Voluntary Self Disclosure Changes Codified

The Commerce Department’s Bureau of Industry and Security (BIS) issued a final rule making changes to the Export Administration Regulations (EAR) related to BIS’s policies and practices regarding voluntary self-disclosures (VSDs) and to the BIS Penalty Guidelines.

This rule provides BIS with increased flexibility to determine fair and appropriate penalty amounts while also making it less burdensome for companies to submit certain VSDs.

The rule revises the BIS Penalty Guidelines to change how the Office of Export Enforcement (OEE) calculates the base penalty in administrative cases and how OEE applies various factors to the base penalty to determine the final penalty.

"They were new policies that we had rolled out over the last couple of years under my signature, policy memos. But we want these to be institutionalized, to be part of the fabric of our federal regulations and so we've made those amendments and changes and revisions and those are now in the Federal Register as of this morning," said Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod.

Noting the rules no longer permit offenders to offset fines with internal compliance spending (see Boeing's $24 million [11840] or RTX Corp's $100 million [12717]).  Axelrod stated "We don't believe you should be sentanced to compliance," 

Rulemaking Genesis

Beginning in 2022, BIS issued a series of publicly available memoranda describing policy changes to strengthen its administrative enforcement program and to encourage anyone who thinks they may have violated the EAR to submit VSDs. In the twelve months since these policies were announced compared with the twelve months prior, BIS has seen nearly a 30 percent increase in significant VSDs and nearly a 20 percent increase in industry tips that resulted in actionable leads. 

Voluntary Self Disclosure

In the final rule, the significant revisions to § 764.5 of the Export Administration Regulations (EAR) (regarding the voluntary self-disclosure process) include:

• Detailing how OEE will process VSDs in a dual-track manner, with VSDs involving minor or technical violations being resolved within 60 days either by no-action letter or warning letter, and the assignment of an OEE agent and BIS Office of Chief Counsel enforcement attorney for potentially significant violations.
• Adding a streamlined submission process for VSDs involving minor or technical violations, including an abbreviated narrative and the recommendation to bundle multiple minor or technical violations into one overarching quarterly submission.
• Making clear that an entity’s deliberate decision not to disclose a significant violation will be considered an aggravating factor when OEE determines what administrative penalties, if any, will be sought.
• Clarifying that any person, not just a party submitting a VSD, may notify the Director of OEE that a violation has occurred and then request permission from the Office of Exporter Services to return previously unlawful exports to the United States.

Penalty Guidelines

Additionally, BIS revised the BIS Penalty Guidelines so that potential penalties more appropriately reflect the seriousness of the offense by linking that determination directly to the individual circumstances of each violation.

The significant revisions to Supplement No. 1 to Part 766 (regarding the BIS Penalty Guidelines) include:

• Revising the BIS Penalty Guidelines to give OEE increased discretion to determine penalties that appropriately reflect the individual circumstances of violations, while maintaining OEE’s ability to adjust penalties (up or down) within the statutory limits to reflect the applicable factors for administrative action set forth in the BIS Penalty Guidelines.
• Formalizing non-monetary resolutions as an enforcement response for cases that involve non-egregious conduct but rise above the level of cases warranting a warning letter or no-action letter.
• Amending Aggravating Factor C to include the enabling of human rights abuses as a specific consideration when BIS assesses the potential impact of a violation on U.S. foreign policy objectives.
• Amending General Factor H to make clear that disclosures of conduct by others that lead to an enforcement remedy count as exceptional cooperation.

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Administrative and Enforcement Provisions