Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases, 40499-40511 [2016-14770]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security

[Federal Register Volume 81, Number 120 (Wednesday, June 22, 2016)]
[Rules and Regulations]
[Pages 40499-40511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14770]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 766

[Docket No. 151204999-6179-02]
RIN 0694-AG73


Guidance on Charging and Penalty Determinations in Settlement of 
Administrative Enforcement Cases

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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SUMMARY: This final rule revises the Bureau of Industry and Security's 
(BIS) guidance regarding administrative enforcement cases based on 
violations of the Export Administration Regulations (EAR). The rule 
rewrites that guidance in the EAR, setting forth the factors that the 
Office of Export Enforcement (OEE) considers when setting penalties in 
settlements of administrative enforcement cases and when deciding 
whether to pursue administrative charges or settle allegations of EAR 
violations. This final rule does not apply to alleged violations of 
regulations concerning restrictive trade practices and boycotts, which 
would continue to be subject to the guidance.

DATES: Effective date: July 22, 2016.

FOR FURTHER INFORMATION CONTACT: Norma Curtis, Assistant Director, 
Office of Export Enforcement, Bureau of Industry and Security. Tel: 
(202) 482-5036, or by email at norma.curtis@bis.doc.gov.

SUPPLEMENTARY INFORMATION:

Background

    The mission of the Office of Export Enforcement (OEE) at BIS is to 
enforce the provisions of the Export Administration Regulations (EAR), 
secure America's trade, and preserve America's technological advantage 
by detecting, investigating, preventing, and deterring the unauthorized 
export and reexport of U.S.-origin items to parties involved with: (1) 
Weapons of mass destruction programs; (2) threats to national security 
or regional stability; (3) terrorism; or (4) human rights abuses. 
Export Enforcement at BIS is the only federal law enforcement agency 
exclusively dedicated to the enforcement of export control laws and the 
only agency constituted to do so with both administrative and criminal 
export enforcement authorities. OEE's criminal investigators and 
analysts leverage their subject-matter expertise, unique and 
complementary administrative enforcement tools, and relationships with 
other federal agencies and industry to protect our national security 
and promote our foreign policy interests. OEE protects legitimate 
exporters from being put at a competitive disadvantage by those who do 
not comply with the law. It works to educate parties to export 
transactions on how to improve export compliance practices, supporting 
American companies' efforts to be reliable trading partners and 
reputable stewards of U.S. national and economic security. BIS also 
discourages, and in some circumstances prohibits, U.S. companies from 
furthering or supporting any unsanctioned foreign boycott (including 
the Arab League boycott of Israel).
    OEE at BIS may refer violators of export control laws to the U.S. 
Department of Justice for criminal prosecution, and/or to the 
Department's Office of the Chief Counsel for Industry and Security for 
administrative prosecution. In cases where there has been a willful 
violation of the EAR, violators may be subject to both criminal fines 
and administrative penalties. Administrative penalties may also be 
imposed when there is no willful intent, allowing administrative cases 
to be brought in a much wider variety of circumstances than criminal 
cases. OEE has a unique combination of administrative enforcement 
authorities including both civil penalties and denials of export 
privileges. BIS may also place individuals and entities on lists that 
restrict or prohibit their involvement in exports, reexports, and 
transfers (in-country).
    In this rule, BIS amends the EAR to update its Guidance on Charging 
and Penalty Determinations in Settlement of Administrative Enforcement 
Cases (the ``BIS Guidelines'') found in Supplement No. 1 to part 766 of 
the EAR in order to make civil penalty determinations more predictable 
and transparent to the public and aligned with those promulgated by the 
Treasury Department's Office of Foreign Assets Control (OFAC). OFAC 
administers most of its sanctions programs under the International 
Emergency Economic Powers Act (IEEPA), the same statutory authority by 
which BIS implements the EAR. OFAC uses the transaction value as the 
starting point for determining civil penalties pursuant to its Economic 
Sanctions Enforcement Guidelines. Under IEEPA, criminal penalties can 
reach 20 years imprisonment and $1 million per violation, and 
administrative monetary penalties can reach $250,000 (subject to 
adjustment in accordance with U.S. law, e.g., the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L. 
114-74, sec. 701)) or twice the value of the transaction, whichever is 
greater. Both agencies coordinate and cooperate on investigations 
involving violations of export controls that each agency enforces, 
including programs relating to weapons of mass destruction, terrorism, 
Iran, Sudan, Specially Designated Nationals and Specially Designated 
Global Terrorists. This guidance would not apply to civil 
administrative enforcement cases for violations under part 760 of the 
EAR--Restrictive Trade Practices and Boycotts. Supplement No. 2 to Part 
766 continues to apply to enforcement cases involving part 760 
violations. This guidance also will not apply to pending

[[Page 40500]]

matters where, as of July 22, 2016, there are ongoing settlement 
negotiations and a charging letter has not been filed.

Proposed Rule and Comments

    On December 28, 2015, BIS published a proposed rule to amend the 
BIS Guidelines (80 FR 80710). BIS received eleven submissions 
commenting on the proposed rule.

Overall Approach and Relation to Export Control Reform

    Comment: Several commenters, although making suggestions or raising 
concerns about specific provisions in the proposed rule, commended OEE 
and BIS for making the BIS Guidelines more transparent, predictable and 
consistent and for aligning them with OFAC's Economic Sanctions 
Enforcement Guidelines (``OFAC Guidelines''). One commenter noted that 
the OFAC Guidelines have ``[h]istorically . . . withstood the test of 
time'' and that ``using them as a general model makes sense.''
    One submission, however, stated that the proposed rule fails to 
discuss how it advances the goal of Export Control Reform (``ECR'') by 
not aligning the BIS Guidelines with the administrative penalties and 
procedures promulgated by the Department of State, Directorate of 
Defense Trade Controls (``DDTC'') in the International Traffic in Arms 
Regulations (``ITAR''). The author submits that the alignment of BIS's 
enforcement policies and procedures with those of DDTC for enforcing 
export violations under the shared jurisdiction of BIS and DDTC would 
be more in line with the objectives of ECR.
    Response: One of the primary goals of ECR is to transfer less 
sensitive military items from the United States Munitions List 
(``USML'') to the more flexible licensing authority of the Commerce 
Department's Commerce Control List (``CCL''). ECR would thus enhance 
national security by (i) improving interoperability of U.S. military 
forces with allied countries, (ii) strengthening the U.S. industrial 
base by, among other things, reducing incentives for foreign 
manufacturers to ``design out'' and avoid U.S.-origin content and 
services, and (iii) allowing export control officials to focus 
government resources on transactions that pose greater concern. This 
goal has been largely accomplished.
    It does not necessarily follow, however, that the manner in which 
controls are enforced on the items transferred to the CCL from the USML 
should involve aligning BIS Guidelines with those enforcement policies 
and procedures of DDTC. The licensing and enforcement functions of all 
three regulatory agencies--DDTC, BIS and OFAC--are encompassed within 
the ECR initiative. All three have defined jurisdictional roles over 
licensing exports. BIS has maintained a robust enforcement posture 
regarding violations of the EAR, and its policies and practices--
including with regard to voluntary self-disclosures (``VSDs''), 
consideration of mitigating and aggravating factors, settlements and 
the imposition of civil monetary penalties--have historically been much 
more closely aligned with those of OFAC.
    As stated in the proposed rule, both BIS and OFAC administer their 
regulations under the authority of the International Emergency Economic 
Powers Act, and the OFAC Guidelines serve as the only other published 
example of enforcement policies and practices promulgated under that 
statute. It is therefore consistent with the principles of ECR to bring 
the BIS Guidelines further into alignment with the OFAC Guidelines, 
which are more recent than BIS's current Guidelines and account for the 
higher penalties set forth in the International Emergency Economic 
Powers Enhancement Act of 2007.
    Furthermore, the ``higher fences'' principle of ECR, referring to 
the more focused and concentrated enforcement efforts around the more 
significant military items that remain on the USML also applies to 
enforcement of items transferred to the CCL. Because of the more 
flexible licensing authority of the EAR that serves to facilitate trade 
(e.g., License Exception STA), it is also paramount that the diversion 
risk with respect to such items of lesser military significance be 
monitored closely and that the deterrent effect of a strong enforcement 
response to violations be maintained.
    Nevertheless, the proposed rule and this final rule share some 
characteristics with the enforcement policy of DDTC. Both DDTC and OEE 
have long placed great emphasis on the importance of VSDs, a policy 
that is reiterated and reinforced in the proposed rule and in this 
final rule. More generally, OEE sought to convey in the proposed rule 
the importance it places on the submission of VSDs, and underscored the 
fact that, over the past several years, on average only three percent 
of VSDs submitted have resulted in a civil monetary penalty. OEE does 
not expect that rate to change significantly, and OEE's practice is 
consistent with DDTC in responding to most VSDs submitted to it with a 
warning letter. Additionally, the proposed rule and this final rule 
provide that the use of funds that would otherwise be paid as a civil 
penalty may, in some cases, be suspended conditioned upon the 
respondent using funds in an equivalent amount for compliance 
activities required under the final order including improving internal 
compliance programs and conducting audits. Although such suspensions 
have been used by DDTC in the past, OEE has generally suspended 
penalties only due to inability to pay. For the foregoing reasons, BIS 
believes that aligning the BIS Guidelines with the OFAC Guidelines with 
the adoption of the DDTC practice noted above supports goals of the 
Export Control Reform Initiative and is making no changes in response 
to the comment that suggested otherwise.
    Comment: One commenter stated that setting a base penalty amount 
based on whether a violation is egregious or non-egregious reduces 
uncertainty because exporters can assess whether a violation would be 
considered egregious based on past Office of Export Enforcement 
behavior for similar violations.
    Response: BIS agrees with this comment and notes that all 
settlement agreements, charging letters and final orders are posted in 
the BIS electronic Freedom of Information Act reading room on the BIS 
Web site for public access.

