The Bureau of Industry and Security (BIS) has amended the Voluntary Self Disclosure (VSD) process in the Export Administration Regulations (EAR). The newly released amendment to CFR 15 Section 764.5 and Supplement No. 1 to part 766 provides guidance for settlement determinations of penalties for administrative enforcement cases. This action evolved from a series of policy changes that began in 2022 to encourage organizations to report potential violations.
BIS Policy Changes Leading Up to Amendment
In 2023 the BIS announced policy updates encouraging voluntary disclosures of potential violations of the EAR. These announcements also stated that when these disclosures are conducted in a timely and comprehensive manner with full cooperation, that the BIS would substantially reduce civil penalties. This would include cases where controlled items, technology, had been transferred or transactions that have involved boycott violations.
The BIS also announced a dual-track system whereby minor or technical infractions would be processed within 60 days of final submission. This would include an issuance of a warning or a no-action letter from the Office of Export Enforcement (OEE). The agency announced that it considers a deliberate nondisclosure an aggravating factor when determining severity of penalties. Additionally, the BIS considers the existence of an adequate and engaged export compliance program a factor in case settlements.
Changes in BIS Penalty Guidelines for Administrative Actions
The BIS is making it clear in these revisions to the EAR that the submission on a VSD is a mitigating factor in the consideration of penalties. In such cases it is the OEE’s preference to bolster an organization’s compliance program to ensure that such violations do not reoccur. The revisions also provide guidelines for the calculation of penalties so that penalties are more appropriate to the nature and seriousness of the offense.
Previously Section 764.5 had not included non-disclosure of violations an aggravating factor. Now however, a non-disclosure not only bypasses mitigation credits but incurs a possibility of increase in penalties. This reflects the serious consequences to United States national security that occurs when the government is prevented from taking mitigation.
Dual Track Processing of VSDs
Section 764.5 of the EAR had previously only one method for the processing of VSDs. The final rule now in place creates two tracks, one for minor or technical violations and another for significant violations. The track for minor or technical violations includes where and how to submit an abbreviated narrative for the VSD. This revision is intended to reduce the workload of organizations in submitting notification of minor violations.
The process for filing Voluntary Self-Disclosures for significant violations remains for the most part unchanged. The BIS has however, defined a significant violation as one that involves one or more aggravated factors as detailed in the BIS Penalty Guidelines. If an organization is unsure as to whether a violation is minor or significant it should file as required for a significant violation.
The new general policy for the BIS is to resolve minor or technical violations within 60 days. This is to be accomplished by informing the organization that the BIS intends to take no action or by submitting a warning letter. For significant violations the agency will conduct an investigation and take appropriate action as quickly as circumstances permit.
Under the revised regulations, parties in possession or with an interest in an illegally exported item can notify the OEE that a violation has occurred and request permission for the item to be returned to the United States without being in violation of 15 CFR 764.2(e). Previously this was limited to parties filing submitting the Voluntary Self-Disclosure.
Changes to BIS Penalty Guidelines
This rule makes several changes to the BIS Penalty Guidelines in supplement no. 1 to part 766 regarding penalty calculations, mitigating factors, and aggravating factors. It also adds a list of non-monetary settlements the BIS may take as actions against violations. The change also removes the applicable schedule amount definition and the base penalty matrix in an effort to make administrative penalties more in line of the overall transaction value.
Non monetary actions include warning letters or non action letters to parties involving non-egregious conduct that has not resulted in a compromise to national security. These actions also include sanctions requiring an organization to implement improvements to its compliance program.
CVG Strategy Export Compliance Expertise
The DDTC, the BIS, and the OFAC, along with international partners have greatly increased their activities in the generation and enforcement of regulations. This increases the likelihood of a non-egregious violation occurring even in a company with a well-run export compliance program. CVG Strategy can assist organizations through the Voluntary Self Disclosure process and guide you through these difficult procedures.
If you are part of a large corporation or a small company with a part-time compliance person, CVG Strategy has the compliance and training programs to help you meet International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) rules and requirements. As the BIS place controls on a growing number of technologies it becomes increasing difficult for smaller businesses to stay abreast of regulatory developments. Because of this, we provide Export Compliance Management Programs (ECMP) for businesses of all sizes.
CVG Strategy, LLC is recognized the world over as the premier provider of Export Compliance Consulting and Export Compliance Programs for businesses involved in export in the U.S. and Canada. We also provide the essential training that ensures that your team is up to date on governmental regulations, including the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Canadian Controlled Goods Program, and Office of Foreign Asset Controls (OFAC) and other regulatory agencies and more.