Export Enforcement: BIS Emphasizes Self-Disclosure

In a recent change to the BIS rules, BIS has strongly emphasized the importance of self-disclosure by (1) making failure to self-disclose an aggravating factor in enforcement actions and (2) making it easier to self-disclose minor or technical violations.

The new rule was published as a direct-final rule without a Notice of Proposed Rulemaking.

Aircraft parts distributors who are exporting parts will want to seriously consider reporting both technical violations and significant violations in order to protect the company.

Penalty for Failure to make a Self-Disclosure

BIS has modified 15 C.F.R. § 764.5 to state that the government will consider a deliberate decision by a firm not to disclose a significant apparent violation to be an aggravating factor when determining what administrative sanctions, if any, will be sought. This means that if you identify an apparent violation and choose not to make a voluntary self-report, then the government penalties can be increased in an enforcement action (the rules already applied a mitigating factor when a voluntary self-disclosure has been made).

This has the appearance of a potential legal problem in the long term. The information-collection associated with self-disclosure was originally approved by OMB as a voluntary action that expected about 150 responses per year. The number of responses has been increased to 180 but the approval has been otherwise unchanged. By applying a penalty to failure to report (the aggravating factor to the civil penalty), the Commerce Department has changed the fundamental nature of this voluntary report. This change may invalidate the OMB approval, which does not appear to be updated to reflect the rule change. Thus, the aggravating factor could be a violation of the Paperwork Reduction Act’s public protection provision (which prevents the government from imposing a penalty for failing to comply with an information collection if it does not display a valid control number).

Exporting in violation of any US regulations is a criminal offense under 18 U.S.C. § 554. Thus, the new “mandatory” nature of self-reported exported violations appears to reflect a compulsion to self-incriminate. Despite common views of the Constitution as portrayed on television, this sort self-incrimination may not be prohibited. Corporations do not enjoy the privilege against self-incrimination. E.g. Curcio v. United States, 354 U.S. 118, 122 (1957). Corporate records “cannot be insulated from reasonable demands of governmental authorities by a claim of personal privilege on the part of their custodian.” Id. at 122-23. Early cases like Curcio distinguished this from compelled testimony, but later cases allowed compulsion of testimony (even testimony against the interests of the testifying person) from persons deemed to be “custodians.” Baltimore City Department of Social Services v. Bouknight, 488 U.S. 1301, 1304 (1988) (explaining that the “tension between the State’s demand for disclosures and the protection of the right against self-incrimination’ must inevitably . . . be resolved in terms of balancing the public need on the one hand, and the individual claim of constitutional protections on the other” and upholding a state disclosure requirement).

In the past I have counseled companies to carefully consider self-disclosure upon detecting an apparent export violation, and typically we have decided in favor of self-disclosures. This change will modify the analysis to be even more strongly in favor of self-disclosure.

Reporting Minor or Technical Violations

The new rule provides an abbreviated reporting mechanism for minor and technical violations. Minor and technical violations can be bundled together (as long as they are from the same quarter) and will need to include contact information and a description of the general nature and extent of the violations. The rule retains a more comprehensive reporting requirement for significant violations.

The rule provides examples of minor and technical violations: “immaterial Electronic Export Information (EEI) filing errors, inadvertent record keeping violations resulting from failed file retrieval or retention mechanisms (e.g., physical damage caused by flood or fire and/or electronic corruption due to malware, virus, or outage), incorrect use of one license exception where other license exceptions were available.”