Voluntary Self-Disclosures

    A significant change in the proposed rule was the introduction of 
the concept of base penalty amounts for egregious and non-egregious 
apparent violations and the principle of reducing the base penalty 
amount by one-half if the case is based on a VSD. Base penalty amounts 
could then be adjusted based on aggravating, mitigating and general 
factors (which could be either aggravating or mitigating). The existing 
guidelines treat a VSD as a mitigating factor of ``GREAT WEIGHT.''
    Comment: Several commenters expressed concern over the rule's 
treatment of VSDs, stating that the rule would reduce the incentive for 
voluntary disclosure and that it seemed to diminish the importance of 
VSDs. Some stated that the rule would unduly restrict OEE's ability to 
consider all aggravating and mitigating factors present in a complex 
fact pattern because the determination of the base penalty amount is 
based on only four factors. Others indicated that the rule was likely 
to result in civil penalties in cases that currently receive only a 
warning letter. One commenter predicted that the proposed rule's 
treatment of VSDs could limit the government's options for seeking a 
``global settlement'' in a criminal case.

[[Page 40501]]

The commenters suggested several changes to the base penalty amount 
calculation and to the mitigating factors recognized by the guidelines 
to address, inter alia, the impact of the proposed guidelines on the 
incentive to voluntarily self-disclose violations. Those specific 
proposals are addressed under the headings ``Base Penalty Policy'' and 
``Mitigating Factors'' below.
    Response: OEE has not changed its view regarding the importance of 
VSDs and believes that the concern expressed by the commenters that OEE 
appears to be diminishing the role and importance of VSDs is misplaced. 
According a VSD 50% mitigation up front in determining the base penalty 
amount does not ``diminish'' the importance that OEE accords VSDs. The 
proposed rule would simply formalize the long-standing practice of OEE 
to accord up to 50% mitigation to VSDs by assigning them ``great 
weight'' as a mitigating factor. While in most instances OEE's practice 
has been to assign 50% mitigation for the submission and completion of 
VSDs that meet the requirements of Sec.  764.5, the proposed rule would 
remove the discretion to assign anything less than that, thus 
enhancing, not diminishing, the importance of VSDs, and providing that 
they will result in an initial 50% reduction in the base penalty amount 
of any penalty to be determined.
    OEE continues to encourage the submission of VSDs by persons who 
believe they may have violated the EAR. The purpose of an enforcement 
action includes raising awareness, increasing compliance, and deterring 
future violations, not merely punishing past conduct. VSDs are an 
indicator of a person's present intent and future commitment to comply 
with U.S. export control requirements. The purpose of mitigating the 
enforcement response in voluntary self-disclosure cases is to encourage 
the notification to OEE of apparent violations about which OEE would 
not otherwise have learned. As stated in the proposed rule, the 
submission of VSDs is a critical component of OEE's ability to collect 
information in carrying out its national security mission. 
Investigative leads provided by the public, including in the context of 
VSDs, provide an important tool used by the U.S. Government to enforce 
export regulations. OEE also is cognizant of the time, energy and 
financial expense of self-disclosing an apparent violation, especially 
when undertaken by small and medium enterprises.
    OEE believes that the existing incentive of 50% mitigation is 
sufficient to encourage the submission of VSDs, which is further 
reinforced by the very low percentage of VSDs that result in civil 
monetary penalties. As noted above, over the past several years, on 
average only three percent of VSDs submitted have resulted in a civil 
monetary penalty. OEE does not expect that rate to change significantly 
as a result of these guidelines.
    This final rule also makes changes to the formula for calculating 
the base penalty amounts and to the maximum effect of mitigating 
factors in response to the comments about their impact on VSDs and to 
comments suggesting that the base penalty amounts as proposed would 
provide OEE with insufficient flexibility in settlements. The changes 
to the base penalty amounts and impact of mitigating factors are 
discussed under the headings ``Base Penalty Policy'' and ``Mitigating 
Factors'' below.

Base Penalty Policy

    Comment: Several commenters recommended changes to the proposed 
base penalty amounts. One commenter suggested that OEE may be faced 
with the prospect of feeling obliged to apply the other factors in such 
a way as to reduce the base penalty to a more appropriate level, which 
could produce a result-oriented exercise not entirely consistent with 
the purpose of the guidelines. Another stated that this formula could 
result in reduced prospects for settling cases because the penalty 
would be unrealistically high in cases with multi-million dollar 
transaction values. Another commenter suggested that this lack of 
flexibility could limit the government's options for seeking a 
comprehensive or ``global'' settlement of all civil and criminal 
penalties. To further encourage the submission of VSDs, one commenter 
advocated further decreasing the base penalty amount of the civil 
monetary penalty in instances involving VSDs as set forth in the Base 
Penalty Matrix. A commenter also urged that a reference to VSDs be 
added to the BIS Guidelines for purposes of evaluating General Factor 
E.--Compliance Program and to Mitigating Factor F. Remedial Response, 
in determining an appropriate civil monetary penalty amount.
    Commenters proposed three different changes to the base penalty 
amount calculation to address this perceived lack of flexibility.
    One proposed change was to set the base penalty for an egregious 
case that results from a VSD within a range from one-half the 
transaction value up to one-half of the statutory maximum and to set 
the base penalty in an egregious case that results from some source 
other than a VSD within a range from the applicable schedule amount and 
up to the statutory maximum.
    Another proposed change was to set the base penalty amount of the 
civil monetary penalty in non-egregious cases involving a VSD at no 
greater than 10 percent of the transaction value, capped at a maximum 
of $25,000 per violation and in egregious cases involving a VSD to set 
base penalty at no greater than 10 percent of the statutory maximum 
applicable to the violation.
    A third proposed change was to set a single range for base 
penalties in egregious cases from the applicable schedule amount to the 
applicable statutory maximum.
    Response: OEE agrees that the formula stated in the proposed rule 
may have been too rigid and/or unduly restricted OEE's discretion in 
settling cases, potentially resulting in cases unlikely to be settled 
because of the unrealistically high penalties in certain cases. OEE is 
also cognizant of the concern that the potential inflexibility of the 
proposed formula could have limited the Government's options for 
seeking a comprehensive or ``global settlement'' of all criminal and 
civil penalties and the need to further encourage the submission of 
VSDs.
    Accordingly, this final rule adopts a variation of the first of the 
proposals for calculating the base penalty amount noted above. The base 
penalty amount for an egregious case that results from a VSD will be 
changed from one-half the statutory maximum to a range of up to one-
half of the statutory maximum. The base penalty amount for an egregious 
case that results from some source other than a VSD will be set at a 
range up to the statutory maximum whereas the proposed rule would have 
set the base penalty at the applicable statutory maximum. OEE believes 
that the adoption of this formula, along with changes related to the 
impact of mitigating factors on the penalty amount discussed below, 
will provide the degree of flexibility necessary to obtain a reasonable 
result in settlement negotiations.
    OEE did not adopt the second proposal for calculating the base 
penalty amount which would have set the base penalty amount of the 
civil monetary penalty in non-egregious cases involving a VSD at no 
greater than 10 percent of the transaction value, capped at a maximum 
of $25,000 per violation and in egregious cases involving a VSD to set 
base penalty at no greater than 10 percent of the statutory maximum 
applicable to the violation. This proposal focused exclusively on cases 
based on VSDs and thus would not have addressed the need for greater 
flexibility

[[Page 40502]]

in setting the base penalty amount for egregious cases that are not 
based on VSDs. In addition, this proposal would have set an extremely 
low base penalty amount for cases based on VSDs, which would then be 
subject to further adjustment based on other applicable factors. The 
selected proposal is in keeping with OEE's existing practice of a 50 
percent reduction in the case of voluntary disclosures.
    OEE did not adopt the third proposal, which would have set a single 
range from the applicable schedule amount to the applicable statutory 
maximum for all egregious cases whether based on a VSD or not. This 
proposal would have abandoned the principle of providing 50 percent 
reduction in base penalty amount in cases based on a VSD.

