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Rule2024-21013

Administrative and Enforcement Provisions

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Published

September 16, 2024

Effective

September 16, 2024

Issuing agencies

Commerce DepartmentIndustry and Security Bureau

Abstract

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.

Full Text

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<title>Federal Register, Volume 89 Issue 179 (Monday, September 16, 2024)</title>
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[Federal Register Volume 89, Number 179 (Monday, September 16, 2024)]
[Rules and Regulations]
[Pages 75477-75489]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21013]

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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 764 and 766

[Docket No. 240911-0236]
RIN 0694-AJ84

Administrative and Enforcement Provisions

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Final rule.

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SUMMARY: 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.

DATES: This rule is effective September 16, 2024.

FOR FURTHER INFORMATION CONTACT: 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:
<a href="/cdn-cgi/l/email-protection#8adef8ebe9f3a4c7ebf8fee3e4cae8e3f9a4eee5e9a4ede5fc">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

A. Background

With this rule BIS revises Sec. 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.

1. Relevant Statutory Authority and Regulatory Framework

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].

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.
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 Federal Register 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

[[Page 75478]]

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.

2. BIS Enforcement Policy Memoranda

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 (<a href="https://www.bis.gov/sites/default/files/files/Administrative%20Enforcement%20Memo.pdf">https://www.bis.gov/sites/default/files/files/Administrative%20Enforcement%20Memo.pdf</a>) (the
``2022 Policy Memorandum''); (2) ``Clarifying Our Policy Regarding
Voluntary Self-Disclosures and Disclosures Concerning Others,'' dated
April 18, 2023 (<a href="https://www.bis.gov/sites/default/files/files/VSD%20Policy%20Memo%20%2804.18.2023%29.pdf">https://www.bis.gov/sites/default/files/files/VSD%20Policy%20Memo%20%2804.18.2023%29.pdf</a>) (the ``2023 Policy
Memorandum''); and (3) ``Further Enhancements to Our Voluntary Self-
Disclosure Process,'' dated January 16, 2024 (<a href="https://www.bis.gov/sites/default/files/files/VSD%20MEMO.pdf">https://www.bis.gov/sites/default/files/files/VSD%20MEMO.pdf</a>) (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 Sec. 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
Sec. 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.

B. Purpose of This Final Rule

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 Sec. 764.5 (regarding voluntary self-
disclosure) and the BIS Penalty Guidelines. BIS is incorporating into
the EAR relevant elements from the Policy Memoranda so that the
regulations contain all relevant policies and procedures for submitting
VSDs. As a result, industry will not be required to look to multiple
sources to understand OEE's procedures and expectations regarding the
submission of VSDs. BIS is also making clear in the BIS Penalty
Guidelines that for violations of a lower value and with minimal
aggravating factors, OEE's preference is to impose non-monetary
penalties to shore up a company's compliance program, which is more
effective in these types of cases.
With respect to the changes to the way OEE calculates penalties,
BIS is revising the BIS Penalty Guidelines so that potential penalties
more appropriately reflect the seriousness of the offense by linking
that determination directly to transaction value and other
circumstances pertaining to a violation. These Penalty Guideline
changes do so primarily for two reasons. First, BIS has identified
scenarios in which the previous BIS Penalty Guidelines, which applied
schedule amounts and caps well below the statutory limitations to
penalties for non-egregious cases, produce a base penalty that is
disproportionately low compared to the transaction value, and therefore
is insufficient to serve as a deterrent or incentive for companies to
invest properly in export compliance. For example, under the previous
rule, the penalty for a non-egregious violation disclosed through a VSD
for a transaction valued at $100 million would be capped at $125,000.
In this rule, BIS is removing from the BIS Penalty Guidelines the caps
that previously existed for non-egregious cases. BIS will continue to
take mitigating factors into account, as described in the revised BIS
Penalty Guidelines, and to apply an appropriate reduction to the base
penalty if circumstances warrant it.
Second, the previous BIS Penalty Guidelines provided specific
percentage ranges for reductions associated with certain mitigating
factors (but not all mitigating factors), while it provided no such
ranges for aggravating or general factors. The inclusion of specific
percentage ranges for some mitigating factors and not for other factors
led parties to incorrect assumptions about the range of reduction to
which they were entitled. For example, the previous BIS Penalty
Guidelines provided for a reduction of the base penalty amount of up to
25% for first time violations; however, a party's first offense might
occur together with aggravating factors or with other mitigating
factors that, when taken into account, indicate that a penalty based on
a smaller or larger reduction to the base penalty is appropriate. Since
it is impossible to associate potential ranges for reductions or
increases with all mitigating and aggravating factors that would
appropriately capture every potential combination of facts and
circumstances associated with a violation, in this rule BIS is removing
from the BIS Penalty Guidelines all specific ranges for

[[Page 75479]]

potential reduction. With these revisions, OEE is making clear that the
civil monetary penalty will be adjusted (up or down) to reflect the
applicable factors for administrative action set forth in the BIS
Penalty Guidelines. The factors may result in a penalty amount that is
lower or higher than the base penalty amount, depending upon whether
they are aggravating or mitigating and how they, in the discretion of
OEE, apply in totality in a particular case. As before, aggravating
factors will not be used to increase the base penalty beyond the limits
established in ECRA.

C. Revisions to Sec. 764.5 (Voluntary Self-Disclosures)

1. Addition of Non-Disclosure as an Aggravating Factor

Section 764.5 did not previously include as an aggravating factor,
the failure of a party to submit a voluntary disclosure. In this final
rule, and consistent with the policy outlined in the 2023 Policy
Memorandum, BIS revises paragraph (a) of Sec. 764.5 to state that OEE
will consider a deliberate decision by a firm (as that term is defined
in Sec. 772.1 of the EAR) not to disclose a significant apparent
violation to be an aggravating factor when determining what
administrative sanctions, if any, will be sought. A deliberate decision
not to disclose occurs when a firm uncovers a significant apparent
violation that it has committed but then chooses not to file a VSD.
This new rule effectively enhances the mitigating effect of voluntary
disclosure, particularly in serious cases. For example, under the
previous guidelines, if a firm identified a significant apparent
violation and chose not to disclose it to OEE, the company was only
choosing to forgo the mitigation credit offered under the guidelines.
Now, because a deliberate decision not to disclose is an aggravating
factor, if a firm chooses not to disclose, it not only forgoes the
mitigation credit, but also faces the possibility that BIS will further
increase the penalty.
This change also reflects the importance of a firm's deliberate
decision not to disclose a significant apparent violation to OEE's
assessment of the strength of the company's commitment to compliance.
This revision makes clear that OEE will include in its consideration of
a firm's commitment to compliance whether the company made a decision
not to disclose significant apparent violations. It also reflects that
the deliberate non-disclosure of a significant apparent violation may
compound the harm to U.S. national security or foreign policy interests
by preventing the government from taking steps to mitigate the national
security consequences of the violation in a manner that a firm could
not. This revision allows OEE to impose penalties--or to charge certain
conduct that may have otherwise been treated with a warning letter--in
such cases that are appropriate to deter future noncompliance and
encourage voluntary disclosure.

2. Addition of Dual Track Process for Processing VSDs

Section 764.5 previously had only one process for handling all
VSDs, regardless of whether the violation at issue in the VSD was
significant, or minor. This final rule revises Sec. 764.5 by adding a
new paragraph (c) regarding disclosures involving minor or technical
violations. The previous paragraph (c), now paragraph (d), is revised
to focus on the portion of the dual-track system that relates to
significant violations. Former paragraphs (d) through (f) are
redesignated as paragraphs (e) through (g) and are also revised to
reflect the dual-track system. The redesignation and changes to these
paragraphs are explained below.
New paragraph (c) of Sec. 764.5, titled ``Voluntary Self-
Disclosures involving minor or technical violations,'' explains the
process for submitting VSDs involving minor or technical violations.
Paragraph (c)(1) explains that a minor or technical violation is one
that does not include any aggravating factors, as defined in the BIS
Penalty Guidelines, and includes several examples. Paragraph (c)(2)
provides guidance on submitting an abbreviated narrative for a VSD
involving minor or technical violations, including where to submit the
abbreviated narrative report and what information to include, and
provides that the Director of OEE may require a full narrative report
pursuant to new paragraph (d)(3) if OEE suspects that aggravating
factors are present. Paragraph (c)(3) authorizes parties to bundle the
submission of multiple minor or technical violations into one
overarching submission if the violations occurred within the preceding
quarter. This change allows for disclosures of minor or technical
violations to be bundled into a single VSD submission on a quarterly
basis using the abbreviated narrative account process as described
elsewhere in this rule. This revision will significantly reduce the
workload of companies submitting minor or technical violations.
New paragraph (d), which is now titled ``Voluntary Self-Disclosures
involving significant violations,'' explains the process for
voluntarily disclosing a significant violation. This paragraph largely
retains the language of former paragraph (c) regarding how to submit
the disclosure, what to include in the narrative, the types of
supporting documentation to include, deadlines regarding submitting
information, and the related extension request process. BIS has added
the instruction that a significant violation is one that involves one
or more of the aggravating factors in the BIS Penalty Guidelines, and
that parties who are unsure whether their disclosure involves a minor
or technical violation or a significant violation should follow the
procedures for disclosing a significant violation.
Former paragraph (d), now paragraph (e) of Sec. 764.5, has been
renamed from ``Action by the Office of Export Enforcement'' to ``Dual-
track processing of Voluntary Self-Disclosures by the Office of Export
Enforcement'' for consistency with the dual-track approach to VSDs. In
paragraph (e)(1), BIS explains that OEE will generally resolve VSDs
involving minor or technical violations within 60 days, either by
informing the submitter that it intends to take no action or by issuing
a warning letter. In paragraph (e)(2), BIS explains that for VSDs that
indicate significant violations, BIS will conduct an investigation and,
as quickly as the facts and circumstances permit, take one of five
possible actions. The five potential actions correspond to the possible
actions BIS could take under the former paragraph (d).
BIS has made conforming changes throughout these paragraphs to
reflect the updated paragraph numbering, as well as minor revisions for
clarity. These include consistently using the term ``full narrative''
instead of ``narrative account'' to describe the detailed submission
that follows an initial notification when using the process in
paragraph (d)(2), adding packing lists to the examples of supporting
documentation that may be appropriate to include with a full narrative,
and adding contact information for email submissions.

