The laws regarding what can be exported from the U.S. and where those exports can go are complex. Not surprisingly, these laws are violated on occasion. When violations occur, the critical question for enforcement agencies is whether the violations were willful. The answer to that question generally determines whether the violation is treated as a criminal act or a mistake meriting administrative settlement. Two recent enforcement actions stemming from violations of the International Traffic in Arms Regulations (ITAR) illuminate what it means to be a willful violator and how that status affects the outcome of the enforcement action.
Under the ITAR, as well as the Export Administration Regulations (EAR), and the sanctions regulations administered by the Office of Foreign Assets Control (OFAC), willful violations are criminal and punishable by prison sentences for individuals. As described more fully here, the meaning of “willful” varies depending upon the legal regime at issue. When a violation of the ITAR, the EAR or OFAC regulations is involved, willfulness amounts to general knowledge that one’s conduct is unlawful. That is, even if the violator is honestly ignorant that the item being exported is on a particular restricted list, the willfulness requirement is met if the violator knows that the export is against the law.
One of the best ways for a violator to demonstrate that its violation was not willful is to self-disclose it. Indeed, in recognition of this fact and in order to encourage self-disclosures of systemic problems, the Department of Justice has followed a policy of foregoing prosecutions of companies that make complete, and self-initiated voluntary disclosures.1 (The same policy does not apply to individuals.)
Earlier this year, the Fourth Circuit analyzed the meaning of “willful” in the context of a prosecution under the Arms Export Control Act (AECA). United States v. Bishop, 740 F.3d 927 (2014), describes the unsuccessful appeal of Brian Bishop, a foreign service officer at the U.S. Embassy in Jordan who was convicted of a criminal violation of the ITAR. In preparing personal effects for shipment from the U.S. to his post in Amman, Bishop packed nearly 10,000 rounds of ammunition in boxes labeled “weights,” and signed a packing slip certifying that his shipment did not contain “any unauthorized explosive materials, destructive devices or hazardous materials.”2
Shipping company employees discovered the ammunition prior to the overseas shipping of the boxes. During his trial, a shipping company employee testified that when she called Bishop to notify him that they had found the ammunition, his first response was to ask whether the State Department knew how much ammunition he attempted to take. He then told the employee that the ammunition was going to be a gift for Jordanian official, and told her not to tell anyone at the Jordanian embassy about the ammunition. The shipping company reported the discovery to the State Department.
At trial in the Eastern District of Virginia, Bishop suggested that he tried to hide the ammunition shipment because he thought that shipping ammunition was against internal State Department policy, but he was unaware it violated the law. The trial court found that the evidence demonstrated that Bishop “knew what he was doing was unlawful and simply went ahead and did it.”3 Bishop’s sentence included six-months’ home confinement and a fine.
On appeal, the Fourth Circuit rejected Bishop’s argument that the government had to be able to show that Bishop knew the ammunition was on the U.S. Munitions List (USML), not simply that Bishop knew the conduct was illegal, in order to demonstrate willfulness under the AECA. The court reaffirmed that willfulness in the AECA context means that the defendant acted with the knowledge that his conduct was unlawful. The court also rejected Bishop’s second argument that the evidence presented at trial was insufficient, noting that Bishop’s attempts to cover up his actions “clearly indicated his awareness of wrongdoing.”
By contrast to Bishop’s criminal prosecution, when Esterline Corporation, an aerospace and defense technologies company, committed hundreds of violations of the ITAR over the course of many years, it was punished through an administrative settlement with the State Department. According to the March 2014 settlement, the enforcement action began when Esterline disclosed its violations, including the unauthorized export of defense articles; the unauthorized temporary import of defense articles; violations of the terms and conditions of certain licenses and approvals; exports in violation of quantity and value limits; and missing or incorrect documentation.
The State Department then conducted an investigation, with which Esterline fully cooperated. The State Department concluded that Esterline had inadequate corporate oversight and compliance, which had led to hundreds of violations across seven different categories of the USML. Under Esterline’s consent agreement with the State Department, Esterline is required to pay a civil penalty of $20 million, with half that amount suspended provided that it is put toward remedial compliance measures already undertaken or required to be undertaken by the consent agreement, including: appointment of an approved compliance official, promotion of the company’s internal reporting hotline; implementation of strengthened compliance policies, procedures and training; implementation of a comprehensive automated export compliance system; an audit by an outside consultant; and other specified compliance-related requirements. The State Department did not impose administrative debarment of Esterline.
While the financial penalty was substantial, the civil settlement that Esterline entered into is obviously a far better outcome for the violator than the criminal prosecution to which Bishop was subjected. By self-disclosing its violations and demonstrating that its violations were not willful, Esterline ensured that it would be treated as a civil violator, notwithstanding that it was apparently a sophisticated company that committed hundreds of violations over many years.
Clients with activities that implicate the ITAR, EAR and OFAC regulations should take comfort from the willfulness requirement, because it ensures that good faith mistakes in a complex area of regulation will not trigger a criminal enforcement action. And they should take note that, should mistakes happen, self-disclosure may be the best way to demonstrate that violations were not willful and should not be pursued through a criminal prosecution.
1Justice Won’t Prosecute Firms that File Complete Voluntary Self-Disclosures, 26 EXPORT PRAC. no 5, May 2012, at 25, 26.
2United States v. Bishop, 740 F.3d 927,929 (4th Cir. 2014).
3Id. at 931.