The Bureau of Industry and Security is proposing to revise its guidance regarding administrative enforcement cases based on violations of the Export Administration Regulations to make administrative penalties more predictable to the public and aligned with those promulgated by the Office of Foreign Assets Control. Comments on this proposed rule are due no later than Feb. 29, 2016.
BIS’ Office of Export Enforcement may refer violators of export control laws to the Department of Justice for criminal prosecution and/or to BIS’ Office of Chief Counsel for administrative prosecution. When there has been a willful 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 willful intent, allowing administrative cases to be brought in a much wider variety of circumstances than criminal cases.
This rule would rewrite Supplement No. 1 to part 766 of the EAR and set forth the factors that BIS considers when setting penalties in settlements of administrative enforcement cases and deciding whether to pursue administrative charges or settle allegations of EAR violations. This change would not apply to alleged violations of part 760 – Restrictive Trade Practices and Boycotts, which would continue to be subject to Supplement No. 2 to part 766.
Under the revised guidelines the base penalty would depend on whether the violation is egregious or non-egregious and whether or not the case resulted from a voluntary self-disclosure that satisfies all the requirements of section 764.5 of the EAR. Once the base penalty amount has been determined, the following factors (which this rule would reorganize into the categories listed) would be applied to determine whether this amount should be adjusted downward or upward.
- Aggravating factors (willfulness or recklessness, awareness of conduct at issue, harm to regulatory program objectives), which would be considered key in determining whether a violation was egregious or not.
- General factors, which could be considered either aggravating or mitigating depending on the circumstances, would include the individual characteristics of a respondent (i.e., its commercial sophistication, exporting experience, volume and value of transactions, and regulatory history) and whether or not the respondent had an effective risk-based BIS compliance program 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 would include remedial measures taken (which could earn additional mitigation if they were prompted by the respondent’s compliance program), exceptional cooperation with OEE, and whether an export license for the transaction at issue would likely have been granted if sought. Mitigating factors would be assigned specific percentages off the base penalty amount and could be combined for a greater reduction in penalty, but mitigation would generally not exceed 75 percent of the base penalty.
- Other relevant factors that may be relevant in certain circumstances and would be considered on a case-by-case basis include multiple unrelated violations, other enforcement actions, and future compliance and deterrent effect.
Voluntary self-disclosures would no longer be listed as mitigating factors in and of themselves but credit accorded to VSDs would be built into the determination of the base penalty amount. Specifically, BIS is seeking to provide additional incentive for the submission of VSDs by establishing that the base penalty for a VSD case would not be more than 50 percent of the base penalty for a similar case that is not voluntarily self-disclosed. 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 its consideration of these factors would not dictate a particular outcome in any case and that the guidelines would provide sufficient flexibility to allow for the consideration of the factors most relevant to a particular case. Penalties for settlements reached after the initiation of an enforcement proceeding and litigation through the filing of a charging letter would usually be higher than those described by these guidelines. The guidelines generally would provide for significantly higher civil penalties for egregious cases, but BIS anticipates that the majority of apparent violations investigated by OEE would fall into the non-egregious category. BIS does not expect that adoption of these guidelines would increase the number of cases that are charged administratively rather than closed with a warning letter.
BIS adds that in appropriate cases in the context of settlement negotiations it may suspend or defer payment of a civil penalty, taking into account whether the respondent has demonstrated a limited ability to pay, whether the matter is part of a global settlement with other U.S. government agencies, and/or whether the respondent will apply a portion or all of the funds suspended or deferred for purposes of improving its internal compliance program.