Aggravating Factors

    Comment: One commenter stated that, under the proposed rule, a 
warning letter with no civil penalty could result only from a situation 
where there are no aggravating factors. The commenter stated that some 
aggravating factors are likely to be present in any transaction that 
results in a violation even though the violation does not result in 
harm to national security, economic or political concerns. The 
commenter listed some examples of conduct that might be construed as 
being within the scope of aggravating factor III.B.2--``having a reason 
to know based on readily available information.'' Those examples are: 
Misdelivering goods that are recovered and incorrectly entering data 
into the Automated Export System. Freight forwarders often input 
information from conflicting data provided by shippers or make 
inadvertent mistakes in entering names into screening software. Under 
the current guidelines, the commenter asserted, these cases likely 
would result in a warning letter or a no action letter.
    Response: The commenter is incorrect. OEE would continue to issue 
warning letters in many cases including cases with some level of 
aggravation. In determining whether to conclude enforcement action with 
a warning letter or a no action letter, OEE would consider all 
aggravating, general and mitigating factors that apply to the action at 
issue. OEE does not anticipate that new penalty guidelines would 
increase the number of administrative enforcement actions brought by 
OEE. OEE believes that no change to the regulatory text is needed to 
make this point.
    Comment: One commenter stated that the determination that a company 
acted with willfulness or recklessness because it ``should reasonably 
have been on notice'' that the conduct was a violation of the EAR 
should be modified to limit the applicability of Factor A. Willful or 
Reckless Violation of Law to instances where the company was on notice 
and clearly understood that its conduct was unlawful. The commenter 
stated that determining that a company acted with willfulness or 
recklessness because it ``should reasonably have been on notice'' that 
its conduct violated U.S. law would not be appropriate. Ignorance, the 
commenter said, should not be equated with willfulness or recklessness. 
Only if a company actually was on notice and clearly understood that 
its conduct violated U.S. law should OEE determine that willfulness or 
recklessness was involved.
    Response: Use of the phrase ``should reasonably have been on 
notice'' as an example of conduct encompassed within the aggravating 
factor ``Willful or Reckless Violation of Law'' is adopted from the 
general factors set forth in the OFAC guidelines (see 31 CFR part 501, 
Appendix A, III.A.5). A higher threshold in BIS guidelines would create 
unnecessary inconsistencies between the agencies' policies and 
furthermore, OEE is not aware of any significant issue that OFAC's use 
of this language has created. Additionally, raising the threshold from 
``should reasonably have been on notice'' to ``was on notice'' would 
unnecessarily increase the evidentiary burden on OEE. Therefore, OEE is 
making no changes to the rule in response to this comment.
    Comment: One commenter observed that the first four factors 
(factors A, B, C and D in the proposed rule) upon which a determination 
of egregiousness may be made for purposes of determining the base 
penalty amount also appear to factor into the determination of the 
final penalty amount as aggravating factors. The commenter questioned 
whether this procedure risks penalizing the company twice for the same 
factors. The commenter recommended that the factors be limited to one 
phase or the other or that an internal mechanism be used to safeguard 
against the inadvertent stacking of these factors--perhaps with a 
monetary limit after employing the factors the first time in the base 
phase.
    Response: As noted above, the proposed rule and this final rule 
differ in the method for determining the base penalty amount in 
egregious cases. The proposed rule would have set the base penalty 
amount at one-half of the applicable statutory maximum if the case was 
based on a VSD and at the statutory maximum if the case was based on 
something other than a VSD. Under this final rule, the base value in an 
egregious case will be an amount up to one-half of the applicable 
statutory maximum if the case is based on a VSD and an amount up to the 
applicable statutory maximum if the case is based on something other 
than a VSD. Under this procedure, substantial weight will generally be 
given to Factors A (``willful or reckless violation of law''), B 
(``awareness of conduct at issue''), C (``harm to regulatory program 
objectives''), and D (``individual characteristics''), with particular 
emphasis on Factors A, B, and C. A case will be considered an 
``egregious case'' where the analysis of the applicable Factors, with a 
focus on Factors A, B, and C, indicates that the case represents a 
particularly serious violation of the law calling for a strong 
enforcement response. A determination by OEE that a case is 
``egregious'' must have the concurrence of the Assistant Secretary of 
Commerce for Export Enforcement.
    Aggravating factors A through D are thus germane at two stages of 
the process: First in determining whether a case is egregious or not 
and second in determining the degree of egregiousness. Once a case is 
determined to be egregious based on those factors, a range for 
determining the final penalty amount is established, either up to half 
the statutory maximum or up to the statutory maximum, depending upon 
whether or not the case was brought to OEE's attention pursuant to a 
VSD. The same factors will necessarily be considered in determining 
what final penalty will be set within the prescribed range. A 
determination as to whether a case is egregious is separate and apart 
from an evaluation of the degree of egregiousness. This rule thus does 
not preclude consideration of any of the factors A through D in 
determining the final penalty amount.

General Factors

    Comment: One commenter stated that General Factor D--Individual 
Characteristics, which is also the fourth criterion for determining 
whether a violation is egregious, likely could be read in more than one 
way and that some amplification in the final rule would be welcomed. 
The commenter did not pose any specific questions about this factor.
    Response: The proposed rule discussed five illustrative factors 
that could be considered in assessing this criterion. They are: the 
respondent's commercial sophistication, the size and sophistication of 
its operations, the volume and value of its apparent violations 
relative to the volume and value of all of its transactions, its

[[Page 40503]]

regulatory history, any other illegal conduct in connection with the 
export, and prior criminal convictions of the respondent. Given the 
infinite possibilities for variation in human behavior, OEE cannot 
predict in advance all of the possible characteristics of the parties 
involved in an apparent violation that will ever be relevant in 
determining whether that apparent violation is egregious. The factors 
discussed in the proposed rule were intended to provide reasonable 
guidance as to how OEE would apply this factor. The commenter did not 
note any specific ambiguity or uncertainty in the proposed regulatory 
text describing this factor. On that basis, OEE concludes that 
additional discussion would not likely provide sufficient additional 
information to be useful and is making no changes to the rule in 
response to this comment.
    Comment: One commenter expressed concern that the proposed rule 
appeared to diminish the importance of VSDs and could thereby 
discourage activities or programs by regulated parties to discover 
violations. To remedy this situation, the commenter recommended that a 
reference to VSDs be added to the elements of General Factor E--
Compliance Program and to Mitigating Factor F--Remedial Response.
    Response: As stated above, the importance of VSDs has not 
diminished and OEE certainly encourages activities designed to uncover 
violations. Accordingly, this final rule adds references to VSDs to the 
elements of General Factor E--Compliance Program and to Mitigating 
Factor F--Remedial Response. This rule also provides that a fully 
suspended monetary penalty is possible with conditions in certain non-
egregious VSD cases.
    Comment: One commenter said that not including past violations of 
an acquired entity where an acquirer takes reasonable action to 
discover, correct and disclose violations is a welcomed addition.
    Response: OEE acknowledges the comment.

