Administrative and Enforcement Provisions

<RULE> DEPARTMENT OF COMMERCE <SUBAGY>Bureau of Industry and Security</SUBAGY> <CFR>15 CFR Parts 764 and 766</CFR> <DEPDOC>[Docket No. 240911-0236]</DEPDOC> <RIN>RIN 0694-AJ84</RIN> <SUBJECT>Administrative and Enforcement Provisions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Bureau of Industry and Security, Department of Commerce. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> With this final rule, the Bureau of Industry and Security (BIS) amends the Export Administration Regulations (EAR) by making certain revisions and clarifications. This final rule revises provisions related to the voluntary self-disclosure process for exporters who believe that they may have violated the EAR, or any order, license or authorization issued thereunder. This final rule also provides clarified guidance on charging and penalty determinations in settlement of administrative enforcement cases. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective September 16, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> For general questions, contact Tracy Martin, Office of Export Enforcement, Bureau of Industry and Security, U.S. Department of Commerce at (202) 482-1208 or by email: <E T="03">Tracy.Martin@bis.doc.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">A. Background</HD> With this rule BIS revises § 764.5 of the EAR regarding the procedures for submitting voluntary self-disclosures (VSDs) and supplement No. 1 to part 766, which includes guidance on charging and penalty determinations in settlement of administrative enforcement cases. As discussed in more detail below, these revisions implement certain policies related to the VSD process that BIS has announced in policy memoranda since 2022, and also makes changes to how BIS calculates penalties in administrative cases. <HD SOURCE="HD2">1. Relevant Statutory Authority and Regulatory Framework</HD> On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included the Export Control Reform Act of 2018 (ECRA) (50 U.S.C. 4801-4852). Section 1760(c) of ECRA (50 U.S.C. 4819(c)) authorizes the Secretary of Commerce (Secretary) to impose civil penalties for violations of ECRA, its implementing regulations, or any order or license issued thereunder. Specifically, ECRA authorizes the Secretary to impose the following civil penalties for each violation: (A) A fine of not more than $300,000 or an amount that is twice the value of the transaction that is the basis of the violation with respect to which the penalty is imposed, whichever is greater. (B) Revocation of a license issued under [ECRA] to the person. (C) A prohibition on the person's ability to export, reexport, or in-country transfer any items controlled under [ECRA]. <FP>50 U.S.C. 4819(c)(1). The amount of the maximum civil penalty per violation under ECRA is subject to adjustment under the Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461) and is currently $364,992. See 15 CFR 6.3(c)(6). Within these limits, 50 U.S.C. 4819(c)(3) authorizes the Secretary to issue regulations to “provide standards for establishing levels of civil penalty . . . based upon factors such as the seriousness of the violation, the culpability of the violator, and such mitigating factors as the violator's record of cooperation with the Government in disclosing the violation.” The Secretary's authority under ECRA is delegated to BIS (see section 1781 of ECRA, 50 U.S.C. 4851) and is implemented through the EAR.</FP> Consistent with these authorities, BIS has implemented regulations providing standards for establishing levels of civil penalties in supplement No. 1 to part 766, titled “Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases” (“BIS Penalty Guidelines”). Last revised in the rule entitled “Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases” published in the <E T="04">Federal Register</E> on June 22, 2016 (81 FR 40506), the BIS Penalty Guidelines describe how BIS's Office of Export Enforcement (OEE), the organizational unit of BIS that is responsible for enforcing the provisions of the EAR, makes penalty determinations in administrative enforcement cases. The BIS Penalty Guidelines describe various factors—including aggravating, general, and mitigating factors—that OEE will consider in determining how to respond to apparent export violations in administrative cases. Specifically, the BIS Penalty Guidelines outline how OEE calculates monetary penalties for a particular violation, which includes determination of the relevant base penalty, and how the various aggravating, general, and mitigating factors justify an upward or downward departure from that base penalty. As discussed in the BIS Penalty Guidelines, the presence of significant aggravating factors may lead OEE to consider the conduct to be egregious, which may result in considerably higher monetary