The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule that revises certain provisions related to the voluntary self-disclosure (VSD) process for exporters who believe that they may have violated the Export Administration Regulations (EAR). This final rule, which took effect September 16, 2024, also provides guidance on charging and penalty determinations in settlement of administrative enforcement cases.
Separately, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) also issued an interim final rule amending its Reporting, Procedures and Penalties Regulations by extending the recordkeeping requirements for certain transactions from five to ten years. This change is consistent with the updated statute of limitations for civil and criminal violations of U.S. sanctions enacted earlier this year. The effective date of the OFAC interim final rule is March 12, 2025.
A brief summary of these new rules is provided below.
Updates to BIS’s Voluntary Self-Disclosure Regulations
BIS’s final rule makes three primary revisions to the EAR concerning VSDs found at 15 C.F.R. § 764.5. These amendments enhance the mitigating effects of VSDs and encourage disclosures by entities that may have violated the EAR.
A New Aggravating Factor and Incentive to Disclose
BIS’s Office of Export Enforcement (OEE) will now consider a deliberate decision by a firm 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. The revision allows OEE to impose penalties, or charge certain conduct that may have otherwise been treated with a warning letter, in cases that are appropriate to deter future noncompliance and encourage voluntary disclosure.
A Dual-Track Disclosure Process
BIS’s rule creates a dual-track process for the processing of VSDs. Specifically, new paragraph (c) of section 764.5 explains the process for submitting VSDs involving minor or technical violations, which are defined as violations that do not include any aggravating factors, such as immaterial Electronic Export Information (EEI) filing errors, inadvertent record keeping violations, and incorrect use of one license exception where other license exceptions were available. VSDs for these violations only require an abbreviated narrative report that may be submitted via email or in writing. Parties may also bundle the submission of multiple minor or technical violations into one overarching submission if the violations occurred within the preceding quarter. OEE intends to resolve VSDs involving minor or technical violations within 60 days.
For VSDs that instead involve “significant violations,” new paragraph (d) of section 764.5 largely retains the previous language for submitting disclosures. However, it also clarifies that “significant violations” are those involving one or more of the aggravating factors in the BIS Penalty Guidelines, and instructs parties who are unsure whether their disclosure involves a minor or technical violation or a significant violation that they should follow the procedures for disclosing a significant violation.
Treatment of Unlawfully Exported Items
BIS’s VSD rule revises paragraph (g) of section 764.5 regarding the treatment of unlawfully exported items. This paragraph now contains 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 permission from the Office of Exporter Services to engage in activities described in § 764.2(e) that would otherwise be prohibited, i.e., acting with knowledge of a violation. Previously, this paragraph limited such requests for permission to parties who submitted a VSD. This allows parties that have an interest in an item subject to a VSD to submit such a request.
Also, pursuant to new paragraph (g)(1)(iii), a person need only notify the Director of OEE, rather than submit requests for authorization from OEE, to return an item to the United States that has been unlawfully exported and disclosed.
Revisions to the BIS Penalty Guidelines
BIS’s final rule makes several changes to the BIS Penalty Guidelines contained in supplement no. 1 to part 766 of the EAR. These are designed to make penalty calculations more straightforward, ensure that high-value transactions are subject to penalties that appropriately reflect the seriousness of the offense, and also provide for non-monetary penalties.
With respect to penalty calculations, BIS is removing the definition of “applicable schedule amount” in section I completely and corresponding references in the base penalty matrix and 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, whereas previously, the Penalty Guidelines applied schedule amounts and caps that produced base penalties that were well below the statutory limitations and not sufficiently deterrent.
BIS is also formalizing non-monetary resolutions as a new enforcement response for cases involving non-egregious conduct that have not resulted in serious national security harm but warrant more than a warning letter. Such resolutions require remediation through the imposition of a suspended denial order with certain conditions, such as training and compliance requirements, to mitigate harm from past violations and to prevent future ones.
The new rule also amends the Penalty Guidelines by removing specific ranges for potential reductions related to certain mitigating factors, such as the previous base penalty reduction of 25 percent for first time violations. The application of mitigating and aggravating factors, as they apply in combination to a particular case, may result in a penalty amount that is higher or lower than the base penalty amount.
OFAC’s Ten-Year Recordkeeping Requirements
On April 24, 2024, President Biden signed into law the 21st Century Peace through Strength Act (“the Act”). Section 3111 of the Act extended the statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) from five to ten years.
The ten-year statute of limitations became effective on April 24, 2024, and applies to any violation that was not time-barred at the time of its enactment, meaning that OFAC may now commence an enforcement action for civil violations of IEEPA- or TWEA-based sanctions prohibitions within ten years of the latest date of the violation if such date was after April 24, 2019.
To match the new statute of limitations period, OFAC’s new interim final rule extends from five years to ten years the recordkeeping requirements codified in the Reporting, Procedures and Penalties Regulations in 31 C.F.R. Parts 501 and 515.
Conclusion
These new rules implement significant changes that will affect how and when companies should consider submitting VSDs to BIS, how potential penalties are calculated and the types of penalties that can be assessed, and how long they need to maintain records under the OFAC regulations. Companies should review these rules and update their export controls and sanctions compliance programs accordingly.
Contact us if you have questions about these new developments.