Mitigating Factors

    Comment: One commenter stated that tips and leads from industry are 
valuable to enforcement; however, the companies that provide them 
receive little or no benefit for doing so. The commenter recommended 
creating a clear incentive for companies to provide information that 
comes to their attention by adding as a specific mitigating factor the 
phrase ``Has the respondent previously made substantial voluntary 
efforts to provide information to Federal law enforcement authorities 
in support of U.S. export control legislation and regulations?''
    Response: OEE agrees with the commenter's reasoning on this issue. 
In this final rule, Mitigating Factor G is modified to include the 
question: ``Has the Respondent previously made substantial voluntary 
efforts to provide information (such as providing tips that led to 
enforcement actions against other parties) to federal law enforcement 
authorities in support of the enforcement of U.S. export control 
regulations?''
    Comment: Another submission noted that in an apparent violation, a 
license exception may have been available but was not used or was used 
incorrectly. The commenter recommended that Factor H. License Was 
Likely to Be Approved be amended to acknowledge the availability of a 
license exception.
    Response: OEE agrees that if a license exception that would have 
authorized the export was available at the time of export, but was not 
properly utilized or asserted by the respondent, that license exception 
availability should be treated as a mitigating factor. Accordingly, 
this final rule amends Mitigating Factor H by adding the question: 
``Would the export have qualified for a license exception?''
    Comment: One commenter stated that the order in which mitigating 
factors are captured and applied in the mathematical formula is not 
clear. The commenter also stated that ``to further complicate the 
equation, there is a cumulative mitigation cap at 75%.''
    Response: OEE believes that the order in which mitigating factors 
are considered will not affect the outcome of a case. Therefore this 
final rule does not specify the order in which the factors are to be 
considered. In recognition of the importance of voluntary self-
disclosures, this final rule removes the proposed 75 percent limit on 
mitigation when the when the apparent violation is not egregious and 
investigation is based on a voluntary self-disclosure, but retains that 
limit in other cases.

Other Relevant Factors Considered on a Case-by-Case Basis

    Comment: One commenter stated that violations should not be 
considered egregious on the basis of charging multiple violations on a 
single export.
    Response: OEE agrees and would not consider multiple violations 
arising out of the same act in and of itself to constitute 
egregiousness. Consistent with current practice, for cases that settle 
before filing of a charging letter with an Administrative Law Judge, 
OEE will generally charge only the most serious violation per 
transaction. If OEE issues such a proposed charging letter and 
subsequently files a charging letter with an Administrative Law Judge 
because a mutually agreeable settlement cannot be reached, OEE will 
continue to reserve its authority to proceed with all available charges 
based on the facts presented. In this final rule, Section III.A.4 
Pattern of Conduct has been modified to make this practice clear.
    Comment: One commenter asserted that the criteria for determining 
whether violations are related would change under the proposed rule. 
The commenter noted that the current guidelines appear to use the 
criterion ``whether they stemmed from the same underlying error or 
omission'' to determine whether violations are related and stated that 
such language does not appear in the proposed guidelines. The commenter 
asserted that under the current guidelines, the insertion of inaccurate 
Electronic Export Information (EEI) data in many transactions because 
the respondent did not realize that a default value would have to be 
overridden likely would be considered related violations and probably 
would not result in increased penalties. The commenter stated that it 
is not clear whether the results would be the same under the proposed 
guidelines. Another commenter stated that the proposed rule would allow 
OEE to consider a lesser charge on related violations or it can 
consider them as separate chargeable offenses. The commenter stated 
that related violations should be lesser. The commenter asserted that 
the EAR could add on so many reporting requirements that one clerical 
mistake could result in an infinite number of violations. This would be 
unfair to the respondent. Related violations should not be treated as 
separate offenses.
    Response: In certain situations where multiple recurring violations 
resulted from a single inadvertent error, such as misclassification, 
when determining whether to bring charges, OEE will generally regard 
that as one violation instead of multiple violations in determining if 
the matter is considered egregious. However, when determining a 
penalty, each violation is potentially chargeable. In this final rule 
Factor A.4 Pattern of Conduct is revised to make this point explicit.
    Comment: A commenter questioned whether multiple shipments being 
exported to the same end user under an expired license would be counted 
separately or as one violation?
    Response: OEE recognizes the importance of distinguishing between 
truly unrelated multiple violations and multiple violations arising out 
of the

[[Page 40504]]

same fact pattern. OEE will continue to consider inadvertent, 
compounded clerical errors as related and not separate infractions for 
the purpose of determining if the case is egregious. In this final 
rule, Factor III.I Related Violations has been revised to make this 
point explicit.

No Action and Warning Letters

    Comment: One commenter expressed appreciation of the introduction 
of ``no action'' determinations. To assist in emphasizing this option, 
the commenter recommended referring to it in the second sentence under 
heading ``II. Types of Responses to Apparent Violations'' and under the 
heading ``III. Factors Affecting Administrative Sanctions''
    Response: OEE agrees and this final rule adopts the recommendation.
    Comment: One commenter stated that the guidelines appear to lower 
the threshold for issuing warning letters, resulting in the possibility 
of issuing warning letters in the absence of a violation. The commenter 
noted that current and proposed guidelines provide for a ``no action'' 
letter when OEE determines that there is insufficient evidence to 
conclude that a violation has occurred. However, the commenter referred 
to a difference between the current and proposed guidance regarding 
letters. The current guidelines provide that ``OEE will not issue a 
warning letter if, based on available information, it concludes that a 
violation did not occur.'' The proposed guidelines, state that ``If OEE 
determines that a violation may have occurred . . . . OEE may issue a 
warning letter.'' The proposed guidelines do not explicitly state that 
OEE will not issue a warning letter based on its conclusion that a 
violation did not occur as appears in the current guidelines. The 
commenter asserted that this difference between the current and 
proposed guidelines could mean the issuance of warning letters in 
situations where a violation did not occur. If such is the case, the 
commenter observed the difference could be significant in future 
investigations because the proposed guidelines provide that generally 
the base penalty amount will be reduced by up to 25 percent in the 
Respondent's first violation and a violation is considered a ``first 
violation'' if the respondent, among other things, did not receive a 
warning letter in three years preceding the date of the transaction 
giving rise to the violation. The commenters recommend that the 
guidelines state that there must be at least an apparent violation 
before a warning letter is issued.
    Response: OEE would not issue a warning letter based on its 
conclusion that a violation did not occur. OEE agrees, however, that 
the consideration of warning letters within a 3-year time frame for 
purposes of determining whether a Respondent is entitled to up to 25% 
mitigation as a ``first offense'' is inconsistent when the warning 
letter does not constitute a finding that a violation did occur, with 
an opportunity for the Respondent to respond to the allegation.
    Accordingly, this final rule revises Section IV.B.2.b of the 
guidelines to provide that first offense mitigation will therefore be 
determined without regard to the prior issuance of warning letters 
received by that Respondent. Prior issuance of a warning letter may, 
however, evidence a pattern and practice of non-compliance and failure 
to rectify compliance shortcomings and be considered aggravating under 
General Factor E. Compliance Program and Aggravating Factor A. Willful 
or Reckless Violation of Law. For example, if OEE alerted a Respondent 
to unlawful conduct through issuance of a warning letter and the 
current charges are a continuation of that conduct, or involve similar 
conduct, that fact may be taken into account.
    Comment: One commenter observed that the statement in the proposed 
rule that warning letters will typically be issued for VSDs absent the 
presence of aggravating factors implies that in cases where aggravating 
factors are present, a civil monetary penalty would necessarily ensue.
    Response: As discussed above, the commenter misunderstands the 
impact on VSDs. OEE issues a warning letter for almost all VSDs 
including those with aggravating factors. In recent years, OEE has only 
sought charges in a small percentage of VSD cases. While all cases 
charged had significant aggravating factors, many of the cases with 
warning letters also had aggravating factors, though less serious than 
in the cases charged. OEE does not believe that these guidelines will 
result in a significant change in the number of cases charged and is 
making no change to the guidelines in response to this comment.
    Comment: Some commenters suggested that more certainty was needed 
with respect to the meaning of no action letters and warning letters. 
One commenter stated that the proposed rule would allow OEE to take no 
action if it determines that there is insufficient evidence to conclude 
that a violation has occurred, determines that a violation did not 
occur and/or, based on an analysis of the Factors outlined in Section 
III of the guidelines, concludes that the conduct does not rise to a 
level warranting an administrative response. However, the commenter 
asserted, OEE can ``put time back on the clock anytime it desires and 
reprocess a `final determination.' '' The commenter stated that 
exporters need closure at some point. This practice is no less than 
double jeopardy, the commenter asserted.
    Another commenter noted that a warning letter does not constitute a 
final agency determination as to whether a violation has occurred. This 
leaves the recipient in a state of uncertainty as to whether a 
violation occurred and, therefore, how to proceed in similar situations 
in the future. The commenter requested that OEE eliminate that 
perceived uncertainty by ensuring that a warning letter provide 
guidance as to whether OEE believes a violation occurred, and, if so, 
limit the warning to the substance of the violation.
    Response: As stated in the proposed rule, the majority of cases 
brought to the attention of OEE through VSDs result in the issuance of 
warning letters, containing a finding that an apparent violation may 
have taken place. No action letters are simply that: No action will be 
taken in cases where there is insufficient evidence to conclude that a 
violation may have taken place. The use of the words ``apparent'' and 
``may'' simply reflect that reality. In instances where it appears to 
OEE that a violation(s) did occur but that pursuing a civil monetary 
penalty is not appropriate under the circumstances, a warning letter 
will also be issued.
    Although warning letters and no action letters constitute the final 
OEE disposition of the matter, neither constitutes final agency action 
with respect to a violation of the EAR. To help clarify this point, 
this final rule refers to OEE's disposition when describing OEE's 
action with respect to warning letters and no action letters, and 
clearly states that these are not ``final agency actions.''
    Neither the proposed rule nor this final rule state that OEE may 
resume an investigation into a matter concerning which it previously 
issued a no action letter ``anytime it desires.'' The proposed rule 
text stated that ``A no-action determination represents a final 
determination (OEE's . . . disposition in this final rule) as to the 
apparent violation, unless OEE later learns of additional information 
regarding the same or similar transactions or other relevant facts.'' 
Reopening an investigation or inquiry because the enforcement agency 
learns of new relevant information does not constitute double jeopardy 
as that term is

