JLF Navigation

July 21, 2016

BIS Amends Guidelines on Administrative Penalties

On June 22, 2016, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) amended its Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases, found in Supplement No. 1 to part 766 (“Guidelines”) of the Export Administration Regulations (EAR), to make civil penalty determinations more predictable, transparent, and aligned with those promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The revised Guidelines become effective July 22, 2016. In this article, we describe the most significant changes to the Guidelines.

Brief Overview of Responses to Apparent Violations[1]
While the bulk of the changes relate to how BIS determines administrative sanctions, including civil monetary penalty amounts, it is important to note the various types of responses to apparent violations. When it appears that a violation may have occurred, depending on the facts of the case, BIS’s investigation may lead to:

An administrative enforcement proceeding may result in, among other things:

Factors Affecting Administrative Sanctions
While the revised guidelines are not identical to OFAC’s enforcement guidelines, there are substantial similarities between the two. One area in which the Guidelines are similar to OFAC’s guidelines is in the area of factors affecting administrative sanctions. The revised Guidelines retain the same categories as the (soon-to-be) former BIS guidelines: Aggravating Factors, General Factors, Mitigating Factors, and Other Relevant Factors considered on a case-by-case basis. Nevertheless, a good portion of the factors are taken directly from the General Factors listed in OFAC’s enforcement guidelines. The factors listed in the General Factors category can be either mitigating or aggravating, such as the absence or presence of a risk-based export compliance program.

Below is a table describing the factors BIS will consider within each specific category.

Aggravating Factors General Factors Mitigating Factors Relevant Factors
(case-by-case basis)
A. Willful or Reckless Violation of Law D. Individual Characteristics[2] F. Remedial Response I. Related Violations[3]
B. Awareness of Conduct at Issue E. Compliance Program G. Exceptional Cooperation with OEE (BIS’s Office of Export Enforcement) J. Multiple Unrelated Violations
C. Harm to Regulatory Program Objectives[4]   H. License Was Likely To Be Approved K. Other Enforcement Action
      L. Future Compliance/Deterrence Effect
      M. Other Factors That OEE Deems Relevant

Civil Penalties
Another aspect of BIS’s revised Guidelines that is similar to OFAC’s guidelines is the method of calculating civil penalties. Like OFAC, BIS will now consider the factors listed above to determine whether a case is egregious or non-egregious for purposes of determining the base penalty amount. In making this determination, substantial weight will be given to Aggravating Factors A, B, C, and General Factor D, with particular emphasis on Aggravating Factors A, B, and C.

The matrix below represents the base penalty amount for each type of violation described (subject to adjustment for inflation)[5]:


Voluntary Self-Disclosure?

Egregious Case

No

Yes

Yes

(1) One-Half of the Transaction Value (capped at $125,000 per violation)

(3) Up to One-Half of the Applicable Statutory Maximum

No

(2) Applicable Schedule Amount (capped at $250,000 per violation)

(4) Up to the Applicable Statutory Maximum


Secondly, BIS will consider the factors listed above to determine whether the base penalty should be adjusted upward or downward based on mitigating and aggravating factors in the case. Like OFAC, the revised Guidelines provide for specific percentage reductions for certain mitigating factors. Mitigating factors “may be combined for a greater reduction in penalty,” but mitigation will generally not exceed 75% of the base penalty. However, it is possible for mitigation to exceed 75% of the base penalty in certain non-egregious cases where a VSD has been submitted. Additionally, BIS stated that where a respondent has been exceptionally cooperative, but did not submit a VSD, the base penalty amount will generally be reduced between 25 and 40%. If a respondent was exceptionally cooperative and the case came as a result of a VSD, the respondent’s exceptional cooperation may be considered as a further mitigating factor. Moreover, BIS stated that in cases involving a respondent’s first violation, the base penalty amount will generally be reduced by up to 25%.[6]

These changes do not apply to alleged antiboycott violations or other restrictive trade practices that are violations under part 760 of the EAR. Supplement No. 2 to part 766 of the EAR continues to apply to administrative enforcement cases involving alleged part 760 violations.

If you have any questions about these Guidelines, please contact us.

[1] The revised guidelines include the term apparent violation. An apparent violation is now defined in Supplement No. 1 to part 766 as an actual or possible violation of the EAR or statutes administered or enforced by BIS, or executive orders, regulations, orders, directives, or licenses issued pursuant thereto. The term apparent violation is used by OFAC in its Economic Sanctions and Enforcement Guidelines.
[2] BIS will consider the particular circumstances and characteristics of the respondent, including the respondent’s commercial sophistication, the size and sophistication of their operations, the volume and value of the transactions, criminal convictions, and other illegal conduct in connection with the export.
[3] BIS stated that it would consider whether violations stem from the same underlying error or omission, and whether they resulted in separate harm. BIS also stated that it does not generally charge multiple violations on a single export, nor will such multiple violations be considered an Aggravating Factor in and of itself.
[4] Harm to regulatory program objectives include implications for U.S. national security and U.S. foreign policy.
[5] On June 7, 2016, the Commerce Department issued an interim final rule adjusting for inflation the maximum civil monetary penalty amounts that may be issued by the agencies within its jurisdiction, including BIS.
[6] BIS stated that an apparent violation will be considered a “first violation” if the respondent has not been convicted of an export-related criminal violation or been subject to a BIS final order in the five years preceding the date of the transaction giving rise to the apparent violation. Warning letters issued within the preceding five years do not affect eligibility for “first offense” mitigation. Moreover, BIS will group “substantially similar” violations in a Charging Letter as a single violation (for purposes of “first offense” mitigation), and if a prior Charging Letter was issued but addressed violations of a “substantially different” nature from the apparent violation(s) at issue, BIS may still consider the apparent violation as a “first violation.” Lastly, when an acquiring firm takes “reasonable steps to uncover, correct, and disclose or cause to be disclosed to OEE [BIS’s Office of Export Enforcement] conduct that gave rise to violations by an acquired business before the acquisition, OEE typically will not take such violations into account as an aggravating factor in settling other violations by the acquiring firm.”