Export Control Enforcement Intensifies: ITAR Violations and Supply Chain Security in Focus - The Quadrant Magnetics case
The U.S. Department of Justice has significantly ramped up enforcement actions against export control violations, with recent high-profile cases highlighting the intersection of supply chain vulnerabilities and ITAR (International Traffic in Arms Regulations) compliance failures.
Recent Case Developments
In December 2024, Hang "Cody" Sun, a Chinese national who is also a U.S. legal permanent resident (green card holder), was indicted on multiple serious charges including conspiracy, wire fraud, smuggling, and violating the Arms Export Control Act. The indictment alleges that between 2012 and 2018, Sun participated in a scheme to unlawfully transmit approximately 70 export-controlled technical drawings to a company in China without obtaining the required licenses from the U.S. government.
These technical drawings weren't insignificant - they contained sensitive data related to critical defense applications including aviation systems, submarines, radar technologies, tanks, mortars, missiles, infrared and thermal imaging targeting systems, and fire control systems for the Department of Defense.
The case connects directly to Quadrant Magnetics, a Kentucky-based manufacturer specializing in rare earth magnetics. The indictment alleges that Quadrant imported rare earth magnets that were smelted and magnetized in China, then sold these components to U.S. companies who incorporated them into defense systems including F-16 and F-18 aircraft. This violates the Defense Acquisition Regulations System (DFARS), which mandates that specialty metals sold to the DOD must be produced in the United States or approved countries - a list that explicitly excludes China.
Executive Accountability
In a related development, two senior executives at Quadrant Magnetics, Phil Pascoe and Scott Tubbs, recently pleaded guilty to charges stemming from the unlawful transmission of ITAR-controlled technical data to a Chinese affiliate. Their guilty pleas, entered in February 2025, acknowledge knowing violations of U.S. export control laws, with sentencing scheduled for June 2025.
Rare earth minerals
Understanding ITAR Classification
These cases highlight the critical importance of properly understanding ITAR classification. The International Traffic in Arms Regulations strictly control the export of defense articles, services, and technical data that appear on the United States Munitions List (USML).
The technical data in these cases fell under ITAR jurisdiction because they related to defense articles with military applications. Even seemingly commercial components like rare earth magnets can fall under ITAR when they're designed or modified for military end-use, as was the case with components intended for F-16 and F-18 aircraft.
Supply Chain Vulnerabilities Exposed
These prosecutions expose significant vulnerabilities in defense supply chains:
Opaque Sourcing: Components originating from non-approved countries being integrated into critical defense systems
Technical Data Leakage: Proprietary design specifications flowing to foreign entities without proper controls
Documentation Fraud: Misrepresenting the country of origin for strategic materials
Regulatory Circumvention: Deliberately bypassing DFARS requirements for specialty metals
Compliance Implications for Organizations
For businesses operating in regulated industries with international connections, these cases offer several critical lessons:
Enhanced Due Diligence: Thoroughly vet all supply chain partners and maintain visibility throughout multi-tier supplier networks
Robust Classification Protocols: Implement systematic processes to correctly identify ITAR-controlled technical data and components
Technical Data Controls: Establish rigorous safeguards for sensitive technical information, especially when collaborating with international affiliates
Executive Accountability: Ensure leadership understands their personal liability for compliance failures
Training Programs: Develop comprehensive education for all employees handling potentially controlled materials or information
As geopolitical tensions increase and technological sovereignty becomes a national priority, companies must treat export compliance as a strategic imperative, not merely a regulatory burden. The consequences of failure - as these cases demonstrate - extend far beyond corporate fines to include personal criminal liability for executives.
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Patrick Goergen, Founder & CEO, RespectUs. The Export control Expert & Explainer.
