On January 16, 2024, the Assistant Secretary for Export Enforcement at the Department of Commerce’s Bureau of Industry and Security (BIS) issued a memorandum, announcing that:
- parties disclosing minor or technical violations that occurred close in time can submit a single Voluntary Self-Disclosure (VSD) on a quarterly basis, which may include an abbreviated narrative account of the suspected violations; and
- parties sending formal requests to BIS’s Office of Exporter Services to engage in otherwise prohibited activities with respect to items involved in violations of the Export Administration Regulations (EAR) should also send courtesy copies to the Office of Export Enforcement (OEE), which will help expedite BIS’s processing of such requests.
The memorandum builds upon previous changes to BIS’s administrative enforcement program, which were announced in memoranda dated June 30, 2022 and April 18, 2023. These changes are intended to help OEE fast-track its review of “minor” or “technical” VSDs and to encourage additional disclosures of potentially significant violations of the EAR, but do not apply to VSDs relating to Part 760 of the EAR (antiboycott and restrictive trade practices). For a detailed analysis of the previous memoranda, see our blog posts from July 6, 2022 and April 26, 2023.
More Favorable Treatment of Minor or Technical Violations
In the new memorandum, BIS clarified that parties can bundle multiple minor or technical violations that occurred close together in time into one overarching VSD that is submitted to OEE on a quarterly basis.
In addition, BIS announced that parties disclosing minor or technical violations may submit an abbreviated narrative account that briefly describes the nature and cause of the violations as outlined in Section 764.5(c) of the EAR. It need not include a five-year lookback nor supporting documentation, unless specifically requested by OEE. BIS’s VSD webpage states that an abbreviated narrative account should include:
- a notation at the top of the submission stating “Abbreviated Narrative Account;”
- the disclosing person’s name;
- the nature of the violations (i.e., a description of the suspected violations and their underlying cause);
- an explanation of why these violations are not considered significant (i.e., do not involve aggravating factors as discussed in Supplement No. 1 to Part 766 of the EAR); and
- a description of any mitigating circumstances, to include an explanation of remedial compliance measures taken.
Although the memorandum suggests that abbreviated disclosures of minor violations should generally result in a warning or no-action letter within 60 days of final submission, taking this path would not be a bar to penalties being imposed, and where BIS suspects that aggravating factors were not disclosed, BIS reserves the ability to request a full narrative account, five-year lookback, and accompanying documentation.
Questions Remain About How to Determine if a Violation is Minor or Technical
In addition to the favorable policies BIS laid out in its previous enforcement memoranda, this new process may provide some benefits to companies that choose to disclose. However, there remains some lack of clarity regarding how to determine if a particular type of violation is merely “minor” or “technical.” BIS has noted that such violations include “immaterial 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), [and] incorrect use of one license exception where other license exceptions were available, etc.” provided that aggravating factors are not present. While these examples of minor VSDs all involve extremely minor violations, which may indicate that OEE has adopted a very narrow view of the types of infractions considered minor, a BIS official stated at an industry event recently that, in practice, the full set of circumstances will shape the agency’s view of whether a violation should be viewed as significant, including the nature of the items, the end user, end use, destination, quantities, compliance program deficiencies, etc.
The lack of clear guidance from BIS as to what distinguishes minor and significant VSDs may make companies more hesitant to disclose an event as a minor violation if they cannot clearly assess the risk that BIS would view their potential violations as significant and their disclosures incomplete, subjecting them to a more demanding and possibly punitive process. For example, if a party submits a VSD for what it views as a minor infraction, and BIS later requires them to conduct a five-year lookback and submit additional information, the party may risk not receiving voluntary disclosure credit for any additional infractions identified during that additional review.
Treatment of Items Involved in Violations
BIS also introduced policy changes intended to help the BIS Office of Exporter Services (OES) expedite requests to engage in activities with respect to items involved in violations of the EAR that would otherwise be prohibited under the EAR. More specifically, the EAR’s General Prohibition 10 and related provisions prohibit any party with “knowledge” that an item has been or will be involved in a violation of the EAR from performing an expansive range of activities with respect to the item, such as buying, disposing of, transferring, servicing, or storing the item, unless OES, in consultation with OEE, has granted permission pursuant to section 746.5(f)(1). Because parties submitting a VSD, by definition, believe that a violation of the EAR may have occurred, they may be prohibited from taking corrective actions with respect to items subject to the VSD, as doing so could constitute further EAR violations unless or until OES has given permission to engage in the otherwise prohibited activities. To streamline BIS’s processing of such requests, BIS has explicitly asked that in addition to sending formal requests to OES, courtesy copies be sent to OEE via email. While companies commonly copied OEE on these requests in the past, it is helpful that BIS has now made this suggestion explicit. OEE will then work with OES to help expedite its review and analysis of the request. In other words, if OEE is not copied, the request may be delayed as OEE may need to be consulted internally within BIS. While this is not a mandatory disclosure obligation per se, in practice it often does have such an effect.
While the EAR provide that “the person making” the VSD may request permission to engage in activities with respect to the item involved in a violation of the EAR, the memorandum and BIS’s VSD website now clarify that any person (i.e., not just the party submitting the VSD) may notify the OEE Director that a violation has occurred and request permission from the Office of Exporter Services to engage in otherwise prohibited activities. OEE will consider such disclosures to have fulfilled the requirements under the EAR even when the request for permission does not disclose a violation by the requestor. Furthermore, OEE announced that its presumptive recommendation will be to authorize reexports of unlawfully exported items back to the United States from abroad, regardless of who is seeking such permission.
These changes reflect an ongoing effort by BIS to fast-track the resolution of minor or technical VSDs while strengthening administrative enforcement in cases involving significant EAR violations. However, the lack of clear guidance about which process applies in specific types of cases presents risks to exporters who are considering whether to make a disclosure, and could limit the effectiveness of this policy.
As these changes go into effect, industry should continue to monitor BIS investigations and enforcement actions, because: (1) a deliberate decision not to voluntarily disclose could be considered by OEE an aggravating factor, and (2) OEE is encouraging people to disclose violative conduct by others (e.g., competitors) and offering cooperation credit for those who do, which may be applied in any future enforcement action against the disclosing person.
As this develops, parties should continue to carefully consider with counsel the potential benefits and risks of disclosure or non-disclosure, especially as the concrete costs and incentives of BIS’s revised VSD program become clearer over time.
For assistance regarding this topic please contact a member of our Export Controls practice.