To increase disclosures of export violations, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a memorandum on April 18, 2023 “clarifying” its enforcement policy related to voluntary self-disclosures of “significant” possible violations of the Export Administration Regulations (EAR). The memo also elaborates upon the policy regarding disclosures of potential EAR violations by another party. The clarifications, which are effective immediately, aim to promote the “shared endeavor” of compliance, which the policy memo describes as “the first line of effective enforcement.”
The first clarification articulates how BIS will modify the interpretation of existing BIS settlement guidelines regarding voluntary self-disclosures (VSDs). Explaining the need for the clarification, the policy memo notes, “[w]hen someone chooses to file a VSD, they get concrete benefits; when someone affirmatively chooses not to file a VSD, however, we want them to know that they risk incurring concrete costs.” Thus, going forward, a party’s decision not to submit a VSD, despite learning of a “significant” possible violation through an internal export compliance program, will be considered an aggravating factor by BIS when applying its penalty matrix. In the past, deliberate non-submission of a VSD was neither an aggravating nor mitigating factor; rather, BIS only considered the submission of a VSD as a mitigating factor.
Importantly, the policy memo emphasizes that this clarification only applies to VSDs reporting a “significant” possible export violation – a type of violation defined as potentially harmful to national security interests. Accordingly, the policy is “not focused on increasing the number of minor or technical VSDs” received by BIS, which typically receive a fast-track response from BIS within 60 days of its submission.
The second clarification aims to “incentivize individuals, companies, and universities to come forward and tell [BIS] when they become aware of others who are violating [export control] rules,” whether reported directly to BIS or via the confidential reporting form. The policy memo details a two-prong incentive structure for a party that reports another party’s possible violation of the EAR. First, if the disclosure results in a successful enforcement action or in a successful enforcement of “related actions,” then the disclosing party will be eligible for “substantial financial rewards” for assisting the U.S. Government. Second, and perhaps even more beneficial for a disclosing party, if a disclosure about another party’s violation of the EAR results in enforcement action against the latter, then BIS will consider the disclosing party’s cooperation as a mitigating factor if a future enforcement action is ever brought against the disclosing party, even for unrelated conduct.
The BIS policy memo is significant not only because it clarifies the enforcement policy related to disclosures, but also because the document signals how BIS is implementing mechanisms to promote compliance among the trade community amid its renewed commitment to clamp down on export violations (see for example Update of April 20, 2023).