The April 30th, 2013, Consent Agreement between the US Department of State (DOS) and Raytheon has some important lessons learned for trade compliance professionals at all levels in an organization. It’s also Raytheon’s third settlement with the DOS in less than 15 years. This one-page summary captures the important points of their latest settlement. While trade compliance/export control practitioners are encouraged to read all the documents, many C-level executives don’t have the interest or time to digest them including the Proposed Charging Letter, Consent Agreement and Order. These one-page summaries are bite-size tools that have proven education and training benefits. They have also consistently proven useful in beefing-up audit and assessment checklists. There are some key takeaways buried in the Raytheon settlement documents. If you read carefully you’ll come to the conclusion their compliance program was clearly not up-to-speed (some have said badly broken). Additionally some individuals apparently not fulfill their responsibilities administrating agreements and ensuring previously mandated compliance measures were thoroughly taken care of. They also had serious shortfalls in investigating and correcting violations as well as problems managing voluntary disclosures. The terse settlement document quotes about the state of their compliance program paint a picture of ineffective, inadequate, insufficient and failed efforts over years that resulted in hundreds of disclosures and violations. As you read this Settlement Summary and the complete set of documents, ask yourself what your organization is doing in these same areas. If enforcement came knocking at your door what would they find? Do you or your organization have similar issues? If so, what are you doing to close the gaps? If you want to expand your compliance perspective and better understand the current enforcement environment, review all three of Raytheon’s DOS settlements to gain an appreciation for the evolution of how State handles settlements and particularly so in the area of mandated compliance measures.

1. RAYTHEON COMPANY (Raytheon) [Consent Agreement (CA) Date: 4/30/2013]
United States Department of State (DOS) - Settlement Summary (As of 6/6/2013)
Trade compliance professionals are encouraged to read all three DOS-Raytheon Settlements at http://www.pmddtc.state.gov/compliance/consent_agreements/Raytheon.htm.
Counts Charges Summary
Monetary Fines
General Remedial Measures - Highlights
Actual Remedial
General
1-110
111-125
One-hundred and twenty-five alleged
violations of the Arms Export Control Act
(AECA) and the International Traffic in
Arms Regulations (ITAR) including:
- Violations of ITAR Sections 127.1(a)(4),
127.1(b), 127.2 and 124.1(c) when
Raytheon failed to abide by the
substantive and administrative terms
and conditions associated with
Directorate of Defense Trade Controls
approved Part 124 agreements.
- Violations of ITAR Sections 123.1, 123.3,
123.5, 123.22(c)(2), 127.1(a)(4) and
127.1(b) when Raytheon failed to abide
by the requirements associated with
DDTC-approved Part 123 temporary
import and export authorizations.
$8,000,000
(Civil Penalty)
* $4,000,000 - Appoint in consultation with and at the approval of the Director,
DTC Compliance (DDTCC) a qualified outside individual as a
Special Compliance Officer (SCO) for the 1st
2 years of the CA
and an Internal SCO (ISCO) for the subsequent 2 years
- Ensure adequate resources are dedicated to ITAR compliance
throughout operating divisions, subsidiaries and business units
- Within 120 days of the CA, in coordination with the SCO, conduct
an internal review of AECA & ITAR compliance resources
- Provide a status report to the DDTCC within 6 months of the CA,
and then semi-annually on ITAR program enhancements,
resource levels and their effect on ensuring compliance
- Incorporate CA measures in business acquisitions and notify
purchasers in writing prior to a sale or merger that the purchaser
or merging party is bound by the terms and conditions of this CA
- Continue to promote and publicize availability of existing
employee reporting mechanisms regarding allegations of
AECA/ITAR violations to ensure violations may be readily
reported without fear of recrimination or retaliation
- Continue to implement a comprehensive and reasonably uniform
automated export compliance system
- Develop and implement policies, procedures and training to
ensure accurate identification and tracking of ITAR- controlled
technical data that is transferred electronically
- Perform two audits conducted by an outside consultant with
AECA/ITAR expertise approved by the DDTCC
- Review/verify the jurisdiction of all hardware exported in the past
five years and any defense services, technical data, including
software, directly related to such hardware
SCO/ISCO REQUIREMENTS/RESPONSIBILITIES (partial list): “…the SCO shall not have been employed in any prior capacity by or previously
represented in any capacity Respondent’s or any of Respondent’s divisions, subsidiaries or business units, past or present.” [CA, Item (10)(a), page 5]
“The SCO or ISCO may, at his/her sole discretion, present any export compliance-related issue directly to any or all among Respondent’s Chief
Executive Officer, the Senior Vice President and General Counsel, and if necessary the DDTTC.” [CA, Item (10)(e), page 6] SCO/ISCO oversight: (1) Policy
& Procedure [CA, Item 10, (n)(1), pages 8-10]; (2) Specific Duties [CA Item 10, (n)(2), page 10]; (3) Reporting (requirements) [CA, Item 10 (n)(3), page 11]
NOTABLE QUOTES: “…Respondent’s record in effectively administering its agreements and temporary authorizations, and in effectively investigating
and correcting related violations, has frequently been inadequate, thereby requiring repeated comprehensive reviews conducted at the behest of or in
conjunction with the Department (DDTC).” (PCL page 1, last para and page 2, 1
st
para]; “Overall, Respondent has violated hundreds of its Department-
authorized agreements. Despite undertakings and efforts by Respondent to identify and address the underlying causes, many of these violations
recurred over the years, as corrective measures repeatedly proved insufficient or failed.” (See PCL, BACKGROUND AND VIOLATIONS, page 5, last para)
“…Respondent’s remedial and corrective efforts have been hampered at times by inadequate investigations of root causes. Respondent has also
managed its voluntary disclosures inadequately…” (PCL, BACKGROUND AND VIOLATIONS, page 6, last para)
PRIOR DOS-RAYTHEON SETTLEMENTS: 2003 - $3,000,000 fine with $2,000,000 suspended for RM for twenty-six alleged AECA/ITAR violations for the
unauthorized export of defense articles and defense services to Canada and Pakistan along with the unauthorized retransfer of defense articles through Canada to
Pakistan. 1999 - $550,000 fine with $50,000 suspended to cover the cost of an independent audit for eleven alleged AECA/ITAR violations including the
unauthorized export of technical data to Canada, violating terms and conditions of agreements and the misrepresenting or omission of facts on shipping documents.
OTHER: According to the Aerospace & Defense Intelligence Report, Raytheon is number 4 on the list of fiscal year 2013 Top 100 Defense Contractors.
Raytheon is a major US defense contractor with core concentrations in weapons and military/commercial electronics. Raytheon, headquartered in Waltham,
Massachusetts, has over 70,000 employees globally and is the world's largest guided missile producer. (More on Raytheon at http://www.raytheon.com)
An IMPORTANT CONSIDERATION impacting this
case is the: “…violations were almost entirely
administrative in nature and did not cause harm to
national security,….” [Proposed Charging Letter (PCL),
middle paragraph (para), last sentence, page 4]
There are no restrictions on distribution of this document exactly as is with complete/proper citation/attribution.
For changes, inputs, suggestions, please contact John Priecko, 703-895-1110 or jpriecko@comcast.net.
.
Trade Compliance Solutions
* $4,000,000 is suspended
for self-initiated pre-CA
remedial measures (RM).
This CA remains in effect
for 4 years.
The total fine of $8,000,000
equates to $64,000
per alleged violation.
The actual total civil penalty
is 12.8% of the maximum of
$62,500,000 million that
could have been imposed
for 125 administrative
violations.
A worse case fine for 125
criminal violations could
have been $125 million.