In a significant enforcement action, the U.S. Department of State’s Directorate of Defense Trade Controls (“DDTC”) has charged Oregon-based Precision Castparts Corp. (“PCC”) with multiple violations of the Arms Export Control Act (“AECA”) and the International Traffic in Arms Regulations (“ITAR”). These charges stem from unauthorized exports of sensitive technical data to foreign nationals employed by one of PCC’s subsidiaries, Mold Masters Intl., LLC (“Mold Masters”). This enforcement action highlights both the complexities of compliance within the defense industry and the severe consequences of failing to safeguard U.S. national security interests.

PCC—a key player in the aerospace and defense sectors—manufactures a wide range of critical components, including metal alloys and parts for gas turbines used in military aircraft. With over 60 subsidiaries under its corporate umbrella, PCC’s reach extends across various defense contracts and Department of Defense (“DoD”) programs. The violations outlined in DDTC’s proposed charging letter primarily occurred within Mold Masters, a wholly-owned PCC subsidiary, and involve technical data related to components for fifth-generation fighter aircraft.

The violations came to light as a result of PCC’s post-acquisition compliance review of Mold Masters. This internal review revealed that the subsidiary lacked adequate internal controls to prevent unauthorized exports of U.S. Munitions List (“USML”) technical data to foreign-person employees (“FPEs”). Specifically, the technical data in question related to tools and wax patterns used in producing casting blades for advanced gas turbine engines, some of which are integral to the performance of modern military aircraft. Although the FPEs involved in the infractions were lawfully permitted to work in the United States, they originated from countries like Mexico, Honduras, Bhutan, El Salvador, Peru, and Burundi. Mold Masters failed to verify whether these employees met the requirements necessary to handle sensitive technical data—a lapse that persisted from 2017 to 2019. PCC’s discovery of these compliance failures resulted in the submission of a voluntary disclosure to DDTC in October 2019.

DDTC’s charging letter identifies 24 separate violations, citing unauthorized exports of technical data under USML Category XIX, which includes items related to gas turbine engines for military use. The U.S. government’s review of the incident concluded that some of these unauthorized exports had the potential to harm national security, heightening the seriousness of the violations. Mold Masters’ failure to maintain proper employment records or specific details about the technical data shared further complicated the situation.

In determining the course of action against PCC, DDTC considered several aggravating factors. These include the extended duration of the violations, which spanned from July 2017 to April 2019, and the fact that the lapses occurred both before and after PCC’s acquisition of Mold Masters. Additionally, the U.S. government assessed that the unauthorized disclosures created risks to national security due to the sensitive nature of the technical data involved. Compounding this was the inadequacy of internal controls, which allowed the violations to persist even after Mold Masters’ acquisition. Notably, however, DDTC also took into account certain mitigating factors that exist in the case, including the fact that PCC voluntarily disclosed the violations to the DDTC, fully cooperated with the investigation, and took proactive steps to implement compliance measures designed to prevent future violations. The company’s efforts to address these issues—including entering into agreements with the DDTC that extended the statutory enforcement period—were considered in the proposed enforcement measures.

In resolving the matter, PCC entered into a Consent Agreement with DDTC. As part of the settlement, PCC agreed to pay a civil penalty of $3 million, with $1 million suspended on the condition that the amount be allocated toward remedial compliance measures. PCC also agreed to implement an enhanced compliance program, which includes appointing an Internal Special Compliance Officer (“ISCO”) to oversee the company’s ITAR compliance, performing regular audits, and ensuring that all future acquisitions adhere to ITAR and AECA requirements. The agreement further mandates that PCC integrate automated export compliance features into its systems, develop strengthened internal controls, and report regularly on the status of compliance directly to DDTC.

Ultimately, DDTC opted not to impose administrative debarment on PCC, largely due to the company’s voluntary disclosure and proactive remediation efforts. Nevertheless, the Consent Agreement will remain in place for three years, subject to renewal if DDTC finds further evidence of compliance failures. PCC’s fulfillment of the terms of the agreement will be closely monitored, and DDTC retains the authority to impose additional penalties if new violations occur during the agreement’s effective term.