3. Revisions to Paragraph Regarding Treatment of Unlawfully Exported
Items

Former paragraph (f) is now moved to paragraph (g) to accommodate
the addition of new paragraph (c). Consistent with announcements in the
2024 Policy Memorandum, this paragraph has been revised to add a clause
explaining that any person (not just the party submitting a VSD) may
notify the Director of OEE that a violation has occurred and then
request

[[Page 75480]]

permission from the Office of Exporter Services to engage in activities
described in Sec. 764.2(e) that would otherwise be prohibited.
Previously, this paragraph limited such requests for permission to
parties who submitted a VSD. This change allows parties in possession
of or with an interest in an item involved in a VSD that would
otherwise be subject to the prohibitions in Sec. 764.2(e) to submit a
request to OEE even if they did not submit a VSD.
BIS also added paragraph (g)(1)(iii), which explains that in order
to return to the United States an item that has been unlawfully
exported and disclosed under Sec. 764.5, a person is only required to
notify the Director of OEE. BIS adds this language to clarify that OEE
authorizes the return of any unlawfully exported item to the United
States and to reduce the burden on industry and BIS by removing the
need for companies to submit and OEE to review such requests for
authorization.
This section also adds a new paragraph detailing how to submit
requests for authorization and that explains what information is
required to process requests, which includes: the nature of the
violation including when and how the violations occurred; description,
quantity, value in U.S. dollars and Export Control Classification
Number (ECCN) or other classification of the items involved; license
reference numbers, if applicable; identities and addresses of all
individuals and organizations subject to the request; the scope of the
request specifying the Sec. 764.2(e) activities, including end-use;
and point of contact.
Paragraph (g)(4) regarding authorization for reexports of items
subject to a VSD is revised to clarify that such authorization is
required for transfers as well. Paragraph (4) is revised to include
reference to the notifications provided for in the revisions to the
note to paragraph (g)(1)(ii) discussed above. BIS also adds language to
this paragraph instructing applicants to include with any request for
authorization under this paragraph a copy of the relevant VSD or
notification. A new note to paragraph (g)(4) clarifies that a party may
submit a request under this section to obtain permission to use a
license exception or No License Required (NLR) designation so long as
the reexport or transfer at issue otherwise meets the terms and
conditions of the relevant license exception or the NLR designation.
Finally, this additional paragraph (g) clarifies that Automated Export
System (AES) filing errors, where there is no other violation of the
EAR, only require notification to OEE under paragraphs (g)(1)(i) and
(ii) and do not require additional authorization under this paragraph
(g). Paragraph (g) also clarifies that in such cases, a party must
correct the AES filing with the Census Bureau before proceeding with
activities subject to the EAR, provided the activities meet any EAR
requirements. Removing authorization requests related to AES filing
errors will save exporter and government resources. If a report
includes any other violation, such as failure to obtain a required
license, authorization under section 764 is required.

D. Revisions to the BIS Penalty Guidelines (Supplement No. 1 to Part
766)

This rule makes several changes to the BIS Penalty Guidelines in
supplement no. 1 to part 766 of the EAR, described in greater detail
below. These include updates to the statutory references, changes to
the penalty calculations and to certain mitigating or aggravating
factors, the addition of non-monetary settlements as an action that BIS
may take, and the removal of language relating to the application of
penalty amounts toward compliance program enhancements.

1. Updates to Statutory References

This rule revises the BIS Penalty Guidelines to replace references
to outdated statutes. References to the Export Administration Act of
1979 (EAA) are replaced by references to ECRA; additionally, references
to the ``Federal Civil Penalties Inflation Adjustment Act of 1990''
(FPIAA 1990) are replaced by the ``Federal Civil Penalties Inflation
Adjustment Act Improvements Act of 2015'' (FCPIAAIA 2015). These
changes are made to reflect BIS's current statutory authorities.

2. Removal of Applicable Schedule Amounts From the BIS Penalty
Guidelines

Under section I ``Definitions,'' BIS is removing the definition of
``applicable schedule amount'' completely. BIS is also removing the
corresponding references in the base penalty matrix and in the
explanation of the base penalty calculation in non-egregious cases in
section IV.B. This change will make administrative penalties more
straightforward and in line with the overall value of the transaction
at issue. Previously, these schedule amounts limited the amount of the
penalty in situations where they applied. For example, penalties for a
transaction valued at $170,000 or more were capped at $250,000. OEE is
removing this limitation so that it can impose penalties with
sufficient deterrent effect in situations where transaction values are
high.

3. Changes to Section II To Clarify and Expand the Range of Possible
OEE Responses to Apparent Violations of the EAR

a. Addition of Paragraph (II)(C) for the Provision of Non-Monetary
Penalties
In the 2022 Policy Memorandum, BIS introduced non-monetary
resolutions as a new type of penalty response to resolve enforcement
cases that involve non-egregious conduct and that have not resulted in
serious national security harm, but remain serious enough to warrant
more than a warning letter or no-action letter. Such resolutions
require remediation through the imposition of a suspended denial order
with certain conditions, such as training and compliance requirements,
as appropriate, to mitigate harm from past violations and prevent
future ones. Non-monetary resolutions give OEE the flexibility to
impose sanctions that require a company to improve its compliance
program even when a monetary penalty would not be appropriate or the
value of such a penalty would be too low to have a deterrent effect. In
this rule, BIS formalizes non-monetary resolutions as an enforcement
response by listing it under paragraph (II)(D) of the BIS Penalty
Guidelines. The subsequent subparagraphs under section II to supplement
no. 1 are renumbered paragraph (II)(E) through new paragraph (II)(H).
b. Removal of Application of Penalty Toward Compliance Enhancements in
OEE Consideration of Suspended or Deferred Penalties.
Paragraphs (II)(G) and (II)(H), formerly paragraphs (II)(F) and
(II)(G), are revised to remove reference to the practice of allowing a
Respondent to apply a portion of a suspended or deferred penalty toward
compliance program enhancements. This change reflects BIS's view that
companies should independently make appropriate investments in their
compliance program sufficient to identify and prevent potential
violations, and generally should not expect to receive credit for the
cost of making such investments against administrative penalties for
past misconduct.

4. Changes to Section III, ``Factors Affecting Administrative
Sanctions''

BIS also makes several changes to section III regarding
aggravating, general, and mitigating factors affecting

[[Page 75481]]

