New BIS Memo Aims to Increase Disclosures of ‘Significant’ Export Violations

The Bureau of Industry and Security issued a new set of policy "clarifications" this week that it hopes will increase the number of voluntary self-disclosures (VSDs) it receives for serious export violations. One clarification says the agency could increase penalties on companies that fail to disclose a “significant” potential violation, while another clarification could reward companies that tip off BIS about their competitors’ wrongdoings.

The clarifications are meant to provide a stronger incentive for submissions of certain VSDs, said Matt Axelrod, assistant secretary for export enforcement at BIS. “The reason we're doing this is we view export control compliance as a shared endeavor,” Axelrod said during CBP’s Trade Facilitation and Cargo Security Summit April 18 in Boston. “Industry is a key partner in this and we want you to tell us when something has gone wrong.”

Axelrod outlined the clarifications in a policy memo to enforcement agents, stressing that the agency wants to clamp down on “deliberate non-disclosure of significant possible violations.” BIS will now “consistently” consider a company’s failure to submit a VSD involving a serious potential violation as an “aggravating factor” when the agency calculates penalty amounts, he said.

“When someone chooses to file a VSD, they get concrete benefits,” the memo said. But “when someone affirmatively chooses not to file a VSD, however, we want them to know that they risk incurring concrete costs.” Companies and universities “should carefully weigh any decision not to disclose” serious penalties, Axelrod wrote, adding that they risk a “sharply increased” penalty.

The second clarification is meant to incentivize companies and members of academia to “come forward and tell us” about “others who are violating our rules,” Axelrod wrote. When a company “becomes aware” that another company may be violating the Export Administration Regulations, discloses that information to BIS and that tip leads to an enforcement action, BIS will consider that as a “mitigating factor” in any future enforcement action against the disclosing company, he wrote.

“If you ever get in trouble with us for even completely unrelated conduct, we’ll remember that you provided exceptional cooperation in that instance, and that will be a factor we consider, if and when we ever have to resolve a matter with you,” Axelrod said, adding that BIS doesn’t want companies to “suffer in silence” while their competitors are earning business by violating export controls. “We want to maintain a level playing field.”

Companies who send tips to BIS could also receive “monetary rewards” if the disclosure involves a potential sanctions violation, Axelrod said. The Treasury Department’s Financial Crimes Enforcement Network, under its whistleblower program, can provide companies with “substantial financial rewards” for information that leads to the discovery of sanctions violations or “successful enforcement of ‘related actions,’” the memo said.

“This means that FinCEN could even pay awards on Export Control Reform Act penalties -- so long as either Treasury or Justice take a qualifying action based on the same original information provided by a whistleblower.”

Speaking during the conference, Axelrod said he wants to make sure industry is “incentivized to invest in compliance,” adding that BIS plans to announce “significant enforcement actions” this year. Axelrod in March said he specifically hopes to increase the number of penalties the agency issues against corporations (see 2303030035).

“I think, in the past, export controls maybe were a slightly esoteric, slightly technical thing” that only the compliance department worried about, Axelrod said. “I'm here to tell you that the world has changed, and that the risk from violating our rules is now enterprise risk, which means that it's not just your export compliance person who needs to worry about that, but it's your C-suite and it’s your general counsel.

“Because if something goes really wrong,” he said, “it could be existential for you.”