The United States Department of Commerce’s Bureau of Industry and Security (“BIS”) has published a fi nal rule setting forth the antiboycott penalty guidelines in the Federal Register.1 See 72 Fed. Reg. 38,999 (July 17, 2007) on the pages following this Client Memorandum. The fi nal rule is not signifi cantly different from the proposed rule published in the Federal Register on June 30, 2006, in which BIS sought public comment with respect to this issue.
A summary of the fi nal guidelines, effective August 16, 2007, includes:
- The rule creates 15 C.F.R. § 764.8, a section addressing “Voluntary Self-Disclosure of Boycott Violations.”
- The rule also creates “Supplement No. 2” to Part 766 of the Export Administration Regulations (“EAR”) entitled “Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases Involving Antiboycott Matters.”
- The rule applies only to disclosures of the antiboycott provisions of the EAR and not to violations of the EAR generally.
- Under the new rule, the Offi ce of Antiboycott Compliance (“OAC”) strongly encourages, but does not require, voluntary disclosure.
Under this new provision, if 1) a party subject to the regulations voluntarily discloses a violation with full knowledge and authorization of senior management or of a person with authority to make such disclosure on behalf of the company, 2) the disclosure is in writing, and 3) it is submitted before OAC commences an investigation or inquiry in connection with the same or substantially similar information received from another source, the voluntary disclosure will be given “GREAT WEIGHT” as a mitigating factor (defi ned as “considerably more weight than other factors”):
Voluntarily: The proposed regulation required that the disclosure be made with the knowledge and authorization of senior management. This was changed to recognize that certain other parties in a company may have the authority to take these types of actions.
“In writing”: The disclosure must either be 1) a complete disclosure including all required information and documentation identifi ed in the regulations, or 2) an initial notifi cation that is later followed up with all required information and documentation.
Before OAC commences an investigation or inquiry: This may be the most important part of the new regulation to understand, and there are two critical points:
- The regulations always have had a requirement that a party receiving a boycott-related request must report that request to OAC along with an explanation of whether or not the receiving party complied with the request. Filing the quarterly report required under the regulations will not constitute a voluntary self-disclosure or provide any of the protections associated with such a disclosure. In fact, OAC may consider a required report as information received from “another source” and commence an investigation as a result of that report, eliminating the ability to later fi le a voluntary self-disclosure. Therefore, if a company determines that a violation has occurred, and it is required to fi le a quarterly report that includes that violation (or risk additional violations for failure to fi le), it should include an initial notifi cation with the required quarterly report, followed later by a complete disclosure. In that instance, OAC has stated that it will consider the disclosure as having occurred before it commenced an investigation based on information contained in the required quarterly report.
- OAC also provides a “hot line” that people can call or email to request additional information on the antiboycott regulations. In some cases, people requesting advice disclose that a violation has occurred. When this occurs, OAC will consider the information as neither a disclosure (or initial notifi cation) nor “another source” of information that could lead to an investigation. Companies should keep in mind that, until they actually fi le a voluntary selfdisclosure, OAC could commence an investigation at any time, and the opportunity to disclose could be lost.
Only those violations that are specifi cally identifi ed as part of a voluntary self-disclosure will be eligible for mitigation under the program. Therefore, OAC recommends that any company submitting a voluntary self-disclosure complete a fi ve-year comprehensive internal review of all operations where violations may have occurred. Of course, because the antiboycott regulations defi ne a “U.S. person” to include foreign subsidiaries owned or controlled by a U.S. person, the scope of such a review going back fi ve years could be large and the cost expensive. Businesses faced with this choice will have to determine the risk and cost of missing (and so not disclosing) a potential violation against the costs of completing an extensive internal review. The new supplement provides details of the actions OAC may take in response to a violation, whether or not a voluntary self-disclosure is fi led, ranging from a warning letter to criminal prosecution. The supplement also lists various mitigating and aggravating factors that it will take into account in making its determinations and identifi es which of those factors will be given “GREAT WEIGHT.”