ITAR is a set of regulations that companies trading in military and defense materials, technology, or information must observe. It is beyond reckless for any such company to do international trade business without an ITAR compliance program. With its wealth of related experience, Sequoia Legal can serve as your company’s ITAR compliance guide.
What Is ITAR Compliance?
So, what does ITAR stand for? ITAR stands for International Traffic in Arms Regulations. The US government takes ITAR regulations extremely seriously because violations can result in grave consequences for US national security.
ITAR is a complex set of regulations, and compliance requires a great deal of nuanced understanding of its requirements. Not only must you comply with ITAR regulations, but you must also comply with the terms of any licenses you receive pursuant to ITAR-related activities such as exports. Our ITAR compliance lawyers understand the complexities and nuances of ITAR compliance, meaning that we can help your company avoid trouble before it begins.
What Is the USML?
The USML in the United States Munitions List. The USML lists goods and services that ITAR regulations cover. The USML determines what items are ITAR-controlled. ITAR regulations cover the import, export, and transfer of items listed in the USML.
Appropriately classifying items under ITAR is critical to compliance because not all restricted items are obviously subject to the USML and the ITAR regulations.
Types of Defense Articles
- Firearms, close assault weapons, and combat shotguns.
- Guns and armament.
- Ammunition/ordnance.
- Launch vehicles, guided missiles, ballistic missiles, rockets, torpedoes, bombs, and mines.
- Explosives and energetic materials, propellants, incendiary agents, and their constituents.
- Surface vessels of war and special Naval equipment.
- Ground vehicles.
- Aircraft and related articles.
- Military training equipment.
- Personal protective equipment.
- Military electronics.
- Fire control, laser, imaging, and guidance equipment.
- Toxicological agents, including chemical and biological agents, and associated equipment.
- Spacecraft and related articles.
- Nuclear weapons-related articles.
- Classified articles, technical data, and defense services not otherwise enumerated.
- Directed energy weapons.
- Gas turbine engines and associated equipment.
- Submersible vessels and related articles.
These items are regulated due to national security concerns. The Department of State carefully monitors which defense articles are coming into the U.S. and which foreign persons, organizations, regimes, and countries are receiving items of interest to the State Department.
Who Must Be ITAR Compliant?
ITAR compliance requirements for ITAR rules and regulations apply to many different persons and entities, even if they are unrelated to the military or to the government. Such parties include:
- Any organization that deals with information concerning items listed in the USML.
- Any company that does business with the US military (not limited to contractors and subcontractors).
- Third-party contractors that work with any organization are covered by (1) and (2) above, including wholesalers, distributors, suppliers, etc.
- Organizations connected to USML-listed goods and services, including tech companies, importers, exporters, research labels, educational institutions, among other parties.
When in doubt, consult with an attorney because the consequences of violation can be catastrophic.
A huge number of companies fall under ITAR’s compliance requirements. Any individual or organization involved in handling, manufacturing, designing, selling, or distributing ITAR items or ITAR data must be ITAR compliant.
Some of the common types of organizations and companies engaged in activities that fall under State Department regulation include:
- Contractors
- Computer hardware or software vendors
- Distributors
- Wholesalers
- Third-party suppliers
- ITAR data handlers
- Any other supply chain members.
All parties involved in the production, shipping, storage, or distribution of ITAR-regulated items or ITAR data are required to meet the ITAR compliance checklist to be legal, according to the Department of State.
Benefits of ITAR Compliance
Failure to adhere to ITAR requirements can have catastrophic effects on a company. While avoiding millions of dollars in fines, prison time, and loss of export authorization are reasons to enact ITAR compliance programs, the benefits of having detailed compliance programs in place include:
- Export optimization: Detailed and accurate record-keeping allows a company greater visibility regarding trends, patterns, and overall operations. There’s also a reduced risk of export authorization being paused or withdrawn over illegal export practices.
- Production quality: Producers of defense articles who use ITAR compliance programs experience a high level of oversight. This ensures that products are safe and meet quality assurance guidelines.
- Increased productivity: Companies with a compliance program are less likely to experience production delays caused by errors in design, manufacturing problems, and exporting issues.
- Positive opinion: Companies known for maintaining strict ITAR compliance develop a good reputation for their thorough and efficient business practices. This can bring benefits such as being favored for U.S. government contracts.
- Employee engagement: An ITAR compliance program ensures employees are informed and confident in the processes they need to take to avoid the penalties that accompany a violation regarding ITAR data or products.
A good ITAR compliance program provides a framework for a level of oversight that helps optimize company practices on multiple levels.
How Do I Achieve ITAR Compliance?