administrative sanctions. These changes include revising the foreign
policy considerations in paragraph (III)(C)(2) and adding a paragraph
(N) under section III. Paragraphs (III)(D) through the new paragraph
(III)(N) and their headings and content are changed accordingly and
redesignated to accommodate this additional paragraph (N). The
revisions, redesignation, and changes to these paragraphs are explained
below.
a. Amending Factor C To Include OEE's Consideration of Conduct Enabling
Human Rights Abuses
ECRA authorizes BIS to implement export controls ``to carry out the
foreign policy of the United States, including the protection of human
rights and the promotion of democracy,'' 50 U.S.C. 4811(2)(D).
Consistent with this authority, and in line with U.S. foreign policy
objectives, BIS is amending Aggravating Factor C, Harm to Regulatory
Program Objectives, at Paragraph (III)(C)(2) to include the enabling of
human rights abuses as a specific consideration when BIS assesses the
potential impact of an apparent violation on U.S. foreign policy
objectives.
b. Addition of New Aggravating Factor for Deliberate Failure To
Disclose a Significant Apparent Violation
This rule adds a new aggravating factor at paragraph (III)(D),
titled ``Failure to disclose a significant apparent violation,'' This
new paragraph (III)(D) is added to clarify that OEE will consider a
deliberate decision by a firm (as that term is defined in Sec. 772.1
of the EAR) not to disclose a significant apparent violation to be an
aggravating factor when determining what administrative sanctions, if
any, will be sought. This is consistent with the corresponding change
to Sec. 764.5 discussed above. As discussed above, this revision is
intended to encourage disclosure by industry when significant apparent
violations are uncovered. The text previously found in paragraph
(III)(D) is relocated to paragraph (III)(E), and all of the subsequent
factors in section III are renumbered through new factor N at paragraph
(III)(N).
BIS has made two additional changes for consistency with the
addition of this aggravating factor. First, BIS has also deleted the
note under ``Concealment'' in Aggravating Factor A, which previously
stated that failure to file a VSD does not constitute concealment.
Second, BIS has added a sentence under ``Compliance Program'' in new
paragraph (F), previously paragraph (E), stating that OEE will consider
whether a firm has made a deliberate decision not to voluntarily
disclose a significant apparent violation uncovered by its compliance
program as part of its consideration of the compliance program under
General Factors.
c. Clarifying ``Regulatory History'' and ``Criminal Convictions''
Subfactors Under General Factors
BIS has changed two subfactors to Factor E (previously D), titled
``Individual Characteristics,'' to clarify how it considers the
respondent's prior history. First, in subfactor 4, which relates to the
respondent's regulatory history, BIS has removed language that
previously excluded a respondent's history relating to antiboycott
matters from consideration, as well as language that limited BIS's
review of prior history to five years preceding the date of the
transaction giving rise to the apparent violation. This change was made
to focus OEE penalty decisions on the most relevant prior conduct. BIS
has also made clarifying revisions, including bringing the information
that OEE will consider previous penalties, warning letters, or
administrative actions (including settlements)--which was already
reflected in the header for this subfactor--into the explanatory text.
Second, subfactor 6 at paragraph (III)(E)(6), ``Criminal
Convictions,'' is revised to clarify that, in addition to considering
whether a respondent has been convicted or entered a guilty plea as
part of a resolution with the Department of Justice, OEE also may
consider whether a respondent has entered into any other type of
resolution with the Department of Justice or other prosecutorial
authorities related to a criminal violation. This change clarifies that
OEE will consider resolutions other than a criminal conviction, such as
Deferred Prosecution Agreements or Non-Prosecution Agreements, as part
of the respondent's criminal history.
d. Clarifying What Constitutes Exceptional Cooperation Under Mitigating
Factors
The mitigating factor ``Exceptional Cooperation with OEE,''
previously Factor G, is now renumbered under Factor H at paragraph
(III)(H), and continues to list illustrative examples of how OEE
evaluates exceptional cooperation. Paragraph (III)(H)(4) under this
factor is revised to list an additional consideration regarding whether
the Respondent has previously disclosed information regarding the
conduct of others that led to an enforcement action by OEE. This change
is made to provide an incentive for companies to disclose the wrongful
conduct of others.

5. Changes to Section IV, ``Civil Penalties''

a. Revisions to Paragraph (IV)(B)(1) To Identify Decision Maker for
Egregiousness Determination
The previous paragraph (IV)(B)(1) said simply that ``OEE'' will
determine whether a case is considered ``egregious'' under the BIS
Penalty Guidelines. BIS has revised this paragraph to specify that the
OEE Director will make determinations as to whether a case is deemed
egregious for purposes of the base penalty calculation. This
determination no longer requires the Assistant Secretary of Commerce
for Export Enforcement to give concurrence. The Assistant Secretary is
already the signature authority on final orders implementing settlement
agreements, so the Assistant Secretary's additional concurrence is
unnecessary.
b. Revisions to Paragraph (IV)(B)(2)
The ``Base Penalty Matrix'' under paragraph (IV)(B)(2)(a) and
paragraph (IV)(B)(2)(b) are edited as follows: paragraph
(IV)(B)(2)(a)(i) provides that in non-egregious VSD cases, the base
penalty amount is no longer capped at a maximum of $125,000, but is
instead capped at one-half of the transaction value. Paragraph
(IV)(B)(2)(a)(ii) provides that, in a non-egregious case not initiated
by a VSD, the base penalty amount is no longer based on the applicable
schedule amount or capped at $250,000, but is instead capped at the
full transaction value. BIS is removing from the base penalty matrix
and related text the previously established schedule amounts and
penalty caps for non-egregious cases to allow penalties to be
calculated based on transactional value instead of progressive brackets
that round up. For example, a transaction valued at $100,000 would have
a schedule amount of $170,000 under existing guidelines. The penalty
cap is removed to recognize that certain transactions are of such high
value, that any potential penalty under the cap would not serve as an
effective deterrent.
Additionally, in paragraph (IV)(B)(2)(b) ``Adjustment for
Applicable Relevant Factors,'' this rule removes references to
percentages and reductions that may correspond to certain factors
affecting administrative sanctions in a specific case and replaces them
with an explanation that the application of the factors, as they apply
in combination to a particular case, may result in a penalty

[[Page 75482]]

amount that is higher or lower than the base penalty amount. As
discussed in the background section above, this change is necessary
because the previous guidelines, which assigned percentages to certain
factors but not to other factors, reduced OEE's flexibility to impose
appropriate penalties that serve as a deterrent and created a
misperception that those percentages could not be offset by aggravating
factors.
c. Addition of Paragraph (IV)(B)(2)(a)(v) To Clarify Annual Adjustments
to Statutory Maximum Penalty
BIS is adding paragraph (IV)(B)(2)(a)(v). This new paragraph
describes the applicable statutory maximum civil penalty per violation
as established by ECRA, and which is adjusted annually under FCPIAAIA
2015.

Export Control Reform Act of 2018

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 (ECRA), 50 U.S.C. 4801-4852.
ECRA, as amended, provides the legal basis for BIS's principal
authorities and serves as the authority under which BIS issues this
rule.

Rulemaking Requirements

1. Executive Orders 12866, 13563, and 14094 direct agencies to
assess all costs and benefits of available regulatory alternatives and,
if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects and distributive impacts and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits and of reducing costs, harmonizing rules, and
promoting flexibility.
Pursuant to E.O. 12866, this final rule has been determined to not
be a significant regulatory action. This rule does not contain policies
with Federalism implications as that term is defined under Executive
Order 13132.
2. Notwithstanding any other provision of law, no person is
required to respond to, nor shall any person be subject to a penalty
for failure to comply with, a collection of information subject to the
requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.) (PRA), unless that collection of information displays a currently
valid Office of Management and Budget (OMB) Control Number. BIS
believes that the regulation will reduce the overall burden hours and
costs associated with the following information collections. However,
the minimal reduction of burden hours falls within the existing
estimates currently associated with these control numbers.
<bullet> 0694-0088, ``Simplified Network Application Processing
System,'' which carries a burden-hour estimate of 29.7 minutes for a
manual or electronic submission;
<bullet> 0694-0137 ``License Exceptions and Exclusions,'' which
carries a burden-hour estimate of 1.5 hours per submission (Note:
submissions for License Exceptions are rarely required);
<bullet> 0694-0096 ``Five Year Records Retention Period,'' which
carries a burden-hour estimate of less than 1 minute; and
<bullet> 0607-0152 ``Automated Export System (AES) Program,'' which
carries a burden-hour estimate of 3 minutes per electronic submission.
Additional information regarding these collections of information--
including all background materials--can be found at <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a> and using the search function to
enter either the title of the collection or the OMB Control Number.
3. Pursuant to section 1762 of ECRA (50 U.S.C. 4821), this action
is exempt from the Administrative Procedure Act (APA) (5 U.S.C. 553)
requirements for notice of proposed rulemaking, opportunity for public
participation and delay in effective date.
4. Because a notice of proposed rulemaking and an opportunity for
public comment are not required to be given for this rule by 5 U.S.C.
553, or by any other law, the analytical requirements of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., are not applicable.
Accordingly, no regulatory flexibility analysis is required, and none
has been prepared.

List of Subjects in 15 CFR Parts 764 and 766

Administrative practice and procedure, Confidential business
information, Exports, Law enforcement, Penalties.

Accordingly, parts 764 and 766 of the Export Administration
Regulations (15 CFR parts 730 to 774) are amended as follows:

PART 764--ENFORCEMENT AND PROTECTIVE MEASURES

0
1. The authority citation for part 764 continues to read as follows:

Authority: 50 U.S.C. 4801-4852; 50 U.S.C. 4611-4613; 50 U.S.C.
1701 et seq.; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783.

0
2. Section 764.5 is amended by revising paragraphs (a) and (b) through
(f) and adding paragraph (g) to read as follows:

Sec. 764.5 Voluntary self-disclosure.

