Aerospace Parts Maker Fined $3M for Unlicensed Exports to Foreign Employees

Oregon-based aerospace parts manufacturer Precision Castparts Corp. was fined $3 million after the State Department said its subsidiary illegally shared technical data with employees who were foreign nationals of Mexico, El Salvador, Honduras, Bhutan, Peru and Burundi, violating U.S. defense export controls.

Precision Castparts -- whose parent company is Berkshire Hathaway, the conglomerate owned by billionaire Warren Buffett -- violated both the Arms Export Control Act and the International Traffic in Arms Regulations, creating “potential for harm to U.S. national security,” the agency said in a charging letter released this week.

As part of a settlement, the company agreed to hire a U.S. government-approved special compliance officer to oversee its compliance efforts over the next three years. It must also conduct at least one audit, review the export control classifications of all its defense articles and services, put in place a “comprehensive” automated compliance system and allocate $1 million of its $3 million penalty toward improving its ITAR-compliance procedures.

After discovering the violations, Precision Castparts "took immediate action to ensure compliance with U.S. export control laws and voluntarily disclosed" the issues, a company spokesperson said Oct. 8. "We take our trade compliance and other regulatory obligations very seriously, and we are committed to continuous strengthening of our processes and systems. We believe our agreement with the U.S. Department of State reflects this commitment."

Precision Castparts voluntarily disclosed the violations in October 2019 after buying Mold Masters Intl., an industrial plastics manufacturer and distributor, and discovering the company’s “insufficient controls” during a post-acquisition compliance review. Mold Masters allegedly shared export-controlled data with 46 employees who were lawfully allowed to work in the U.S. but needed a license because they were from Mexico, El Salvador, Honduras, Bhutan, Peru and Burundi, the Directorate of Defense Trade Controls said in its charging letter.

The data was controlled on the U.S. Munitions List under Category XIX(g) and involved tools, “specifically, wax pattern and core dies,” DDTC said. It also involved “wax patterns consumed in the subsequent production of casting blades used in gas turbine engines of 5th generation fighter aircraft.”

Although Mold Masters’ employees were allowed to work in the U.S., the company’s previous owners didn’t “validate their U.S.-person status when hiring employees for roles requiring authorization for the export of technical data when performed by foreign persons,” DDTC said. The agency said those violations continued after Mold Masters was bought by Precision Castparts in 2018 because the employees “still worked under the same conditions through 2019.”

DDTC also said Mold Masters’ “prior record keeping procedures failed to capture information such as specific dates, work assignments, or information on specific technical data.”

Precision Castparts agreed to hire an “Internal Special Compliance Officer” to monitor its compliance during the next three years, and that person must be approved by DDTC and report to the agency about the company’s compliance with the settlement agreement. The agreement also requires Precision Castparts to improve its compliance procedures, policies and training within nine months and introduce a new automated export compliance system to track and monitor the company’s “decisions process” from the start to finish of an export.

The company also must review the export control jurisdiction of all hardware, data and services offered by its ITAR-regulated divisions and subsidiaries. Precision Castparts must certify to DDTC within 12 months that it has completed this review and that all its items are correctly classified.

Precision Castparts must also hire an outside consultant to complete at least one audit of its compliance with the ITAR and AECA. The company must submit a draft audit plan to DDTC within six months and submit a written report to the agency with the audit results within 12 months. DDTC may require the company to conduct another audit based on that report.

DDTC said it decided not to debar Precision Castparts, which would have blocked the company from exporting controlled defense articles, because it took “significant additional remedial compliance actions” after disclosing the alleged violations. It also noted that Precision Castparts cooperated with the agency’s investigation and agreed “multiple” times to extend the case’s statute of limitations.

The agency also pointed to several aggravating factors that led to the penalty, including that the exports “occurred over an extended period of time and across different ownership.” It also said the company “did not have internal controls sufficient to prevent employment conditions that led to the violations.”