ITAR Encryption Compliance Guide: How to Meet the ITAR Encryption Carve-Out

How Prepared Is Your Encryption Strategy for ITAR-Regulated Data?

For organizations handling export-controlled technical data, encryption is no longer a “best practice”; it’s a foundational compliance requirement. Under ITAR, encryption determines how data may be stored, transmitted, and shared, especially in cloud and collaborative environments.

Yet many teams misunderstand what the ITAR encryption carve-out actually requires, or assume that basic “encryption at-rest and in-transit” is sufficient.

This guide breaks down:

• What the ITAR encryption carve-out really means
• How regulators interpret compliant encryption
• The technical controls needed to meet the requirement in practice
• Common gaps that leave organizations exposed

What Is the ITAR Encryption Carve-Out?

The ITAR encryption carve-out refers to provisions in U.S. export control regulations that permit the storage or transmission of export-controlled technical data electronically without being considered an export, provided it is encrypted in a compliant manner.

Simply put: Proper encryption allows certain data handling activities without triggering export violations.

The relevant regulatory language can be found in the ITAR definitions section (Title 22, Code of Federal Regulations), which outlines the conditions under which encrypted data is excluded from export controls, provided specific cryptographic and access conditions are met.

Why Encryption Is Central to ITAR Compliance

ITAR enforcement focuses on access, not just location.

That means:

• If unauthorized individuals can access data, even unintentionally, it may constitute an export
• Cloud storage, remote work, and collaboration tools increase exposure risk
• Encryption is what separates “secure handling” from “unauthorized disclosure”

The encryption carve-out exists to support modern digital workflows, but only when encryption is strong enough to make the data unusable and inaccessible to anyone without authorization.

What Does “Compliant Encryption” Actually Mean Under ITAR?

This is where many organizations get tripped up.

Does ITAR Require End-to-End Encryption (E2EE)?

In practice, yes, especially for cloud environments.

ITAR requires that export-controlled data be encrypted in a way that:

• Prevents cloud providers, intermediaries, or infrastructure operators from accessing plaintext
• Ensures only authorized end users can decrypt the data
• Maintains protection throughout the data lifecycle

Encryption limited to “at-rest” or “in-transit” is often insufficient because:

• Data may be decrypted while being processed
• Administrators or services may have access
• Files may be exposed once they leave controlled systems

End-to-end, file-level encryption ensures the data remains encrypted until an authorized user decrypts it locally.

Does ITAR Require FIPS 140-3?

ITAR does not explicitly mandate FIPS 140-3 validation by name.

However, the regulation states that encryption must meet or exceed U.S. government standards for strong cryptography. In practice, regulators and auditors commonly treat FIPS 140-2/140-3 validated modules as the safest way to demonstrate compliance.

Using FIPS-validated cryptography:

• Aligns with federal security expectations
• Reduces ambiguity during audits or reviews
• Provides defensible proof of cryptographic strength

While not strictly required, FIPS 140-3 validation materially strengthens your compliance posture.

What the ITAR Encryption Carve-Out Requires in Practice

To meet the intent of the regulation, encryption controls must address who can access the data, when, and under what conditions.

1. Persistent, File-Level Encryption

Encryption must:

• Stay with the file itself
• Remain intact when files are copied, shared, or stored elsewhere
• Prevent unauthorized access even if the perimeter is bypassed

This is especially important for:

• CAD files and schematics
• Engineering documents
• Technical manuals and designs

2. Strict Access Controls Based on Authorization

Encryption alone is not enough.

You must also enforce:

• Role-based access control (RBAC)
• Citizenship or nationality restrictions where applicable
• Need-to-know access enforcement
• Time-bound or project-based access windows

Encryption without access governance still allows misuse.

3. Secure Key Management

A common compliance weak spot.

Key management must:

• Prevent unauthorized key access
• Separate key control from data storage
• Support rotation and revocation
• Be auditable

If attackers can access encryption keys, encryption becomes meaningless.

4. Auditability and Evidence

ITAR compliance is not just about controls, it’s about proof.

You must be able to show:

• Who accessed which data
• When access occurred
• Whether access was allowed or denied
• How policies were enforced

Immutable audit trails are essential for internal reviews, voluntary disclosures, and regulatory inquiries.

5. Secure Processing Environments

Where data is processed matters.

Many organizations choose to operate encryption and access control systems within FedRAMP-authorized environments to:

• Meet federal security expectations
• Reduce risk associated with third-party infrastructure
• Demonstrate strong operational controls

While not mandated by ITAR, secure processing environments support the spirit of the encryption carve-out.

Common Mistakes That Break ITAR Encryption Compliance

Organizations often believe they are compliant when they are not.

Common gaps include:

• Relying only on TLS and disk encryption
• Allowing SaaS administrators access to decrypted files
• Weak or shared encryption keys
• Lack of access logging
• No control once files leave the network

In these scenarios, the encryption carve-out does not apply, and data handling may constitute an export.

How to Validate Your Encryption Strategy

Ask the following questions:

• Can unauthorized users ever access decrypted data?
• Does encryption persist if files are emailed or shared?
• Are keys isolated, controlled, and auditable?
• Can you prove compliance with logs and reports?
• Would your controls hold up under regulatory scrutiny?

If the answer is unclear, your encryption strategy likely needs strengthening.

Turning ITAR Encryption Requirements Into Practical Controls

Understanding the ITAR encryption carve-out is one thing. Implementing it in a way that holds up in real environments, cloud collaboration, remote teams, and third-party workflows is another.

Many security tools claim to “support encryption,” but in practice, they stop short of what ITAR actually expects. They tend to assume attackers stay outside the perimeter and users behave predictably, assumptions that are no longer true, especially with how AI operates. 

Meeting the ITAR encryption carve-out in practice requires persistent protection: encryption and access controls that stay with the data itself, regardless of where it’s stored, shared, or accessed. It also requires cryptography that meets or exceeds the standards referenced by the regulation, along with clear evidence that controls are enforced consistently.

This is where many general-purpose security and collaboration tools fall short, and where a data-centric approach becomes essential.

How Theodosiana Supports ITAR Encryption Compliance

Theodosiana is designed for organizations handling export-controlled data in modern, distributed environments.

Our platform helps teams meet the ITAR encryption carve-out by providing:

• End-to-end, file-level encryption
• FIPS 140-3 validated cryptographic modules
• Context-aware access controls
• Secure, FedRAMP-authorized processing
• Immutable audit trails built for compliance review

These controls ensure export-controlled data remains encrypted, governed, and auditable wherever it resides or moves.

FAQs: ITAR Encryption Carve Out