(a) General policy. BIS strongly encourages disclosure to the
Office of Export Enforcement (OEE) if you believe that you may have
violated the EAR, or any order, license or authorization issued
thereunder. As described in supplement no. 1 to part 766, voluntary
self-disclosure is a mitigating factor, and a firm's deliberate
decision not to disclose significant apparent violations is an
aggravating factor in determining what administrative sanctions, if
any, will be sought by OEE. A deliberate decision not to disclose
occurs when a firm uncovers a significant apparent violation that it
has committed but then chooses not to file a VSD.
* * * * *
(c) Voluntary self-disclosures involving minor or technical
violations--(1) General. Any person wanting to voluntarily disclose a
minor or technical violation should submit an abbreviated narrative
report, as described in paragraph (c)(2) of this section. A minor or
technical violation is one that does not contain any aggravating
factors present as defined in section III(A) of supplement no. 1 to
part 766. Examples of minor or technical violations include, but are
not limited to, immaterial Electronic Export Information (EEI) filing
errors, inadvertent record keeping violations resulting from failed
file retrieval or retention mechanisms (e.g., physical damage caused by
flood or fire and/or electronic corruption due to malware, virus, or
outage), incorrect use of one license exception where other license
exceptions were available, etc.
(2) Abbreviated narrative report. The abbreviated narrative report
should be submitted by email to <a href="/cdn-cgi/l/email-protection#fe9c978da1888d9aa197908a9f959bbe9c978dd09a919dd0999188">[email&#160;protected]</a> or in
writing to the address in paragraph (d)(7) of this section. The email
subject line should include the word ``abbreviated'' if it is an
abbreviated VSD.:
(i) The notification should include:
(A) The name of the person making the disclosure and should
designate a contact person regarding the abbreviated narrative report
and provide that contact person's current business street address,
email address, and telephone number; and
(B) A description of the general nature and extent of the
violations (including, but not limited to, the destination and

[[Page 75483]]

parties involved in any transaction, and the number, classification,
and value of any items involved). Parties may itemize the various minor
or technical violations in list or spreadsheet form.
(ii) The Director of OEE at their discretion may request a full
narrative report pursuant to paragraph (d)(3) of this section if OEE
suspects the presence of aggravating factors which will be due in 180
days from the date of the OEE Director's request.
(3) Bundling of minor/technical violations. Parties may bundle
multiple minor or technical violations into one overarching submission,
if the violations occurred within the preceding quarter. Parties may
submit such minor or technical violations into a single VSD submission
on a quarterly basis using the abbreviated narrative account process
identified in paragraph (c)(2) of this section.
(d) Voluntary self-disclosures involving significant violations--
(1) General. Any person wanting to voluntarily disclose a significant
violation should, in the manner outlined in paragraph (c)(2) of this
section, initially notify OEE as soon as possible after violations are
discovered, and then conduct a thorough review of all export-related
transactions where violations are suspected. A significant violation is
one that involves one or more aggravating factors as defined in section
III(A) of supplement no. 1 to part 766. Those unsure of whether their
possible disclosure relates to a minor or technical violation, or a
significant violation, should follow the procedure in paragraph (d)(2)
of this section for a significant violation.
(2) Initial notification--(i) Manner and content of initial
notification. The initial notification should be submitted by email to
<a href="/cdn-cgi/l/email-protection#3d5f544e624b4e59625453495c56587d5f544e1359525e135a524b">[email&#160;protected]</a> or in writing to the address in paragraph
(d)(7) of this section. The notification should include the name of the
person making the disclosure and a brief description of the suspected
violations and should designate a contact person regarding the initial
notification and provide that contact person's current business street
address, email address, and telephone number. The notification should
describe the general nature and extent of the violations. OEE
recognizes that there may be situations where it will not be practical
to make an initial notification in writing. For example, written
notification may not be practical if a shipment leaves the United
States without the required license, yet there is still an opportunity
to prevent acquisition of the items by unauthorized persons. In such
situations, OEE should be contacted promptly at the office listed in
paragraph (d)(7) of this section.
(ii) Initial notification date. For purposes of calculating when a
complete narrative account must be submitted under paragraph
(d)(2)(iii) of this section, the initial notification date is the date
the notification is received by OEE. OEE will notify the disclosing
party in writing of the date that it receives the initial notification.
At OEE's discretion, such writing from OEE may be on paper, or in an
email message or facsimile transmission from OEE, or by any other
method for the transmission of written communications. Where it is not
practical to make an initial notification in writing, the person making
the notification should confirm the oral notification in writing as
soon as possible.
(iii) Timely completion of narrative accounts. The full narrative
account required by paragraph (d)(3) of this section must be received
by OEE within 180 days of the initial notification date for purposes of
paragraph (b)(3) of this section, absent an extension from the Director
of OEE. If the person making the initial notification subsequently
completes and submits to OEE the narrative account required by
paragraph (d)(3) of this section such that OEE receives it within 180
days of the initial notification date, or within the additional time,
if any, granted by the Director of OEE pursuant to paragraph (d)(2)(iv)
of this section, the disclosure, including violations disclosed in the
narrative account that were not expressly mentioned in the initial
notification, will be deemed to have been made on the initial
notification date for purposes of paragraph (b)(3) of this section if
the initial notification was made in compliance with paragraphs (d)(1)
and (2) of this section. Failure to meet the deadline (either the
initial 180-day deadline or an extended deadline granted by the
Director of OEE) would not be an additional violation of the EAR, but
such failure may reduce or eliminate the mitigating impact of the
voluntary disclosure under supplement no. 1 to this part. For purposes
of determining whether the deadline has been met under this paragraph,
a complete narrative account must contain all of the pertinent
information called for in paragraphs (d)(3) through (5) of this
section, and the voluntary self-disclosure must otherwise meet the
requirements of this section.
(iv) Deadline extensions. The Director of OEE may extend the 180-
day deadline upon a determination in his or her discretion that U.S.
Government interests would be served by an extension or that the person
making the initial notification has shown that more than 180 days is
reasonably needed to complete the narrative account.
(A) Conditions for extension. The Director of OEE in his or her
discretion may place conditions on the approval of an extension. For
example, the Director of OEE may require that the disclosing person
agree to toll the statute of limitations with respect to violations
disclosed in the initial notification or discovered during the review
for or preparation of the narrative account, and/or require the
disclosing person to undertake specified interim remedial compliance
measures.
(B) Contents of request. (1) In most instances 180 days should be
adequate to complete the narrative account. Requests to extend the 180-
day deadline set forth in paragraph (d)(2)(iii) of this section will be
determined by the Director of OEE pursuant to his or her authority
under this paragraph (d)(2)(iv) based upon his consideration and
evaluation of U.S. Government interests and the facts and circumstances
surrounding the request and any related investigations. Such requests
should show specifically that the person making the request:
(i) Began its review promptly after discovery of the violations;
(ii) Has been conducting its review and preparation of the
narrative account as expeditiously as can be expected, consistent with
the need for completeness and accuracy;
(iii) Reasonably needs the requested extension despite having begun
its review promptly after discovery of the violations and having
conducted its review and preparation of the narrative account as
expeditiously as can be expected consistent with the need for
completeness and accuracy; and
(iv) Has considered whether interim compliance or other corrective
measures may be needed and has undertaken such measures as appropriate
to prevent recurring or additional violations.
(2) Such requests also should set out a proposed timeline for
completion and submission of the narrative account that is reasonable
under the applicable facts and circumstances and should also designate
a contact person regarding the request and provide that contact
person's current business street address, email address, and telephone
number. Requests may also include additional information that the
person making the request reasonably believes is pertinent to the
request under the applicable facts and circumstances.
(C) Timing of requests. Requests for an extension should be made
before the 180-day deadline and as soon as

[[Page 75484]]

possible once a disclosing person determines that it will be unable to
meet the deadline or the extended deadline where an extension
previously has been granted, and possesses the information needed to
prepare an extension request in accordance with paragraph (d)(2)(iv)(B)
of this section. Requests for extension that are not received before
the deadline for completing the narrative account has passed will not
be considered. Parties who request an extension shortly before the
deadline incur the risk that the Director of OEE will be unable to
consider the request, determine whether or not to grant the extension,
and communicate his or her decision before the deadline, and that any
subsequently submitted narrative account will be considered untimely
under paragraph (d)(2)(iii) of this section.
(3) Full narrative. After the initial notification, a thorough
review should be conducted of export-related transactions where
violations with potentially aggravating factors are suspected (as
defined in section III(A) of supplement no. 1 to part 766). OEE
recommends that the review cover a period of five years prior to the
date of the initial notification. If your review goes back less than
five years, you risk failing to discover violations that may later
become the subject of an investigation. Any violations not voluntarily
disclosed do not receive consideration under this section. However, the
failure to make such disclosures will not be treated as a separate
violation unless some other section of the EAR or other provision of
law requires disclosure. Upon completion of the review, OEE should be
furnished with a narrative account that sufficiently describes the
suspected violations so that their nature and gravity can be assessed.
The narrative account should also describe the nature of the review
conducted and measures that may have been taken to minimize the
likelihood that violations will occur in the future. The narrative
account should include:
(i) The kind of violation involved, for example, a shipment without
the required license or dealing with a party denied export privileges;
(ii) An explanation of when and how the violations occurred;
(iii) The complete identities and addresses of all individuals and
organizations, whether foreign or domestic, involved in the activities
giving rise to the violations;
(iv) License numbers;
(v) The description, quantity, value in U.S. dollars and ECCN or
other classification of the items involved; and
(vi) A description of any mitigating circumstances.
(4) Supporting documentation. (i) The narrative account should be
accompanied by copies of documents that explain and support it,
including:
(A) Licensing documents such as licenses, license applications,
import certificates and end-user statements;
(B) Shipping documents such as Shipper's Export Declarations, air
waybills, bills of lading and packing lists; and
(C) Other documents such as letters, facsimiles, telexes and other
evidence of written or oral communications, internal memoranda,
purchase orders, invoices, letters of credit and brochures.
(ii) Any relevant documents not attached to the narrative account
must be retained by the person making the disclosure until OEE requests
them, or until a final decision on the disclosed information has been
made. After a final decision, the documents should be maintained in
accordance with the recordkeeping rules in part 762 of the EAR (15 CFR
part 762).
(5) Certification. A certification must be submitted stating that
all of the representations made in connection with the voluntary self-
disclosure are true and correct to the best of that person's knowledge
and belief. Certifications made by a corporation or other organization
should be signed by an official of the corporation or other
organization with the authority to do so. Sec. 764.2(g), relating to
false or misleading representations, applies in connection with the
disclosure of information under this section.
(6) Oral presentations. OEE believes that oral presentations are
generally not necessary to augment the written narrative account and
supporting documentation. If the person making the disclosure believes
otherwise, a request for a meeting should be included with the
disclosure.
(7) Where to make voluntary self-disclosures. The information
constituting a voluntary self-disclosure or any other correspondence
pertaining to a voluntary self-disclosure may be submitted by email to
<a href="/cdn-cgi/l/email-protection#c9aba0ba96bfbaad96a0a7bda8a2ac89aba0bae7ada6aae7aea6bf">[email&#160;protected]</a> or mailed to: Director, Office of Export
Enforcement, 1401 Constitution Ave., Room H4514, Washington, DC 20230,
Tel: (202) 482-5036.
(e) Dual-track processing of Voluntary Self-Disclosures by the
Office of Export Enforcement. (1) For VSDs that involve minor or
technical infractions, including abbreviated VSDs, OEE will generally
resolve the VSD within 60 days of a final VSD submission with one of
the actions in paragraphs (e)(1)(i) and (ii) of this section.
(i) Inform the person making the disclosure that, based on the
facts disclosed, it plans to take no action; or
(ii) Issue a warning letter.
(2) For VSDs that indicate significant violations, OEE will conduct
an investigation, and as quickly as the facts and circumstances of a
given case permit, OEE may take any of the following actions:
(i) Inform the person making the disclosure that, based on the
facts disclosed, it plans to take no action;
(ii) Issue a warning letter;
(iii) Issue a proposed charging letter pursuant to Sec. 766.18 of
the EAR and attempt to settle the matter;
(iv) Issue a charging letter pursuant to Sec. 766.3 of the EAR if
a settlement is not reached; and/or
(v) Refer the matter to the Department of Justice for criminal
prosecution.
(f) Criteria. Supplement no. 1 to part 766 describes how BIS
typically exercises its discretion regarding whether to pursue an
administrative enforcement case under part 766 and what administrative
sanctions to seek in settling such a case.
(g) Treatment of unlawfully exported items. (1) Any person taking
certain actions with knowledge that a violation of ECRA or the EAR has
occurred has violated Sec. 764.2(e).
(i) Any person who has made a voluntary self-disclosure knows that
a violation may have occurred. Therefore, at the time that a voluntary
self-disclosure is made, the person making the disclosure may request
permission from BIS to engage in the activities described in Sec.
764.2(e) that would otherwise be prohibited.
(ii) Any person may also notify the Director of OEE that a
violation has occurred and request permission from BIS to engage in the
activities described in Sec. 764.2(e) that would otherwise be
prohibited.
(iii) Actions to return to the United States an item that has been
unlawfully exported and disclosed under this section only require
notification to the Director of OEE. Items subject to a violation that
have been returned to the United States do not require further
authorization under this paragraph (g) for future activities, provided
that those future activities comply with any applicable EAR
requirements.
(2) How to submit a request under paragraphs (g)(1)(i) through
(iii) of this section: A request should be submitted on letterhead,
signed, and sent to the Director of the Office of Exporter

