Exhibit 10.1
UNITED STATES DEPARTMENT OF STATE
BUREAU OF POLITICAL MILITARY AFFAIRS
WASHINGTON, D.C. 20520
-----------------------------------)
)
)
In the Matter of: )
)
SPACE SYSTEMS/LORAL, INC. )
Delaware )
)
Respondent )
)
-----------------------------------)
CONSENT AGREEMENT
WHEREAS, the Office of Defense Trade Controls, Bureau of Political Military
Affairs, U.S. Department of State ("Department") has notified Space
Systems/Loral, Inc., ("SS/L") of its intent to institute an administrative
proceeding pursuant to the Arms Export Control Act ("Act") (22 U.S.C. Section
2778(e)) and its implementing regulations, the International Traffic in Arms
Regulations ("Regulations") (22 C.F.R. Section 120-130), based on allegations
that SS/L violated Section 38 of the Act and Section 127 of the Regulations as
set forth in a draft Charging Letter attached hereto and incorporated by
reference, herein, by violating the express terms and conditions of Department
of State munitions licenses and by exporting defense services without a
munitions license or other authorization to the People's Republic of China
("PRC").
WHEREAS, the principal vehicle for the violations alleged in the draft
Charging Letter was a group of prominent scientists and engineers from the
United States and Europe known as the Independent Review Committee ("IRC"),
organized and chaired by SS/L and its officers and employees under the aegis,
and at the
-2-
behest, of China Aerospace Corporation ("CASC"), which is discussed
in the draft Charging Letter;
WHEREAS, SS/L and Loral Space & Communications, Ltd. ("Loral"), SS/L's
parent corporation, have reviewed the draft Charging Letter and this Consent
Agreement, fully understand these documents and enter into this Agreement
voluntarily and with full knowledge of their rights;
WHEREAS, SS/L and Loral wish to settle and dispose of all civil charges,
penalties and sanctions associated with alleged violations of Section 38 of the
Act or the Regulations arising from facts which Loral or SS/L have disclosed in
writing to the Department or that have been identified in the draft Charging
Letter by entering into this Consent Agreement;
WHEREAS, the Department, SS/L and Loral agree to be bound by this Agreement
and a related administrative order ("Order") (attached) to be entered by the
Assistant Secretary of State for Political Military Affairs.
Now, WHEREFORE, the Department, SS/L and Loral agree as follows:
Parties
-------
(1) The Parties to this Agreement are the Department, Loral and its wholly owned
subsidiary SS/L. The term "SS/L" includes Space Systems/Loral, Inc., its wholly
owned subsidiaries, including in particular its business units engaged in the
manufacture and/or export of defense articles and defense services related to
space systems, launch vehicles, electronics and other articles controlled on the
U.S. Munitions list, its operating divisions, subsidiaries, assignees and
successors.
Jurisdiction
------------
(2) The Department has jurisdiction over Loral and SS/L under the Act and the
Regulations in connection with the matters identified in the draft Charging
Letter.
Defense Services and Foreign Defense Articles
---------------------------------------------
(3) SS/L and Loral acknowledge and accept that the definition of "defense
services" in the Regulations is well established and clearly understood by SS/L
and Loral as setting out
-3-
responsibilities and requirements which are binding as a matter of law and
regulation on them; the furnishing of "defense services" to foreign persons --
regardless of whether the underlying defense article(s) is of U.S. or foreign
origin -- is appropriately subjected to control under the Regulations by the
Department even when no technical data is involved (e.g., all the information
relied upon in furnishing defense services to a foreign government or foreign
person is in the public domain); and, the law and regulations governing "defense
services" and proposals to foreign persons are sufficiently clear and specific
as to be enforceable by the U.S. Government on criminal and civil grounds and
they, SS/L and Loral, are responsible and obligated as a matter of law and
regulation to comply with the requirements of such laws and regulations as they
pertain to "defense services" and related matters.
