

• Consent Agreement Process

• Systemic Problems Culminating in Settlement

• Corrective Actions and Solutions

• Trends

• Case Studies

• Lessons Learned

2SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Organizational Chart

3

Acting DirectorArthur Shulman

Policy & Operations TeamCompliance and enforcementpolicies and procedures

Intra-DDTC and internal ops

IT coordination

Company Visit Program

Senior liaison with lawenforcement

Mergers and acquisitions

DoS/PM lead for CFIUS matters

Compliance and EnforcementTeam

Voluntary and directed disclosures

Debarments, denials, reinstatements,policy exceptions

Consent agreements and monitoring

Coordination with law enforcement

AECA Section 3 investigations /reporting

Registration TeamRegistration of exporters,manufacturers, and U.S. brokers

Registration fee collection

Senior AdvisorDaniel Buzby

SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

Enforcement ofU.S. Laws & Regulations

Consequences of compliance failures:• Affects United States and partners’ national security and foreign policy• Affects exporter and recipient entities’ reputation and business opportunities• Affects ability to obtain sensitive technologies• Denial or revocation of export authorizations• Financial cost – costs associated with review, issue resolution and

administrative/criminal penalties

U.S. and foreign individuals and corporations may be held liable for criminaland civil offenses under the AECA and its enumerated statutes

Civil Violations• >$1 million for each violation• Extra compliance measures• Debarment

Criminal Violations• $1 million for each violation• 20 years’ imprisonment• Debarment

4SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

Watch ListBlue Lantern

DTSA coordinationInterrogatories/

imposedrequirements

Notice/warning letterCompany visitReferral to lawenforcement

Civil EnforcementActions

AdministrativeProceedings

Review ofViolations

Directed audit

Directed CommodityJurisdiction

determination

Export authorizationdenial/revocation

Charging letter

Consent agreementsettlement with

monetary penaltyand/or monitored

remediation

Debarment

Review and Adjudicationof Violations

5SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Administrative EnforcementWhether to Pursue and How – Factors Considered

• Degree of willfulness• Destinations involved• Systemic nature of violations• Related and unrelated violations• Related criminal or other civil violations• Similarity to other civil administrative cases• Mitigating and aggravating factors

– Harm to U.S. national security or foreign policy– Nature of disclosure– Nature of violations– Remedial compliance measures

6SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Administrative EnforcementProcess

• Charging letter– Sets forth alleged violations– May begin negotiation process with a proposed charging

letter– If no settlement, submit charging letter to

Administrative Law Judge to initiate civil administrativeproceedings

• Consent Agreement (CA)– Negotiated settlement between Department and

company– May enter into settlement negotiation process before or

after filing charging letter with Administrative Law Judge(can withdraw charges)

7SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Consent AgreementProcess

• Charges are usually resolved via a consentagreement settlement

• Settlement components:– Proposed charging letter and consent agreement– Negotiate language of the proposed charging letter

and settlement terms set forth in the consentagreement

– Action memo package for Assistant Secretary– Final proposed charging letter, consent agreement,

order

8SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Consent AgreementRequirements and Monitoring

• Consent agreement sets forth certain requirements to befulfilled during agreement term– Special Compliance Official (internal/external)– Reviews and audits– Reports (special compliance official and company)– Implementation/enhancement of compliance program policies

and procedures, including training– Debarment, if applicable– Civil penalty, a portion of which may be suspended– Term of agreement, typically 2-4 years

• DTCC monitors company’s fulfillment of consent agreementrequirements for the agreement term

• Settlement documents are published on the Department’swebsite

9SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Civil Penalty

• Penalty amount varies based on:– Number, nature, and severity of charged and other

violations– Company cooperation and negotiations

• Aggregate civil penalty typically includes:– Fine (paid in installments or in full)– Suspended penalty assessed/credited for:

• Self-initiated pre-CA remedial compliance measures• CA-authorized remedial compliance costs

• Suspended penalty expenditures reviewed by specialcompliance official and subject to DTCC approval

• At CA conclusion, any remaining portion of suspendedpenalty generally must be paid in full in 30 days

10SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Systemic ProblemsCulminating in Settlement

• Authorization management

• Improper jurisdiction/classification

• Culture of Non-compliance

• Reporting requirements11

SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

Corrective Actions and Solutions

• Centralized oversight• IT automation and consolidation• Business/company-wide analysis• Effective root cause analysis• Involving engineers in the

jurisdiction/classification process• Detailed processes & checklists to

track administrative requirements12

SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

*CA has not yet concluded** UTC CA concluded; terms/requirements followed Sikorsky divestment to Lockheed Martin+ Suspended in whole or in part as provided in the Consent Agreement

Active & Recent Agreements

13

AgreementType Company Year Penalty (USD)

# ofProposedCharges

OversightAgreement Rocky Mountain Instrument Company 2016 N/A N/A

ConsentAgreement

Turi/TDG 2016 200,000+ 2

Esterline Technologies Corporation 2014 20,000,000+ 282

Aeroflex, Inc. 2013 8,000,000+ 158

Raytheon Company 2013 8,000,000+ 125

Sikorsky/Lockheed Martin** 2012 N/A N/A

BAE Systems, plc* 2011 79,000,000+ 2,591

Microwave Engineering Corporation(penalty only) 2016 100,000 1

SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

Trends

• Increase in voluntary disclosures submitted under CA• Agreement term extension• Tailored agreements for specific cases

– Oversight Agreement– Penalty-only Agreement

• SCO/ISCO effectiveness and availability• Significant investments in IT infrastructure• More frequent DDTC visits• Tailored reporting requirements• Consolidated reporting of violations• Disclosure trends – FY 2016

– Voluntary disclosures: 929 (-137)– Directed disclosures: 56 (+2)

14SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Case Study #1

• Background– Company submitted numerous disclosures related to the

management of authorizations.– Company failed to identify that there was a systemic

company-wide problem– DDTC directed the company to perform multiple large scale

reviews of authorizations

• Solution– Company entered into a consent agreement with DDTC– SCO directed a company-wide audit of all Agreements– Company has invested significantly in IT automation to ensure

all requirements are met prior to export under anyauthorization

15SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Case Study #2

• Background– Multinational conglomerate with decentralized oversight of export

control compliance– Multiple disclosures from various business units covering repeat

or similar violations– Uncoordinated and incomplete corrective actions evidenced a

systemic company-wide problem

• Solution– Company instituted policy to disclose all suspected violations and

entered into a consent agreement– Company centralized compliance oversight and began large-scale

reviews of problem areas– Company developed IT solution to report, analyze, and track

suspected violations through corrective action completion16

SIA PROPRIETARYNOTE: All speaker comments are off-the-record and not for public release

Lessons Learned

• Company-wide investigations• Ensure effective implementation of

corrective actions• Accurate root cause analysis• Central oversight

17SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release

Questions

18SIA PROPRIETARY

NOTE: All speaker comments are off-the-record and not for public release