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News from Reeves & Dola, LLP
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COMMERCE DEPARTMENT REVISES ITS GUIDELINES
O
N EXPORT PENALTIES
On June 22, 2016, the Bureau of Industry and Security, U.S. Department of Commerce (BIS) published a Final Rule revising its Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases (the "BIS Guidelines") found in Supplement No. 1 to part 766 of the Export Administration Regulations (EAR). The BIS Guidelines set forth the factors that are to be considered when setting penalties in settlements of administrative enforcement cases, as well as the factors considered when deciding whether to pursue administrative charges or settle allegations of EAR violations. The updated BIS Guidelines will become effective July 22, 2016.
This Alert provides a brief summary of some of the major changes, but is not intended to be a substitute for reviewing the entirety of the Federal Register Notice. Readers should carefully review the updated BIS Guidelines in conjunction with this Alert.
REVISIONS TO THE BIS GUIDELINES
BIS has undertaken this update to make civil penalty determinations more predictable and transparent to the public and more closely aligned with the penalty guidelines promulgated by the Treasury Department's Office of Foreign Assets Control (the "OFAC Guidelines"). Important excerpts from the updated BIS Guidelines are as follows:
- The Final Rule introduces the concept of base penalty amounts for egregious and non-egregious apparent violations.
- The base penalty amount for an egregious case that results from a Voluntary Self Disclosure ("VSD") will be a range of up to 50% of the statutory maximum.
- The base penalty amount for an egregious case that results from some source other than a VSD will be set at a range up to the statutory maximum.
Under this procedure, substantial weight generally will be given to Factors A ("willful or reckless violation of law"), B ("awareness of conduct at issue"), C ("harm to regulatory program objectives"), and D
("individual characteristics"), with particular emphasis on Factors A, B, and C. The Office of Export Enforcement at BIS (OEE) will consider a case to be egregious where the analysis of the applicable Factors, with a focus on Factors A, B, and C, indicates that the case represents a particularly serious violation of the law calling for a strong enforcement response. An OEE determination that a case is "egregious" must have the concurrence of the Assistant Secretary of Commerce for Export Enforcement.
- General Factor D - Individual Characteristics provides six illustrative factors that could be considered in assessing this criterion. They are: (1) the respondent's commercial sophistication, (2) the size and sophistication of its operations, (3) the volume and value of its apparent violations relative to the volume and value of all of its transactions, (4) its regulatory history, (5) any other illegal conduct in connection with the export, and (6) prior criminal convictions of the respondent.
- The Final Rule adds references to VSDs to the elements of General Factor E - Compliance Program and to Mitigating Factor F - Remedial Response. This rule also provides that a fully suspended monetary penalty is possible with conditions in certain non-egregious VSD cases.
- The Final Rule final rule modifies Mitigating Factor G to include the question: "Has the Respondent previously made substantial voluntary efforts to provide information (such as providing tips that led to enforcement actions against other parties) to federal law enforcement authorities in support of the enforcement of U.S. export control regulations?" BIS adds this question to create an incentive for companies to provide information valuable to enforcement that comes to their attention.
- BIS notes that if a license exception that would have authorized the export was available at the time of export, but was not properly utilized or asserted by the respondent, that license exception availability should be treated as a mitigating factor. Accordingly, the Final Rule amends Mitigating Factor H by adding the question: "Would the export have qualified for a license exception?"
- Section III.A.4 Pattern of Conduct has been modified to make clear, for cases that settle before filing of a charging letter with an Administrative Law Judge, OEE will generally charge only the most serious violation per transaction.
- Factor A.4 Pattern of Conduct is revised to make clear that certain situations where multiple recurring violations resulted from a single inadvertent error, such as misclassification, when determining whether to bring charges, OEE will generally regard that as one violation instead of multiple violations in determining if the matter is considered egregious. However, when determining a penalty, each violation is potentially chargeable.
- Factor III.I Related Violations has been revised to make it explicit that OEE will continue to consider inadvertent, compounded clerical errors as related and not separate infractions for the purpose of determining if the case is egregious.
- This Final Rule introduces "no action" determinations, which means no action will be taken in cases where there is insufficient evidence to conclude that a violation may have taken place. Warning letters are the determination that currently identify the transaction or conduct OEE believes violated the EAR and will continue to do so.
- The Final Rule amends the definition of "transaction value" by adding a reference to AES filings.
This guidance does not apply to civil administrative enforcement cases for violations under part 760 of the EAR - Restrictive Trade Practices and Boycotts. Supplement No. 2 to Part 766 continues to apply to enforcement cases involving part 760 violations. This guidance also will not apply to pending matters where, as of July 22, 2016, there are ongoing settlement negotiations and a charging letter has not been filed.
The above alert is for informational purposes only and is not intended to be construed or used as legal advice. Receipt of this alert does not establish, in and of itself, an attorney-client relationship.
Questions about this alert can be directed to:
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About Reeves & Dola
Reeves & Dola is a Washington, DC law firm that specializes in helping clients navigate the highly regulated and complex world of manufacturing, sales and international trade of defense and commercial products. We have a deep understanding of the Federal regulatory process, and use our expertise in working with a variety of Federal agencies to assist our clients with their transactional and regulatory needs.
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