Company Fined $6.6 million for ITAR Violations

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Aug. 17, 2021

The State Department’s Directorate of Defense Trade Controls (DDTC) fined Keysight Technologies $6.6 million for 24 unauthorized exports of technical data, including software, controlled under USML Category XI(d) in violation of section 127.1(a)(1) of the ITAR. These violations included unauthorized exports to the PRC, a proscribed destination pursuant to section 126.1 of the ITAR, and to Russia, a country subject to restrictive measures on defense exports.

Keysight Technologies designs and manufactures electronic test and measurement equipment and software for use in the commercial, government, and defense sectors. Between 2015 and 2018, Keysight exported software that can be used with certain hardware equipment to model and simulate multi-emitter electronic warfare threat scenarios for testing radar equipment on fixed or mobile platforms. In November of 2017 DDTC raised concerns over a potential misclassification of this software and recommended Keysight submit a commodity jurisdiction (“CJ”) request to determine the jurisdiction of the software. The company continued to export the software while the CJ was under review, in what the DDTC referred to as a “good faith but misguided belief” that the software was not subject to ITAR controls. After the initial CJ was returned, Keysight appealed the determination and requested reconsideration. Ultimately, the DDTC maintained that the software was controlled under USML Category XI(d) on the basis of the software’s direct relation to electronic warfare test sets described by USML Category XI(a)(11).

There were several aggravating factors in this case, including the fact certain violations harmed U.S. national security; certain violations involved unauthorized exports the PRC and Russia; it was the DDTC that identified the misclassification issue, which led to the discovery of ITAR violations; and Keysight continued to export the product as EAR99 while the CJ request was pending with the DDTC. However, there were also some important mitigating factors. These included the fact that the company cooperated with the Department’s review of the potential violations, including the submission of a disclosure; Keysight implemented remedial compliance measures intended to detect, deter, and prevent future similar violations; and the company cooperated with the DDTC tolling the statutory period that applies to enforcement of the violations.

After consideration of all of those factors, the DDTC entered into a 36-month Consent Agreement wherein Keysight will pay a civil penalty of $6,600,000. However, of that amount $2,500,000 will be suspended on the condition that the funds will be used for remedial compliance measures. Additionally, the company must hire an outside Special Compliance Officer for a term of two years and conduct an external audit to assess and improve its compliance program.

It is critical that exporters are sure that their products are not subject to the ITAR before exporting. As this case demonstrates, even a “good faith” belief that the products are not subject to ITAR can result in a serious penalty if that belief is ultimately found to be incorrect. For exporters seeking clarity before exporting, the submission of a CJ request to the DDTC may provide a definitive answer as to whether an item or service is subject to ITAR.

If you have any specific questions relating to submission of a CJ request, export controls, or export compliance do not hesitate to contact an attorney at Barnes, Richardson & Colburn LLP.