Missile Technology Control Regime (MTCR)
----------------------------------------
(4) SS/L and Loral acknowledge and accept that unauthorized defense services and
other conduct and actions by U.S. persons which help promote the development of
MTCR Category I and Category II systems contrary to the security and the foreign
policy of the United States, including U.S. Government obligations under the
MTCR, are serious matters, which may be subject to sanctions in circumstances
specified in Section 72 of the Arms Export Control Act.
Penalty
-------
(5) SS/L and Loral agree that SS/L shall pay in fines and in remedial compliance
measures a civil penalty of $20,000,000 (twenty million dollars), comprised of
the amounts stipulated in subparagraphs (a) and (b), in complete settlement of
alleged civil violations pursuant to Section 38 of the Act as set forth in the
Department's draft Charging Letter. This civil penalty shall be payable as
follows:
(a) $2,200,000 (two million two hundred thousand dollars) shall be paid
to the Department of State within 10 days of signing of the Order and
$11,800,000 (eleven million eight hundred thousand dollars) shall be
paid in equal installments of $1,685,714 (one million six hundred
eighty-five thousand seven hundred fourteen dollars) payable on the
first, second, third, fourth, fifth, sixth and seventh anniversary of
the signing of the Order. Loral and SS/L agree that the effect of any
statutory limitation to the
-4-
collection of the civil penalty imposed by this Agreement shall be
tolled until the last payment is made.
(b) An additional civil penalty of $6,000,000 (six million) is hereby
assessed, but its payment shall be suspended on the condition that
Loral and SS/L will apply this amount over a seven year period for the
purpose of defraying a portion of the costs associated with the
remedial compliance specified herein and in an agreed "schedule of
compliance measures" attached hereto, including the costs associated
with the Special Compliance Official and with implementation of that
Official's recommendations. Two million dollars ($2,000,000) which has
already been invested in strengthened compliance measures that have
been identified separately by Loral to the Department shall be counted
towards the $6,000,000 total. Loral and SS/L will provide annually to
the Department on the anniversary of the date of the Order written
accounting(s) of the expenditures associated with this additional
penalty in accordance with paragraph (8), and failure to use these
funds appropriately for this purpose or to provide a satisfactory
accounting shall result in a lifting of the suspension, in which case
Loral and SS/L shall be required to pay this amount to the Department
of State immediately.
Debarment
---------
(6) The offenses alleged in the draft charging letter relate to SS/L's regulated
activities with respect to the PRC (and not to other countries), and concerns
about SS/L's reliability in this area, contributed to the reasons that the
Department has not permitted SS/L to export items on the USML to the PRC since
December 23, 1998, when it imposed a partial suspension of SS/L's CHINASAT-8
technical assistance agreement (No. 610-97) with respect to Missile Technology
Control Regime Annex items. However, the Department has now determined that a
prospective debarment of SS/L is not appropriate at this time in view of SS/L's
and Loral's remorse for participating in the IRC and for the consequences of
that action, their acknowledgement of the seriousness of the alleged offenses,
their desire to make amends, and their agreement to significant remedial
actions, including efforts to improve SS/L's corporate compliance program as
specified herein. The Department reserves the right to consider imposing
additional sanctions, including debarment, in the event that SS/L for any reason
does not fulfill the
-5-
provisions of this Consent Agreement or is responsible for other compliance or
law enforcement concerns under the Act or other statutes specified in 22 C.F.R.
ss. 120.27.
