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Newcomers to defense biz will face ITAR headache


Wednesday, February 11, 2009

Posted by John McHale

Listening to a presentation today on dealing with International Traffic in Arms Regulations (ITAR) pitfalls for small defense companies, I started thinking this is only going to become more problematic as commercial companies, finding their own markets tanking, try to break into the defense business. The defense industry is one of the few bright spots in this economy and already designers of commercial technology are looking for ways to attract military system integrators to their products.

Today's speaker, Russell VanDegrift, senior consultant and director at MK technology, warned the audience at the Components for Military & Space Electronics conference in San Diego that if they even think their product may be used for military systems they need to clear it with the State Department.

Unfortunately, I think commercial developers are quite naïve on this issue and we might see a more than a few get hit with costly ITAR violations.

VanDegrift also said that any products that may be sold or seen by a foreign government then used for military may come under scrutiny as well -- especially if the other country is China.

I remember last year at our Military & Aerospace Electronics Forum during the ITAR panel discussion engineers and managers kept peppering the panelists with "what if" scenarios -- when in the middle of one exchange someone stood up and said "don't take any chances, just cover your rear end, you don't want to get that letter from the State Department."

Not much has changed since then. The ITAR headache remains for many defense suppliers -- seasoned or not. It is also the only topic our conference advisory board voted to repeat for our 2009 conference.

Watch your step.

Post a Comment

2 Comments:
Blogger JHanson said...
Very good cautions and insight! Export enforcement law and regulations are very complex. The problem in this area is further exacerbated by enforcement trends which only point to a large increase in civil and criminal actions for the next few years. For example, a task force was formed in the latter part of 2007 that has been educating Federal Prosecutors and Agents regarding making cases in this area. Prior to this, there were not many Prosecutors taking these cases and very few Agents focused on it, at least in DOJ. As this education spreads throughout the 59 US Attorney's offices and their myriad of corresponding investigative agencies with whom they work, we will see much more scrutiny and many more cases. Add to this that the penalties for violations in this area were significantly increased, to as much as $250,000 per violation in some instances, and the pain becomes unbearable for many small and large companies alike. Furthermore, recent changes to the FAR now require that companies self-report violations. If they do not, their problem is compounded. As a former Federal Agent, now forensic accountant, who proactively advises companies (as well as research facilities, universities, hospitals and others) about this and, in many cases, helps them conduct the investigations after the problems have been discovered, I would strongly advise any companies to obtain expert assistance and counsel as they consider moving into this area. It's not a cost that many companies like to pay, but the cost/risk ratio is too high to not contemplate such proactive work gravely.

John Hanson, CPA, CFE
Huron Consulting Group
Wednesday, February 11, 2009 9:04:00 AM EST  

Blogger John Perser said...
I completely agree. After seeing my own small business come under the scrutiny of the State Department simply because we were 'unaware' of the issues (seriously) I can attest to how disruptive this can be to business. Small companies need to take some simple steps to avoid the problem. Advice from experts should be sought BEFORE you begin exporting.

John Perser
ExportSafe.com
Wednesday, February 11, 2009 9:48:00 AM EST  


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Welcome to the lighter side of Military & Aerospace Electronics. This is where our staff recount tales of the strange, the weird, and the otherwise offbeat. We could put news here, but we have the rest of our Website for that. Enjoy our scribblings, and feel free to add your own opinions. You might also get to know us in the process. Proceed at your own risk.

John Keller for MAE
John Keller is editor-in-chief of Military & Aerospace Electronics magazine, which provides extensive coverage and analysis of enabling electronic and optoelectronic technologies in military, space, and commercial aviation applications. A member of the Military & Aerospace Electronics staff since the magazine's founding in 1989, Mr. Keller took over as chief editor in 1995.


Courtney Howard for MAE Courtney E. Howard is senior editor of Military & Aerospace Electronics magazine. She is responsible for writing news stories and feature articles for the print publication, as well as composing daily news for the magazine's Website and assembling the weekly electronic newsletter. Her features have appeared in such high-tech trade publications as Military & Aerospace Electronics, Computer Graphics World, Electronic Publishing, Small Times, and The Audio Amateur.


John McHale for MAE John McHale is executive editor of Military & Aerospace Electronics magazine, where he has been covering the defense Industry for more than dozen years. During that time he also led PennWell's launches of magazines and shows on homeland security and a defense publication and website in Europe. Mr. McHale has served as chairman of the Military & Aerospace Electronics Forum and its Advisory Council since 2004. He lives in Boston with his golf clubs.

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