The International Traffic in Arms Regulations (ITAR) is a set of US regulations, based on the 1976 Arms Export Control Act (“AECA”). The AECA authorizes the President to control the export and import of defense articles and defense services. This statutory authority of the President has been delegated to the Secretary of State by Executive Order 13637.
Under the AECA, all US companies that manufacture, repair or distribute components or end articles that are on the US Munitions List are required to register with the Department of State. Following registration, companies are required to comply with all requirements under ITAR, including but not limited to control procedures to ensure that no unauthorized foreign national has access to the company’s components and associated intellectual property. These requirements apply not only to the company itself but to its subcontractors and customers. Penalties for violations of ITAR include fines of up to $1,000,000 and 10-years imprisonment – per violation.
ITAR compliance is important every day. It is even more important when a company is being sold, as buyers will conduct exhaustive due diligence to ensure past ITAR compliance, due to the potential penalties involved. Accordingly, we advise all potential sellers of middle market aerospace and defense companies to conduct an exhaustive audit of their ITAR compliance before they start talking to potential buyers.
Managing Director, Defense