Appointment of a Special Compliance Official
--------------------------------------------
(7) The President and Chief Operating Officer of Loral shall appoint an
individual from outside the corporation to serve as a Special Compliance
Official for an initial term of two years, to be succeeded by an individual from
inside the corporation who will serve for an additional two years, in both
instances reporting to the senior management of Loral, its Board of Directors
and the Office of Defense Trade Controls (ODTC). The outside Special Compliance
Official shall not have been employed in any prior capacity nor previously
represented Loral, or any of its subsidiaries, including SS/L, and shall agree
to forsake for all time as a condition of this appointment any such future
employment or representation. The appointment shall be made within thirty (30)
days of the signing of this Agreement and accompanying Order and, unless agreed
to prior to, or at the time of, settlement, the appointment shall be subject to
the written approval of the Director, ODTC. The Special Compliance Official
shall have three principal areas of responsibility regarding the future conduct
of SS/L: (a) strengthening of SS/L's export compliance program with specific
attention relating to those areas associated with the offenses alleged in the
draft charging letter and to improved written policies and procedures for
regulated activities carried out by SS/L; (b) ensuring that SS/L performs its
responsibilities in a timely and fully satisfactory manner as required by this
Agreement and the accompanying Order; and (c) overseeing all activities by SS/L
subject to the Regulations during the period covered by this Agreement (i.e.,
four years, unless otherwise expressly provided for) insofar as those activities
concern foreign persons (including foreign governments and foreign
non-governmental entities without limitation) from the PRC (including Hong Kong)
and the countries which comprised the former Soviet Union (but not including the
Sea Launch program, in which The Boeing Company participates). For the duration
of this agreement, except as otherwise agreed, SS/L will be the exclusive
provider and representative, on behalf of Loral and all of its business units
and subsidiaries (including, as well, all consultants, representatives and other
persons acting at their behest or in their interests) of all AECA and ITAR
regulated exports and activities with the countries enumerated in subparagraph
(c). With respect to the third area, (c), the Special Compliance
-6-
Official shall be kept fully informed by SS/L and actively engaged in overseeing
all activities related to compliance with the Regulations, the Act and the
specific terms and conditions of any pertinent licenses, with complete access to
all relevant personnel and documents. With respect to its non-SS/L business
operations, Loral also acknowledges and accepts its obligation to ensure that
those operations have and maintain effective and appropriate export control
procedures, and also to ensure appropriate coordination between the Loral
General Counsel's office and the Special Compliance Official such that its
non-SS/L business operations may benefit from enhanced compliance measures
introduced at SS/L. In fulfilling the responsibilities set forth in this Consent
Agreement, the Special Compliance Official may at his/her sole discretion
present any disagreement with SS/L management directly to the President and
Chief Operating Officer of Loral and/or the Loral Board or the Director, ODTC,
or to all three. The Board of Directors of Loral shall consent to the following
terms and conditions regarding the power, duties, authorities, and
responsibilities of the Special Compliance Official:
A) The Special Compliance Official shall have the power and authority
to monitor SS/L's compliance with the terms of this Consent Agreement
and accompanying Order and shall exercise such power and authority and
carry out the duties and responsibilities of the Special Compliance
Official as set forth herein in a manner consistent with the purposes
of this Consent Agreement, the accompanying Order, the specific terms
and conditions of munitions license applications and other
authorizations falling within the parameters of clause (c), above,
provided to SS/L by the Department of State, and in consultation with
the Office of Defense Trade Controls.
B) Within fifteen (15) days of the appointment of the Special
Compliance Official, Loral and SS/L shall confer on this individual all
the rights and powers necessary to permit the Special Compliance
Official to monitor, oversee and promote SS/L's compliance with the
terms of this Agreement in a manner consistent with the purposes of the
Agreement and the Order, and the specific terms and conditions of
pertinent (i.e., covered by clause (c) above) munitions license
authorizations and other activities subject to the Regulations and the
Act. Such rights and powers shall be conferred in writing; shall be
made known throughout SS/L and Loral; and a certified copy shall be
-7-
deposited by the forty-sixth (46) day of the signing of the Order with
ODTC.
C) The Outside Special Compliance Official shall serve for a two (2)
year period from the date of the signing of the Order. If for any
reason the appointed Special Compliance Official is unable to serve the
full period of his/her appointment, the President and Chief Operating
Officer of Loral may recommend a successor not unacceptable to the
Director, ODTC, whose agreement to the replacement will be provided in
writing. Such a recommendation shall be made at least thirty (30) days
in advance of a new appointment. If the Special Compliance Official is
for any reason unable to carry out the responsibilities described
herein on a temporary basis (i.e., not to exceed thirty (30) days),
then Loral's General Counsel shall assume the power and authority of
Special Compliance Official in the interim. The conferring of rights
and powers described in paragraph B), above, shall make provision for
this event. Within eighteen months of appointment, the Special
Compliance Official, after consultation with the President and Chief
Operating Officer of Loral, shall recommend a successor Special
Compliance Official not unacceptable to Loral and the Director, ODTC,
who shall serve for the remaining two (2) year period. This successor
Special Compliance Official shall be an employee of Loral or SS/L, who
is fully capable of performing the responsibilities of the Special
Compliance Official.
