FLIR Systems ITAR Settlement Outlines Important Export Compliance Factors (Part II of II)
The FLIR Systems settlement is an extraordinary event given the sheer number of violations, the systemic breakdown that occurred, and the absence of any meaningful compliance controls. It is all the more surprising given the fact that FLIR’s operations are devoted in large proportion to the highly-regulated international defense industry market. Given the level of risk, you would expect FLIR to have in place systems to identify risks and build a robust compliance program around such risks in order to avoid a significant enforcement action.
The FLIR case, along with the recent ZTE enforcement action by the Department of Commerce, underscores the trade compliance risks facing companies in the global economy. Even for those companies that are not involved in exporting defense articles or services, trade compliance should be a high priority, just as significant as anti-corruption and antitrust risks.
Under the FLIR settlement (see documents, here, here and here), the Office of Defense Trade Controls Compliance in the Department’s Bureau of Political-Military Affairs (DTCC) insisted that FLIR hire an external Designated Official to oversee the Consent Agreement. The terms of the Consent Agreement also provide important compliance program elements that should be reviewed by all companies for their trade compliance programs.
FLIR is required to hire an external Designated Official or Special Compliance Officer for the four-year term of the Consent Agreement. For the fourth year, the Special Compliance Officer can be replaced by an Internal Compliance Officer. The Designated Official shall report directly to the CEO or designee agreed to by the DTCC.
The Designated Official has the authority to present directly to the CEO and/or the DTCC any export-related compliance issues. The CEO is required to present on the findings and recommendations of the Designated Official concerning FLIR’s export compliance program. The CEO is obligated to post the appointment of the Designated Official on FLIR’s internal website.
The Designated Official shall have three general areas of responsibility: (1) Policy and Procedure; (2) Specific Duties; and (3) Reporting.
Under Policy and Procedure, the Designated Official shall be responsible for the following policies and procedures:
- Identification and classification of defense articles and defense services;
- Identification of technical data, including derivative drawings or data and marking thereof;
- Maintenance and protection of access to technical data on FLIR’s computer networks or other methods of storage;
- Physical security of facilities;
- Screening and control of persons with access to ITAR-controlled defense articles and services;
- Compliance with ITAR authorizations, particularly with respect to business development activities;
- Shipping operations and record-keeping;
- Employment and management of foreign-born persons and dual nationals access to defense articles and defense services;
- Compliance with Part 130 of the ITAR;
- Procurement policies and identification of US-based foreign manufacturing operations;
- Incorporating AECA and ITAR compliance into senior executive business management plans; and
- Preventing, detecting and reporting potential violations;
- Maintaining adequate compliance staffing levels at all divisions and facilities where ITAR-related activities occur.
Under Specific Duties, the Designated Official has four general obligations: (1) implementation of the Consent Agreement; (2) corporate oversight of the ITAR compliance performance in a timely and satisfactory manner; (3) expenditures of remedial measures account in coordination with FLIR’s Chief Financial Officer; and (4) enhancing incorporation of ITAR compliance into senior executives’ business management plans.
With respect to Reporting, the Designated Official is responsible for: (1) tracking, evaluating and reporting on FLIR’s review of ITAR violations and compliance resources; (2) providing status reports to the CEO and the DTCC on FLIR’s overall compliance with the Consent Agreement; and (3) ensuring the provision of an accounting report.
The Consent Agreement requires FLIR to implement “strengthened” corporate compliance procedures, including a comprehensive effort to train managers and employees on ITAR compliance, within 12 months of the date of the settlement order.
FLIR is specifically required to implement an Automated Export Compliance System to strengthen its internal controls. FLIR’s compliance-related expenditures are to be credited against the $15 million civil penalty that was suspended in order to fund compliance-related improvements.