[[Page 75485]]

Services at <a href="/cdn-cgi/l/email-protection#284d454b4c684a415b064c474b064f475e">[email&#160;protected]</a> with a copy sent to
<a href="/cdn-cgi/l/email-protection#42202b311d3431261d2b2c3623292702202b316c262d216c252d34">[email&#160;protected]</a>. The request should be specific and detail
the following information: nature of the violation including when and
how the violations occurred; description, quantity, value in U.S.
dollars and ECCN or other classification of the items involved; license
numbers, if applicable; identities and addresses of all individuals and
organizations subject to the request, the scope of the request
specifying the Sec. 764.2(e) activities, including end-use, and point
of contact. A copy of the initial or final VSD or notification made to
the Director of OEE should be attached to the request.
(3) If a request submitted pursuant to paragraph (g)(1)(i) or (ii)
of this section is granted by the Office of Exporter Services in
consultation with OEE, future activities with respect to those items
that would otherwise violate Sec. 764.2(e) will not constitute
violations.

Note 1 to paragraph (g)(3): Even if permission is granted, the
person making a voluntary self-disclosure pursuant to paragraph
(g)(1)(i) of this section is not absolved from liability for any
violations disclosed nor relieved of the obligation to obtain any
required reexport authorizations.

(4) Reexports and transfers (in-country). To reexport or transfer
(in-country) items that are the subject of a voluntary self-disclosure
or notification, and that have been exported contrary to the provisions
of ECRA or the EAR, authorization may be requested from BIS in
accordance with the provisions of part 748 of the EAR (15 CFR part
748). If the applicant who submitted the reexport or transfer
authorization knows that the items are the subject of a voluntary self-
disclosure or notification, the request should state that a voluntary
self-disclosure or notification was made in connection with the export
of the items for which authorization is sought and a copy of the
voluntary self-disclosure or notification should be included with the
license application.

Note 2 to paragraph (g)(4): If the items are otherwise eligible
for reexport or transfer under a license exception or the No License
Required (NLR) designation, a request under this paragraph (g) may
be submitted to obtain permission for the use of the license
exception or NLR designation for such reexport or transfer, provided
the transaction otherwise meets the terms and conditions of the
license exception or NLR designation.

(5) Automated Export System (AES) filing errors. Disclosures and
notifications of AES filing errors reported to OEE under paragraphs
(g)(1)(i) and (ii) of this section, where no other violation of the EAR
only require notification to OEE and do not require authorization under
this paragraph (g) to engage in activities subject to the EAR. The AES
filing must be corrected with the Census Bureau before proceeding with
such activities provided the activities meet any applicable EAR
requirements. If another violation, such as failure to obtain a
required license, has occurred in addition to the AES filing error,
authorization under this paragraph (g) is required.

PART 766--ADMINISTRATIVE ENFORCEMENT PROCEEDINGS

0
3. The authority citation for part 766 continues to read as follows:

Authority: 50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50
U.S.C. 1701 et seq.; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p.
783.

0
4. Supplement no. 1 to part 766 is revised to read as follows:

Supplement No. 1 to Part 766--Guidance on Charging and Penalty
Determinations in Settlement of Administrative Enforcement Cases

Introduction

This supplement describes how the Office of Export Enforcement
(OEE) at the Bureau of Industry and Security (BIS) responds to
apparent violations of the Export Administration Regulations (EAR)
and, specifically, how OEE makes penalty determinations in the
settlement of civil administrative enforcement cases under part 764
of the EAR. This guidance does not apply to enforcement cases for
violations under part 760 of the EAR--Restrictive Trade Practices or
Boycotts. Supplement no. 2 to part 766 continues to apply to civil
administrative enforcement cases involving part 760 violations.
Because many administrative enforcement cases are resolved
through settlement, the process of settling such cases is integral
to the enforcement program. OEE carefully considers each settlement
offer in light of the facts and circumstances of the case, relevant
precedent, and OEE's objective to achieve in each case an
appropriate penalty and deterrent effect. In settlement
negotiations, OEE encourages parties to provide, and will give
serious consideration to, information and evidence that parties
believe are relevant to the application of this guidance to their
cases, to whether a violation has in fact occurred, or to whether
they have an affirmative defense to potential charges.
This guidance does not confer any right or impose any obligation
regarding what penalties OEE may seek in litigating a case or what
posture OEE may take toward settling a case. Parties do not have a
right to a settlement offer or particular settlement terms from OEE,
regardless of settlement positions OEE has taken in other cases.

I. Definitions

Note: See also: Definitions contained in Sec. 766.2 of the EAR.
Apparent Violation means conduct that constitutes an actual or
possible violation of the Export Control Reform Act of 2018, the
EAR, other statutes administered or enforced by BIS, as well as
executive orders, regulations, orders, directives, or licenses
issued pursuant thereto.
Transaction value means the U.S. dollar value of a subject
transaction, as demonstrated by commercial invoices, bills of
lading, signed Customs declarations, AES filings or similar
documents. Where the transaction value is not otherwise
ascertainable, OEE may consider the market value of the items that
were the subject of the transaction and/or the economic benefit
derived by the Respondent from the transaction, in determining
transaction value. In situations involving a lease of U.S.-origin
items, the transaction value will generally be the value of the
lease. For purposes of these guidelines, ``transaction value'' will
not necessarily have the same meaning, nor be applied in the same
manner, as that term is used for import valuation purposes at 19 CFR
152.103.
Voluntary self-disclosure means the self-initiated notification
to OEE of an apparent violation as described in and satisfying the
requirements of Sec. 764.5 of the EAR.