D) The Special Compliance Official shall have full and complete access
to SS/L's personnel, books, records, documents, facilities and
technical information relating to compliance with this Consent
Agreement, Order and pertinent (i.e., covered by clause (c) above)
munitions authorizations, licenses, guidance and the like relating to
the export of defense articles and defense services associated with
SS/L's programs.
E) SS/L and Loral shall cooperate with any reasonable request of the
Special Compliance Official, including any request for assistance to
obtain any necessary security clearances, and shall take no action to
interfere with or impede the Special Compliance Official's ability to
monitor SS/L's compliance with this Agreement, the Act and the
Regulations or to carry out his/her other responsibilities set forth in
this Agreement.
-8-
F) The Special Compliance Official with Loral's consent, which shall
not be unreasonably withheld, shall have authority to employ, at the
expense of SS/L and/or Loral, such assistants and other professional
staff as are reasonably necessary to carry out the Special Compliance
Official's duties and responsibilities. Such expenses, including the
salaries and expenses of the Special Compliance Official, may be paid
for from the additional suspended penalty of $6,000,000 (six million
dollars) described in paragraph 5(b) of this Agreement.
G) ODTC may, on its own initiative or at the request of the Special
Compliance Official, issue such additional guidance as may be necessary
or appropriate to ensure compliance with the Regulations and the terms
and conditions of authorizations it (ODTC) has provided to SS/L.
H) The Special Compliance Official shall report to the President of
Loral and, on a day-to-day basis, to the Loral General Counsel, and
shall also make periodic reports to the Loral Board of Directors, as
well as to the Director, ODTC concerning SS/L's compliance with this
Agreement and Order, as well as with such other pertinent (i.e.,
covered by clause (c)) U.S. Government munitions authorizations,
licenses, guidance and the like then in force pertaining to SS/L's ITAR
regulated activities. These reports shall include conclusions and any
recommendations necessary to ensure strict compliance; state whether
the Special Compliance Official has encountered any difficulties in
executing duties and responsibilities assigned herein; describe any and
all instances of non-compliance; and advise on progress in implementing
previous recommendations advanced by the Special Compliance Official
and be provided:
o Every sixty (60) days for a period of six months from the date
of the signing of the Order; and
o Semi-annually thereafter during the remainder of the Special
Compliance Official's period of appointment.
-9-
On-site Audits
--------------
(8) For the purpose of assessing compliance with the provisions of the
Act, the Regulations and future munitions licenses and other
authorizations, SS/L agrees to arrange and facilitate, with minimum
advance notice, on-site audits of its business units, wherever
situated, by the Department during the four year period commencing on
the signing of the Order.
Understandings
--------------
(9) No agreement, understanding, representation or interpretation not
contained in this Agreement may be used to vary or otherwise affect the
terms of this Agreement or the Order, when entered, nor shall this
Agreement serve to bind, constrain, or otherwise limit any action by
any other agency or department of the United States Government with
respect to the facts and circumstances addressed herein. Specifically,
Loral and SS/L acknowledge and accept that there is no understanding
expressed or implied through this Agreement with respect to a final
decision by the Department of State concerning their interest in the
approval of export licenses or other U.S. Government authorizations
necessary to export the CHINASAT-8 or APSTAR V Spacecraft (or with
respect to any other matters involving past, pending or future
munitions license applications). The Department agrees, assuming
Loral's and SS/L's faithful adherence to the terms of this Agreement,
and the Act and the Regulations more broadly, that decisions concerning
export licenses for the CHINASAT-8 and APSTAR V spacecraft will be made
on the basis of the security and foreign policy interests of the United
States, including matters relating to U.S. relations with the People's
Republic of China, without reference to the Department's previously
expressed concerns regarding SS/L's reliability, which concerns are
considered to be appropriately mitigated through the operation of
various provisions of this Agreement.
