Boeing Reaches $51 Million Settlement with State Department for ITAR Violations

Boeing continues to struggle. As troubles mount for Boeing, it  is clear that it suffers from real and pervasive culture issues that have been reflected in serious safety failures, financial difficulties, regulatory violations and serious reputational damage.  Boeing’s troubles permeate every part of its organization — from the board to senior executives, to its operations and its overall ethics and compliance commitment.  As a result Boeing stands at an important crossroad — will it make a real commitment to change, reform and ethics and compliance, or will it continue to limp along suffering repeated incidents of harm?

In its latest (mis)adventure, Boeing fell victim to a State Department fine for $51 million for violations of a number of export controls, including basic licensing requirements for exports to China and Russia. Boeing voluntarily disclosed the violations to the Directorate of Defense Trade Controls (“DDTC”) in the State Department

The violations of the International Traffic in Arms Regulations (“ITAR”) included illegal exports to foreign employees and contractors who work in more than 15 countries; a trade compliance specialist fabricating an export license to illegally ship defense items abroad; and violations of the terms and conditions of other export licenses, among other things.

The DDTC’s $51 million penalty is the largest administrative penalty impose for ITAR violations since it imposed a $79 million penalty against BAE Systems in 2011.  Under the terms of the settlement, Boeing must pay $27 million to the DDTC within two years and use the remaining $24  million to improve its compliance program and procedures.  In addition, Boeing is required to hire a DDTC-approved special compliance officer to oversee its compliance with ITAR for the next three years, and that officer will regularly report to the DDTC on Boeing’s progress.

DDTC noted that most of Boeing’s violations occurred before 2020, after which the company made numerous improvements to its trade compliance program.  Boeing voluntarily investigated the issues and cooperated with the DDTC.

In reaching the settlement, the DDTC cited several aggravating factors that contributed to the fine, including the fact that some of the alleged violations “caused harm” to U.S. national security, involved exports of “significant military equipment,” and included shipments to a “proscribed destination” in the ITAR, which are countries generally subject to a license review policy of denial. DDTC also noted some violations involved Russia, which was subject to expanded controls at the time following its invasion of Crimea in 2014.

The DDTC issued a 15-page charging letter which cited Boeing for committing 199 ITAR violations between 2017 and 2022.  Many of the violations involved unauthorized exports and retransfers to foreign employees and contractors, including some in China. Boeing allowed employees in overseas “partner facilities” to illegally download files containing ITAR-controlled technical data from the Boeing Library System, the company’s “digital technical document repository.” Those included exports of documents containing technical data controlled under U.S. Munitions List Categories IV(i), VIII(i), IX(e)(1), XI(d), XII(f), XIII(l), XIX(g). They also involved information relating to several Pentagon “platforms,” including the F-18, F-15 and F-22 aircraft, the AH-64 Apache helicopter, various missiles and more.

Other illegal data exports involved other Boeing facilities in Australia, Canada, France, Germany, Hong Kong, India, Italy, Japan, Kenya, Morocco, Russia, Singapore, South Korea, Spain, Taiwan, Thailand and the U.K. DDTC said Boeing allowed employees or contractors in those countries to illegally download ITAR-controlled technical data on 80 occasions from 2013 to 2018.

Boeing also disclosed similar violations involving its subsidiaries in Australia and India. Boeing’s Australia operations hired Australian contractors but “repeatedly failed” to add their “employee providers” to the company’s Technical Assistance Agreements. That led to eight illegal transfers of USML Category VIII(i) and XI(d) technical data to Australian contractors between October 2019 and February 2020.

Further, a trade compliance specialist working at Aviall Services, a Boeing subsidiary, “fabricated” five export licenses, which led to seven illegal exports of USML Category XIX(f)(1)-(3) nozzle segments and seal strips to Portugal and Turkey.

Other alleged violations stemmed from export misclassifications. Boeing mistakenly relied on Commerce Department licenses to ship USML Category VIII(h)(18) parts for the AH-64 Apache Helicopter flight control system to several countries between August 2018 and August 2022. It also misclassified “exhaust system items,” which it exported to Japan, Singapore, and the U.K.; certain controlled flat panel displays, which it exported to India; and certain controlled aviation helmets, which it exported to Qatar.

Boeing’s export violations also included illegal exports to foreign contractors in Canada and Switzerland; an illegal shipment of a remote finger printing system to India; an illegal export of night-vision goggles to Singapore; and an illegal shipment of F-15 pylons to Saudi Arabia. Boeing also violated the terms of temporary import licenses, including one In September 2021, when it imported radio equipment from Germany and Singapore into the United States. 

The charging letter also describes various alleged violations of the terms, conditions and provisos of DDTC authorizations given to Boeing, including on several occasions in 2018 and 2019, when Boeing illegally exported controlled technical data to Israel to help the Israeli government and independent contractors upgrade certain helicopters.

Under the settlement agreement, Boeing agreed to introduce a new automated export compliance system across its “operating divisions” and subsidiaries, and the company must update DDTC on the status of that system every six months for the three-year term of the settlement. The system will “track the decision process from the initiation to conclusion of a request” for export, and will also “cover the initial identification of all technical data and technical assistance in any form proposed to be disclosed to any foreign persons.”

Boeing also agreed to implement  “strengthened” compliance policies, procedures and training, and its ITAR compliance program within six months to reflect improved procedures for reporting possible violations and classifying export-controlled items.

Boeing also agreed to on-site visits from DDTC officials and must complete two export control audits by DDTC-approved outside consultants. The first audit will offer recommendations for Boeing to improve its compliance programs, and the second audit will “confirm” whether Boeing addressed those recommendations. Boeing will give the results of both audits to the DDTC.

DDTC decided not to debar Boeing  because the company cooperated with the agency’s investigation, “expressed regret” and took steps to improve its compliance programs.

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