In April of 2021, Honeywell International was fined $13M by the State Department for unauthorized export of dozens of technical drawings relating to components of various aircraft, missiles, and tanks to countries such as China. This fine was the result of mismanagement of ITAR (International Traffic in Arms Regulations) data.
It’s important for organizations to understand how to manage ITAR compliance, in order to avoid steep fines and other penalties. We’ve put together a simple guide.
Today, ITAR compliance poses a significant challenge to many global corporations. In this blog we’ll break down what the regulation means and look into what companies can do to best manage their compliance responsibilities. We’ll look at:
International Traffic in Arms Regulations (ITAR) is a set of regulations administered by the State Department to control the export and import of defense and military related technologies on the United States Munitions List (USML). The goal of the legislation is to control access to these specific types of technology and their associated data.
Any U.S. company, research lab or university that engages in either manufacturing or exporting defense articles or furnishing defense services is required to register with DDTC and comply with ITAR regulations.
Today, there are approximately 13,000 or so defense companies, universities and research labs handling defense and military technologies. ITAR compliance says that these institutions may only share items on the USML with US persons unless otherwise authorization. If a product is on this list (see below), it is subject to these controls.
Many mistakenly assume that this set of regulations only relates to tanks, missiles and weaponry, but in fact, it affects much more than that. In order to avoid the severe penalties and negative consequences of noncompliance, take the time to determine which elements of ITAR, if any, need to be addressed in your compliance efforts.
The easiest way to know if you are responsible for ITAR compliance is to see if your company’s product is on the Munitions List or not.
There is no formal certification process to become ITAR compliant. However, there are certain standards companies are expected follow and comply with.
The first step a company should take is to register with the State Department. Specifically, the company must register with the Directorate of Defense Trade Controls (DDTC)
The second step a company should take is to adopt an ITAR Compliance Programs. A Compliance Program demonstrate that your company has a formal process for ITAR compliance and project a sophisticated approach to managing these issues.
The third step is ensuring your cloud storage is ITAR compliant. You need to ensure that technical data is not accidentally distributed to foreign persons or foreign nations. Typically, this standard is met by ensuring all data centers are managed solely by US Persons in US locations and data is not shared outside of the US.
In March 2020 however, the State Department did issue a ruling that companies can share unclassified technical data with their supply chain or outside the US. The data just has to be secured with end-to-end encryption. If the data is end-to-end encrypted, the exchange is not considered an export.
There are potentially serious penalties imposed for any ITAR violations, including civil fines up to $500,000, criminal fines up to $1,000,000, and jail time of up to 10 years per instance. Even worse, the U.S. government has the power to ban your company from any related future import and export activity.
Besides, restrictions may apply to your business practice; your import/export activities could be banned. Therefore, it is of vital importance to understand how to secure your ITAR-controlled data.
But it’s not just large Primes that are subject to fines for failing to comply with ITAR. In 2017, the State Department charged Bright Lights USA, Inc with an ITAR violation. Bright Lights often looked to foreign suppliers for the parts needed to manufacture the products. However, Bright Lights often sent drawings of export-controlled components to foreign suppliers to get quotes without first obtaining the necessary ITAR export licenses.
The State Department concluded that Bright Lights had major compliance deficiencies and charged them with a number of violations. While the government could have pursued criminal, civil and administrative enforcement for ITAR violations, the company was only required to pay a $400,000 civil penalty. While the government could have pursued criminal, civil and administrative enforcement for ITAR violations, the company was only required to pay a $400,000 civil penalty.
End-to-end encryption is the gold standard for securing data. With end-to-end encryption, data is encrypted on the user’s device and is only ever decrypted on the recipient’s device. This ensures that only the sender and the recipient can ever read the information being shared–and no one else. Data is never decrypted on the server, thus even if attackers successfully breach the server, all they will get is gibberish.
Until March of 2020, companies had to store all ITAR data on servers located within the US. The servers also had to be manned by US persons. However, in a global economy, these regulations were burdensome.
In March 2020 the State Department created the ITAR Carve-out for Encrypted Technical Data. The carve out establishes that defense companies can now share unclassified ITAR technical data without requiring an export license. They have to ensure though that the data is properly secured with end-to-end encryption and the decryption keys “are not provided to any third party“.
This new guidance provides defense companies with the ability to now take advantage of the cloud in a way they were unable to in the past. End-to-end encryption along with proper key management makes that possible. Following these prescriptions, defense contractors can also now easily take advantage of storing their data in the cloud. They can also send data to a US or authorized person overseas or even store data outside the U.S. so long as it is not stored in a restricted country.
The following checklist represents some of the key issues companies should look at when developing their ITAR compliance programs.
With PreVeil’s end-to-end encryption and device-based keys, the platform easily meets the ITAR Carve Out standards. PreVeil’s Gov Community offering also stores ITAR data in AWS GovCloud datacenters, enabling easy compliance with other data residency requirements.
Additionally, in PreVeil no one has access to keys, network access codes, or passwords to enable decryption. Private keys are stored on user devices only. Public keys stored on the server are encrypted, ensuring an attacker can never access them.
Defense suppliers that rely on PreVeil are able to safely and securely exchange ITAR related data with U.S. entities outside the U.S. as well as store ITAR data in servers overseas.
Want to learn more about how to manage your ITAR data and meet compliance? Talk to our compliance experts.