Commerce Department BIS Updates Its Voluntary Self Disclosure Policy to Further Incentivize Disclosure of Minor or Technical Export Violations
On January 16, Matthew S. Axelrod, Assistant Secretary for Export Enforcement at the U.S. Department of Commerce, Bureau of Industry and Security (BIS), issued a memorandum announcing further updates to BIS’ voluntary self-disclosure (VSD) policy. The memorandum reflects important changes to BIS’ treatment of VSDs that disclose violations where no aggravating factors are present.
Under the updated VSD policy, when no aggravating factors are present, the disclosing party (1) may now submit an abbreviated narrative account (instead of the full narrative account) and (2) need not conduct the full five-year lookback recommended by BIS, unless specifically requested by BIS. Aggravating factors under the U.S. Export Administration Regulations (EAR) include:
- Willful or reckless violation of law (e.g., where an action was taken with knowledge of violation, where there is a reckless disregard or gross negligence with respect to export controls compliance, or where there is a deliberate attempt to conceal)
- Awareness of conduct at issue (e.g., where there is management involvement or awareness of misconduct)
- Harm to regulatory program objectives (e.g., where the conduct, in purpose or effect, substantially implicated national security, foreign policy, or other essential interests protected by the U.S. export control system)
BIS also clarified that the lack of aggravating factors will generally result in BIS treating the violations as “minor” and will “fast track” the VSD. This means BIS will typically resolve the matter through a no-action letter or a warning letter (i.e., without the imposition of monetary penalties) within 60 days of final submission. Lastly, the memorandum clarifies that disclosing parties may bundle multiple minor or technical violations into one overarching VSD submission on a quarterly basis.
In addition to the above, the memorandum also reflects certain other changes. First, BIS now strongly encourages companies to submit VSDs via email (though it will continue to accept hard copy submissions). Second, in cases where a license is requested for dealing with an item subject to a VSD, the Office of Export Enforcement will coordinate with the Office of Exporter Services to expedite review of the license application. The memorandum notes that such a license request may be made by any person (i.e., not just the person filing a VSD) that seeks to engage in otherwise prohibited activities. The Office of Export Enforcement will also presumptively recommend that BIS authorize a request to return an unlawfully exported item back to the United States.
The updates to the VSD policy reflect BIS’ continued emphasis on VSDs and follow its announcement in April 2023 that non-disclosure of export controls violation may be considered an “aggravating factor,” thereby offering incentives for companies to disclose misconduct of others (including industry competitors). In his remarks on January 16, Assistant Secretary Axelrod emphasized that BIS’ enhancements to its VSD policies have resulted in more VSDs, including disclosure of misconduct by others and quicker resolution of minor or technical violations. Companies that learn of actual or potential violations of EAR should carefully consider the updated VSD policy and its implications.
This new model for submitting VSDs to BIS raises important questions for companies, including whether BIS will open a secure portal to handle email submissions containing sensitive corporate information and whether the benefits of sending an early email to BIS outweigh the risks of making a premature or incomplete disclosure.
For questions about BIS’ updated policy, including how to approach this business risk calculus, please contact the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations or Export Control & Sanctions practice groups.
© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.