The U.S. Commerce Department’s Bureau of Industry and Security (BIS) has announced significant updates to the Export Administration Regulations (EAR), focusing on its policies surrounding Voluntary Self-Disclosure (VSD) and the penalty determination process for export violations. These changes give BIS greater flexibility in determining penalties and simplify the process for businesses submitting VSDs. The announcement also describes modifications to how the Office of Export Enforcement (OEE) calculates base penalties and arrives at the final outcomes.
As part of its broader efforts to strengthen enforcement, BIS has also appointed Raj Parekh as the agency’s first-ever Chief of Corporate Enforcement. This position will help coordinate enforcement actions across agencies and departments, including the Department of Justice, BIS’ special agents, and other important positions.
These updates are particularly significant in today’s global trade environment, where export compliance is vital, and the risk of violations due to rapidly changing regulations is high. The updates aim to provide clarity while strengthening the BIS’s ability to penalize violators. Organizations require robust export compliance solutions and voluntary self-disclosure (VSD) procedures to avoid severe enforcement actions for violating sanctions and trade restrictions.
So, we’ll be unpacking this latest update and demonstrating how organizations can strengthen their process to ensure ongoing compliance — which is now mission-critical.
Key Takeaways
- BIS recently announced changes to voluntary self-disclosure and penalty guidelines that will have a significant impact on many organizations.
- A new dual-track process allows for faster processing of minor VSD reports by separating them from other cases.
- Several processes related to penalties have been updated, giving BIS enforcement actions more flexibility in responding accurately to each case.
- Organizations must adopt effective export compliance solutions and voluntary self-disclosure procedures to minimize export violations risk and stay compliant.
A Closer Look at the Latest Updates to BIS Regulations
The final rule codifies into law a series of policy changes by the OEE that were first articulated in memoranda publicly issued by BIS beginning in 2022, with the purpose of encouraging VSDs and strengthening administrative enforcement of export control violations. Furthermore, these changes emphasize the need for export compliance software and supporting programs and personnel to successfully comply with the new policies.
Let’s see what these BIS updates entail.
Key Enhancements to the Voluntary Self-Disclosure (VSD) Process
A Voluntary Self-Disclosure is a process where businesses or individuals report their own potential violations of export regulations before it has been discovered by the relevant enforcement agency.
While businesses should strive for 100% compliance, in the current complex web of global trade, something could inadvertently fall through the cracks. Read a previous article to understand the importance of VSDs and how to submit one.
Typically, a VSD can reduce the risk of more severe enforcement actions, helping organizations receive more lenient penalties. However, to enjoy the benefits of a VSD, the disclosure has to be voluntary, timely, detailed, and accurate.
Any changes to the established VSD process can have far-reaching impact on businesses, and this latest update is no exception. The key changes include:
- Dual-Track Processing of VSDs: The new dual-track policy stipulates that minor or technical violations will be resolved within 60 days, either through no-action or warning letters. At the same time, more significant violations will undergo deeper review, involving both OEE agents and enforcement attorneys to ensure closer scrutiny. Previously, the single-track process could delay addressing minor VSDs, as the agency prioritized larger infractions.
- Streamlined Submission Process for Minor Violations: A simplified process for submitting a VSD has been created for organizations reporting a minor or technical violation. This streamlined process includes the ability to bundle multiple infractions into a single quarterly submission.
- Third-Party Notification: The new policy allows third-party notification, meaning that any individual or organization, including competitors, can now report potential export violations to the OEE. This amendment clarifies that disclosures about other entities, when they lead to enforcement action, are considered “exceptional cooperation.” This designation benefits the reporting party by potentially reducing penalties for any future minor violations they might face, providing a compliance incentive for businesses to report infractions by competitors or other parties.
- VSD Non-Submission as Aggravating Factor: The new changes make it clear that deciding not to disclose an identified infraction is considered an aggravating factor. This means that it will weigh heavily when determining administrative penalties and a business or individual may face stricter penalties for choosing not to report.
Changes to the BIS Penalty Guidelines for Export Compliance Violations
One aspect of the latest announcement is updates to BIS Penalty Guidelines, which can have major implications for exporters. New changes to BIS penalties include the following:
- The OEE has been given greater discretion in determining penalties with the removal of base penalty caps and final penalty caps. This means that the penalties are now tied to the transaction value and other factors surrounding the violation. For minor, non-egregious violations this may be beneficial, but egregious violations may incur much steeper penalties.
- The rule change removes the provision for violators to assign a portion of their monetary fine towards the cost of enhancing their compliance program. BIS has taken the view that organizations are responsible for ensuring they have robust export compliance processes as such should not be rewarded for making remedial investments after an enforcement action has been issued.
- Human rights abuses have been added as an aggravating factor that elevates the seriousness of certain violations.
- Non-monetary resolutions have also been formalized for cases that involve non-egregious conduct yet are above the typical level of warning letters.
Understanding these changes and how they will inform your export compliance risk and voluntary self-disclosure (VSD) management is of the utmost importance.
Appointment of Raj Parekh, first-ever Chief of Corporate Enforcement
The announcement of Raj Parekh as the first Chief of Corporate Enforcement (CCE) at the BIS follows a similar step taken by the Department of Justice (DOJ) in 2023. This move signals that the agency is gearing up for stronger enforcements actions.
