BIS Revises Guidelines Concerning Charging and Penalty Determinations in Administrative Enforcement Cases

On June 22, 2016, the Bureau of Industry and Security (BIS) issued a final rule revising its guidance on penalties for violations of the Export Administration Regulations (EAR). The BIS undertook these revisions to make penalty determinations more predictable and to align them with the OFAC penalty guidelines.  The rule rewrote guidance in Supplement No. 1 to part 766 of the EAR, and put forth the factors that the Office of Export Enforcement (OEE) will consider when setting penalties in settlements of administrative enforcement cases and when deciding whether to pursue administrative charges or settle negotiations.

Pursuant to the new guidelines, the OEE will determine penalties in two steps. The first step involves determining the base penalty. The OEE will determine the base penalty amount by first determining whether the violation was “egregious” or “non-egregious” and then whether the exporter brought the violation to their attention through a voluntary self-disclosure (VSD). In an egregious case with a VSD, the base penalty amount will be an amount up to one-half of the statutory maximum penalty. In an egregious case without a VSD, the base penalty amount can be up to the statutory maximum. In a non-egregious case with a VSD, the base penalty amount will be one-half of the transaction value, capped at a maximum base penalty amount of $125,000 per violation. In a non-egregious case without a VSD, the base penalty amount will be the “applicable schedule amount,” but is capped at the maximum penalty amount per violation of $250,000.

Once the OEE determines the “base amount”, it can increase or decrease the penalty amount based on whether certain aggravating, mitigating, and general factors are present. Factors include: whether the violation was willful or reckless, the exporter’s awareness the client’s sophistication, the volume and value of the transactions, the exporter’s history, criminal convictions, and other illegal conduct, whether the exporter has a compliance program in place, remedial efforts, cooperation with the OEE, and whether an export license was likely to have been approved if sought. In addition, there are other “case-by-case” factors that the OEE will consider such as whether the violations were related, whether other agencies are taking action against the exporter, and the compliance/deterrence effect of the penalty.

Although VSDs are no longer listed as mitigating factors by themselves, if an exporter files one BIS will afford a 50 percent mitigation. The BIS further stated that most cases brought to its attention by VSDs will only receive warning letters and that settlements reached after initiation of litigation will usually be higher. Also, in initially determining whether the OEE will issue sanctions or not, it will utilize the same factors.

Significantly, the rule provides that penalties may, in some cases, be suspended when the violator pays an equivalent amount for compliance activities.  These new guidelines will hopefully provide predictability to EAR violation penalties. If you have any questions concerning these new changes, please contact us or read the Federal Register here.

2018-04-23T16:17:50+00:00 August 5th, 2016|News & Events|
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