By George W. Thompson
The Bureau of Industry and Security (BIS) has proposed a wholesale revision of the guidelines it applies in determining penalties for violations of the Export Administration Regulations (EAR). The guidelines, set forth in 15 C.F.R. Part 766, Supplement No. 1, identify “aggravating” and “mitigating” factors. BIS applies them in deciding whether to issue a warning letter or a penalty and the monetary amount of a penalty. Likewise, exporters that may have violated the EAR use them to present arguments about sanctions that should apply to the particular facts of their transactions.
The proposed revision’s stated purpose is to provide more certainty in the outcome of penalty proceedings. To that end, BIS has revised and explained the factors it will take into account. These aren’t really new points, in my view, but a reshuffling of the existing ones.
What is new is the proposal to use a “base penalty amount” as a starting point for determining the ultimate penalty. This approach is explicitly modeled on that used by the Office of Foreign Assets Control (OFAC). The BIS notice of proposed rulemaking notes that the two agencies enforce the same laws, and provides this as a rationale for taking similar approaches to address violations.
Major Change in Approach to Penalty Determinations
My biggest concern about the BIS proposal is establishing a base penalty amount as the starting point for the analysis. This can easily lead to an OFAC-style approach in which nearly every violation results in the imposition of a monetary penalty. Indeed, this may be what BIS has in mind; the proposal states: “mitigation will generally not exceed 75 percent of the base penalty.”
What’s unclear to me is whether BIS will continue with its current liberality in issuing warning letters in place of penalties.
In fairness, according to the proposal, BIS “does not expect that adoption of these guidelines will increase the number of cases that are charged administratively rather than closed with a warning letter.” Instead, the revised approach presumably would apply only when the decision to issue a penalty has been made at all.
Nevertheless, I believe it would be helpful for BIS to identify the factors it takes into account in making that threshold determination. It’s commendable for the agency to provide more certainty about the amount of a penalty, but how about more certainty about the circumstances when a penalty (regardless of amount) will be assessed in the first place?
Aggravating and Mitigating Factors Will Apply to the Base Amount
With that rant out of the way, here’s how the proposed revision would work when a penalty is to be assessed.
BIS will start with the base amount (technically, the “applicable schedule amount”), which will vary depending on the value of the violative transaction, for example:
- $1,000 with respect to a transaction valued at less than $1,000;
- $10,000 with respect to a transaction valued at $1,000 or more but less than $10,000;
The base amount will be adjusted up or down, depending on whether a case is deemed egregious or non-egregious and whether a voluntary self-disclosure was filed. The net penalty will then be determined by evaluating the aggravating factors (willful or reckless violation of law, awareness of conduct at issue, harm to regulatory program), general factors (individual characteristics, compliance program) and mitigating factors (remedial response, exceptional cooperation with BIS, license was likely to be approved, related violations, multiple unrelated violations, other enforcement action, future compliance/deterrence effect.)
The exporter’s voluntary self-disclosure of a potential violation would no longer be considered a mitigating factor per se, but instead is used in establishing the base penalty amount.
BIS has solicited public comments on the proposed revisions; these are due by February 26, 2016.
The applicable Federal Register notice is available here: https://www.gpo.gov/fdsys/pkg/FR-2015-12-28/pdf/2015-32606.pdf
