Trade Relations (Fall 2008).Kam & Scott (ITT Night Vision)

8/9/2019 Trade Relations (Fall 2008).Kam & Scott (ITT Night Vision)

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ITT-- Night Vision Technology

Kam Ng and Scott Nelson

25 November 2008


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Night Vision Goggle Technology

Night vision technology helps people to seebetter in the dark and hence maneuver andfight effectively at night.

On 27 March 2007, ITT Corporation pleadedguilty on arms export violation to Peoples

Republic of China, United Kingdom, andSingapore, and fined $100M.1

2Reference 1: Statement of U.S. Attorney, DOJ, 27 March 2007


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LegislationDevelopment & Summary

Trade Issues: Export Control & NationalSecurity

Production Act of 1950 was amended, and replaced byForeign Investment and National Security Act (FINSA) of2007 on 4 January 2007

New provisions of FINSA include: security improvementamendments, review & investigation process, monitoring &enforcement, action by the President, increased oversight byCongress, certification process, and regulations2

3Reference 2: H.R. 556, Foreign Investment and National Security Act of 2007


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Key Provisions ofFINSA: National Security

Investigations will be conducted immediately

if: Transaction threatens U.S. National Security andthe threat has not been mitigated

The transaction is a foreign governmenttransaction

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Legislation- Related Regulations

Ensure national security while promoting foreign investment andopen trade

Export control and enforcementArms Export Control Act (AECA) of 1976, 22 U.S.C 2778--President is authorized to control import and export of defensearticles and services

International Traffic in Arms Regulation (ITAR) of 1999, CFR

Title 26--Department of State regulates defense technologiesvia U.S. Munitions List3

Export Administration Regulations (EAR)--Department ofCommerce, Bureau of Industry & Security regulates export

dual-use items4 via license

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ITAR--U.S. Munitions List 22 CFR 121

I.I. Firearms, Close Assault Weapons/Combat ShotgunsFirearms, Close Assault Weapons/Combat Shotguns

II.II. Guns and Armament Guns and Armament

III.III. Ammunition/OrdnanceAmmunition/OrdnanceIV.IV. Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets,Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets,

Torpedoes, Bombs and MinesTorpedoes, Bombs and Mines

V.V. Explosives, Propellants, Incendiary Agents & Their ConstituentsExplosives, Propellants, Incendiary Agents & Their Constituents

VI.VI. Vessels of War and Special Naval EquipmentVessels of War and Special Naval Equipment

VII.VII. Tanks and Military VehiclesTanks and Military Vehicles

VIII.VIII. Aircraft and Associated EquipmentAircraft and Associated Equipment

IX.IX. Military Training Equipment and TrainingMilitary Training Equipment and Training

X.X. Protective Personnel Equipment and SheltersProtective Personnel Equipment and Shelters

XI.XI. Military ElectronicsMilitary Electronics

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ITARU.S. Munitions List 22 CFR 121

VIII.VIII. Fire Control, Range Finder, Optical and Guidance and Control EquipmentFire Control, Range Finder, Optical and Guidance and Control Equipment

IX.IX. Auxiliary Military EquipmentAuxiliary Military Equipment

X.X. Toxicological Agents including Chemical Agents, Biological Agents, andToxicological Agents including Chemical Agents, Biological Agents, andEquipmentEquipment

XI.XI. Space Systems and Associated EquipmentSpace Systems and Associated Equipment

XVI.XVI. Nuclear Weapons, Design and Testing Related ItemsNuclear Weapons, Design and Testing Related Items

XVII.XVII. Classified Articles, Technical Data and Defense Service not OtherwiseClassified Articles, Technical Data and Defense Service not OtherwiseEnumeratedEnumerated

XVIII.XVIII. Directed Energy WeaponsDirected Energy Weapons

XIX.XIX. ReservedReserved

XX.XX. Submersible Vessels, Oceanographic and Associated EquipmentSubmersible Vessels, Oceanographic and Associated Equipment

XXI.XXI. Miscellaneous ArticlesMiscellaneous Articles

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Reference 3: http://pmddtc.state.gov/regulations_laws/itar.html


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EARCommodities ControlList0. Nuclear Materials, Facilities & Equipment and Miscellaneous

1. Materials, Chemicals, Microorganisms & Toxins

2. Materials Processing3. Electronics Development

4. Computer (Development and Programs)

5. Telecommunications and Information Security

6. Sensors and Lasers

7. Navigation and Avionics

8. Marine

9. Propulsion Systems, Space Vehicles and Related Equipment

9Reference 4: http://www.access.gpo.gov/bis/ear/ear_data.html

Dual-Use Itemsand Technology


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ITT Night Vision Case

ITT Corp Night Vision Division violated arms exportregulation. Specifically, ITT illegally sent classified

and export controlled information to foreigncountries--Peoples Republic China (PRC).

ITT disclosed classified technical information on nightvision counter measure known as light interference

filter to prohibited countries & facilities.4

Other countries involved United Kingdom,Singapore, and Japan as middle-men.