Raj Parekh previously served in the United States Attorney’s Office for the Eastern District of Virginia (EDVA) as Acting United States Attorney and four years as First Assistant United States Attorney. During this time, he led a team of more than 300 prosecutors and litigators.
In his new role, Mr. Parekh will bring his knowledge and experience of federal law to the BIS to coordinate multi-agency export compliance enforcement. This newly created position is set to help coordinate actions across agencies and manage key aspects of export enforcement.
What is the Impact of the BIS Updates on Businesses?
The recent reforms introduced by BIS have several significant export compliance implications for businesses:
- With the refinement of VSD processes, BIS can now more efficiently allocate resources to thoroughly review significant disclosures. This means businesses need to adopt careful and comprehensive procedures to evaluate when and how a VSD should be submitted, as missteps could lead to more severe consequences than previously encountered.
- The streamlined dual-track system reduces administrative burdens and costs, as companies can now expect quicker resolutions for minor or technical violations.
- Penalties are now more uncertain and can vary widely based on the specifics of each case. Businesses may see either an increase or reduction in penalties depending on the severity of the infraction, aggravating factors, and export compliance history.
- The removal of compliance spend credit from the final monetary fine which will increase the financial cost of major fines.
- The introduction of third-party notification and the benefits it awards the reporting party provides a significant compliance incentive for businesses to report infractions by competitors or other parties. This adds to competitive risk.
- With the appointment of a Chief of Corporate Enforcement, businesses should expect increased scrutiny and corporate investigations.
The overall implication of these changes is a shift towards higher accountability in corporate enforcement, especially when it comes to human rights and foreign policy objectives. While for minor infractions, these changes can work in your favor, they also necessitate more rigorous voluntary self-disclosure management strategies and enhanced export compliance processes to align with the updated guidelines.
Investing in Export Compliance Software and Refining Due Diligence Processes is Mission Critical
It’s more important than ever to have the right export compliance solutions in place to streamline key due diligence activities and prevent export control violations.
As Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod said, “The stakes of ensuring that we have the proper tools to deter export violations and – when that deterrence fails – to hold violators accountable could not be higher.”
Robust compliance software with advanced denied party screening capabilities, comprehensive export license management tools, detailed reporting features, and other risk mitigating features can go far in protecting your organization. Let’s break down practical steps to help you stay compliant.
How Businesses Can Adapt to the Latest BIS VSD Policy Changes
Every organization has its own needs, capabilities, and compliance requirements. However, here are key steps to adjust due diligence workflows for the BIS policy changes:
- Reassess Internal Export Compliance Processes: The first step in adapting is to thoroughly assess current export compliance requirements and procedures, including the newly updated BIS VSD policies. Review what tools and platforms are currently in use—are they comprehensive enough to handle the new and existing regulatory demands? Evaluating the framework in place will help in identifying potential gaps in compliance and reveal areas where improvements or updates may be necessary to meet the updated guidelines and avoid penalties.
- Establish VSD Reporting Procedures: Create a system to determine when and how to file VSDs, especially under the dual-track process for minor and major violations. With increased discretion in penalties, businesses must be proactive in mitigating risks, as non-compliance or failure to submit VSDs can lead to heavier penalties.
- Optimize Compliance Programs: Adopt advanced export compliance software to screen transactions for risks, prevent export violations, and identify lapses. Additionally, best-in-class solutions will generate thorough reports of due diligence activities, ensuring timely and effective VSD submissions when needed.
- Enhance Staff Training: Invest in compliance training to ensure employees, particularly your compliance team, are well-versed in the new VSD changes and their potential consequences. They must understand how to identify and differentiate between minor and significant violations. This knowledge is critical, as submitting inaccurate or incomplete voluntary disclosures can lead to heavier consequences.
- Keep Up with Regulatory Changes: Staying updated on the evolving regulatory landscape is essential to remain compliant and prepared. Regulatory requirements can change frequently, so it’s crucial to regularly monitor updates from BIS and other relevant authorities. Use automated compliance tools or sign up with trade content providers to receive real-time updates and alerts for any new changes that may impact your operations.
Leverage Descartes for Effective Export Compliance and VSD Management
The BIS updates serve as a clear reminder of the agency’s commitment to enforcing export regulations, with a willingness to impose harsher penalties to drive compliance. The changes to the voluntary self-disclosure (VSD) policy and penalty guidelines introduce both opportunities and risks for businesses. While the streamlined processes make it easier for companies to submit VSDs and mitigate penalties, the updates also raise the stakes for those who fail to comply, especially in cases involving significant violations.
Strengthening internal controls and utilizing technology are essential to navigate this evolving regulatory environment. Organizations like yours can leverage Descartes’ robust export compliance software to optimize their compliance programs and mitigate risks proactively.
Our solutions provide real-time regulatory updates, seamless integration with business systems, and audit ready reports to demonstrate your due diligence efforts. We also offer enhanced forced labor risk mitigation capabilities to prevent trade violations.
Ready to strengthen your export compliance program and protect your business? Contact us today or book a demo to take a look at our compliance technology.
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