The U.S. Bureau of Industry and Security (BIS) has issued a proposed rule, as published in the November 7, 2012, edition of the Federal Register, proposing a number of changes to the Export Administration Regulations (EAR) governing Voluntary Self-Disclosures (VSD) and administrative enforcement proceedings. The most significant of these proposed changes would revise the EAR to impose a 180-day deadline for submission of the final, comprehensive narrative account that must be filed after submission of the initial VSD.
Section 764.5 of the EAR (15 C.F.R. § 764.5) outlines the current procedure by which a party that believes it may have violated the EAR may voluntarily disclose the potential violation(s) to BIS. Submission of a valid self-disclosure is typically the most important mitigating factor that BIS considers in determining what administrative sanctions to impose. These administrative sanctions can include significant civil monetary penalties and the denial of export privileges. Often, the disclosing party will file an initial VSD, perform an extensive internal investigation of the disclosed violation(s), and then report its findings to BIS via a final narrative account, often referred to as a "perfection." Under current regulations, there is no specific deadline by which the perfection must be submitted.
In its proposed rule, BIS stated that too often the initial VSD is not "promptly followed" by comprehensive narrative accounts, forcing the BIS Office of Export Enforcement (OEE) to "maintain open files on voluntary disclosures for extended periods of time without making sufficient progress towards resolving the matter disclosed." Under the proposed rule, the OEE Director could extend the 180-day deadline if the disclosing party shows that more time is "reasonably necessary" to complete the narrative account. BIS provided several examples of circumstances that might warrant additional time, including the need to obtain records or information from multiple sources, corporate bankruptcy, large layoffs, acquisition/restructuring or delays in obtaining a BIS classification request or Commodity Jurisdiction determination from the U.S. Department of State's Directorate of Defense Trade Controls (DDTC).
In another departure from current procedure, the proposed rule would also allow the Director of OEE to place conditions on any extension of the 180-day deadline, such as requiring a tolling agreement to cover any violations disclosed in the initial VSD. The OEE Director also would have discretion to require the disclosing party to undertake "specific interim remedial compliance measures" as a condition of granting an extension. Importantly, while failure to meet either the initial 180-day deadline or an extended deadline would not be considered an additional violation, the proposed rule does indicate that such failure may reduce or eliminate the mitigating impact of filing a VSD.
BIS has advanced the position that the proposed 180-day deadline is consistent with the practices of other agencies, noting that DDTC imposes a 60-day deadline for submission of the VSD perfection pursuant to the International Traffic in Arms Regulations (ITAR), and the Department of the Treasury's Office of Foreign Assets Control (OFAC) requires that the perfection be submitted within a reasonable time following submission of the initial VSD. BIS also stated that based on its experience with VSDs, the agency believes the 180-day deadline allows for "ample time to complete the narrative account in most instances and that requests for extensions will normally not be necessary or justified."
Public comments on the proposed rule must be submitted to BIS by January 7, 2013. View the Federal Register notice.