Aerospace company fined $20 million for arms export control violations

Seattle, Washington - A Bellevue-based aerospace and defense technology company has been assessed $20 million in civil penalties by the State Department for inadequate controls that led to the unauthorized export of defense articles and technical information.

Esterline Technologies Corporation entered into a consent agreement with the State Department Wednesday following a multi-year review of their compliance with the Arms Export Control Act and the International Traffic in Arms Regulations. A review by the State Department's Office of Defense Trade Controls Compliance (DTCC) and investigations by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) revealed Esterline demonstrated inadequate corporate oversight and failed to establish an adequate arms export control compliance program.

Among the allegations cited by State Department officials was the 2009 HSI investigation of Esterline's subsidiary, Everett-based Korry HMI Solutions. Department documents state that between 1997 and 2010, Korry transferred sensitive technical data to a foreign company without U.S. government authorization. The foreign company in Liechtenstein was contracted by Korry to manufacture night vision components used by the U.S. military. As a result of HSI's inquiry, the company conducted an internal compliance review and voluntarily disclosed the unauthorized exports to foreign suppliers. Department documents also noted HSI's investigation into another subsidiary, Kirhill-TA in California, where HSI special agents alleged the company allowed foreign nationals unauthorized access to controlled technical data.

DTCC concluded that many of the alleged violations occurred because Esterline did not properly establish jurisdiction over its defense articles and technical data, did not properly administer licenses and agreements, and had incomplete or poor recordkeeping. The alleged violations involved defense articles, technical data, and defense services that are or were controlled at the time of the alleged violations by the U.S. Munitions List. The U.S. Munitions List, administered by the State Department as part of the International Traffic in Arms Regulations, consists of categories of defense articles and services that cannot be exported without a license issued by the department.

Under the terms of the three-year consent agreement, Esterline will pay a civil penalty of $20 million; $10 million is suspended as long as the same amount is used to implement remedial compliance measures approved by the DTCC. Additionally, Esterline will engage a "special compliance official" to oversee the agreement, and the company will conduct two audits of its compliance program as well as implement additional compliance measures, such as improved policies and procedures, and additional training for employees and principals.

Esterline will avoid administrative debarment because of its cooperation with the government, disclosure and acknowledgement of the serious nature of the alleged violations, and the steps the company has taken to implement extensive remedial measures.

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