(10) The Department, SS/L and Loral agree that this Agreement is for
settlement purposes only. For purposes of this Agreement, SS/L and
Loral neither admit nor deny the allegations in the draft Charging
Letter (including without limitation those set forth in the "Relevant
Facts" and "Charges" section of that letter). That said, SS/L and
-10-
Loral acknowledge the nature and seriousness of the offenses alleged by
the Department in the draft charging letter, including the risk of harm
to the security and foreign policy interests of the United States, and
wish to make amends through the payment of restitution, as set forth in
this Agreement, and also through an effective corporate compliance
program that will prevent any future actions such as those addressed in
the draft charging letter. If this Consent Agreement is not approved
pursuant to an Order entered into by the Assistant Secretary for
Political Military Affairs, the Department, SS/L and Loral agree that
they may not use this Agreement in any administrative or judicial
proceeding and that none of the parties shall be bound by the
settlement terms contained in this Agreement in any subsequent
administrative or judicial proceeding.
(11) The Department agrees that, upon signing of the Order and entry
into force of this Agreement, this Agreement resolves with respect to
Loral and SS/L any civil penalties or sanctions imposed with respect to
violations of Section 38 of the Act or the Regulations alleged in the
draft Charging Letter or arising from facts that Loral and SS/L have
disclosed in writing to the Department or that have been identified in
the draft Charging Letter.
Waiver
------
(12) Loral and SS/L agree that, upon signing of the Order and entry
into force of this Consent Agreement, they waive all rights to seek
administrative or judicial consideration or review of, or to otherwise
contest, the validity of this Consent Agreement, the Order or this
matter, including in any action that may be brought for the enforcement
of any civil fine, penalty or forfeiture in connection with this
Consent Agreement, except that neither Loral nor SS/L waives the
aforesaid rights with regard to any alleged violations of this
Agreement.
Documents to be Made Public
---------------------------
(13) Loral and SS/L understand that the Department will make this
Agreement, including the Schedule of Compliance Measures, the draft
Charging Letter and the Order, when entered, available to the public.
-11-
(14) This Consent Agreement shall become binding on the Department only
when the Assistant Secretary for Political Military Affairs approves it
by entering the Order, which will have the same force and effect as a
decision and Order after a full administrative hearing on the record.
U.S. DEPARTMENT OF STATE LORAL SPACE & COMMUNICATIONS, LTD.
/s/ Lincoln ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇. /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
Lincoln ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇
Assistant Secretary for President and Chief Operating
Political Military Affairs Officer
January 9, 2002 January 8, 2002
(Date) (Date)
SPACE SYSTEMS/LORAL, INC.
/s/ C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
C. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
January 8, 2002
(Date)
Annex
-----
Schedule of Compliance Measures
Loral and SS/L, reflecting their commitment to conduct space and missile-related
programs in full compliance with the Arms Export Control Act (the "Act") and the
International Traffic in Arms Regulations (the "Regulations"), and in order to
ensure, in particular, that there is no unauthorized technical assistance
whatsoever to any foreign person, including any of its foreign partners, and, in
particular, any assistance that would assist in the design, development or
enhancement of foreign space launch vehicles, missiles or facilities, agree to
implement the following remedial measures and such additional measures as may be
mutually agreed upon by Loral, the Special Compliance Official and the Director,
ODTC, and agree further that these measures will be honored for a four year
period, unless otherwise noted, as part of the Consent Agreement entered into
with the Department of State:
Strengthened Compliance Training:
---------------------------------
1. Within 120 days of the signing of the Order, SS/L will have
instituted strengthened corporate export compliance procedures
focused principally on SS/L's business operations such that:
(a) all SS/L employees of business units engaged in space or
missile-related activities are familiar with the Act, the
Regulations, and their own and SS/L's responsibilities,
thereunder; (b) all officers and employees at the corporate
level in these business units are knowledgeable about the
underlying policies and principles of the Act and the
Regulations; and (c) there are careful records indicating the
names of employees, trainers, and level and area of training
received (e.g., use of public domain information in performing
defense services, applicability of ITAR to foreign-origin
defense articles, etc).
