Not to be outdone by the Directorate of Defense Trade Controls, which left a nice little gift under every exporter’s tree last week, the Bureau of Industry and Security had a gift of its own which it dropped down everyone’s chimney the day after Christmas. Of course, whether it is a gift or a lump of coal is open to some discussion.
The gift/coal lump in question consists of proposed guidelines for the assessment of penalties for export violations. It more or less adopts the mostly unhelpful scheme in place over at the Office of Foreign Assets Control, going so far even as to adopt the notoriously unhelpful distinction between egregious and non-egregious cases. The base penalty would be established by looking at whether the case is egregious and whether a voluntary disclosure had been filed.
If the case is egregious and there is no voluntary disclosure the base penalty is the statutory maximum. (Ouch!) If egregious and voluntarily disclosed, the base penalty is half the statutory maximum. (Still an ouch!) If non-egegious but without a voluntary disclosure, the base penalty is a thing called, in Mid-Atlantic bureaucratese, the “Applicable Schedule Amount” capped at $250,000 per violation. The Applicable Schedule Amount is basically a bracketed round-up of the transaction value. For example, it’s $170,000 for transactions valued at between $100,000 and $170,000. And for non-egregious violations that were voluntarily disclosed, it is the transaction value capped at $125,000 per violation. BIS then pulls aggravating and mitigating factors out of the sorting hat and decides whether to impose a penalty greater than or less than the base penalty
Now let’s talk about whether these Guidelines are a gift or a lump of coal. Because BIS takes the odd opportunity in the proposed guidelines to remind lawyers that it can disbar them from practice before the agency for whatever reason it wants, let’s start with the gifts and leave the lumps of coal for last in hopes that no one from the agency will read down that far.
Gift: BIS reiterates that most voluntary disclosures will result in no-action or warning letters and thus will not even involve these guidelines. In fact, BIS says this:
[O]ver the past several years, on average only three percent of VSDs submitted have resulted in a civil penalty.
Gift: Acquiring companies will not be weighed down by the sins of acquired companies. This is not a retreat from the doctrine of successor liability, premised on the ridiculous notion that without such liability companies will commit export violations willy-nilly knowing that they can easily absolve themselves by selling the company. (One has to imagine that no one at BIS has ever done a corporate deal if they actually believe this.) But the Guidelines now make clear that, if the acquiring company discloses and cleans up the target’s past violations, they won’t be counted under the aggravating factor for prior violations in subsequent voluntary disclosures by the acquiring company.
Lump of Coal: BIS is expressly reverting back to its practice of “piling on” violations, something it swore up and done to Congress it would stop doing if Congress upped the penalties to $250,000 per violation, a promise the agency kept for a while when it said that in cases where the same act led to multiple violations it would only charge the most serious. Well forget that. Now we are expressly back to the situation where if an exporter misclassifies an item, it has committed three (if not more) violations: one for the illegal export, one for the wrong ECCN on the AES, and one for putting NLR (“No License Required”) on the AES. That’s $750,000 before you’ve even walked through the door. BIS makes clear that now (forget those pesky promises) it has the “discretion” to charge all three violations separately.
Lump of Coal: BIS will take into account whether the exporter had a compliance program at the time of the violation, at least to “the extent to which a Respondent complies with the principles set forth in BIS’s Export Management System (EMS) Guidelines.” The whatguidelines, you ask? Oh, you know the, ones that “can be accessed through the BIS Web site at www.bis.doc.gov.” The lump of coal here is awarded because of this dispiriting proof that the agency in charge of regulating exports of technology can’t figure out how links and the Internet works. Perhaps they are afraid that if they give an actual link to these guidelines, the Chinese will click on it and hack their systems again. I would suggest typing “Export Management System Guidelines” into the search box on the BIS website, but that’s more characters than is allowed by that search tool. You can type in “Export Management Sy” but that doesn’t provide any useful results. If your Google-fu is strong, you can find them. If not, you’re pretty much out of luck.
Comments on the proposed guidelines are due on February 26, 2016.