BIS Issues Final Rule for Voluntary Self-Disclosure Procedures

The purpose of the new rule is to incorporate into the Export Administration Regulations (EAR) the three policy memoranda published by BIS between June 30, 2022, and January 2024 and to revise the BIS Penalty Guidelines to change how the Office of Export Enforcement (OEE) calculates the base penalty in administrative cases.

Read the final rule here and the press release here.

Incorporation of Three Policy Memoranda

In the lead up to publication of the new final rule, BIS published three memoranda on voluntary disclosures on June 2022, April 2023, and January 2024. We laid out the specifics of the first two memoranda in a previous alert.

The main features of the BIS final rule as initially laid out in the three policy memoranda are as follows:

• Carrot and Stick: OEE will process voluntary self-disclosures in a dual-track manner. The carrot: minor or technical violations will be resolved within 60 days through a no-action letter or a warning letter. The stick: for potentially significant violations, an OEE agent and BIS office of Chief Counsel enforcement attorney will be assigned, and failure to disclose will be an aggravating factor that could sharply increase penalties. “Significant violation” is defined — somewhat circularly, we think — as one that involves one of the aggravating factors in the BIS Penalty Guidelines (see below).
• Multiple minor or technical violations can be bundled into one quarterly voluntary disclosure submission.
• The Snitch Mailbox: Any person may notify the director of OEE that a violation has occurred using BIS’s confidential enforcement lead/tip form.  Why might you consider snitching? Besides perhaps wanting to cause mayhem for a competitor, the notifier can also request authorization for certain activities that are prohibited by EAR Section 764.2(e) if you know that an export violation has occurred. That part of the EAR reads:

Acting with knowledge of a violation. No person may order, buy, remove, conceal, store, use, sell, loan, dispose of, transfer, transport, finance, forward, or otherwise service, in whole or in part, or conduct negotiations to facilitate such activities with respect to, any item that has been, is being, or is about to be exported, reexported, or transferred (in-country), or that is otherwise subject to the EAR, with knowledge that a violation of ECRA, the EAR, or any order, license, or authorization issued thereunder, has occurred, is about to occur, or is intended to occur in connection with the item.

BIS Penalty Guidelines

The main features of the revised BIS Penalty Guidelines include changes giving OEE increased discretion to determine the appropriate penalties for the individual circumstances, such as:

• Removing applicable schedule amounts which tied maximum penalties to the value of a transaction in which a violation occurred. This is meant to give OEE more latitude to “impose penalties with sufficient deterrent effect.”
• Formalizing non-monetary resolution for cases only warranting a warning letter or no-action letter but involving non-egregious conduct. This gives OEE greater flexibility to impose remedial measures like training and compliance requirements.

The new rule also updates the aggravating and mitigating factors that affect administrative sanctions for export violations. The most significant changes are:

• Adding a new aggravating factor, as mentioned above, for “deliberate failure to disclose a significant apparent violation.”
• Expanding the aggravating factor for “harm to regulatory program objectives” to include consideration of whether a violation has the effect of enabling human rights abuses.
• Amending the mitigating factor for “Exceptional Cooperation with OEE” to include the disclosure of conduct by others that leads to an enforcement remedy. This adds yet another incentive to tell BIS about other companies’ export violations.

Overall Impact

OEE has made clear through the final rule that — while in the past there may have been an argument to not make a voluntary disclosure when action is taken to rectify an export controls violation — when in doubt, companies should make a voluntary disclosure.