Reference 4: Statement of U.S. Attorney, DOJ, 27 March 2007

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Motivation--outsourcing of manufacturing of nightvision goggles to PRC to reduce its costs & enhance

its profit

Violations--Arms Export Control Act (22 U.S.C 2778)5,International Traffic in Arms Regulation (22 CFR127.7),5 and provided false & misleading information

during investigations ITT new CEO, Mr. Loranger ordered internal

investigation and fully cooperated with governmentinvestigations

11Reference 5: ITT Corporation, Federal Register, 11 April 2007


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March 2001 and August 2001

ITT export defense-related technology tocountries without a license or writtenauthorization from the U.S. Department ofState

Night vision goggles are on the U.S.Munitions List; require a license orauthorization before export6

12Reference 6: Consulate General of the United States, March 27, 2007


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ITT Night Case

April 2000 and October 2004

ITT excluded facts from the Arms ExportsRequired Reports

Reports were misleading

Was company aware of missing

information? Yes.6



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Parties Involved

Department of Justice

Filed charges against ITT Corporation

DOJ filed charges due to Export Violations of nightvision data

The position of the DOJ in filing these charges:The sensitive night vision technologyis sought

by our enemies and our allies alike.

The technology must be protected



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Parties Involved

US Immigration and Customs Enforcement(ICE) and Defense Criminal Investigative

Services (DCIS)Were the investigators in the case against the ITTCorporation

The ICE position in the case: These violations among themost serious of crimes.

The DCIS position: American security and its critical militarytechnology are not for sale.



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ITT Case Settlement

ITT paid $100M in fines & penalties ($20M toDepartment of State, $2M as statutory fine,$28M to law enforcement agencies, $50M forR&D as restitution to American soldiers)

ITT pays for an independent monitor and

staff in compliance with the agreement &federal law

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Foreign Trade Policy Issues

National security (export control) versus opentrade & economic/technology development

Regulation & enforcement involved severalagencies, Department of State, Departmentof Commerce, Department of Defense, and

Department of Homeland SecurityDetermination of military critical technologies

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The CriticalForeign Trade Issue

Exportation of sensitive technology without a licenseor written authorization by the U.S. Department of

Statejeopardizes our national security and the safety of ourmilitary men and women on the battlefield. Asst. AttorneyGeneral Kenneth Weinstein, DOJ.

Illegal exporting of sensitive technology and data threatens

our national security in the most direct way. Daniel F.Wilkins, Acting Director of the NCIS



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Critical Issues: The Consequences

Compromise and disclosure of U.S. militarycritical technologies to adversaries

Information and technology could helpterrorists to launch an attack and/or counterattack

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Bottom Line: U.S. might lose its militarysuperiority & capabilities


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Policy Proposal

The regulations on arms export must bestrongly enforced

The military critical technologies should betightly safeguarded

The National Security Policy would negatively

impact the global free trade and technologytransfer

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Policy Proposal

The military critical technologies should betightly safeguarded

Violations of FINSA and U.S. Trade policy can putour own citizens in danger at home and abroad

This can make the government take protectionistmeasures with both foes and allies

It could harm trade relations and cause tariffs andother sanctions to take place

These sanctions could cause increases in cost forcreation and innovation of critical technologies

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Policy Proposal

Ultimately, the National Security Policy wouldnegatively impact the global trade andtechnology transfer

The protectionist measures could spill intointernational economics in other sectors

International relations with allies could become

strained due to lack of trust for security purposes

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Pro and Con of Policy Proposal

National security versus free trade &economic/technology development

Adam Smith: defense is more important thanopulence.7

Willett & Jalalighajar: trade restrictionsimplemented in the name of national security is the

result of protectionist pressures and unwise foreignpolicy strategies.8

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Reference 7: Adam Smith, The Wealth of Nations, 1937, p.431Reference 8: Tomas Willett and Mehrdad Jalalighajar, U.S. Trade policy and National Security,

CATO Journal, 1983, p. 717-727


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References1. Statement of U.S. Attorney John Brownlee on the Guilty Plea of ITT Corporation

for Illegally Transferring Classified and Export Controlled Night VisionTechnology to Foreign Countries, U.S. Department of Justice, 27 March 2007

2. Foreign Investment and National Security Act of 2007, H.R. 556, 4 January 20073. http://pmddtc.state.gov/regulations_laws/itar.html

4. http://www.access.gpo.gov/bis/ear/ear_data.html

5. Statutory Debarment of ITT Corporation Pursuant to the Arms Export Control Actand the International Traffic in Arms Regulations, Federal Register, 11 April

2007

6. Consulate General of the United States Hong Kong and Macauhttp://hongkong.usconsulate.gov/uscn_others_2007032701.html

7. Adam Smith, The Wealth of Nations, 1937

8. Tomas Willett and Mehrdad Jalalighajar, U.S. Trade Policy and NationalSecurity, CATO Journal, 1983, p. 717-727

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Documents

Trade Relations (Fall 2008).Kam & Scott (ITT Night Vision)