II. Types of Responses to Apparent Violations

OEE, among other responsibilities, investigates apparent
violations of the EAR, or any order, license or authorization issued
thereunder. When it appears that such a violation may have occurred,
OEE investigations may lead to no action, a warning letter or an
administrative enforcement proceeding. A violation may also be
referred to the Department of Justice for criminal prosecution. The
type of enforcement action initiated by OEE will depend primarily on
the nature of the violation. Depending on the facts and
circumstances of a particular case, an OEE investigation may lead to
one or more of the following actions:
A. No Action. If OEE determines that there is insufficient
evidence to conclude that a violation has occurred, determines that
a violation did not occur and/or, based on an analysis of the
Factors outlined in section III of these guidelines, concludes that
the conduct does not rise to a level warranting an administrative
response, then no action will be taken. In such circumstances, if
the investigation was initiated by a voluntary self-disclosure
(VSD), OEE will issue a letter (a no-action letter) indicating that
the investigation is being closed with no administrative action
being taken. OEE may issue a no-action letter in non-voluntarily
disclosed cases at its discretion. A no-action determination by OEE
represents OEE's disposition of the apparent violation, unless OEE
later learns of additional information regarding the same or similar
transactions or other relevant facts. A no-action letter is not a
final agency action with respect to whether a violation occurred.
B. Warning Letter. If OEE determines that a violation may have
occurred but a civil penalty is not warranted under the
circumstances, and believes that the

[[Page 75486]]

underlying conduct could lead to a violation in other circumstances
and/or that a Respondent does not appear to be exercising due
diligence in assuring compliance with the statutes, executive
orders, and regulations that OEE enforces, OEE may issue a warning
letter. A warning letter may convey OEE's concerns about the
underlying conduct and/or the Respondent's compliance policies,
practices, and/or procedures. It may also address an apparent
violation of a minor or technical nature, where good faith efforts
to comply with the law and cooperate with the investigation are
present, or where the investigation commenced as a result of a
voluntary self-disclosure satisfying the requirements of Sec. 764.5
of the EAR, provided that no aggravating factors exist. In the
exercise of its discretion, OEE may determine in certain instances
that issuing a warning letter, instead of bringing an administrative
enforcement proceeding, will achieve the appropriate enforcement
result. A warning letter will describe the apparent violation and
urge compliance. A warning letter represents OEE's enforcement
response to and disposition of the apparent violation, unless OEE
later learns of additional information concerning the same or
similar apparent violations. A warning letter does not constitute a
final agency action with respect to whether a violation has
occurred.
C. Administrative enforcement case. If OEE determines that a
violation has occurred and, based on an analysis of the Factors
outlined in section III of these guidelines, concludes that the
Respondent's conduct warrants a civil monetary penalty or other
administrative sanctions, OEE may initiate an administrative
enforcement case. The issuance of a charging letter under Sec.
766.3 of the EAR initiates an administrative enforcement proceeding.
Charging letters may be issued when there is reason to believe that
a violation has occurred. Cases may be settled before or after the
issuance of a charging letter. See Sec. 766.18 of the EAR. OEE may
prepare a proposed charging letter which could result in a case
being settled before issuance of an actual charging letter. See
Sec. 766.18(a) of the EAR. If a case does not settle before
issuance of a charging letter and the case proceeds to adjudication,
the resulting charging letter may include more violations than
alleged in the proposed charging letter, and the civil monetary
penalty amounts assessed may be greater that those provided for in
section IV of these guidelines. Civil monetary penalty amounts for
cases settled before the issuance of a charging letter will be
determined as discussed in section IV of these guidelines. A civil
monetary penalty may be assessed for each violation. The maximum
amount of such a penalty per violation is stated in Sec.
764.3(a)(1), subject to adjustments under Federal Civil Penalties
Inflation Adjustment Act Improvements Act of 2015 (Pub. L. 114-74,
sec. 701), which are codified at 15 CFR 6.4. OEE will afford the
Respondent an opportunity to respond to a proposed charging letter.
Responses to charging letters following the institution of an
enforcement proceeding under part 766 of the EAR are governed by
Sec. 766.3 of the EAR.
D. Non-Monetary Penalty. OEE may seek a non-monetary penalty if
OEE determines the violations are not egregious and have not
resulted in serious national security harm, but rise above the level
of cases warranting a warning letter or no-action letter. Instead of
requiring monetary penalties, such agreements will require
remediation through the imposition of a suspended denial order with
certain conditions, such as training and compliance requirements, as
appropriate, to mitigate harm from past violations and prevent
future ones.
E. Civil Monetary Penalty. OEE may seek a civil monetary penalty
if OEE determines that a violation has occurred and, based on the
Factors outlined in section III of these guidelines, concludes that
the Respondent's conduct warrants a monetary penalty. Section IV of
these guidelines will guide the agency's exercise of its discretion
in determining civil monetary penalty amounts.
F. Criminal Referral. In appropriate circumstances, OEE may
refer the matter to the Department of Justice for criminal
prosecution. Apparent violations referred for criminal prosecution
also may be subject to a civil monetary penalty and/or other
administrative sanctions or action by BIS.
G. Other Administrative Sanctions or Actions. In addition to or
in lieu of other administrative actions, OEE may seek sanctions
listed in Sec. 764.3 of the EAR. BIS may also take the following
administrative actions, among other actions, in response to an
apparent violation:
License Revision, Suspension or Revocation. BIS authorizations
to engage in a transaction pursuant to a license or license
exception may be revised, suspended or revoked in response to an
apparent violation as provided in Sec. Sec. 740.2(b) and 750.8 of
the EAR.
Denial of Export Privileges. An order denying a Respondent's
export privileges may be issued, as described in Sec. 764.3(a)(2)
of the EAR. Such a denial may extend to all export privileges, as
set out in the standard terms for denial orders in supplement no. 1
to part 764 of the EAR, or may be narrower in scope (e.g., limited
to exports of specified items or to specified destinations or
customers). A denial order may also be suspended in whole or in part
in accordance with Sec. 766.18(c).
Exclusion from practice. Under Sec. 764.3(a)(3) of the EAR, any
person acting as an attorney, accountant, consultant, freight
forwarder or other person who acts in a representative capacity in
any matter before BIS may be excluded from practicing before BIS.
Training and Audit Requirements. In appropriate cases, OEE may
require as part of a settlement agreement that the Respondent
provide training to employees as part of its compliance program,
adopt other compliance measures, and/or be subject to internal or
independent audits by a qualified outside person.
H. Suspension or Deferral. In appropriate cases, payment of a
civil monetary penalty may be suspended or deferred during a
probationary period under a settlement agreement and order. If the
terms of the settlement agreement or order are not adhered to by the
Respondent, then suspension or deferral may be revoked and the full
amount of the penalty imposed. See Sec. 764.3(a)(1)(iii) of the
EAR. In determining whether suspension or deferral is appropriate,
OEE may consider, for example, whether the Respondent has
demonstrated a limited ability to pay a penalty that would be
appropriate for such violations, so that suspended or deferred
payment can be expected to have sufficient deterrent value, and
whether, in light of all of the circumstances, such suspension or
deferral is necessary to make the financial impact of the penalty
consistent with the impact of penalties on other parties who
committed similar violations.

III. Factors Affecting Administrative Sanctions

Many apparent violations are isolated occurrences, the result of
a good-faith misinterpretation, or involve no more than simple
negligence or carelessness. In such instances, absent the presence
of aggravating factors, the matter frequently may be addressed with
a no action determination letter or, if deemed necessary, a warning
letter. In other cases, where the imposition of an administrative
penalty is deemed appropriate, OEE will consider some or all of the
following Factors in determining the appropriate sanctions in
administrative cases, including the appropriate amount of a civil
monetary penalty where such a penalty is sought and is imposed as
part of a settlement agreement and order. These factors describe
circumstances that, in OEE's experience, are commonly relevant to
penalty determinations in settled cases. Factors that are considered
exclusively aggravating, such as willfulness, or exclusively
mitigating, such as situations where remedial measures were taken,
are set forth paragraphs II(A) through (D) and (G) through (I). This
guidance also identifies General Factors--which can be either
mitigating or aggravating--such as the presence or absence of an
internal compliance program at the time the apparent violations
occurred. Other relevant Factors may also be considered at OEE's
discretion.
While some violations of the EAR have a degree of knowledge or
intent as an element of the offense, OEE may regard a violation of
any provision of the EAR as knowing or willful if the facts and
circumstances of the case support that conclusion. For example,
evidence that a corporate entity had knowledge at a senior
management level may mean that a higher penalty may be appropriate.
OEE will also consider, in accordance with supplement no. 3 to part
732 of the EAR (15 CFR part 732), the presence of any red flags that
should have alerted the Respondent that a violation was likely to
occur. The aggravating factors identified in the Guidelines do not
alter or amend Sec. 764.2(e) or the definition of ``knowledge'' in
Sec. 772.1, or other provisions of parts 764 and 772 of the EAR (15
CFR parts 764 and 772). If the violations are of such a nature and
extent that a monetary fine alone represents an insufficient
penalty, a denial or exclusion order may also be imposed to prevent
future violations of the EAR.

