Export Enforcement: BIS Emphasizes Self-Disclosure

October 16, 2024 by Leave a comment

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.”

Filed under Uncategorized Tagged with , , , , ,

BIS Increasing Export Enforcement

July 7, 2022 by Leave a comment

On June 30th, the Bureau of Industry and Security (BIS) announced four policy changes that are intended to strengthen BIS’s enforcement tools for matters involving export violations. For people whose business relies on exports, this puts a spotlight on the importance of export compliance programs.

The export enforcement program changes were detailed in a memorandum from Assistant Secretary of
Commerce for Export Enforcement, Matthew S. Axelrod. They were effective immediately upon publication.

  • Penalties are Increasing: New guidance on aggravating and mitigating factors is now in place, and BIS intends to aggressively apply these new BIS guidelines (see 15 C.F.R. Part 766 Supplement 1). This may include a more aggressive view of which cases are deemed “egregious” and therefore warrant higher penalties. Assistance Secretary Axelrod explained, “[b]y imposing stiff penalties, we aim to achieve three things: (1) reaching resolutions that adequately reflect the national security harm caused by violations; (2) creating a strong disincentive for those considering circumvention; and (3) maintaining a level playing field for those that invest in a strong compliance program.”
  • Administrative Disposition for Existing Less-Serious Cases: This new policy applies to pending cases that (1) are not egregious, (2) have not resulted in serious national security harm, but (3) rise above the threshold for a warning letter. BIS is permitted to settle these for non-monetary penalties and rely on a suspended denial order combined with corrective-action-conditions (which could include training, development of a compliance program, etc.). This permits BIS to get some of these pending cases off of its docket so that it can focus its enforcement resources on the more egregious cases, but the new policy will require a bit of negotiation in order to arrive at the appropriate corrective-action-conditions.
  • Elimination of “No Admit, No Deny” Settlements: These were settlements in which no admission of conduct was necessary. Going forward, BIS will require parties to admit to their conduct as part of a settlement.
    • The policy reasons for this is because BIS wants others to be able to look at the settlement agreements to discern the conduct that is unacceptable (major settlements are often announced by BIS).
    • Related to this, in a recent speech, Assistant Secretary Axelrod also announced that BIS is considering making charging letters available when the charges are brought, instead of waiting until the cases are over to publicize them.
  • Dual-Track Processing of Voluntary Self-Disclosures: BIS is changing the way that it handles Voluntary Self-Disclosures (VSDs).
    • For minor and technical infractions, BIS will “fast-track” these and resolve them within 60 days of the final VSD submission. In our experience, these matters are typically resolved with a warning letter or a no-action letter.
    • For more serious violations, an agency attorney will be assigned to follow-up to get more information and to make appropriate decisions concerning the VSD.

In summary, the changes are designed to more quickly process the less serious matters, so that enforcement resources can be focused on the more serious cases. As BIS is able to focus its enforcement resources on more serious cases, we can expect BIS to seek civil penalties that are higher than they have been in the past.

While every case is unique, we often recommend that our firm’s aviation clients file Voluntary Self-Disclosures (VSDs) when they suspect a non-compliance with the export laws. We have had a lot of good experiences working with the government as a partner in compliance through the VSD process. The VSD process includes a lot of technical details so it is important to read the regulations and also seek competent legal support for your VSD, to make sure that you are eligible for the benefits of the BIS’ VSD program. The new policies concerning corrective-action-conditions should be quite familiar to aviation industry businesses, because they are the sorts of things that we already recommend to the aviation industry in order to foster future compliance. Things like training and compliance programs can reflect a good way to help prevent the sort of non-compliances that necessitate VSDs.

Filed under Uncategorized Tagged with , , , ,

US Government Adds New Self-Disclosure Policy for Export Violations

January 7, 2020 by Leave a comment

The Department of Justice announced the release of a revised voluntary disclosures policy for export control violations.

The Department of Justice can prosecute wilful violations of the export laws, including:

  • The Arms Export Control Act (AECA), 22 U.S.C. § 2778,
  • The Export Control Reform Act (ECRA), 50 U.S.C. § 4801 et seq., and
  • The International Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1705

The revised policy is meant to reward companies that engage in voluntary self-disclosure in situations that might otherwise lead to criminal prosecution.  Assistant Attorney General for National Security John C. Demers explained:

“Protecting our nation’s sensitive technologies and preventing transactions with sanctioned entities are DOJ priorities, but we cannot succeed alone.  We need the private sector to come forward and work with DOJ.  The revised VSD Policy should reassure companies that, when they do report violations directly to DOJ, the benefits of their cooperation will be concrete and significant.”

The new voluntary disclosure policy includes three key changes.  These changes are intended to promote voluntarily self-disclose to the DOJ.

    1. The Policy clarifies the benefits that are available to companies that voluntarily disclose a violation (“Self Disclossure”), fully cooperate with the Justice Department (“Full Cooperation”), and timely and appropriately correct the issues (“Timely and Appropriate Remediation”).
    2. The Policy was reformatted to more closely resemble other DOJ self-disclosure guidance. This was meant to better standardize the way that DOJ handles self-disclosures. Specifically, it harmonized the definitions of “Voluntary Self-Disclosure,” “Full Cooperation,” and “Timely and Appropriate Remediation” with the same terms in the Foreign Corrupt Practice Act Corporate Enforcement Policy.
    3. The Policy clarifies that disclosures of potentially willful conduct made to regulatory agencies, and not to DOJ, will not qualify for the benefits provided in the Policy.

The policy now clarifies that there is a presumption that the company will receive a non-prosecution agreement and will not be assessed a fine, in the absence of aggravating factors.  If aggravating circumstances warrant an enforcement action other than a non-prosecution agreement, but the company satisfies all other criteria, the Policy states that DOJ will recommend a fine that is at least 50 percent lower than what would otherwise be available under the alternative fine provision and will not require the imposition of a monitor.  The prior guidance did not provide a presumption of any kind, and did not assign any concrete benefits to companies that met its criteria.

The policy became effective on December 13, 2019.  It applies only to export control and sanctions matters before the National Division’s Counterintelligence and Export Control Section.  It does not apply to any other section in the National Security Division, any other part of the Department of Justice, or any other agency.

Ryan and I have counseled a substantial number of clients on voluntary disclosures before a number of agencies. The last change – that disclosures of potentially willful conduct made only to regulatory agencies will not qualify for the benefits provided in the policy – is a significant element in this policy.

This new policy may make it beneficial to make a disclosure to the DOJ, in self-disclosure situations.  Because it will but it will create additional burdens on the disclosing company, it is important to review the occurrence to assess whether there is a reasonable possibility of criminal prosecution.  Where there is no reasonable possibility of criminal prosecution, or where prosecution would likely emanate from another division of the DOJ, disclosure might be unnecessary.  Any company considering self-disclosure of any occurrence or issue should consult with a qualified attorney who understands self-disclosure law, to make sure your disclosures are made to the right parties, and made in the right form and with the right information, in order to be effective.

Filed under Uncategorized Tagged with , , , , ,