BAE Arms Export Brokering Case Should Serve as Wake Up Call

Most Americans have no idea about the arcane world of export controls, economic sanctions, or any of the many other national security laws that regulate U.S. commercial business. Part of the reason: it can be drier than the tax code. While it may not make the headlines, it is the thing of many a Hollywood thriller.

Just this week, officials with the Department of State announced they had inked what is called a Consent Agreement with a U.K. defense contractor, BAE Systems plc, for more than 2,500 alleged violations of the Arms Export Control Act (AECA) and the International Trafficking in Arms Regulations (ITAR). The fine? A crisp $79 million, for starters, as well as a whole lot of negative publicity that is sure to follow, Congressional oversight, and potentially several years of compliance work performed under the watchful eye of Uncle Sam.

The first thing I thought of when I read the case, unfairly in the case of BAE because it is an excellent company, is the movie, The Lord of War starring Nicolas Cage: Granted, the Lord of War is an extreme example – more fiction than reality – the average arms broker is anything like Cage’s character Yuri Orlov. But as any export control lawyer worth their mettle will tell you, when they saw this movie they must have thought, among other things, that there was no way Orlov was a registered broker under U.S. law. Anyhow, I digress (and, yes, I do think of these things when watching movies).

The primary issue in the BAE seems to be alleged violations of the brokering provisions of the ITAR. I say appears to be because that is what we know from the public record. These more than 2500 violations are nothing to sneeze at; it is serious. By and large, though, as most practitioners in this field will tell you, the law is not as back and white as it should be. It could use improvement, but the brokering provision is not the most obscure or tough to interpret.

The next few years are going to be a busy time for BAE and its compliance team. Besides the $79 million fine, the company will need to put in place a robust compliance program as well as a comprehensive audit of its company to ensure there are no other potential violations.

They will have a government-approved overseer along with a whole lot of strangers poking through their business. It is going to cost them a whole lot more than $79 million, as it should as these violations are serious. If they are lucky, Congress will make some private inquiries and let the system work its course.

With the export control reform process starting to wind its way on Capitol Hill, lawmakers could be looking for more than just compliance in this case, but examples as to why they should bother making things easier for defense contractors when incidents such as these pop up ever the more frequently?

BAE’s statement is available here.