[[Page 40505]]

understood in connection with Fifth Amendment to the United States 
Constitution. OEE believes that no change to the rule is needed on this 
point.
    Warning letters currently identify the transaction or conduct OEE 
believes violated the EAR and will continue to do so.

Transaction Value

    Several commenters addressed the question of determining 
transaction value.
    Comment: One commenter stated that where a violation is related to 
a transaction that has been reported into the Automated Export System 
(AES), that value should be relied upon as the transaction value unless 
there is evidence indicating that the reported AES value was erroneous 
or otherwise flawed because the commenter believed that approach to 
determining the transaction value is accurate. Two commenters pointed 
out the difficulty in determining the transaction value of the export 
or deemed export of technology. One commenter stated that the proposed 
rule standard of ``the economic benefit derived by the Respondent'' is 
extremely subjective and open to wide interpretation. The other 
commenter stated that ``the value of a transaction identified on 
commercial invoices, customs declarations, or similar documents may 
reflect the value of the media transferred instead of the technical 
data itself, especially in situations where the data is not being sold, 
but is being used for offshore production or some other related 
activity.'' (Emphasis in the original.)
    Response: This final rule amends the definition of ``transaction 
value'' by adding a reference to AES filings. However, it is impossible 
for OEE to determine in advance the appropriate method by which to 
value all exports or deemed exports of technology, particularly where 
the technology at issue is not traded widely enough to provide a basis 
for determining a market value, is being transferred to a firm related 
to the exporter, or is being transferred as part of a larger 
transaction involving an agreement to produce or repair a part or 
product. In such instances, OEE will have to apply the ``the economic 
benefit derived by the Respondent'' standard, which remains in this 
final rule.
    Comment: Two commenters objected to penalizing a freight forwarder 
using the monetary value of a shipment, given that forwarding fees 
almost always represent a minor fraction of the value of goods being 
exported.
    Response: OEE recognizes that the consequence of using the same 
transaction value for both forwarders and exporters may create the 
impression of disproportionate penalties on forwarders. However, OEE 
has and will continue to take into account that transaction values may 
not be indicative of the nature of a party's role in the transaction, 
including applying mitigation based on general factor D where 
appropriate. OEE believes that definition of ``transaction value'' 
provides adequate flexibility to achieve fair results and that a 
specific separate standard for freight forwarders is not needed. 
Accordingly, this final rule makes no changes in response to this 
comment.
    Comment: One commenter raised six specific questions about how 
transaction value would be determined. OEE's response is set forth 
immediately following each question. OEE does not believe that any 
changes to the proposed rule are needed in response to these questions 
and this final rule makes none.
    1. ``In the proposed definition, what transaction is the `subject 
transaction'''?
    Response: The subject transaction is the transaction or 
transactions identified in a proposed charging letter or charging 
letter wherein OEE alleges that a violation occurred.
    2. ``How will the referenced documents (e.g., commercial invoices, 
bills of lading, signed Customs declarations, or similar documents) be 
used in determining value''?
    Response: In many cases, such documents will list a price or value 
that is likely to be the appropriate transaction value. However, in 
instances where OEE believes that the price or value listed in such 
documents is inaccurate or is otherwise inappropriate as a measure of 
transaction value, it may, in accordance with the definition, consider 
the market value of the items that were the subject of the transaction 
and/or, in limited situations, ``the economic benefit derived by the 
Respondent'' standard as noted above.
    3. ``How will BIS reconcile inconsistent information found in these 
related documents''?
    Response: This will have to be determined on a case-by-case basis 
depending on the facts of each case.
    4. ``At what point in BIS's internal deliberations will the 
transaction value be considered as `not otherwise ascertainable'''?
    Response: This will have to be determined on a case-by-case basis 
depending on the facts of each case.
    5. ``Will the disclosing or investigated party be allowed an 
opportunity to speak to that issue before the conclusion is reached''?
    Response: The respondent would have the opportunity to challenge 
OEE's transaction value determination during settlement negotiations or 
in pleadings before an administrative law judge.
    6. ``How will `market value' and `economic benefit' be evaluated''?
    Response: OEE cannot determine in advance a method that always will 
be appropriate under any circumstance that may occur in the future. 
These determinations will have to be made on a case-by-case basis 
depending on the facts of each case.

Settlements

    Two commentators expressed concern regarding the statements in the 
proposed Guidelines that ``[p]enalties for settlements reached after 
the initiation of an enforcement proceeding and litigation through the 
filing of a charging letter will usually be higher than those described 
by these Guidelines'' and that ``[i]f a case does not settle before 
issuance of a charging letter and the case proceeds to adjudication, 
the resulting charging letter may include more violations than alleged 
in the proposed charging letter.'' The commenters stated that such 
practices could put inappropriate pressure to settle even if the 
respondent has a legitimate defense, or feels that the proposed penalty 
is excessive. They could constitute coercion and a denial of procedural 
due process. One commenter stated that BIS should establish reasonable 
limits concerning when it is appropriate for OEE to tack on additional 
charges or seek higher penalties than originally proposed.
    Response: OEE notes that it is common in settlement negotiations 
for parties to seek early resolution in hopes of avoiding the 
expenditure of resources necessary to litigate a case. Doing so is not 
coercive, but the most efficient means of reaching resolution. It is 
common government practice for an agency, in an effort to reach 
settlement before trial, to propose a subset or sampling of charges, 
reserving the ability to bring a fuller set of charges should 
litigation prove necessary. It also is commonly recognized that the 
additional resources the government must expend to take a case to trial 
also can justify a penalty greater than the amount the agency may have 
accepted prior to litigation. Both practices are designed to 
efficiently utilize limited government resources and provide an 
incentive for early settlements. OEE considers the totality of the 
circumstances in charging and penalty determinations, including any 
defenses

[[Page 40506]]

raised in response to a proposed charging letter and any arguments made 
concerning the appropriate penalty levels. OEE is making no changes to 
the proposed rule in response to these comments.
    Comment: Two commenters suggested that the proposed rule seemed to 
state or at least imply that cases could not or would not be settled 
once adjudication begins or once a decision is made to initiate an 
enforcement action.
    Response: Cases may be settled after OEE decides to initiate an 
enforcement action or after administrative adjudication begins. Section 
II.C of the proposed rule and this final rule state: ``Cases may be 
settled before or after the issuance of a charging letter. See Sec.  
766.18 of the EAR.'' OEE believes that no change to the text of the 
proposed rule is needed to address this point.

OEE and BIS

    Comment: Several commenters stated that references to OEE and BIS 
in the proposed rule are confused and undefined. That it is difficult 
to understand exactly who in BIS is responsible for doing what in the 
administrative enforcement process.
    Response: OEE is the organizational unit of BIS that has been 
delegated the responsibility for determining what cases will be 
referred to the Department of Justice for criminal prosecution and what 
administrative sanctions will be sought. The reference to BIS in this 
final rule is therefore changed in most instances to refer specifically 
to OEE. This change was made throughout the guidelines for ease of 
reference even though, for example under Sec.  764.1 of the EAR, OEE 
does not issue penalties.

