BIS Announces Updates to the Voluntary Self-Disclosure Process
On January 16, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) announced important updates to its Voluntary Self-Disclosure (“VSD”) process in a memorandum addressed to all export enforcement employees. Key updates to the BIS VSD process include guidance on email submissions, clarification on “fast-track” resolution of minor and technical infractions, and updated licensing treatment for unlawfully exported items. On the same day, Assistant Secretary for Export Enforcement Matthew S. Axelrod contextualized the updates during a speech at an event hosted by New York University Law School’s Program on Corporate Compliance and Enforcement. In addition to announcing these updates, Axelrod discussed at length previous enhancements to BIS’s VSD program, announced in policy memoranda on June 30, 2022 and April 18, 2023, including, notably, the treatment of failure to self-disclose violations as an aggravating factor, and the provision of “exceptional cooperation” credit to encourage reporting of third-party violations.
The January 16 updates follow recent guidance released jointly by BIS and the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) on November 6, 2023, denoting the enhanced focus on high-end export control enforcement put in place following Russia’s invasion of Ukraine.
In this Legal Update, we provide an overview of the BIS updates.
VSD Program Updates
Email Submission of VSDs
BIS strongly encourages submission of VSDs to bis_vsd_intake@bis.doc.gov, as email submission will improve response time and internal tracking capability. BIS will continue to accept paper submissions but, in these instances, submissions should include an email address to receive electronic responses from the Bureau. Further details can be found on the VSD website.
Fast-track Reporting
In June 2022, BIS announced a “fast-track” resolution policy for VSDs involving minor and technical infractions. In an expansion of this policy, BIS now accepts an abbreviated “narrative account” describing violations where no aggravating factors are present. In these cases, a full five-year lookback is only required if specifically requested by an Office of Export Enforcement (“OEE”) reviewer. Reviewers will request a full narrative account and five-year lookback in cases where OEE suspects that there were undisclosed aggravating factors. Finally, in the interest of decreasing administrative burden on compliance professionals and accelerating responses, multiple minor and technical infractions can be bundled and reported quarterly.
Treatment of Unlawfully Exported Items
In the case where an item is unlawfully exported, BIS acknowledges the previous tension between the exporter’s potential VSD submission and their good faith desire to make corrective actions, some of which were prohibited by Section 764.2(e) of the EAR (e.g., ordering, buying, transporting, forwarding, or transferring items involved in the violation). To alleviate this tension, exporters may now request special permission to engage in prohibited activities conducted as part of their corrective actions. If a party seeks to return an unlawfully exported item to the United States, OEE will presumptively recommend that BIS authorize the re-export.
Exceptional Cooperation Credit/Aggravating Factors
BIS seeks a “level playing field” for companies, and Assistant Secretary Axelrod noted in his speech that it is impossible for BIS to punish violations they are unaware of. With this backdrop, he spent time discussing BIS’s previously released policy to reward companies who offer a tip leading to an enforcement action with an “exceptional cooperation” credit. This credit will remain “in the bank” and will benefit the company if a future enforcement action is ever brought against them, even if the action is for conduct unrelated to the previous tip. Along with encouraging tips, BIS wants to encourage internal investigation and reporting. If a company chooses not to disclose a significant potential violation, the non-disclosure is considered an aggravating factor under the April 2023 BIS penalty guidelines, which may in turn result in enhanced penalties.
Takeaways
The conclusion of Assistant Secretary Axelrod’s memorandum concisely states the overarching goals of the VSD program updates: “Our approach to VSDs, and to compliance in general, is clear. We will continue to impose significant penalties against those who break the law, while at the same time incentivizing companies to play by the rules.” Compliance-minded companies should view these updates positively—BIS is taking concrete steps to streamline the VSD program, which allows OEE to refocus their limited resources on significant infractions while rapidly closing out reports of minor and technical violations. Conversely, companies potentially disinclined to report known violations should reconsider the risks—competitors incentivized to report violations and enhanced penalties for non-disclosure combine to significantly increase the potential costs stemming from violations and, especially, avoiding VSDs.
