New BIS Export Enforcement Guidelines

As we start off this new year there are some important new changes to be aware of; this includes the Bureau of Industry and Security’s (BIS) proposed changes to export enforcement guidelines. This bureau is the agency responsible for enforcing the Export Administration Regulations (EAR), which handles all export enforcement cases. These proposed changes will impact how the BIS categorizes export violations, as well as how they determine the appropriate penalty for qualifying violations.

We must initially examine how violations will be categorized, because this will in-turn effect how they are penalized. First, BIS will categorize violation cases as either egregious or non-egregious. Four factors will be considered in determining the egregiousness of each case; a willful or reckless violation of the law, the awareness of conduct at issue, harm caused to the regulatory program objectives, and relevant individual characteristics. The other important factor at play for violation categorization is whether or not the violation was voluntarily self-disclosed. Self-disclosure was a factor of “great weight” prior to these changes,  but it now plays an even more pivotal role in determining the applicable monetary penalty.

The  proposed changes by the BIS have allowed for the creation of a base penalty matrix. This matrix takes into account the previously discussed factors, as well as the number of relevant EAR violations.  The base penalty amount is based on three different values; the maximum statutory amount, the transaction value, and the applicable schedule amount. The matrix will be structured as shown below;

matrix

The current “statutory maximum” penalty is twice the value of the transaction, not to exceed $250,000. The” transaction value” is defined as “the U.S. dollar value of a subject transaction” based on commercial invoices, bills of lading, Customs declarations, and other relevant documents. The “applicable schedule amount” referenced in the matrix is determined by referring to a table (not reproduced here) that categorizes various transaction values with corresponding penalty amounts. (Ex. If the transaction value is between $10,000 and $25,000, the corresponding schedule amount in the table is $25,000.) Once the base penalty has been determined, there are a set of factors that will be considered in determining whether the base amount needs to be adjusted. Aggravating factors increase the penalty, mitigating factors reduce the penalty, and general/other relevant factors are considered on a case-by-case basis and can either increase or reduce the penalty.

The overall goal of these changes is to make BIS penalty amounts more predictable and transparent. Additionally, these changes are intended to more closely align BIS procedures with those of the Treasury’s Office of Foreign Assets Controls (OFAC).  It is imperative for companies involved in export to understand these changes, as they could lead to higher penalties for export violations if implemented.  We have always urged clients to make Voluntary Disclosures quickly, and in most cases have avoided any penalty whatsoever.  Public comments regarding this proposal are due by February 26, 2016.