Stylistic Change to the Structure of the Base Penalty Matrix

    Comment: One commenter proposed delete the subheading ``Egregious 
Case'' from the base penalty matrix and changing the headings above the 
two columns by substituting ``Non-Egregious'' for ``NO'' and 
``Egregious'' for ``YES.'' The commenter stated that this change would 
make the penalty matrix easier to understand.
    Response: This final rule addresses this matter by adding question 
marks immediately following the phrases ``Egregious Case'' and 
``Voluntary Self Disclosure,'' making clear that they are questions to 
which a yes or no answer is appropriate.

Rulemaking Requirements

    1. Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distribute impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated a ``significant regulatory 
action,'' although not economically significant, under section 3(f) of 
Executive Order 12866. Accordingly, the rule has been reviewed by the 
Office of Management and Budget (OMB).
    2. Notwithstanding any other provision of law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with a collection of information, subject to the 
requirements of the Paperwork Reduction Act (PRA), unless that 
collection of information displays a currently valid OMB Control 
Number. This rule does not contain any collections of information.
    3. This rule does not contain policies with Federalism implications 
as that term is defined in Executive Order 13132.
    4. The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 
601 et seq., generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute. Under section 605(b) of the RFA, 
however, if the head of an agency certifies that a rule will not have a 
significant impact on a substantial number of small entities, the 
statute does not require the agency to prepare a regulatory flexibility 
analysis. Pursuant to section 605(b), the Chief Counsel for Regulation, 
Department of Commerce, certified to the Chief Counsel for Advocacy, 
Small Business Administration at the proposed rule stage that this rule 
would not have a significant impact on a substantial number of small 
entities. The rationale for that certification is at 80 FR 80710, 80712 
(December 28, 2015) and is not repeated here. BIS received no comments 
on the certification. Consequently, BIS has not prepared a final 
regulatory flexibility analysis.

Export Administration Act

    Although the Export Administration Act expired on August 20, 2001, 
the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 
2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 
8, 2013, 78 FR 16129 (March 13, 2013), and as extended by the Notice of 
August 7, 2015, (80 FR 48233 (Aug. 11, 2015)), has continued the Export 
Administration Regulations in effect under the International Emergency 
Economic Powers Act. BIS continues to carry out the provisions of the 
Export Administration Act, as appropriate and to the extent permitted 
by law, pursuant to Executive Order 13222 as amended by Executive Order 
13637.

List of Subjects in 15 CFR Part 766

    Administrative practice and procedure, Confidential business 
information, Exports, Law enforcement, Penalties.

    Accordingly, this rule amends part 766 of the Export Administration 
Regulations (15 CFR parts 730-774) (EAR) as follows:

PART 766--[AMENDED]

0
1. The authority citation for part 766 continues to read as follows:

    Authority:  50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; E.O. 
13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of August 7, 
2015, 80 FR 48233 (August 11, 2015).


0
2. Supplement No. 1 to Part 766 is revised to read as follows:

Supplement No. 1 to Part 766--Guidance on Charging and Penalty 
Determinations in Settlement of Administrative Enforcement Cases

Introduction

    This Supplement describes how the Office of Export Enforcement 
(OEE) at the Bureau of Industry and Security (BIS) responds to 
apparent violations of the Export Administration Regulations (EAR) 
and, specifically, how OEE makes penalty determinations in the 
settlement of civil administrative enforcement cases under part 764 
of the EAR. This guidance does not apply to enforcement cases for 
violations under part 760 of the EAR--Restrictive Trade Practices or 
Boycotts. Supplement No. 2 to part 766 continues to apply to civil 
administrative enforcement cases involving part 760 violations.
    Because many administrative enforcement cases are resolved 
through settlement, the process of settling such cases is integral 
to the enforcement program. OEE carefully considers each settlement 
offer in light of the facts and circumstances of the case, relevant 
precedent, and OEE's objective to achieve in each case an 
appropriate penalty and deterrent effect. In settlement 
negotiations, OEE encourages parties to provide, and will give 
serious consideration to, information and evidence that parties 
believe are relevant to the application of this guidance to their 
cases, to whether a violation has in fact occurred, or to whether 
they have an affirmative defense to potential charges.

[[Page 40507]]

    This guidance does not confer any right or impose any obligation 
regarding what penalties OEE may seek in litigating a case or what 
posture OEE may take toward settling a case. Parties do not have a 
right to a settlement offer or particular settlement terms from OEE, 
regardless of settlement positions OEE has taken in other cases.

I. Definitions

    Note: See also: Definitions contained in Sec.  766.2 of the EAR.
    Apparent violation means conduct that constitutes an actual or 
possible violation of the Export Administration Act of 1979, the 
International Emergency Economic Powers Act, the EAR, other statutes 
administered or enforced by BIS, as well as executive orders, 
regulations, orders, directives, or licenses issued pursuant 
thereto.
    Applicable schedule amount means:
    1. $1,000 with respect to a transaction valued at less than 
$1,000;
    2. $10,000 with respect to a transaction valued at $1,000 or 
more but less than $10,000;
    3. $25,000 with respect to a transaction valued at $10,000 or 
more but less than $25,000;
    4. $50,000 with respect to a transaction valued at $25,000 or 
more but less than $50,000;
    5. $100,000 with respect to a transaction valued at $50,000 or 
more but less than $100,000;
    6. $170,000 with respect to a transaction valued at $100,000 or 
more but less than $170,000;
    7. $250,000 with respect to a transaction valued at $170,000 or 
more.
    Note to definition of applicable schedule amount. The applicable 
schedule amount may be adjusted in accordance with U.S. law, e.g., 
the Federal Civil Penalties Inflation Adjustment Act Improvements 
Act of 2015 (Pub. L. 114-74, sec. 701).
    Transaction value means the U.S. dollar value of a subject 
transaction, as demonstrated by commercial invoices, bills of 
lading, signed Customs declarations, AES filings or similar 
documents. Where the transaction value is not otherwise 
ascertainable, OEE may consider the market value of the items that 
were the subject of the transaction and/or the economic benefit 
derived by the Respondent from the transaction, in determining 
transaction value. In situations involving a lease of U.S.-origin 
items, the transaction value will generally be the value of the 
lease. For purposes of these Guidelines, ``transaction value'' will 
not necessarily have the same meaning, nor be applied in the same 
manner, as that term is used for import valuation purposes at 19 CFR 
152.103.
    Voluntary self-disclosure means the self-initiated notification 
to OEE of an apparent violation as described in and satisfying the 
requirements of Sec.  764.5 of the EAR.

