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Don’t Get Caught By the Federal Civil Penalties “Catch up” Adjustments

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Centre Law & Consulting

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On June 7, 2016, the U.S. Department of State announced that it is implementing “catch-up” adjustments to the maximum amounts of the monetary penalties it assesses for regulatory violations. Under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, federal agencies must make a one time “catch-up” adjustment to their civil monetary penalties in order to account for inflation. Federal agencies are required to publish interim final rules with the initial penalty adjustment amounts by July 1, 2016, and the new penalty levels must take effect not later than August 1, 2016.

The Penalties

The U.S. Department of State Directorate of Defense Trade Controls assesses penalties for violations of the Arms Export Control Act and International Traffic in Arms Regulations. The following amounts will be assessed for certain violations after August 1, 2016, regardless of when the actual violation occurred:

Each violation of The Arms Export Control Act, 22 U.S.C. §2778. This Act imposes export and import controls on certain defense articles and defense services. This includes registration, reporting, record keeping, and due diligence requirements, among many others. Previously, the maximum penalty was $500,000. The new maximum penalty will not exceed $1,094,010 per one violation.

Each violation of the The Arms Export Control Act, 22 U.S.C. §2779a. This section of the Act prohibits incentive payments to satisfy any offset agreements under certain circumstances. Generally, any U.S. supplier of defense articles or services sold, licensed, or exported, among others, is prohibited from making any incentive payments for the purpose of satisfying, in whole or in part, any offset agreement with a foreign country. Defense offset agreements are understood as side agreements that provide additional incentives to the purchaser. Previously, the maximum penalty was $500,000. The new maximum penalty will not exceed $795,445 per one violation.

Each violation of The Arms Export Control Act, 22 U.S.C. §2780. This section of the Act prohibits transactions with countries supporting acts of international terrorism. Transactions include exporting (directly or indirectly) or otherwise providing (by sale, lease, loan, grant, or other means) of any munitions items, providing credit guarantees, or otherwise facilitating the acquisition of any munitions. Previously, the maximum penalty was $500,000. The new maximum penalty will not exceed $946,805 per one violation.

What Can I Do Before August 1, 2016?

Have no fear and double-check whether you are compliant. The U.S. Department of State Directorate of Defense Trade Controls expects each U.S. exporter of defense articles and services to have comprehensive operational compliance programs. This may include policies and procedures on:

  • Corporate commitment to the International Traffic in Arms Regulations (ITAR) compliance
  • Tracking of controlled items and technical data
  • Due diligence and internal monitoring
  • Training and awareness
  • Penalties for violations
  • Reporting non-compliance issues

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 allows the U.S. Department of State to exercise its discretion to determine whether it should assess civil monetary penalties lower than the maximum amount. If your compliance program identifies at least one ITAR violation, it may be beneficial to consider whether mandatory reporting is required and whether to report it before the maximum penalties increase on August 1, 2016.

You can learn more about the U.S. export controls and compliance requirements on June 23, 2016 during our webinar on New Opportunities for Small Businesses and U.S. Exporters.

Register Now | Centre Law & Consulting
Note that is post is for educational use only and does not constitute legal advice.

About the Author:

Wojciech Kornacki | Centre Law & Consulting Wojciech Kornacki
Government Contract and Compliance Counsel

Wojciech Kornacki focuses on federal Government contract compliance, bid protests, and federal litigation. He represents clients in matters involving Government Accountability Office bid protests, federal agency debarments, Boards of Contract Appeals litigation, and Export Controls (ITAR and EAR) and Trade Agreements Act compliance.

 

The post Don’t Get Caught By the Federal Civil Penalties “Catch up” Adjustments appeared first on Centre Law & Consulting.


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