penalties. Conversely, the presence of significant mitigating factors may result in a lower monetary penalty. One factor given significant weight in the BIS Penalty Guidelines is whether a party submitted a VSD regarding the violation. BIS encourages parties who may have violated the EAR to submit a VSD and views VSDs as a strong indication of a party's commitment to U.S. export control compliance. Section 764.5 of the EAR establishes BIS's general policy and procedures for disclosing potential violations of ECRA and the EAR to BIS. Specifically, BIS encourages the submission of a VSD if a potential violation of the EAR is discovered. <HD SOURCE="HD2">2. BIS Enforcement Policy Memoranda</HD> Beginning in 2022, BIS issued a series of publicly available memoranda describing policy changes to strengthen its administrative enforcement program and to encourage companies, universities, and individuals to submit VSDs. Such disclosures can provide BIS with helpful information from industry about export compliance practices, as well as information about other potential violations. These memoranda include the following: (1) “Further Strengthening Our Administrative Enforcement Program,” dated June 30, 2022 ( <E T="03">https://www.bis.gov/sites/default/files/files/Administrative%20Enforcement%20Memo.pdf</E> ) (the “2022 Policy Memorandum”); (2) “Clarifying Our Policy Regarding Voluntary Self-Disclosures and Disclosures Concerning Others,” dated April 18, 2023 ( <E T="03">https://www.bis.gov/sites/default/files/files/VSD%20Policy%20Memo%20%2804.18.2023%29.pdf</E> ) (the “2023 Policy Memorandum”); and (3) “Further Enhancements to Our Voluntary Self-Disclosure Process,” dated January 16, 2024 ( <E T="03">https://www.bis.gov/sites/default/files/files/VSD%20MEMO.pdf</E> ) (the “2024 Policy Memorandum”) (collectively, the “Policy Memoranda”). The Policy Memoranda emphasize the importance of administrative enforcement measures to mitigate the threat that sensitive technologies will fall into adversarial hands and focus on the deterrent effect of imposing significantly higher penalties for egregious violations that affect national security. So that OEE can focus its limited resources on more serious cases, the Policy Memoranda also highlight OEE's desire to resolve less serious violations as quickly as possible—with lower penalties or no penalty where appropriate—and announce new policies making it easier to submit disclosures and expanding the beneficial effect of submitting a VSD. Policy changes that were announced in the Policy Memoranda include: (1) the establishment of a “fast track” disclosure process for minor or technical violations and allowing for companies to submit an abbreviated narrative account in connection with such disclosures that contains less detail than required by § 764.5; (2) the availability of electronic submission of VSDs via email; (3) using non-monetary penalties to resolve cases that are not egregious and have not resulted in national security harm, but rise above the level of cases warranting a warning letter; (4) clarifying that OEE will consider it an aggravating factor for purposes of determining a potential penalty if a party identifies that it committed a possible violation and then chooses not to disclose it; and (5) clarifying and simplifying BIS's process for handling requests to take corrective action for unlawfully exported items at issue in a VSD that would otherwise be prohibited by § 764.2(e) The substance of the Policy Memoranda and their codification into regulations are firmly within the statutory authority granted by section 1760(c) of ECRA (50 U.S.C. 4819(c)). The Policy Memoranda were developed in accordance with the legislative framework, which empowers the Secretary to implement and enforce policies in this area. By translating these memoranda into formal regulations, BIS can ensure that the directives are legally binding and consistent with the legislative intent, thereby enhancing their effectiveness and enforceability while adhering to the statutory requirements. <HD SOURCE="HD1">B. Purpose of This Final Rule</HD> The primary purpose of this final rule is twofold: first, to incorporate into the EAR the various policies announced in the Policy Memoranda, which are designed to encourage industry and academia to submit VSDs and to provide for efficient resolution of cases involving less serious violations, and second, to revise the BIS Penalty Guidelines to change how OEE calculates the base penalty in administrative cases, and how it applies various factors to the base penalty to determine the final penalty. With respect to the changes implementing the elements of the Policy Memoranda, BIS is revising § 764.5 (regarding voluntary self-disclosure) and the BIS Penalty Guidelines ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 102k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━