FLIR Systems Pays $15 Million Civil Penalty for AECA and ITAR Violations and Earns First DTCC Monitor (Part I of II)
In an extraordinary enforcement action, the US Department of State reached a comprehensive settlement with FLIR Systems, Inc. (FLIR) to resolve violations of the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR). These acts are administered by the Office of Defense Trade Controls Compliance in the Department’s Bureau of Political-Military Affairs (DTCC).
Under the settlement, FLIR will pay a civil penalty of $15 million. The DTCC agreed to suspend an additional $15 million on the condition that the funds will be used for remedial compliance measures. In a precedent setting move, the settlement requires FLIR to hire an external Designated Official to oversee the Consent Agreement and requires FLIR to conduct two external audits to assess and improve its compliance program during the three-year term of the Agreement.
In 2015, FLIR agreed to a $9.5 million settlement with the SEC to resolve FCPA violations for funding a “world tour” by Saudi government officials to influence their decision to purchase FLIR products. In November 2014, two former employees in FLIR’s Dubai office agreed to pay the SEC $50,000 and $20,000, respectively for violating the FCPA.
During this same time period, FLIR was experiencing a breakdown in its export compliance program and initiated voluntary disclosures to the DTCC. FLIR manufactures and exports advanced sensors and integrated sensor systems for military and commercial applications to protect birders, gather intelligence and protect critical infrastructure.
As outlined in the settlement documents (available here, here and here), FLIR’s violations of the AECA and ITAR involved a range of conduct, including unauthorized exports of defense articles and technical data, unauthorized provision of defense services, violation of license conditions, and failure to maintain required records. FLIR’s unauthorized exports also included retransfer of ITAR-controlled technical data and providing defense services to dual national employees of Iran, Iraq, Lebanon and Cuba. FLIR voluntarily disclosed many of the violations, cooperated with the DTCC review and instituted a number of compliance program improvements during the investigation. As a result, the DTCC determined that an administrative debarment of FLIR was not appropriate.
FLIR ultimately agreed to 347 separate charges for violating the AECA and ITAR. FLIR’s conduct was not limited to any particular part of its operations, geographic region or product line. As described by the DTCC, FLIR’s misconduct was systemic. Given the sheer number of violations, the DTCC did not provide a detailed explanation of FLIR’s violations but divided them, in general, into three categories: (1) unauthorized exports to foreign-person employees; (2) failure to apply for and manage licenses and exemptions; and (3) undisclosed payments under Part 130.
Over the course of this review, FLIR submitted 14 separate voluntary disclosures to the DTCC. Between 2008 and 2012, FLIR submitted four voluntary disclosures related to unauthorized export of technical data and defense articles; and unauthorized provision of defense services involving the design, manufacture and sale of thermal imaging camera systems to dual nationals and country employees in 15 countries that were prohibited at the time.
In June 2014, FLIR notified the DTCC that the initial four voluntary disclosures did not accurately describe the full scope of the violations related to foreign-person employees and had not implemented the corrective measures that it had previously represented that it had completed. As described by FLIR, its internal management system for identifying and restricting access to defense articles had resulted in the unauthorized access by approximately 1,350 foreign-born persons to ITAR-controlled data in 22 non-US facilities.
With respect to its ITAR licensing management system, FLIR made various voluntary disclosures describing numerous violations for failure to obtain required licenses, failure to comply with license conditions, misuse of exemptions, inaccurate or missing shipping documents, and failure to obtain proper endorsements for specific products. FLIR also reported the loss or theft of defense articles at international trade shows because of inadequate safeguards and failed to notify the DTCC of the loss or theft of such articles. Additionally, FLI reported one or more violations in every one of its 32 temporary authorizations that it secured during the period of August 2007 to June 2013. The DTCC specifically cited FLIR’s weak license submission practices including confirmation of the parties involved in a proposed transaction and failure to perform end-user monitoring. FLIR submitted six separate applications for transactions involving prohibited entities.
In 2011, FLIR notified the DTCC of its failure to report payments of political contributions, fees and commissions as required under Part 130 of Chapter 22 of the CFR. Five years later, FLIR reported it had failed to file required notices for 19 technical assistance agreements and $8 million in commissions paid in relation to 10 of the 19 agreements.