Loaned Equipment Agreement for Employees by wzx45739


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									                   The ITT Settlement
          $100,000,000 reasons to
         monitor export compliance
Aerospace Industries Association
Legal Committee
June 21, 2007                           1
            We Will Cover
 Jenner   & Block’s role.
 How   did ITT get so far off track?
 What   did ITT’s mistakes cost them?
 Howcan corporations reduce the risk of
 $100 million export violation penalties?

   Jenner & Block’s Role
 We represented the “U.S. engineer”
 identified in the Statement of Facts.
  Worked for the “Rochester Company,” a
   sister company of the Singaporean lens
   manufacturer. Both are owned by a major
   international conglomerate.

        Investigation History
   In 2001 DoD DCIS learned that a “Secret NOFORN”
    doc. had been sent to the UK by ITT Night Vision
    (“ITT NV”).
   US Attorney opened a criminal investigation in 2002,
    which uncovered “a pattern of violations of export
    laws of the United States spanning from the 1980s to
    2006 at ITT NV.”
   Counsel for ITT was uncooperative at the early
    stages of the investigation. After counsel was
    replaced, there was “extraordinary” cooperation with
    the govt, which likely led to DPA.
            What did ITT do?
   ITT NV managers asked employees to violate US
    law and send controlled technical data about night
    vision equipment to foreign entities.
   Lost numerous pieces of state-of-the-art NV
    equipment loaned to foreign customers under
    temporary State Dept. authorizations and
    submitted false and misleading disclosures to the
    State Dept. about the violations.
   Exported controlled data to Singapore with no
    license until 1994, submitted false information to
    obtain licenses between 1994 and 2004, and
    exported technical data not covered by those
    licenses. Also exported controlled data to China,
    Japan, and the UK.                                   5
    ENVG & the “Rochester Company”
   ITT illegally transferred
    ENVG technology to
    Singapore under the
    Roch. Co.’s Technical
    Assistance Agreement,
    even though ITT believed
    the State Dept. would
    likely deny such a request
    from ITT. The TAA didn’t
    mention ENVG, and the
    Roch. Co. didn’t do any
    NV work and had virtually
    no ITAR experience.              6
    US Attorney’s View of ITT’s Failures
   In Oct. 2004, ITT entered into a consent agreement
    with the State Dept for serious export violations under
    which it agreed to pay an $8 million fine, but did not
    admit any wrongdoing and avoided debarment. The
    leniency was due, in part, to representations made in
    disclosures letter in 2000 that ITT had “recently
    learned” of certain violations and had addressed the
      “The reality, however, was just the opposite …. counsel for
       ITT Defense and the outside attorneys intentionally withheld
       material facts … in an effort to limit potential penalties and
       consequences that might be imposed by the government.”
      DoJ later learned some violations dated back to the mid-
       1990s, and that counsel to ITT Defense and outside counsel
       who wrote the 2000 disclosures had been specifically
       informed of violations since March 17, 1998.
 US Attorney’s View of ITT’s Failures

 ITThad hired an Export License
 Manager in May 2000, which was listed
 as one of the corrective actions taken
 by ITT in a 2000 disclosure. He left less
 than two months after starting, writing:
   “I knew when accepting the job that Night
    Vision had many problems, but as things
    have now turned out the problems are
    greater than anyone could imagine.”
         Two Strikes & a Ball
   ITT pled guilty to two criminal violations of the Armed
    Export Control Act on March 28, 2007:
      illegally transferring night vision and night vision
       counter-measure technology to foreign countries;
      knowingly and willfully omitting material facts from
       required reports with the intent to obstruct a State
       Dept. investigation.
   ITT also entered into a deferred prosecution
    agreement for illegally exporting the next-generation
    ENVG system to China, Singapore, and Japan.

           The Settlement
 Two   guilty pleas to AECA violations
   $2 million criminal fines & $28 million

 $20   million State Dept. penalty.
 Remedial Action Plan, Independent
 Monitor, and $50 million fine under a
 60-month DPA.
        Remedial Action Plan
   Establish an executive manager of compliance and
    update export compliance management structure;
   Annual training for employees involved in export
    activities, additional training for managers, and record
    keeping of training sessions;
   Mandatory reporting of violations; and
   Compliance investigation and annual compliance

       $50,000,000 DPA Fine
   $50 million deferred prosecution monetary
    penalty, suspended for 60 months, is subject
    to $ for $ reduction for “monies spent to
    accelerate and further the development and
    fielding of the most advanced” NV technology
    for US troops.
     Must consult with and get prior agreement from
      Army Research, Development & Engineering
      Command, Night Vision Electronic Sensors
      Directorate to use the $ for $ reduction.

    Key Reasons for Size of Settlement

   NV technology is key to national security.
   ITT personnel were aware of ongoing export
    violations years before any self-disclosure.
   ITT failed to cooperate fully with the

          Settlement Impact
   ITT was statutorily debarred, but
     Debarment limited to ITT NV subsidiary;
     Unspecified number of pre-existing export licenses
      still valid;
     ITT NV’s DoD contracts continue largely
      unchanged; and
     ITT NV gets to reduce its deferred prosecution fine
      of $50 million by advancing its edge in NV
   Wall Street reaction:
     ITT Corp.’s stock price has risen considerably
      since the settlement.
Mitigating Export Compliance Risk

   Ensure export compliance officer has
    adequate funding and authority, and reports
    to top tiers of management.
   Provide adequate ITAR training to all legal
    staff and others involved in exporting data.
   Enforce strict export control procedures.

           Lessons Learned
   Govt will be suspicious of:
     Sudden increase in export activity
     Company involved in new industry involving
   DoJ will likely expect extraordinary
    cooperation in future export violation cases.
   Disclosures are discretionary, but, if made,
    must be 100% truthful with full compliance
    maintained going forward.

Joseph P. Covington
Richard W. Arnholt
Jenner & Block LLP
601 Thirteenth Street, NW
Suite 1200 South
Washington, DC 20005
Tel: 202.639.6000         17

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