ITAR's 'Specially Designed' Exemption Places Burden of Proof on Exporters, Court Rules

The U.S. District Court for the Western District of Kentucky on July 9 denied a U.S. defense manufacturer's motion to dismiss allegations that it criminally smuggled weapons by selling drawings of a rare earth permanent magnet used in F/A-18 Super Hornets to China (U.S. v. Quadrant Magnetics, LLC, W.D. Ky. # 3:22-CR-88-DJH).

Military contractor Quadrant Magnetics, along with several of its employees, argued that the law under which their charges were brought, an International Traffic in Arms Regulations provision, was unconstitutionally vague. The law outlines an exemption for “specially designed” goods with commercial, non-defense-related equivalents, which, they claimed, could devolve into a governmental “guessing game” to find such equivalents, especially as the magnets had been ubiquitous “for decades” (see 2403060030).

The district court said the first issue raised by Quadrant was whether the “specially designed” goods provision saddled the company with the burden of proof, or whether that burden is on the government. It said Quadrant, not the government, must prove the existence of a commercial equivalent to its magnet before the court, adding that companies are responsible for determining whether their exports fall under the ITAR. It also noted that companies can submit a commodity jurisdiction request to the State Department -- a request for the agency to determine whether an export is subject to licensing rules -- which can serve as a “safe harbor” if they aren't sure whether their item needs an export license.

Because of this, no party is required to “check every neodymium or samarium-cobalt magnet ever used in a commercial product,” the court said, citing Quadrant’s motion. If Quadrant wants to use the exception, it must point to a commercial equivalent in production.

The ITAR “gives fair notice to regulated entities like Quadrant and its employees of what conduct is forbidden,” it said.

The district court also denied another motion by Quadrant to suppress evidence related to Quadrant's alleged export violations after Quadrant argued that the government lacked probable cause to obtain the evidence. The court disagreed, saying one of the government's warrants was based on "determinations" made by State Department officials who enforce the ITAR, who are "inherently reliable." The second warrant came after Quadrant had already been indicted, which gave the government probable cause.