State Department Imposes $42 Million in Civil Penalties on Xe Services for Numerous ITAR Violations

The U.S. Department of State announced today that on August 18, 2010, Xe Services LLC (formerly Blackwater Worldwide) entered into a civil penalty agreement with the State Department's Directorate of Defense Trade Controls (DDTC) to settle numerous alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).
The 41 page Proposed Charging Letter issued by DDTC indicates that Xe allegedly committed 288 violations of the ITAR involving the unauthorized export of defense articles and provision of defense services to foreign end-users in multiple countries between 2003 and 2009.

While the charging letter noted that Xe had taken efforts to implement compliance measures and to cooperate with DDTC during the "latter part of the investigation", the Proposed Charging Letter stated:

At the same time, the Department considered aggravating factors in determining what charges to pursue, including that Respondent's historic inability to comply with ITAR controls were system failings; the frequency and nature of Respondent's violations; that Respondent did not fully cooperate with the Department during the initial 18 months of this multi-year investigation; Respondent failed to comply with record-keeping requirements, further impeding the investigation; many of the violations by Respondent were disclosed only after the Department issued a directed disclosure; several of the Respondent's statements were false and some disclosures contained misrepresentations or omissions of material fact that had to be revised as prior reports were determined to be inaccurate or incomplete; and implications for national security.

The State Department noted that many of the alleged ITAR violations occurred while Xe was providing services in support of U.S. Government programs and military operations abroad between 2003 and 2009 and they did not involve sensitive technologies or cause a known harm to national security.
Under the four-year term Consent Agreement, Xe will pay in fines and in remedial compliance measures an aggregate civil penalty of $42 million to complete settlement of civil violations. $12 million of this amount will be suspended for pre-and post-Consent Agreement remedial compliance measures.

In announcing the settlement agreement, the State Department stated that it will not impose an administrative debarment of Xe in this case. The State Department is also rescinding the general policy of denial on export license applications with respect to Xe because the Department is satisfied that the company has taken the necessary steps to address the causes of its ITAR violations, identify compliance problems, and resolve these violations.

The remedial measures included:

• Replacement of senior management; 
• Established an independent Export Compliance Committee to oversee its remedial compliance efforts;
• Improved ITAR compliance procedures; 
• Conducted various ITAR training; and 
• Conducted a targeted ITAR audit to confirm the effectiveness of its compliance measures. 

DDTC stated that:

. . . had the Department not taken into consideration Respondent's Voluntary Disclosures, remedial compliance measures, cooperation in the latter part of the investigation, change in management, support of U.S. Government programs, and the absence of disclosure of sensitive technologies or actual harm to national security as significant mitigating factors, the proposed charges against and penalties imposed upon Respondent would likely have been more significant. 

The Consent Agreement also provides that Xe will take a number of additional compliance steps, including external compliance oversight and to continue and improve compliance measures.

The Proposed Charging Letter, Consent Agreement and Order can be found here.