Esterline Corporation (NYSE:ESL, www.esterline.com), a leading specialty manufacturer serving global aerospace and defense markets, today announced that it has reached an administrative agreement with the U.S. Department of State following an extensive review of alleged civil violations of the International Traffic in Arms Regulations (ITAR). Esterline will pay $20 million in civil penalties and remedial expenditures to resolve the matter, an amount in line with the Company’s previous public statements first reported in May of 2013.
Between 2004 and 2011, Esterline filed voluntary disclosure reports concerning certain technical and administrative ITAR issues with the Department of State’s Directorate of Defense Trade Controls (DDTC). Upon review of these disclosures, the DDTC Office of Compliance determined that Esterline’s internal administrative controls were inadequate to ensure ITAR compliance. However, they noted an absence of harm to national security or release of sensitive defense technology.
Esterline President & CEO Curtis Reusser said, “We accept responsibility for the actions leading to these penalties and we are cooperating with the Department of State to address the issues and strengthen our systems going forward. This process has given us the opportunity to focus on making our entire compliance program better, and we’ve already independently begun the improvement process with more to come.”
Under the terms of a three-year Consent Agreement, the State Department agreed to suspend $10 million of the $20 million total penalty on the condition that these funds have or will be used for remediation and enhanced ITAR compliance measures.
Reusser added, “Esterline has proactively invested more than $5 million to strengthen our compliance infrastructure over the past two years, including additions to staff, voluntary compliance audits, IT system enhancements, and employee training. Now, with the terms of this agreement, Esterline will further accelerate its improvements. We will invest in skilled people, implement the right processes, and provide effective oversight to ensure best practices.”
As part of the agreement, Esterline will appoint an external Special Compliance Official to oversee the settlement terms and conduct two external audits of the company’s ITAR compliance program during the three-year agreement term.
“We do not expect any disruption to our operations as a result of this agreement,” said Reusser, adding, “The costs associated with the agreement were incorporated in the guidance we provided at the beginning of our fiscal 2014. Further, we believe implementing enhanced compliance processes will improve our business as a whole and our ability to serve our customers.”
Esterline Corporation is a leading worldwide supplier to the aerospace and defense industry specializing in three core areas: Avionics & Controls, Sensors & Systems, and Advanced Materials. Operations within the Avionics & Controls segment focus on high-technology electronics products for commercial and military aircraft and land- and sea-based military vehicles, secure communications receivers, systems and components, specialized medical equipment, and other industrial applications. The Sensors & Systems segment includes operations that produce high-precision temperature and pressure sensors, electrical power distribution equipment, harsh-environment connectors and other related systems principally for aerospace and defense customers. Operations within the Advanced Materials segment focus on technologies including high-temperature resistant materials and components used for a wide range of military and commercial aerospace purposes and combustible ordnance and electronic warfare countermeasure products.
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