II. Types of Responses to Apparent Violations

    OEE, among other responsibilities, investigates apparent 
violations of the EAR, or any order, license or authorization issued 
thereunder. When it appears that such a violation may have occurred, 
OEE investigations may lead to no action, a warning letter or an 
administrative enforcement proceeding. A violation may also be 
referred to the Department of Justice for criminal prosecution. The 
type of enforcement action initiated by OEE will depend primarily on 
the nature of the violation. Depending on the facts and 
circumstances of a particular case, an OEE investigation may lead to 
one or more of the following actions:
    A. No Action. If OEE determines that there is insufficient 
evidence to conclude that a violation has occurred, determines that 
a violation did not occur and/or, based on an analysis of the 
Factors outlined in Section III of these Guidelines, concludes that 
the conduct does not rise to a level warranting an administrative 
response, then no action will be taken. In such circumstances, if 
the investigation was initiated by a voluntary self-disclosure 
(VSD), OEE will issue a letter (a no-action letter) indicating that 
the investigation is being closed with no administrative action 
being taken. OEE may issue a no-action letter in non-voluntarily 
disclosed cases at its discretion. A no-action determination by OEE 
represents OEE's disposition of the apparent violation, unless OEE 
later learns of additional information regarding the same or similar 
transactions or other relevant facts. A no-action letter is not a 
final agency action with respect to whether a violation occurred.
    B. Warning Letter. If OEE determines that a violation may have 
occurred but a civil penalty is not warranted under the 
circumstances, and believes that the underlying conduct could lead 
to a violation in other circumstances and/or that a Respondent does 
not appear to be exercising due diligence in assuring compliance 
with the statutes, executive orders, and regulations that OEE 
enforces, OEE may issue a warning letter. A warning letter may 
convey OEE's concerns about the underlying conduct and/or the 
Respondent's compliance policies, practices, and/or procedures. It 
may also address an apparent violation of a technical nature, where 
good faith efforts to comply with the law and cooperate with the 
investigation are present, or where the investigation commenced as a 
result of a voluntary self-disclosure satisfying the requirements of 
Sec.  764.5 of the EAR, provided that no aggravating factors exist. 
In the exercise of its discretion, OEE may determine in certain 
instances that issuing a warning letter, instead of bringing an 
administrative enforcement proceeding, will achieve the appropriate 
enforcement result. A warning letter will describe the apparent 
violation and urge compliance. A warning letter represents OEE's 
enforcement response to and disposition of the apparent violation, 
unless OEE later learns of additional information concerning the 
same or similar apparent violations. A warning letter does not 
constitute a final agency action with respect to whether a violation 
has occurred.
    C. Administrative enforcement case. If OEE determines that a 
violation has occurred and, based on an analysis of the Factors 
outlined in Section III of these Guidelines, concludes that the 
Respondent's conduct warrants a civil monetary penalty or other 
administrative sanctions, OEE may initiate an administrative 
enforcement case. The issuance of a charging letter under Sec.  
766.3 of the EAR initiates an administrative enforcement proceeding. 
Charging letters may be issued when there is reason to believe that 
a violation has occurred. Cases may be settled before or after the 
issuance of a charging letter. See Sec.  766.18 of the EAR. OEE may 
prepare a proposed charging letter which could result in a case 
being settled before issuance of an actual charging letter. See 
Sec.  766.18(a) of the EAR. If a case does not settle before 
issuance of a charging letter and the case proceeds to adjudication, 
the resulting charging letter may include more violations than 
alleged in the proposed charging letter, and the civil monetary 
penalty amounts assessed may be greater that those provided for in 
Section IV of these Guidelines. Civil monetary penalty amounts for 
cases settled before the issuance of a charging letter will be 
determined as discussed in Section IV of these Guidelines. A civil 
monetary penalty may be assessed for each violation. The maximum 
amount of such a penalty per violation is stated in Sec.  
764.3(a)(1), subject to adjustments under the Federal Civil 
Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461), which 
are codified at 15 CFR 6.4. OEE will afford the Respondent an 
opportunity to respond to a proposed charging letter. Responses to 
charging letters following the institution of an enforcement 
proceeding under part 766 of the EAR are governed by Sec.  766.3 of 
the EAR.
    D. Civil Monetary Penalty. OEE may seek a civil monetary penalty 
if OEE determines that a violation has occurred and, based on the 
Factors outlined in Section III of these Guidelines, concludes that 
the Respondent's conduct warrants a monetary penalty. Section IV of 
these Guidelines will guide the agency's exercise of its discretion 
in determining civil monetary penalty amounts.
    E. Criminal Referral. In appropriate circumstances, OEE may 
refer the matter to the Department of Justice for criminal 
prosecution. Apparent violations referred for criminal prosecution 
also may be subject to a civil monetary penalty and/or other 
administrative sanctions or action by BIS.
    F. Other Administrative Sanctions or Actions. In addition to or 
in lieu of other administrative actions, OEE may seek sanctions 
listed in Sec.  764.3 of the EAR. BIS may also take the following 
administrative actions, among other actions, in response to an 
apparent violation:
    License Revision, Suspension or Revocation. BIS authorizations 
to engage in a transaction pursuant to a license or license 
exception may be revised, suspended or revoked in response to an 
apparent violation as provided in Sec. Sec.  740.2(b) and 750.8 of 
the EAR.
    Denial of Export Privileges. An order denying a Respondent's 
export privileges may be issued, as described in Sec.  764.3(a)(2) 
of the EAR. Such a denial may extend to all export privileges, as 
set out in the standard terms for denial orders in Supplement No. 1 
to part 764 of the EAR, or may be narrower in scope (e.g., limited 
to exports of specified

[[Page 40508]]

items or to specified destinations or customers). A denial order may 
also be suspended in whole or in part in accordance with Sec.  
766.18(c).
    Exclusion from practice. Under Sec.  764.3(a)(3) of the EAR, any 
person acting as an attorney, accountant, consultant, freight 
forwarder or other person who acts in a representative capacity in 
any matter before BIS may be excluded from practicing before BIS.
    Training and Audit Requirements. In appropriate cases, OEE may 
require as part of a settlement agreement that the Respondent 
provide training to employees as part of its compliance program, 
adopt other compliance measures, and/or be subject to internal or 
independent audits by a qualified outside person. In those cases, 
OEE may suspend or defer a portion or all of the penalty amount if 
the suspended amount is applied to comply with such requirements.
    G. Suspension or Deferral. In appropriate cases, payment of a 
civil monetary penalty may be suspended or deferred during a 
probationary period under a settlement agreement and order. If the 
terms of the settlement agreement or order are not adhered to by the 
Respondent, then suspension or deferral may be revoked and the full 
amount of the penalty imposed. See Sec.  764.3(a)(1)(iii) of the 
EAR. In determining whether suspension or deferral is appropriate, 
OEE may consider, for example, whether the Respondent has 
demonstrated a limited ability to pay a penalty that would be 
appropriate for such violations, so that suspended or deferred 
payment can be expected to have sufficient deterrent value, and 
whether, in light of all of the circumstances, such suspension or 
deferral is necessary to make the financial impact of the penalty 
consistent with the impact of penalties on other parties who 
committed similar violations. OEE may also take into account when 
determining whether or not to suspend or defer a civil penalty 
whether the Respondent will apply a portion or all of the funds 
suspended or deferred to audit, compliance, or training that may be 
required under a settlement agreement and order, or the matter is 
part of a ``global settlement'' as discussed in more detail below.

III. Factors Affecting Administrative Sanctions

    Many apparent violations are isolated occurrences, the result of 
a good-faith misinterpretation, or involve no more than simple 
negligence or carelessness. In such instances, absent the presence 
of aggravating factors, the matter frequently may be addressed with 
a no action determination letter or, if deemed necessary, a warning 
letter. Where the imposition of an administrative penalty is deemed 
appropriate, as a general matter, OEE will consider some or all of 
the following Factors in determining the appropriate sanctions in 
administrative cases, including the appropriate amount of a civil 
monetary penalty where such a penalty is sought and is imposed as 
part of a settlement agreement and order. These factors describe 
circumstances that, in OEE's experience, are commonly relevant to 
penalty determinations in settled cases. Factors that are considered 
exclusively aggravating, such as willfulness, or exclusively 
mitigating, such as situations where remedial measures were taken, 
are set forth below. This guidance also identifies General Factors--
which can be either mitigating or aggravating--such as the presence 
or absence of an internal compliance program at the time the 
apparent violations occurred. Other relevant Factors may also be 
considered at the agency's discretion.
    While some violations of the EAR have a degree of knowledge or 
intent as an element of the offense, OEE may regard a violation of 
any provision of the EAR as knowing or willful if the facts and 
circumstances of the case support that conclusion. For example, 
evidence that a corporate entity had knowledge at a senior 
management level may mean that a higher penalty may be appropriate. 
OEE will also consider, in accordance with Supplement No. 3 to part 
732 of the EAR, the presence of any red flags that should have 
alerted the Respondent that a violation was likely to occur. The 
aggravating factors identified in the Guidelines do not alter or 
amend Sec.  764.2(e) or the definition of ``knowledge'' in Sec.  
772.1, or other provisions of parts 764 and 772 of the EAR. If the 
violations are of such a nature and extent that a monetary fine 
alone represents an insufficient penalty, a denial or exclusion 
order may also be imposed to prevent future violations of the EAR.

