New Carrot, New Stick: Commerce Encourages Voluntary Self-Disclosures and Disclosures on Others for Potential Export Control Violations

4 min

On April 18, 2023, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) issued a policy memorandum clarifying the Office of Export Enforcement’s (OEE) policies encouraging both Voluntary Self-Disclosures (VSDs) and Disclosures Concerning Others of U.S. export control violations under the Export Administration Regulations (EAR). These updated interpretations, which became effective upon publication, build on the dual-track system rolled out by BIS in June 2022. Under that bifurcated approach, the majority of VSDs involving minor or technical violations are fast-tracked to resolution, while the agency consciously dedicates more time and resources to serious violations like those involving the protection of sensitive technology and national security concerns.

New Considerations on What and When to Disclose

As a new “stick” to incentivize the disclosure of significant violations of BIS regulations, the BIS Assistant Secretary for Export Enforcement Matthew Axelrod clarified in the policy memorandum that the failure to file a VSD—when a party’s export compliance program uncovers a significant export controls violation—will be considered an aggravating factor under BIS’s enforcement and settlement guidelines. See 15 C.F.R. Part 766, III.E at Supp. No. 1. Given this, exporting parties must carefully consider whether a significant violation exists, as well as the potential peril of not disclosing it.

Separately, as a “carrot” to industry, the policy memorandum also emphasized that cooperation with BIS may be used as a mitigating factor for any BIS enforcement action against the tipster in the future. For example, penalty mitigation may be obtained by providing the agency with tips of possible export control violations by others that result in BIS enforcement action and even for activities in which the tipster is completely uninvolved. Depending on the facts, this may be considered “exceptional cooperation with OEE” under BIS’s enforcement and settlement guidelines, meriting potential mitigation for a future enforcement action against the tipster. Moreover, when the disclosed conduct includes both export control and sanctions violations, the policy memorandum notes the possibility of monetary awards from FinCEN and the U.S. Department of Justice when successful enforcement actions result from the tip.

This recent pronouncement underscores the agency’s heightened concerns that sensitive goods and technology are surreptitiously being used by U.S. adversaries for “malign purposes.” The agency recognizes that certain items, such as semiconductors and advanced computing, have the power to transform the world’s balance of power. Hence, universities and businesses at the forefront of these technologies need export controls compliance systems that can effectively identify, prevent, and mitigate violations. Although these policy clarifications focus on high-stakes concerns, such as involving semiconductors and other emerging and transformative technologies, the policies apply equally across all dual-use items, services, and technologies controlled by the EAR. Thus, all manufacturers, exporters, and transportation and logistics providers engaging in export-controlled business activities should be mindful of these new policy interpretations.

New Highs in Enforcement

It should be a surprise to no one that these policy updates, which seek to incentivize disclosure and compliance enhancements, also come at a time of increased enforcement. Earlier this month, BIS issued the single largest standalone penalty in the agency’s history. On April 19, 2023, a $300 million civil penalty was levied for violations of the foreign direct product rule for goods produced overseas and sold to restricted Entity List parties.

Furthermore, this enforcement focus is not limited to businesses alone. BIS also recognizes that academia is a key compliance stakeholder. Given the high risk of diversion for sensitive and emerging technologies in the academic environment, universities are also targets for enforcement of export control requirements. This is exemplified by prior U.S. Department of Justice enforcement actions, such as against Huawei for theft of trade secrets, and, more broadly, by the current examination of such issues by Congress. See UC Berkeley Comments Before the Senate Judiciary Committee (April 18, 2023); UC Berkeley Comments Before the House Judiciary Committee (Mar. 8, 2023); see also U.S. Department of Justice Press Release (Feb. 13, 2020) (using professors working at research institutions as proxies); M. Axelrod Remarks (Jan. 28, 2022). Therefore, industry and academia alike should carefully consider these policy clarifications and the renewed focus on export control enforcement.

Venable’s International Trade and Logistics team is ready to answer any specific questions you may have regarding the scope of these new obligations, their impact on your export control activities, or potential disclosures you may be considering.