[[Page 75487]]

Aggravating Factors

A. Willful or Reckless Violation of Law. OEE will consider a
Respondent's apparent willfulness or recklessness in violating,
attempting to violate, conspiring to violate, or causing a violation
of the law. Generally, to the extent the conduct at issue appears to
be the result of willful conduct--a deliberate intent to violate,
attempt to violate, conspire to violate, or cause a violation of the
law--the OEE enforcement response will be stronger. Among the
factors OEE may consider in evaluating apparent willfulness or
recklessness are:
1. Willfulness. Was the conduct at issue the result of a
decision to take action with the knowledge that such action would
constitute a violation of U.S. law? Did the Respondent know that the
underlying conduct constituted, or likely constituted, a violation
of U.S. law at the time of the conduct?
2. Recklessness/gross negligence. Did the Respondent demonstrate
reckless disregard or gross negligence with respect to compliance
with U.S. regulatory requirements or otherwise fail to exercise a
minimal degree of caution or care in avoiding conduct that led to
the apparent violation? Were there warning signs that should have
alerted the Respondent that an action or failure to act would lead
to an apparent violation?
3. Concealment. Was there a deliberate effort by the Respondent
to hide or purposely obfuscate its conduct in order to mislead OEE,
Federal, State, or foreign regulators, or other parties involved in
the conduct, about an apparent violation?
4. Pattern of Conduct. Did the apparent violation constitute or
result from a pattern or practice of conduct or was it relatively
isolated and atypical in nature? In determining both whether to
bring charges and, once charges are brought, whether to treat the
case as egregious, OEE will be mindful of certain situations where
multiple recurring violations resulted from a single inadvertent
error, such as misclassification. However, for cases that settle
before filing of a charging letter with an Administrative Law Judge,
OEE will generally charge only the most serious violation per
transaction. If OEE issues a proposed charging letter and
subsequently files a charging letter with an Administrative Law
Judge because a mutually agreeable settlement cannot be reached, OEE
will continue to reserve its authority to proceed with all available
charges in the charging letter based on the facts presented. When
determining a penalty, each violation is potentially chargeable.
5. Prior Notice. Was the Respondent on notice, or should it
reasonably have been on notice, that the conduct at issue, or
similar conduct, constituted a violation of U.S. law?
6. Management Involvement. In cases of entities, at what level
within the organization did the willful or reckless conduct occur?
Were supervisory or managerial level staff aware, or should they
reasonably have been aware, of the willful or reckless conduct?
B. Awareness of Conduct at Issue: The Respondent's awareness of
the conduct giving rise to the apparent violation. Generally, the
greater a Respondent's actual knowledge of, or reason to know about,
the conduct constituting an apparent violation, the stronger the OEE
enforcement response will be. In the case of a corporation,
awareness will focus on supervisory or managerial level staff in the
business unit at issue, as well as other senior officers and
managers. Among the factors OEE may consider in evaluating the
Respondent's awareness of the conduct at issue are:
1. Actual Knowledge. Did the Respondent have actual knowledge
that the conduct giving rise to an apparent violation took place,
and remain willfully blind to such conduct, and fail to take
remedial measures to address it? Was the conduct part of a business
process, structure or arrangement that was designed or implemented
with the intent to prevent or shield the Respondent from having such
actual knowledge, or was the conduct part of a business process,
structure or arrangement implemented for other legitimate reasons
that consequently made it difficult or impossible for the Respondent
to have actual knowledge?
2. Reason to Know. If the Respondent did not have actual
knowledge that the conduct took place, did the Respondent have
reason to know, or should the Respondent reasonably have known,
based on all readily available information and with the exercise of
reasonable due diligence, that the conduct would or might take
place?
3. Management Involvement. In the case of an entity, was the
conduct undertaken with the explicit or implicit knowledge of senior
management, or was the conduct undertaken by personnel outside the
knowledge of senior management? If the apparent violation was
undertaken without the knowledge of senior management, was there
oversight intended to detect and prevent violations, or did the lack
of knowledge by senior management result from disregard for its
responsibility to comply with applicable regulations and laws?
C. Harm to Regulatory Program Objectives: The actual or
potential harm to regulatory program objectives caused by the
conduct giving rise to the apparent violation. This factor is
present where the conduct in question, in purpose or effect,
substantially implicates national security, foreign policy or other
essential interests protected by the U.S. export control system.
Among other things, OEE may consider such factors as the reason for
controlling the item to the destination in question; the sensitivity
of the item; the prohibitions or restrictions against the recipient
of the item; and the licensing policy concerning the transaction
(such as presumption of approval or denial). OEE, in its discretion,
may consult with other U.S. agencies or with licensing and
enforcement authorities of other countries in making its
determination. Among the factors OEE may consider in evaluating the
harm to regulatory program objectives are:
1. Implications for U.S. National Security: The impact that the
apparent violation had or could potentially have on the national
security of the United States. For example, if a particular export
could undermine U.S. military superiority or endanger U.S. or
friendly military forces or be used in a military application
contrary to U.S. interests, OEE would consider the implications of
the apparent violation to be significant.
2. Implications for U.S. Foreign Policy: The effect that the
apparent violation had or could potentially have on U.S. foreign
policy objectives. For example, if a particular export is, or is
likely to be, used by a foreign regime to monitor communications of
its population in order to suppress free speech and persecute
dissidents, or otherwise used to enable human rights abuses, OEE
would consider the implications of the apparent violation to be
significant.
D. Failure to disclose a significant apparent violation. If a
firm (as that term is defined in Sec. 772.1 of the EAR)
deliberately chooses not to disclose a significant apparent
violation that it has identified, OEE will consider that non-
disclosure to be an aggravating factor when assessing what
administrative sanctions, if any, will be sought. A deliberate
decision not to disclose occurs when a firm uncovers a significant
apparent violation that they have committed but then chooses not to
file a VSD.

General Factors

E. Individual Characteristics: The particular circumstances and
characteristics of a Respondent. Among the factors OEE may consider
in evaluating individual characteristics are:
1. Commercial Sophistication: The commercial sophistication and
experience of the Respondent. Is the Respondent an individual or an
entity? If an individual, was the conduct constituting the apparent
violation for personal or business reasons?
2. Size and Sophistication of Operations: The size of a
Respondent's business operations, where such information is
available and relevant. At the time of the violation, did the
Respondent have any previous export experience and was the
Respondent familiar with export practices and requirements?
Qualification of the Respondent as a small business or organization
for the purposes of the Small Business Regulatory Enforcement
Fairness Act, as determined by reference to the applicable standards
of the Small Business Administration, may also be considered.
3. Volume and Value of Transactions: The total volume and value
of transactions undertaken by the Respondent on an annual basis,
with attention given to the volume and value of the apparent
violations as compared with the total volume and value of all
transactions. Was the quantity and/or value of the exports high,
such that a greater penalty may be necessary to serve as an adequate
penalty for the violation or deterrence of future violations, or to
make the penalty proportionate to those for otherwise comparable
violations involving exports of lower quantity or value?
4. Regulatory History: The Respondent's regulatory history,
including OEE's issuance of prior penalties, warning letters, or
other administrative actions (including settlements). OEE will
consider a Respondent's past regulatory history, including OEE's
issuance of prior penalties, warning letters, or other
administrative actions (including settlements). When an acquiring
firm takes reasonable steps to

[[Page 75488]]

uncover, correct, and voluntarily disclose or cause the voluntary
self-disclosure to OEE of conduct that gave rise to violations by an
acquired business before the acquisition, OEE typically will not
take such violations into account in applying these factors in
settling other violations by the acquiring firm.
5. Other illegal conduct in connection with the export. Was the
transaction in support of other illegal conduct, for example the
export of firearms as part of a drug smuggling operation, or illegal
exports in support of intellectual property theft, economic
espionage or money laundering?
6. Criminal Convictions. Has the Respondent previously been
convicted of a criminal violation or otherwise entered into a
resolution with the Department of Justice or other prosecutorial
authority related to a criminal violation?
Note: Where necessary to effective enforcement, the prior
involvement in export violation(s) of a Respondent's owners,
directors, officers, partners, or other related persons may be
imputed to a Respondent in determining whether these criteria are
satisfied.
F. Compliance Program: The existence, nature and adequacy of a
Respondent's risk-based BIS compliance program at the time of the
apparent violation. OEE will take account of the extent to which a
Respondent complies with the principles set forth in BIS's Export
Compliance Guidelines. Information about the Export Compliance
Guidelines can be accessed through the BIS website at <a href="http://www.bis.gov/">http://www.bis.gov/</a>. OEE will also consider whether a Respondent's export
compliance program uncovered a problem, thereby preventing further
violations, and whether the Respondent has taken steps to address
compliance concerns raised by the violation, to include the
submission of a VSD and steps to prevent reoccurrence of the
violation that are reasonably calculated to be effective.
Conversely, OEE will also consider whether a firm has deliberately
failed to voluntarily disclose a significant apparent violation
uncovered by a company's export compliance program.

