Export Violations and Remediation

Complying with US export regulations can be surprisingly tricky: at various times in the 2010s and 2020s I've had to be hip-deep in them as part of my various roles. Today I'll focus on an urgent assignment I was handed in late 2024. Normally I don't explicitly name my former employer when talking about projects, but I'll be referring to certain public documents so it'll be pretty obvious this time. Also, the US State Department files are exclusively downloadable PDFs, as far as I know you can't just view them online, sorry.

"Uh-oh"

In late 2024 my boss pulled me into a meeting to ask how I could help with an urgent project. The company had just negotiated a consent agreement and $200M fine for export violations to China, and I was one of the people who would help with the urgent work of ensuring that we weren't going to find any further violations and identifying any programs or product lines with any export-regulations risk in China.

This is where my being an aviation enthusiast was helpful (in catching a problem) and painful (in making us all realize there WAS a problem). We already had negligible or no military content being manufactured in China, but we still bought parts for commercial aircraft in China; and then I remembered that air forces all over the world love converting commercial aircraft for military use. Just for Boeing in-production as examples: 

• 737: C-40 Clipper, P-8 Poseidon, E-7 Wedgetail 
• 747: VC-25 "Air Force One", E-4 nuclear command aircraft 
• 757: C-32 "Air Force Two" and "Gatekeeper" 
• 767: KC-46 Pegasus 
• 777: Nothing yet, but it was considered as an aerial refueling tanker

A side note on this: maybe because the military is looking for proven technology on their commercial-derivative aircraft, they keep buying them at the end of the production line: the P-8 and E-7 are based on the 737NG which is being replaced with the 737MAX, the 747 is out of production but two VC-25Bs are still being converted, and the 767 passenger variant is done and only freighters remain.

So even our designed-commercial, intended-commercial parts were still potentially "dual-use".

Torpedo-armed 737 (P-8)

Solving the problem

Working with a small team, I helped identify the various dual-use parts in my business unit. Once we had a list of all potential parts, we had to figure out if they were false positives for any reason and the potential impact, including how long it would take to move any production to a new non-Chinese supplier. We compiled proposals for part-by-part mitigation plans including how long each part might remain in China, and the various costs of moving them. In a few cases, we actually decided to redesign some parts so that we could still make some parts in China with 100% confidence that they would not end up on a military aircraft.

In most cases, a "line of balance" report would identify how many parts we had in inventory, as well as future expected deliveries from all of our suppliers (inside and outside China) and planned consumption by the production line. We could feed that into plans for work transfers (moving the work out of China) and timelines for closing compliance gaps as identified in the consent agreement.

For redesigning parts, I took direct leadership and coordinated the Supply Chain, Engineering, Quality, and Planning teams to identify all of the drawings that needed changing, scheduling all of those changes, and isolating any parts we had. We actually had some parts from Chinese suppliers and some from non-Chinese suppliers, so we also pulled the non-Chinese parts aside so that we could reserve them for military use pending our new drawings and bills of material being released.

After a few months, we had all of our mitigation plans approved and the design-change project plans slightly ahead of schedule.

The bigger problem

As I mentioned above, compliance to export regulations is surprisingly difficult. The main US laws are the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), and they govern both physical goods as well as technical data. The original charging letter in 2024 (page 6) refers to technical data about an "aluminum display housing component". On this issue I don't know anything more than I read online, but I'm guessing someone said "it's a display mount, we make tons of these, who cares about this one?" but something about the mount was "specially-designed" for the F-22 fighter, and that makes it highly-controlled. This time, "who cares?" was a very wrong response. "Specially designed" has a huge impact on how controlled the data is, but there are also carve-outs for modifications of existing hardware that it can be difficult to identify whether a part is "specially designed"; the company hires people where that's literally their only job to make those determinations.

On top of that high-stakes fuzzy area, the military re-use of commercial aircraft could become difficult if export regulations start being enforced based on "the military operates this aircraft". If I make a batch of 100 bolts for the Boeing 737, am I in trouble if one of them ends up on a P-8? If I design a new component for a military aircraft and -- to save money! -- re-use a commercial part as one of the sub-components, did I just make that sub-component dual-use? And if I'm worried about that, am I just going to design a custom sub-component which might cost more (lower production volumes) rather than deal with the headache?

I don't know if this is really an enforcement change, or if the end-use concern was particular to the consent agreement and management wanted to be certain they hadn't missed anything. But I know these are expensive mistakes to make, and require urgent, accurate, and creative work to fix.

If you have any comments, please reach out to me at blog@saprobst.com or this page is cross-posted at LinkedIn and you can leave a comment there.