Higher penalties. Suspended sentences. Admissions of fault. Public charging letters. Welcome to a new era of export enforcement.
The Department of Commerce’s Bureau of Industry and Security (BIS) has changed the game when it comes to penalizing companies and individuals for export violations. How did they do it? And what does this mean for your organization going forward?
Four new enforcement policies
In late June, Assistant Secretary for Export Enforcement Matthew Axelrod sent a memo to his team. This memo described the four gravest threats to U.S. national security – China, Russia, Iran and North Korea. The memo went on to detail four new policy changes designed to help BIS impose penalties against companies that are “nearly the same punishment that a criminal conviction would bring.” After sending the memo, Assistant Secretary Axelrod further explained these new policies during remarks at this year’s BIS Update Conference in Washington, D.C.
Here’s a summary of the changes and what they mean for companies.
- Significantly Higher Penalties. BIS plans to take better advantage of its regulatory and statutory authorities to ensure that the most serious administrative violations trigger commensurately serious penalties. The goal here is to create penalty amounts that more accurately reflect the harm caused to U.S. national security. Also, BIS wants to strongly disincentivize companies who ignore the regulations while creating a “level playing field” for those who invest in a strong compliance program. As Mr. Axelrod stated: “If you invest in an export compliance program while your competitor flouts the rules to gain an economic advantage, we are going to aggressively impose penalties on your competitor to create a level playing field.”
- Non-Monetary Resolutions. For violations that are not as egregious and pose less threat to national security, BIS will employ a new tactic – non-monetary settlement agreements. There are several different levers the agency can pull here. For example, BIS might deny a company’s export privileges but waive this denial provided that the company meets certain criteria, such as conducting audits of its activities, training personnel and improving its compliance program.
- No Harm, No Foul? No More. In the past, companies could reach settlements with BIS without admitting they’d done anything wrong. These were the so-called “No Admit, No Deny” agreements, where a company neither admits fault nor denies any wrongdoing. BIS will do away with these types of agreements. Going forward, companies will be required to admit to the underlying factual conduct. In doing so, and making this admission public, BIS hopes to give other companies and individuals a clear sense of what went wrong so they can modify their own activities.
- Fast-Tracking VSDs. BIS will change how it processes Voluntary Self-Disclosures (VSDs). For those VSDs involving minor or technical infractions, the agency wants to “fast-track” with a warning letter or no-action letter within 60 days of receipt of a final submission. This will free-up resources and time to focus on VSDs that indicate potentially more serious violations. For those disclosures, BIS plans to do a “deeper dive” to determine what type of enforcement action may be warranted, while at the same time adhering to the principle that companies deserve, and will get, significant credit for coming forward voluntarily.
In addition to these changes, earlier in June, BIS also implemented a fifth – and significant – policy shift that will impact companies who violate export regulations. They’re making charging letters public. In the past, the public would not learn of a company’s violations for years while the matter was resolved through legal proceedings. This meant there was not always incentives for a company to change its behaviors until after the information become public. It also meant that other companies remained unaware of the charges and had little urgency to upgrade their compliance programs or submit disclosures.
Now, however, BIS will make these records available for viewing on its website as soon as charges are filed. The psychological effect this will have on companies remains to be seen, but you can expect there to be much greater attention paid from the C-Suite when those press releases start going out.
First non-monetary settlement announced
Shortly after announcing these policy changes, on August 1, BIS issued its first non-monetary administrative resolution. This settlement involved Luis Fernando Gracia of Nogales, Arizona. BIS alleged that Gracia, the owner and operator of GE Equipos de Seguridad, a company located in Nogales, Arizona and in Sonora, Mexico, committed one violation of the Export Administration Regulations (EAR) when he attempted the unlicensed exports of ballistic helmets and rifle scopes to Mexico. To resolve the matter, Gracia will be subject to a two-year suspended denial of his export privileges under the regulations. He must also complete a 12-month internal audit of his company’s export controls compliance program and compliance training.
This marked the first settlement under the new policies. For these cases involving less serious actions, BIS will pursue non-monetary penalties that are contingent upon exporters accepting responsibility and making significant changes to their compliance programs and activities.
As Assistant Secretary Axelrod stated:
“The changes we are announcing today will ensure that we are focusing our greatest attention on the most serious violations, that we are creating a level playing field that incentivizes investments in compliance, and that our penalties are appropriately commensurate with the harm to national security.”
Want to improve your company’s compliance so you don’t wind up on the wrong side of these policy changes? We are experts with many years of experience helping our clients. Schedule a no-charge consultation today.
Rebecca Yeager is a Trade Compliance Consultant for Export Solutions -- a full-service consulting firm that specializes in helping companies comply with U.S. and international import/export regulations.