Mitigating Factors

G. Remedial Response. The Respondent's corrective action taken
in response to the apparent violation. Among the factors OEE may
consider in evaluating the remedial response are:
1. The steps taken by the Respondent upon learning of the
apparent violation. Did the Respondent immediately stop the conduct
at issue? Did the Respondent undertake to file a VSD?
2. In the case of an entity, the processes followed to resolve
issues related to the apparent violation. Did the Respondent
discover necessary information to ascertain the causes and extent of
the apparent violation, fully and expeditiously? Was senior
management fully informed? If so, when?
3. In the case of an entity, whether it adopted new and more
effective internal controls and procedures to prevent the occurrence
of similar apparent violations. If the entity did not have a BIS
compliance program in place at the time of the apparent violation,
did it implement one upon discovery of the apparent violation? If it
did have a BIS compliance program, did it take appropriate steps to
enhance the program to prevent the recurrence of similar violations?
Did the entity provide the individual(s) and/or managers responsible
for the apparent violation with additional training, and/or take
other appropriate action, to ensure that similar violations do not
occur in the future?
4. Where applicable, whether the Respondent undertook a thorough
review to identify other apparent violations.
H. Exceptional Cooperation with OEE: The nature and extent of
the Respondent's cooperation with OEE, beyond those actions set
forth in Factor F. Among the factors OEE may consider in evaluating
exceptional cooperation are:
1. Did the Respondent provide OEE with all relevant information
regarding the apparent violation at issue in a timely, comprehensive
and responsive manner (whether or not voluntarily self-disclosed),
including, if applicable, overseas records?
2. Did the Respondent research and disclose to OEE relevant
information regarding any other apparent violations caused by the
same course of conduct?
3. Did the Respondent provide substantial assistance in another
OEE investigation of another person who may have violated the EAR?
4. Has the Respondent previously made substantial voluntary
efforts to provide information (such as providing tips that led to
enforcement actions against other parties) to Federal law
enforcement authorities in support of the enforcement of U.S. export
control regulations? Has the Respondent previously disclosed
information regarding the conduct of others that led to enforcement
action by OEE?
5. Did the Respondent enter into a statute of limitations
tolling agreement, if requested by OEE (particularly in situations
where the apparent violations were not immediately disclosed or
discovered by OEE, in particularly complex cases, and in cases in
which the Respondent has requested and received additional time to
respond to a request for information from OEE)? If so, the
Respondent's entering into a tolling agreement may be deemed a
mitigating factor.
Note: A Respondent's refusal to enter into a tolling agreement
will not be considered by OEE as an aggravating factor in assessing
a Respondent's cooperation or otherwise under the Guidelines.
I. License Was Likely To Be Approved. Would an export license
application have likely been approved for the transaction had one
been sought? Would the export have qualified for a License
Exception? Some license requirements sections in the EAR also set
forth a licensing policy (i.e., a statement of the policy under
which license applications will be evaluated), such as a general
presumption of denial or case by case review. OEE may also consider
the licensing history of the specific item to that destination and
if the item or end-user has a history of export denials.

Other Relevant Factors Considered on a Case-by-Case Basis

J. Related Violations. Frequently, a single export transaction
can give rise to multiple violations. For example, an exporter who
inadvertently misclassifies an item on the Commerce Control List
may, as a result of that error, export the item without the required
export license and file Electronic Export Information (EEI) to the
Automated Export System (AES) that both misstates the applicable
Export Control Classification Number (ECCN) and erroneously
identifies the export as qualifying for the designation ``NLR'' (no
license required) or cites a license exception that is not
applicable. In so doing, the exporter commits three violations: one
violation of Sec. 764.2(a) of the EAR for the unauthorized export
and two violations of Sec. 764.2(g) of the EAR for the two false
statements on the EEI filing to the AES. OEE will consider whether
the violations stemmed from the same underlying error or omission,
and whether they resulted in distinguished or separate harm. OEE
generally does not charge multiple violations on a single export,
and would not consider the existence of such multiple violations as
an aggravating factor in and of itself. It is within OEE's
discretion to charge separate violations and settle the case for a
penalty that is less than would be appropriate for unrelated
violations under otherwise similar circumstances, or to charge fewer
violations and pursue settlement in accordance with that charging
decision. OEE generally will consider inadvertent, compounded
clerical errors as related and not separate infractions when
deciding whether to bring charges and in determining if a case is
egregious.
K. Multiple Unrelated Violations. In cases involving multiple
unrelated violations, OEE is more likely to seek a denial of export
privileges and/or a greater monetary penalty than OEE would
otherwise typically seek. For example, repeated unauthorized exports
could warrant a denial order, even if a single export of the same
item to the same destination under similar circumstances might
warrant just a civil monetary penalty. OEE takes this approach
because multiple violations may indicate serious compliance problems
and a resulting greater risk of future violations. OEE may consider
whether a Respondent has taken effective steps to address compliance
concerns in determining whether multiple violations warrant a denial
order in a particular case.
L. Other Enforcement Action. Other enforcement actions taken by
Federal, State, or local agencies against a Respondent for the
apparent violation or similar apparent violations, including whether
the settlement of alleged violations of BIS regulations is part of a
comprehensive settlement with other Federal, State, or local
agencies. Where an administrative enforcement matter under the EAR
involves conduct giving rise to related criminal or civil charges,
OEE may take into account the related violations, and their
resolution, in determining what administrative sanctions are
appropriate under part 766 of the EAR (15 CFR part 766). A criminal
conviction indicates serious, willful misconduct and an accordingly
high risk of future violations, absent effective

[[Page 75489]]

administrative sanctions. However, entry of a guilty plea can be a
sign that a Respondent accepts responsibility for complying with the
EAR and will take greater care to do so in the future. In
appropriate cases where a Respondent is receiving substantial
criminal penalties, OEE may find that sufficient deterrence may be
achieved by lesser administrative sanctions than would be
appropriate in the absence of criminal penalties. Conversely, OEE
might seek greater administrative sanctions in an otherwise similar
case where a Respondent is not subjected to criminal penalties. The
presence of a related criminal or civil disposition may distinguish
settlements among civil penalty cases that appear otherwise to be
similar. As a result, the factors set forth for consideration in
civil penalty settlements will often be applied differently in the
context of a ``global settlement'' of both civil and criminal cases,
or multiple civil cases, and may therefore be of limited utility as
precedent for future cases, particularly those not involving a
global settlement.
M. Future Compliance/Deterrence Effect. The impact an
administrative enforcement action may have on promoting future
compliance with the regulations by a Respondent and similar parties,
particularly those in the same industry sector.
N. Other Factors That OEE Deems Relevant. On a case-by-case
basis, in determining the appropriate enforcement response and/or
the amount of any civil monetary penalty, OEE will consider the
totality of the circumstances to ensure that its enforcement
response is proportionate to the nature of the violation.

IV. Civil Penalties

A. Determining What Sanctions Are Appropriate in a Settlement

OEE will review the facts and circumstances surrounding an
apparent violation and apply the Factors Affecting Administrative
Sanctions in section III of this supplement in determining the
appropriate sanction or sanctions in an administrative case,
including the appropriate amount of a civil monetary penalty where
such a penalty is sought and imposed. Penalties for settlements
reached after the initiation of litigation will usually be higher
than those described by these guidelines.

B. Amount of Civil Penalty

1. Determining Whether a Case is Egregious. In those cases in
which a civil monetary penalty is considered appropriate, the OEE
Director will make a determination as to whether a case is deemed
``egregious'' for purposes of the base penalty calculation. If a
case is determined to be egregious, the OEE Director also will also
determine the appropriate base penalty amount within the range of
base penalty amounts prescribed in paragraphs IV.B.2.a.iii and iv of
this supplement. These determinations will be based on an analysis
of the applicable factors. In making these determinations,
substantial weight will generally be given to Factors A (``willful
or reckless violation of law''), B (``awareness of conduct at
issue''), C (``harm to regulatory program objectives''), and D
(``individual characteristics''), with particular emphasis on
Factors A, B, and C.
A case will be considered an ``egregious case'' where the
analysis of the applicable factors, with a focus on Factors A, B,
and C, indicates that the case represents a particularly serious
violation of the law calling for a strong enforcement response.
2. Monetary Penalties in Egregious Cases and Non-Egregious
Cases. The civil monetary penalty amount shall generally be
calculated as follows, except that neither the base penalty amount
nor the penalty amount will exceed the applicable statutory maximum:
a. Base Category Calculation and Voluntary Self-Disclosures.
i. In a non-egregious case, if the apparent violation is
disclosed through a voluntary self-disclosure, the base penalty
amount shall be up to one-half of the transaction value.
ii. In a non-egregious case, if the apparent violation comes to
OEE's attention by means other than a voluntary self-disclosure, the
base penalty amount shall be up to the transaction value.
iii. In an egregious case, if the apparent violation is
disclosed through a voluntary self-disclosure, the base penalty
amount shall be an amount up to one-half of the statutory maximum
penalty applicable to the violation.
iv. In an egregious case, if the apparent violation comes to
OEE's attention by means other than a voluntary self-disclosure, the
base penalty amount shall be an amount up to the statutory maximum
penalty applicable to the violation.
v. The applicable statutory maximum civil penalty per violation
of the Export Control Reform Act (ECRA) of 2018 is a fine defined in
ECRA and adjusted in accordance with U.S. law, e.g., the Federal
Civil Penalties Inflation Adjustment Act Improvements Act of 2015
(Pub. L. 114-74, sec. 701), which in 2024 was $364,992, 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.
The following matrix represents the base penalty amount of the
civil monetary penalty for each category of violation:

Base Penalty Matrix
------------------------------------------------------------------------
Egregious case?
Voluntary self-disclosure? -------------------------------------------
NO YES
------------------------------------------------------------------------
YES......................... (1) Up to One-Half (3) Up to One-Half
of the Transaction of the Applicable
Value. Statutory Maximum.
NO.......................... (2) Up to the (4) Up to the
Transaction Value. Applicable
Statutory Maximum.
------------------------------------------------------------------------

b. Adjustment for Applicable Relevant Factors. The base penalty
amount of the civil monetary penalty will be adjusted to reflect
applicable Factors for Administrative Action set forth in section
III of these guidelines. The Factors may result in a penalty amount
that is lower or higher than the base penalty amount depending upon
whether they are aggravating or mitigating and how they, in the
discretion of OEE, apply in combination in a particular case.

C. Settlement Procedures

The procedures relating to the settlement of administrative
enforcement cases are set forth in Sec. 766.18 of the EAR.

Thea D. Rozman Kendler,
Assistant Secretary for Export Administration.
[FR Doc. 2024-21013 Filed 9-12-24; 8:45 am]
BILLING CODE 3510-33-P

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