In a continued theme of increased enforcement of export controls, the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce released a memorandum that announced a stricter Administrative Enforcement Program. This is particularly relevant as the war in Ukraine continues, the ensuing sanctions packages are only enhanced – especially combined with export sanctions by other countries. Notably, the enhanced penalties and related policy changes announced by the June 30 BIS memorandum apply not only to Russia and Belarus, but to the entire U.S. export controls regime. Companies should be aware of the BIS guidance and the heightened enforcement environment due to ongoing national security threats precipitated by illicit acquisition of U.S. technology.
The most noteworthy recent BIS policy change is the publication of administrative charging letters. Previously, these letters were issued privately to the violator and were only shared on a need-to-know basis. For example, the letters were historically shared with counsel to obtain legal advice. Administrative charging letters usually did become public, but not until the violation was completely resolved. As the memorandum references, this process often lasted years. Under the updated policy, administrative charging letters will be made public when filed with an Administrative Law Judge. Moreover, they will be easily accessible via the BIS website. The stated purpose of this change is to “spark urgency” to upgrade compliance programs or to submit voluntary self-disclosures (“VSD”). Consequently, company compliance officers may want to consider monitoring the published administrative charging letters, potentially adjust policies and procedures accordingly, or consider submitting a VSD if prior actions would be implicated by the published charging letter.
Among the most striking policy changes announced by the memorandum is the elimination of the “No Admit, No Deny” settlement agreements. These types of settlements, which are readily used by various government agencies interested in expediting resolution of a matter, traditionally permitted entities and individuals to resolve export violations without admitting to the underlying conduct. It is the equivalent of a “no contest” plea in a criminal action. An enticing benefit of entering into a settlement agreement is the resulting penalty reduction. Under the updated policy, however, an exporter cannot enjoy the benefits of resolving a violation via a settlement agreement without admitting to some wrongdoing. According to the memorandum, timely publishing details of specific conduct leading to a violation encourages others to “modify their behavior to prevent similar outcomes”. This may have a chilling effect on the ability to settle such matters in the future due to other factors, including breach of supply chain contracts, loss of other business, and potentially even loss of goodwill in any potential sale of the company.
Furthermore, the memorandum announced BIS will “aggressively” apply the existing settlement guidelines in Supplement 1, Part 766. These guidelines list mitigating and aggravating factors considered when determining the appropriate penalty for a violation. The focus of this policy update is clearly on aggravating rather than mitigating factors. Due to this change, exporters can expect an increased number of violations deemed as “egregious”. While the memorandum states it purports to standardize the application of penalty factors, the practical result of this change will likely be significantly higher penalties. In conjunction with the elimination of the “No Admit, No Deny” settlements, these changes create an increased incentive for exporters to review their compliance programs and avoid engaging in potentially risky transactions.
Similarly, the Dual-Track Processing of VSDs announced provides an added incentive to disclose minor or technical infractions. Under this dual-track processing system, exporters can expect a resolution through a warning letter or a no-action letter within 60 days of submitting a final VSD. This expedited turnaround processing time is the byproduct of implementing one review track specific for minor infractions and a second for VSDs with indicia of more serious violations. Notwithstanding, the policy changes outlined above regarding settlement agreements and the application of aggravating factors voluntarily disclosing violations may be the preferred avenue for all exporters considering VSDs are not public.
Finally, in an attempt to resolve the backlog of pending administrative matters, BIS will offer non-monetary settlement agreements in limited instances. Only violations where the conduct was not deemed “egregious” or resulted in serious national security harm are subject to this updated policy. As detailed above, an admission of wrongdoing is required. Among the non-monetary remedies set forth by the memorandum is the imposition of a suspended denial order. As it is routine, suspended denial orders include terms that if violated trigger the full effects of the denial order. For instance, the settlement agreement may require implementing or upgrading compliance programs and trainings. Generally, the aim of these terms is to mitigate past violations and prevent future ones.
Companies engaged in international trade may want to review the guidance and consider taking action to review policies, procedures, auditing, and training. Combined with the ever changing sanctions – especially related to the Russia invasion of Ukraine, compliance with export controls and sanctions are growing more complicated and leading to significant risk for those interested in international trade or global supply chain opportunities.