Compliance with ITAR requirements is burdensome, no question about it. Following is a general outline of some of the steps that your company will need to take:
- Determine whether ITAR applies to your business. You will need a lawyer for this.
- Assign a team to learn the USML and ITAR guidelines. It is not enough that your lawyers understand these matters. Some of your employees need a basic understanding as well.
- Reclassify all company data in compliance with USML requirements.
- Register with the US State Department Directories of Defense Trade Controls (DDTC).
- Renew your DDTC registration every 12 months. You must submit your renewal documents at least 60 days in advance.
- Comply with every provision of the Arms Control Export Act;
- Refrain from sharing US military-related data, plans, documentation, or technology with any individual or entity that lacks special permission from the US government. Perform strict background checks as a matter of routine.
Besides these steps, you must create and maintain a robust security system to prevent violations before they happen. You must take particular care to avoid accidentally sharing sensitive information with foreign persons or nations through cloud storage, even with US service providers that might export your data.
ITAR Compliance Important Aspects
Knowing which questions to ask can help you consider the most important aspects of creating an ITAR compliance program that fits your needs.
Importation/Registration
For organizations involved in import, becoming ITAR certified begins with registration. Questions to ask include:
Once registration is correctly completed, it can be easy to forget this step. Keep in mind that many types of changes require additional follow-up to keep your activities ITAR certified.
Export/Re-Export
If any of your business activities are related to the export or re-export of USML goods, particularly concerning ITAR-controlled hardware, ITAR data, and defense services, it’s crucial to consider ITAR compliance programs. Exporting questions to consider include:
- Has the company complied with all ITAR export procedures?
- Were the re-exports of any goods, services, or technical data authorized?
- Have licenses and agreements been maintained properly?
Consider whether any changes in exporting procedure or practice have kept your company ITAR-compliant over time.
Manufacturing License Agreements and Distribution Agreements
License and distribution agreements are one of the most complex aspects of maintaining compliance programs. Questions about important aspects of your agreements include:
- Is the company involved in the license of ITAR-controlled technical data?
- Is that data being licensed overseas to produce USML items?
- Are the required annual reports to the DDTC being filed?
- Is the manufacturing of USML items being clearly recorded?
- Are all agreement terms and conditions being followed?
These are just the most basic questions to ask when considering whether your manufacturing license and distribution agreements are ITAR-compliant.
There are many factors to consider regarding whether other elements in your supply chain are ITAR-compliant, particularly when working with distributors and suppliers.
What Are the Penalties for ITAR Compliance Violations?
The DDTC is responsible for enforcing ITAR compliance regulations. ITAR sanctions and penalties for violations can include:
- Loss of your company’s export license;
- A ban on participating in ITAR-governed transactions;
- Fines of over $1 million per violation; and
- Imprisonment of up to 20 years for top company executives.
These penalties can also apply to “coverup” activities such as lying under oath or in an affidavit.
How to Secure Your ITAR Data
Technical data is one of the most important aspects of planning for ITAR compliance because it can be easier to overlook and more susceptible to misuse.
Failing to adequately protect ITAR-controlled digital data can bring heavy financial and criminal consequences, so a company must have firm security measures and training protocols in place.
As a federal regulation, ITAR adheres to the federal security standard outlined in NIST SP 800-53, and this is a good foundation for any company’s ITAR data protection procedures.
Additional steps to take to ensure the protection of a company’s ITAR data include:
- Secure and classify sensitive data.
- Map out data permissions.
- Remove global access groups.
- Manage users and groups.
- Deactivate unused accounts.
- Monitor for security threats and malware.
- Audit file activity.
- Take steps to identify and resolve security risks.
These data-security steps are wise for any company to put into practice. For companies responsible for handling ITAR-controlled data, they should be required elements of a secure data policy.
ITAR Compliance Checklist for Protecting Your Data
The following points can help serve as a starting checklist to identify whether your company is currently enacting adequate data protection methods.
- Identify whether any products are on the USML and subject to ITAR.
- Protect ITAR-controlled data through end-to-end encrypted email and file sharing.
- Set expirations on data access.
- Set permissions for read-only and view-only capabilities.
- Log and audit file access.
- Use encryption practices so users can only access data through private keys.
Systematically considering your company’s approach to data security and identifying areas for improvement is the best approach for protecting yourself from security vulnerabilities surrounding the ITAR data you’re responsible for. It’s also a good policy to regularly review the Federal Register and the DDTC websites for policy changes.
Handling ITAR Compliance Successfully
ITAR compliance is a legal world all its own. Despite all of its risks, the potential rewards are substantial. Before your company engages in any potential ITAR-related transactions, call Sequoia Legal at (303) 476-2851 or contact us online. We will make sure your company is ready for action when the time comes.
