Commerce Guidance Supports Benefits of Voluntary Disclosures and Improved Compliance Programs

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has issued a voluntary disclosure guidance for export violations. The guidance takes effect July 22 and its intent is to make Commerce’s enforcement more in line with that of the Office of Foreign Assets Control (OFAC). Specifically, the new guidance introduces the OFAC concept of a “base penalty amount.” Like OFAC base penalties, the BIS base penalties will be determined by whether the violation was egregious and whether it was voluntarily disclosed. Once a base penalty amount is determined, the amount can move downward or upward based on mitigating and aggravating factors.

Commerce has made it clear that the purpose of administrative enforcement action is not only to punish past conduct but to deter future export violations. BIS has long recognized the value of voluntary self-disclosures (VSDs). As a result, only around three percent of VSDs result in any sort of monetary penalty. Rather, most result in a warning letter or letter of no-action from the Office of Export Enforcement (OEE), assuming the written disclosure is complete and company actions are effective to prevent future problems. When VSDs do lead to monetary penalties, it has been OEE’s informal policy to reduce the penalty by 50%. The new guidance formalizes this policy and limits OEE’s discretion. The result is lower penalties for well-drafted disclosures.

BASE PENALTY MATRIX
Voluntary Self-Disclosure?
YES NO
Egregious Case? YES Up to one-half of the statutory maximum ($125,000) Up to the applicable statutory maximum ($250,000)
NO One-half of the transaction value (capped at $125,000) Applicable scheduled amount (capped at $250,000)

The new guidelines also provide incentives to build strong compliance programs capable of spotting violations when they do occur and preventing future violations. Thus it is a good time to update your compliance manuals. And if you need to make a disclosure make sure your disclosure is complete and sets the right tone.