Intersil Fined $10M for Violating ITAR

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WASHINGTON — Radiation-hardened electronics manufacturer Intersil Corp. of Milipitas, California, has agreed to pay a $10 million fine and take remedial actions following allegations of unauthorized exports of space components, some of which wound up in China, the U.S. State Department announced June 18.

The alleged violations, which were voluntarily disclosed by Intersil, were largely the result of confusion about the export jurisdiction for the items in question, primarily radiation-hardened integrated circuits, according to a proposed charging letter drafted by State. Intersil believed the items were controlled by the Commerce Department when in fact they were covered by the State Department under the International Traffic in Arms Regulations (ITAR), the letter states. This resulted in numerous unauthorized re-exports of Intersil’s integrated circuits to countries including China, which is barred by U.S. law from receiving U.S. space technology.

“One particularly alarming end user was the 771 Research Institute” in China, which “engages in research, development, and manufacturing of satellite- and missile-related computers and [integrated circuits],” the proposed charging letter states. The institute received at least 520 Intersil integrated circuits through re-exports from Hong Kong, according to the undated letter.

Several other entities on the State Department’s so-called Watch List received Intersil’s components either through direct exports, re-exports or retransfers, the letter says. These entities were located in countries including France, Germany, India, South Korea, Russia and Singapore, the letter states. 

Intersil began treating its radiation-tolerant electronics as ITAR-controlled items in August 2010 upon receiving guidance from State’s Directorate of Defense Trade Controls, according to the letter. Nonetheless, in some instances unauthorized shipments of ITAR-controlled components occurred until October 2010, the letter says. 

In any event, the company should have known well before August 2010 that many of its radiation-hardened products were subject to ITAR controls, the letter states. 

In the June 16 Consent Agreement that settled the violations, the State Department acknowledged that jurisdiction for some of the items in question is expected to be transferred to the Commerce Department as part of a broad reform of space technology export rules being implemented.

Under the two-year Consent Agreement, a copy of which was posted online, Intersil will take steps to ensure that it devotes adequate resources to ITAR compliance, including training and external audits, and establish relevant policies and procedures. The process will be overseen by an internal special compliance officer whose appointment will be subject to State Department approval, the document states.

Of the fine levied on Intersil, $4 million was suspended pending State approval of expenditures related to the remedial measures, some of which were initiated prior to the signing of the Consent Agreement, the department said in a June 18 press release. 

“Intersil disclosed the alleged … violations resolved under this settlement to the Department, acknowledged the serious nature of the alleged violations, cooperated with the Department, and implemented or has planned extensive remedial measures,” the press release said. “For these reasons, the Department determined that administrative debarment of Intersil was not appropriate at this time.”

In a July 18 filing with the U.S. Securities and Exchange Commission, Intersil said it took a $6 million charge against earnings for the quarterly reporting period that ended Oct. 4, 2013, and a $4 million charge for the quarter ending April 4, 2014, in anticipation of the fine. The $6 million that was not suspended was to be paid out in two installments in June 2014 and June 2015, the company said.

“The Company expects that investments made in its export control compliance program will be eligible for credit against the suspended portion of the settlement amount, which include: additional staffing, ongoing implementation of a new software system, employee training, and establishment of a regular compliance audit program and corrective action process,” Intersil said. “The Company also expects that these investments in remedial compliance measures will be sufficient to cover the $4 million suspended payment.”

Shannon Pleasant, a spokeswoman for Intersil, did not respond to an email seeking comment.

 

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