U.S. Satellite Component Maker Fined $8 Million for ITAR Violations

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WASHINGTON — A U.S. supplier of radiation-hardened electronics for space and defense applications has agreed to pay an $8 million fine and adopt remedial measures to settle pending government charges that it failed to obtain proper export licenses for hardware that in many cases found its way aboard satellites that were launched from China and India.

The company, Aeroflex of Plainview, N.Y., supplied components that European manufacturer Thales Alenia Space used on communications satellites that were marketed as devoid of restricted U.S. technology and therefore eligible to launch on Chinese rockets. U.S. rules forbid the export of virtually any satellite hardware or technology to China.

To get around that ban, Thales Alenia Space of France and Italy developed a satellite platform that supposedly contained no parts subject to the U.S. International Traffic in Arms Regulations (ITAR), a set of rules that govern exports of militarily sensitive technology including space systems. Exports of ITAR-controlled technology are tightly controlled by the U.S. Department of State.

Following a State Department investigation into its so-called ITAR-free product, Thales Alenia Space on Aug. 9 issued a statement saying the term was a misnomer and blaming unspecified U.S. companies for misrepresenting their wares as dual-use items subject to licensing by the more permissive U.S. Department of Commerce. “These hardware items were in fact defense articles controlled for export by the Department of State under the International Traffic in Arms Regulations,” the statement read, in part.

Aeroflex was one of those companies, according to documents posted online by the State Department. The company appears to be the first called to account for improperly labeling its hardware.

In a July 25 “proposed charging letter” to Aeroflex Chief Executive Leonard Borow, the State Department accused various company divisions of 158 violations of the Arms Export Control Act and ITAR “in connection with unauthorized exports and retransfers, and re-exports of defense articles, to include technical data, to various countries, including proscribed destinations.” Signed by Daniel J. Buzby, acting director of compliance within State’s Office of Defense Trade Controls, the letter said there was a systemic, company-wide failure to determine proper export jurisdiction for its defense-related merchandise. Domestic purchasers of Aeroflex’s ITAR-controlled microelectronics also made unauthorized exports based on the improper designation, the charging letter said.

The company relied on Commerce Department guidance to classify its radiation-hardened products when in fact only the State Department has the authority to determine whether an item is ITAR-controlled, the letter said. In one instance the company sought a State ruling on a particular integrated circuit for satellites but after the hardware was deemed ITAR-controlled did not apply the same logic to similar products. Further, Aeroflex officials failed to disseminate State’s findings throughout the company and its subsidiaries, the letter said.

After a subsequent request for a State commodity jurisdiction determination resulted in a similar finding, Aeroflex filed a voluntary disclosure with State. The disclosure was the first of several that the company had mislabeled various components for more than a decade starting in 1999, the letter states.

In one of those disclosures, filed Oct. 15, 2009, Aeroflex said that from 2001 to 2003 it shipped 100 application-specific integrated circuits to France for use on the Spacebus 4000 platform, which is a Thales Alenia Space geostationary satellite model. “These items were subsequently launched from the People’s Republic of China,” the letter said.

The items in question were radiation-hardened gate arrays that had been specifically customized for the Spacebus 4000, the letter said. “The unauthorized re-exports caused harm to national security by providing the People’s Republic of China a more reliable satellite capability,” the letter said.

Aeroflex also shipped, from 2005 through 2006, unauthorized items to the United Arab Emirates for end use on India’s GSAT-5, Resourcesat-2 and Oceansat-2 satellites, the letter said. While the company explained that it believed the components were not subject to ITAR controls, it requested a commodity jurisdiction determination and exported the hardware while the review was still underway, the letter said.

In a two-year consent agreement Borow signed July 26, Aeroflex agreed to a series of mandatory remedial measures and to pay an $8 million fine. Half of the fine is to be paid in cash installments, with the other half suspended in recognition of expenses already incurred by the company for voluntary remedial measures, assuming State approves.

The mandatory remedial measures include the appointment, subject to State Department approval, of an official to monitor the company’s compliance with the ITAR and the Arms Export Control Act, and the adoption of new export compliance procedures and training.

In addition, Aeroflex must review and verify export jurisdiction of all hardware in its ITAR-regulated divisions and subject itself to two outside audits to assess the effectiveness of the remedial measures.

“Aeroflex disclosed nearly all of the ITAR violations resolved in this settlement voluntarily to the Department, acknowledged their serious nature, cooperated with Department reviews, and since 2008 has implemented or has planned extensive remedial measures, including the restructuring of its compliance organization, the institution of a new testing protocol of its commodities, and a revised company-wide ITAR compliance program,” the State Department said in an Aug. 9 press release. “For these reasons, the Department determined that an administrative debarment of Aeroflex was not appropriate at this time.”

Thales Alenia Space has discontinued its ITAR-free satellite product line.

Andrew Kaminsky, Aeroflex  vice president of corporate development and investor relations, did not respond to a request for comment.