Computer Control System and USG Remote Monitoring:
--------------------------------------------------
2. Within 120 days of the signing of the Order, SS/L will have
instituted a comprehensive computerized document control
system that ensures prior U.S. Government
-2-
review of all documents which require such review pursuant to
the terms and conditions of licenses and other approvals
provided by the Department (ODTC) to SS/L concerning its
space and missile-related activities. This system will cover
all technical data and technical assistance in any form to
all foreign persons and will be accessible for a period of
four years by remote computer access to ODTC, DTRA, the
Special Compliance Official and Loral's General Counsel's
Office. SS/L will archive all releases, indexed to reflect
the details of specific U.S. Government approvals, every 90
days, and provide copies in CD-ROM form to ODTC, DoD/DTSA and
the Special Compliance Official. SS/L understands that ODTC
may, at its sole discretion, not authorize use of exemptions
for shipments of unclassified technical data in furtherance
of a technical assistance agreement pending the institution
of this system, as stated in the Federal Register, ▇▇▇. ▇▇,
▇▇. ▇▇, on March 22, 1999.
Law Department Oversight:
-------------------------
3. Within 120 days of the signing of the Order, Loral will
establish measures such that the General Counsel's office of
Loral will provide oversight and support to all Loral
divisions involved in space and missile-related export
activities for all matters involving the Act and the
Regulations. This oversight will also be structured to
achieve consistent application of the Act and the Regulations
by all Loral divisions. Toward this end, the Loral General
Counsel's office shall consider and implement, where
appropriate, those improvements in SS/L's compliance program
recommended by the Special Compliance Official, which have
applicability to other Loral divisions. In addition, the
General Counsel's office of Loral shall take action such that
in each Loral division appropriate legal support is made
available as necessary to the principal personnel responsible
for compliance with the Act and the Regulations and
appropriate legal oversight is performed in each division
with respect to such matters. In addition to other reporting
responsibilities, Loral divisional legal staff providing
support regarding the Act and the Regulations shall regularly
report to the Loral
-3-
General Counsel with respect to such matters. The Special
Compliance Official and the General Counsel's office will
have appropriate, documented input in performance reviews of
the principal personnel responsible for compliance with the
Act and the Regulations.
Hotline for AECA and ITAR:
--------------------------
4. Within 120 days of the signing of the Order, SS/L will have
instituted a hotline system to ensure that violations of the
AECA and ITAR may be readily reported via this channel,
without fear of recrimination or retaliation. Hotline calls
will be directed to the Special Compliance Official who will
be responsible for responding to such calls. The Special
Compliance Official shall prepare a quarterly report
assessing the effectiveness of the hotline system. A copy of
this report shall be provided to Loral's General Counsel and
to the Director, ODTC. This written report will be in
sufficient detail such that the Department may, consistent
with its responsibilities under law and regulation, form an
opinion about the seriousness of the alleged violations,
without disclosing employee confidentiality.
Audit:
------
5. No later than eighteen months after the signing of the Order,
Loral and SS/L, in coordination with the Special Compliance
Official, will conduct a thorough assessment of SS/L's
implementation of all measures set forth in paragraphs 1-4
above, and such other areas as may be identified by the
Special Compliance Official, with a draft audit plan to be
submitted for the Department's (ODTC) review and comments
prior to the start of the audit and, thereafter, a written
report containing recommendations for improvements with
respect to the aforesaid measures or compliance with the Act
or the Regulations more generally, to be submitted to the
Loral General Counsel, the Special Compliance Official and to
the Director, ODTC no later than the second anniversary of
the signing of the Order.
-4-
Other
-----
6. In addition, the civil penalty of $6,000,000 (six million)
imposed under paragraph 6 of the Consent Agreement may be
applied to SS/L's costs associated with increasing in-house
export control personnel, including attorney(s), as required;
SS/L's export compliance manual, internal web site, and other
export control compliance procedures and documents, as well
as consultants and experts from outside SS/L to support the
preceding activities.