If you’re a defense contractor, the waters you’re navigating just keep getting deeper. With International Traffic in Arms Regulations (ITAR) relentless in its requirements—and the cloud now the norm for collaboration—the big question is: Can tools like Microsoft 365 really help keep your data protected, controlled, and compliant? The answer: yes, but only if you understand both the landscape and the toolbox in your hands.
What is ITAR and Why Does it Matter for Defense Contractors?
ITAR isn’t just another piece of red tape in the defense industry. It’s the backbone of how the U.S. controls the export and handling of defense-related articles, technical data, and services. If your business touches anything on the United States Munitions List—or works with subcontractors, vendors, or data that does—you’re on the hook.
Non-compliance isn’t just a fine and a slap on the wrist. It can lead to stiff penalties, loss of contracts, and even criminal charges. The responsibility is broad: if you’re storing, sending, or collaborating on ITAR-regulated documents, you must restrict access to U.S. persons, prevent any chance of foreign access, and keep bulletproof records.
Facing the Modern ITAR Challenge
A decade ago, ITAR compliance might have meant locked file cabinets and on-premises servers. The move to cloud services like Microsoft 365 and the rise of distributed workforces has created a minefield of new risks—and, fortunately, new solutions.
Contractors today struggle with questions like:
- Can we trust the cloud with ITAR data?
- How can we guarantee only U.S. persons have access?
- What stops files from being shared (knowingly or unknowingly) outside the U.S.?
The reality is, Microsoft 365—when configured correctly—offers an impressive set of tools for addressing these concerns. But not all Microsoft cloud environments are up to the job.
Choosing the Right Microsoft 365 Environment for ITAR Data
Microsoft 365 isn’t a single monolithic cloud. You’ll find three primary types each with its own strengths and limitations for ITAR compliance.
| Environment | Designed For | ITAR Ready? | Key Features |
| Commercial (M365) | General business | Not fully | Standard security and controls; may not meet ITAR personnel or data residency requirements. |
| GCC | State and local government, some federal work | Partial | U.S. data centers, better compliance but limited enforceability on U.S.-person-only access. |
| GCC High | Defense, DoD, export control (including ITAR/DFARS) | Yes | U.S.-only data centers and support, heightened security, explicit support for ITAR/DFARS. |
For true ITAR compliance, GCC High should be your foundation. This alone solves half the battle, enforcing U.S. data residency, limiting support personnel, and working within the regulatory lines.
Essential Microsoft 365 Security Tools for ITAR Compliance
Getting into GCC High lays the groundwork, but compliance is a daily, practical reality. Microsoft 365 arms you with a broad suite of security features, each one an ally in your compliance efforts.
Sensitivity Labels and Information Protection
Label everything. That’s step one in maintaining control over export-controlled data. With Microsoft Information Protection, you can:
- Automatically apply “Export Controlled” or “ITAR” labels to files and emails.
- Restrict who can view, share, or print sensitive documents.
- Ensure that only authorized, U.S.-person accounts within your organization can open ITAR-labeled content.
This labeling feeds into the rest of Microsoft 365’s compliance tools, ensuring policies follow files everywhere they go.
Conditional Access & Location-Based Access Controls
Conditional Access lets you create airtight rules, think of them as digital security badges at the door. For ITAR:
- Require multi-factor authentication for all logins.
- Limit access to pre-approved U.S.-based IP ranges or specific devices.
- Prevent sign-ins from anywhere outside the United States or from unauthorized networks.
This wards off accidental or malicious access from overseas, unauthorized personnel, or compromised credentials.
Data Loss Prevention (DLP) Policies
Data Loss Prevention in Microsoft 365 is your virtual security guard:
- Detects and blocks attempts to share or send export-controlled data outside the company.
- Flags risky actions, such as attempting to copy or move sensitive files to non-compliant locations.
- Sends automatic alerts to compliance teams and can require justifications or approvals for special cases.
DLP ensures that even well-meaning employees don’t accidentally put your compliance at risk.
Encryption and Rights Management
All data in Microsoft 365 GCC High is encrypted in transit and at rest, but you can go further:
- Enable sensitivity labels that enforce encryption on files, so only approved users (especially U.S. persons) can access them, no matter where those files wander within your environment.
- Control whether files can be downloaded, forwarded, or printed—even if they leave SharePoint or Teams.
Auditing and Monitoring
Good recordkeeping is the lifeboat in any audit. Microsoft 365 generates detailed logs for:
- Every file access, label change, permissions update, and sharing event.
- Real-time alerting for suspicious behavior (multiple failed logins, access from uncommon locations, or attempted sharing out of policy).
- Periodic compliance and usage reports for your records and your peace of mind.
Configuring SharePoint and OneDrive: Where ITAR Data Lives
Let’s make this practical. Once you’re in GCC High, here’s a framework for keeping SharePoint and OneDrive locked down:
- Designate clear zones for ITAR-controlled documents—dedicated Team sites or document libraries with restricted membership.
- Break inheritance so sensitive libraries don’t accidentally inherit broader permissions.
- Apply ITAR sensitivity labels to both libraries and individual files.
- Turn off external sharing unless explicitly needed and allowed.
- Regularly review access logs to catch any anomalies early.
This approach also simplifies user training employees know where ITAR data lives and that it’s walled off from day-to-day business content.
Pitfalls and Proven Tips from the Field
If only every contract and compliance requirement were black and white! The reality is defense contractors hit a few snags.
- Assuming Commercial M365 is “good enough”: Even robust security features can’t substitute for strict US-person enforcement and data residency—both non-negotiable for ITAR.
- Neglecting user training: Tools protect data, but people often break compliance by accident. Make export control training part of onboarding—and an annual habit.
- Ignoring third-party integrations: Every connected app or service must meet the same compliance standards. Audit your ecosystem regularly.
One defense supplier we worked with had overlooked guest accounts left in their directory, opening a subtle but serious compliance gap. A thorough review, updated access controls, and tailored DLP policies closed the gap before an audit uncovered the issue.
How ESW Company Can Help
ITAR compliance isn’t a checklist you finish once—it’s a shared, ongoing responsibility. At ESW Company, we help defense organizations move to GCC High, configure Microsoft 365 to actively enforce export control, and stay audit-ready year-round.
We offer:
- ITAR/Microsoft 365 gap assessments and migration roadmaps.
- Hands-on configuration of sensitivity labels, DLP, and access policies.
- Managed compliance support and security monitoring.
- Team training to turn compliance from a risk into a culture.
Whether you’re just starting to evaluate your environment or need a specialist to validate your controls before an audit, we’re here to help.
FAQs from Defense Contractors
Can we use Microsoft Teams or Exchange in GCC High for ITAR data?
Absolutely—if your security policies are dialed in and access is limited to compliant users and devices.
How do we keep files from being accessed when traveling overseas?
Restrict access by location and device, enforce U.S.-person logins only, and use Conditional Access for any exceptions.
What if we’re already in Commercial or GCC?
Plan your migration early. The process requires careful coordination to avoid productivity loss—but leaving ITAR data unprotected is a much bigger risk.
Next Steps: Is Your Microsoft 365 Environment Truly ITAR-Ready?
Don’t wait for a government inquiry to discover a gap. A formal assessment can reveal both quick wins and critical risks, and let you build out a sturdy, ongoing compliance plan.
Ready to get started? Contact ESW Company for a readiness assessment or a second opinion on your current setup. ITAR compliance is non-negotiable—and with the right strategy and tools, it doesn’t have to be a constant worry.