15 July 2016
BIS Revises Guidelines on Administrative Penalties for Export Violations
The Bureau of Industry and Security has issued a final rule to make administrative penalties for violations of the Export Administration Regulations more predictable to the public and aligned with those promulgated by the Office of Foreign Assets Control. BIS’ Office of Export Enforcement may refer violators of export control laws to the U.S. Department of Justice for criminal prosecution and/or to BIS’ Office of Chief Counsel for administrative prosecution. When there has been a wilful violation of the EAR, violators may be subject to both criminal fines and administrative penalties. Administrative penalties may also be imposed when there is no wilful intent, allowing administrative cases to be brought in a much wider variety of circumstances than criminal cases. This rule rewrites Supplement No. 1 to part 766 of the EAR to set forth the factors that OEE considers when setting penalties in settlements of administrative enforcement cases and deciding whether to pursue administrative charges or settle allegations of EAR violations.
This rule does not apply to alleged violations of regulations concerning restrictive trade practices and boycotts, which will continue to be subject to Supplement No. 2 to part 766. This rule also will not apply to pending matters where, as of 22 July, there are on-going settlement negotiations and a charging letter has not been filed.
Under the revised guidelines the base penalty will depend on whether the violation is egregious or non-egregious and whether or not the case resulted from a qualifying voluntary self-disclosure. Once the base penalty amount has been determined, the following factors (which this rule will reorganise into the categories listed) will be applied to determine whether this amount should be adjusted downward or upward. BIS notes that this rule makes changes to the formula for calculating base penalty amounts in response to comments suggesting that the proposed amounts would provide OEE with insufficient flexibility in settlements and makes changes with respect to the maximum effect of mitigating factors in response to comments about their impact on VSDs.
- aggravating factors (e.g., wilfulness or recklessness, awareness of conduct at issue, harm to regulatory programme objectives)
- general factors, which could be considered either aggravating or mitigating depending on the circumstances and would include the individual characteristics of a respondent (e.g., commercial sophistication, size and sophistication of operations, volume and value of transactions, and regulatory history) as well as whether or not it had an effective risk-based BIS compliance programme in place at the time of the apparent violation, including the extent to which it complied with BIS’s Export Management System guidelines
- mitigating factors (e.g., remedial measures taken, exceptional co-operation with OEE, and whether an export licence for the transaction at issue would likely have been granted if sought)
- other relevant factors that may be relevant in certain circumstances and would be considered on a case-by-case basis (e.g., multiple unrelated violations, other enforcement actions, and future compliance and deterrent effect)
Voluntary self-disclosures are no longer listed as mitigating factors in and of themselves but to encourage the submission of VSDs BIS will accord a 50 percent mitigation up front if a case is based on a VSD. BIS notes that the majority of cases brought to its attention through VSDs result in the issuance of warning letters and that over the past several years an average of only three percent of VSDs submitted have resulted in a civil penalty.
BIS states that penalties for settlements reached after the initiation of litigation will usually be higher than those described by these guidelines. The guidelines generally provide for significantly higher civil penalties for egregious cases, but BIS anticipates that the majority of apparent violations investigated by OEE will fall into the non-egregious category. BIS does not expect that adoption of these guidelines will increase the number of cases that are charged administratively rather than closed with a warning letter.