BRI Announces “Significant Policy Changes” to Strengthen Enforcement of U.S. Export Controls – Export Controls and Trade and Investment Sanctions
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On June 30, 2022, Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod released a memorandum that outlines four “significant policy changes” that the Office of Industry and Security (“BIS”) of the U.S. Department of Commerce made to strengthen its enforcement of U.S. export controls (the “
Some of the announced “policy changes” are specifically aimed at increasing penalties (for examplein “flagrant” cases) and thus to “create[e] a strong deterrent” for those considering circumventing US export controls. Similarly, the elimination of “No Allowed, No Denied” rules (discussed below) is intended to induce others to “modify” their behavior to avoid similar violations. Other measures announced in the Axelrod Memorandum (for examplethe use of non-monetary settlements and the two-track treatment of voluntary declarations) seem designed to improve efficiency and promote the adoption of adequate internal compliance measures.
Given the extent of the extension of US export controls applicable to Russia and Belarus following the war in Ukraine, among other recent developments, companies that may be exposed to US controls in export would be well advised to assess how announced policy changes might impact them.
The Axelrod memorandum identifies four areas where the BIS will seek to strengthen its enforcement practices. We summarize them below.
Imposition of “significantly higher penalties”
The BIS says it will use “all” of its existing statutory and regulatory authorities to “ensure” that “serious sanctions” are imposed for “the most serious administrative violations”. Axelrod’s memorandum outlines two ways the BRI will pursue this goal:
- FirstBIS will “aggressively and consistently” apply Supplement No. 1 to Part 766 – Guidance on the Determination of Charges and Sanctions in Resolving Administrative Enforcement Cases (the “BIS Settlement Guidelines”). Specifically, the memorandum suggests that if the criteria for a “gross” violation are met, BIS will pursue the most significant penalties recommended in the guidelines for such violations. The BIS Settlement Guidelines describe how the Office of Export Enforcement within BIS determines penalties in the settlement of administrative enforcement civil cases under Part 764 of the Administration Rules. of exports (“Export Administration Regulations”).EAR”). Since cases involving EAR violations are resolved through settlement with BIS far more often than through trial, BIS’s approach to enforcing settlement guidelines BIS is important to US export control policy in general.
- Second, the BIS “will ensure that existing aggravating penalty factors are applied more evenly to increase the amount of penalties, where appropriate”, with the express aim of “imposing sufficiently severe sanctions”. Notably, the BRI suggests that it will aim to use aggravating factors to increase penalties in the same way that mitigating factors are currently used to reduce penalties. The BRI identifies three policy reasons for this approach, e.: (i) ensure that the final settlement “adequately reflects[s] the harm to national security caused by the violations”; (ii) “create a strong deterrent for those considering circumventing” US export controls; and (iii) reward companies that have implemented a “strong compliance program” by “maintaining a level playing field”. . . .”
In summary, while BIS will apply the existing criteria under the BIS Settlement Guidelines, Axelrod’s memorandum suggests that BIS will take a tougher line on enforcement where the criteria for “flagrant” violations or enhanced penalties are met.
Use of non-monetary resolutions for less serious violations
BIS has historically taken different approaches to enforcement depending on the perceived seriousness of violations. Less serious violations of U.S. export controls may have resulted in the issuance of a “Warning Letter” or a “No Action Letter”, which generally require no specific action on the part of the exporter. target company. The most serious offenses (that’s to say, “egregious” cases) have resulted in prosecutions or the imposition of significant civil penalties. Between less serious and more serious cases, BIS has always pursued civil penalties for non-“flagrant” violations that warrant an administrative response more than a warning letter or no-action letter.
Axelrod’s memo notes that in the future, the BIS will instead offer non-monetary settlement arrangements focused on taking adequate compliance measures in such non-serious cases. The BRI notes that instead of requiring monetary penalties, such agreements “will require relief through the imposition of a conditional denial order with certain conditions, such as training and compliance requirements. . . .” Additionally, the target company will be required to “accept responsibility, admit its conduct, and commit to enhancing compliance measures.”
In practice, a number of companies may fall into the “middle” position of having committed non-“flagrant” violations of US export controls. The impact of the BIS’s decision to focus on non-monetary settlement can therefore be far-reaching. It also generally reinforces the importance of ensuring that companies potentially at risk from US export controls have appropriate policies and protocols in place.
Elimination of “No Allowed, No Refused” Rules
Many companies have historically settled allegations of U.S. export control violations with the BIS in so-called “No Admit, No Deny” settlements where the company, for example, agrees to pay a civil penalty but does not admit any wrongdoing. Axelrod’s memorandum explicitly states that the BIS is “terminating” its use of such settlement.
In practice, ending the use of these regulations could have potential implications outside the context of US export controls, for examplecompanies should determine whether a formal admission of U.S. export control violations may violate representations or warranties or have other implications under contracts and/or have implications for insurance coverage.
Two-track treatment of voluntary self-disclosures
Voluntary self-disclosures (“VOD”) refer to a company self-reporting potential violations of US export controls to the BRI. Companies make VODs to obtain credit under BIS settlement guidelines for cooperation and redress, among other reasons, and to obtain a corresponding reduction in any civil penalties imposed. Axelrod’s memo states that in the future, BIS will triage VSDs to increase efficiency and focus its limited resources on the most serious cases: (i) VSDs that involve “minor or technical violations ” will be resolved on a “fast track”. » within 60 days; (ii) in cases involving “potentially more serious violations,” BIS will appoint a field officer and attorney from the BIS Office of Legal Counsel; (iii) for “the most serious cases”, BIS will do as indicated in (ii), and the Counterintelligence and Export Control Section of the United States Department of Justice will also appoint an attorney.
In summary, the triage approach described above can result in “faster realization,” as the BRI indicates. However, it may also place more emphasis on the importance of a company’s analysis and the rigor of its internal review or investigation in support of a VOD.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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