Aggravating Factors

    A. Willful or Reckless Violation of Law. OEE will consider a 
Respondent's apparent willfulness or recklessness in violating, 
attempting to violate, conspiring to violate, or causing a violation 
of the law. Generally, to the extent the conduct at issue appears to 
be the result of willful conduct--a deliberate intent to violate, 
attempt to violate, conspire to violate, or cause a violation of the 
law--the OEE enforcement response will be stronger. Among the 
factors OEE may consider in evaluating apparent willfulness or 
recklessness are:
    1. Willfulness. Was the conduct at issue the result of a 
decision to take action with the knowledge that such action would 
constitute a violation of U.S. law? Did the Respondent know that the 
underlying conduct constituted, or likely constituted, a violation 
of U.S. law at the time of the conduct?
    2. Recklessness/gross negligence. Did the Respondent demonstrate 
reckless disregard or gross negligence with respect to compliance 
with U.S. regulatory requirements or otherwise fail to exercise a 
minimal degree of caution or care in avoiding conduct that led to 
the apparent violation? Were there warning signs that should have 
alerted the Respondent that an action or failure to act would lead 
to an apparent violation?
    3. Concealment. Was there a deliberate effort by the Respondent 
to hide or purposely obfuscate its conduct in order to mislead OEE, 
federal, state, or foreign regulators, or other parties involved in 
the conduct, about an apparent violation?
    Note: Failure to voluntarily disclose an apparent violation to 
OEE does not constitute concealment.
    4. Pattern of Conduct. Did the apparent violation constitute or 
result from a pattern or practice of conduct or was it relatively 
isolated and atypical in nature? In determining both whether to 
bring charges and, once charges are brought, whether to treat the 
case as egregious, OEE will be mindful of certain situations where 
multiple recurring violations resulted from a single inadvertent 
error, such as misclassification. However, for cases that settle 
before filing of a charging letter with an Administrative Law Judge, 
OEE will generally charge only the most serious violation per 
transaction. If OEE issues a proposed charging letter and 
subsequently files a charging letter with an Administrative Law 
Judge because a mutually agreeable settlement cannot be reached, OEE 
will continue to reserve its authority to proceed with all available 
charges in the charging letter based on the facts presented. When 
determining a penalty, each violation is potentially chargeable.
    5. Prior Notice. Was the Respondent on notice, or should it 
reasonably have been on notice, that the conduct at issue, or 
similar conduct, constituted a violation of U.S. law?
    6. Management Involvement. In cases of entities, at what level 
within the organization did the willful or reckless conduct occur? 
Were supervisory or managerial level staff aware, or should they 
reasonably have been aware, of the willful or reckless conduct?
    B. Awareness of Conduct at Issue:The Respondent's awareness of 
the conduct giving rise to the apparent violation. Generally, the 
greater a Respondent's actual knowledge of, or reason to know about, 
the conduct constituting an apparent violation, the stronger the OEE 
enforcement response will be. In the case of a corporation, 
awareness will focus on supervisory or managerial level staff in the 
business unit at issue, as well as other senior officers and 
managers. Among the factors OEE may consider in evaluating the 
Respondent's awareness of the conduct at issue are:
    1. Actual Knowledge. Did the Respondent have actual knowledge 
that the conduct giving rise to an apparent violation took place, 
and remain willfully blind to such conduct, and fail to take 
remedial measures to address it? Was the conduct part of a business 
process, structure or arrangement that was designed or implemented 
with the intent to prevent or shield the Respondent from having such 
actual knowledge, or was the conduct part of a business process, 
structure or arrangement implemented for other legitimate reasons 
that consequently made it difficult or impossible for the Respondent 
to have actual knowledge?
    2. Reason to Know. If the Respondent did not have actual 
knowledge that the conduct took place, did the Respondent have 
reason to know, or should the Respondent reasonably have known, 
based on all readily available information and with the exercise of 
reasonable due diligence, that the conduct would or might take 
place?
    3. Management Involvement. In the case of an entity, was the 
conduct undertaken with the explicit or implicit knowledge of senior 
management, or was the conduct undertaken by personnel outside the 
knowledge of senior management? If the apparent violation was

[[Page 40509]]

undertaken without the knowledge of senior management, was there 
oversight intended to detect and prevent violations, or did the lack 
of knowledge by senior management result from disregard for its 
responsibility to comply with applicable regulations and laws?
    C. Harm to Regulatory Program Objectives: The actual or 
potential harm to regulatory program objectives caused by the 
conduct giving rise to the apparent violation. This factor would be 
present where the conduct in question, in purpose or effect, 
substantially implicated national security, foreign policy or other 
essential interests protected by the U.S. export control system, in 
view of such factors as the reason for controlling the item to the 
destination in question; the sensitivity of the item; the 
prohibitions or restrictions against the recipient of the item; and 
the licensing policy concerning the transaction (such as presumption 
of approval or denial). OEE, in its discretion, may consult with 
other U.S. agencies or with licensing and enforcement authorities of 
other countries in making its determination. Among the factors OEE 
may consider in evaluating the harm to regulatory program objectives 
are:
    1. Implications for U.S. National Security: The impact that the 
apparent violation had or could potentially have on the national 
security of the United States. For example, if a particular export 
could undermine U.S. military superiority or endanger U.S. or 
friendly military forces or be used in a military application 
contrary to U.S. interests, OEE would consider the implications of 
the apparent violation to be significant.
    2. Implications for U.S. Foreign Policy: The effect that the 
apparent violation had or could potentially have on U.S. foreign 
policy objectives. For example, if a particular export is, or is 
likely to be, used by a foreign regime to monitor communications of 
its population in order to suppress free speech and persecute 
dissidents, OEE would consider the implications of the apparent 
violation to be significant.

General Factors

    D. Individual Characteristics: The particular circumstances and 
characteristics of a Respondent. Among the factors OEE may consider 
in evaluating individual characteristics are:
    1. Commercial Sophistication: The commercial sophistication and 
experience of the Respondent. Is the Respondent an individual or an 
entity? If an individual, was the conduct constituting the apparent 
violation for personal or business reasons?
    2. Size and Sophistication of Operations: The size of a 
Respondent's business operations, where such information is 
available and relevant. At the time of the violation, did the 
Respondent have any previous export experience and was the 
Respondent familiar with export practices and requirements? 
Qualification of the Respondent as a small business or organization 
for the purposes of the Small Business Regulatory Enforcement 
Fairness Act, as determined by reference to the applicable standards 
of the Small Business Administration, may also be considered.
    3. Volume and Value of Transactions: The total volume and value 
of transactions undertaken by the Respondent on an annual basis, 
with attention given to the volume and value of the apparent 
violations as compared with the total volume and value of all 
transactions. Was the quantity and/or value of the exports high, 
such that a greater penalty may be necessary to serve as an adequate 
penalty for the violation or deterrence of future violations, or to 
make the penalty proportionate to those for otherwise comparable 
violations involving exports of lower quantity or value?
    4. Regulatory History: The Respondent's regulatory history, 
including OEE's issuance of prior penalties, warning letters, or 
other administrative actions (including settlements), other than 
with respect to antiboycott matters under part 760 of the EAR. OEE 
will generally only consider a Respondent's regulatory history for 
the five years preceding the date of the transaction giving rise to 
the apparent violation. When an acquiring firm takes reasonable 
steps to uncover, correct, and voluntarily disclose or cause the 
voluntary self-disclosure to OEE of conduct that gave rise to 
violations by an acquired business before the acquisition, OEE 
typically will not take such violations into account in applying 
these factors in settling other violations by the acquiring firm.
    5. Other illegal conduct in connection with the export. Was the 
transaction in support of other illegal conduct, for example the 
export of firearms as part of a drug smuggling operation, or illegal 
exports in support of money laundering?
    6. Criminal Convictions. Has the Respondent been convicted of an 
export-related criminal violation?
    Note: Where necessary to effective enforcement, the prior 
involvement in export violation(s) of a Respondent's owners, 
directors, officers, partners, or other related persons may be 
imputed to a Respondent in determining whether these criteria are 
satisfied.
    E. Compliance Program: The existence, nature and adequacy of a 
Respondent's risk-based BIS compliance program at the time of the 
apparent violation. OEE will take account of the extent to which a 
Respondent complies with the principles set forth in BIS's Export 
Management System (EMS) Guidelines. Information about the EMS 
Guidelines can be accessed through the BIS Web site at 
www.bis.doc.gov. In this context, OEE will also consider whether a 
Respondent's export compliance program uncovered a problem, thereby 
preventing further violations, and whether the Respondent has taken 
steps to address compliance concerns raised by the violation, to 
include the submission of a VSD and steps to prevent reoccurrence of 
the violation that are reasonably calculated to be effective.

Mitigating Factors

    F. Remedial Response: The Respondent's corrective action taken 
in response to the apparent violation. Among the factors OEE may 
consider in evaluating the remedial response are:
    1. The steps taken by the Respondent upon learning of the 
apparent violation. Did the Respondent immediately stop the conduct 
at issue? Did the Respondent undertake to file a VSD?
    2. In the case of an entity, the processes followed to resolve 
issues related to the apparent violation. Did the Respondent 
discover necessary information to ascertain the causes and extent of 
the apparent violation, fully and expeditiously? Was senior 
management fully informed? If so, when?
    3. In the case of an entity, whether it adopted new and more 
effective internal controls and procedures to prevent the occurrence 
of similar apparent violations. If the entity did not have a BIS 
compliance program in place at the time of the apparent violation, 
did it implement one upon discovery of the apparent violation? If it 
did have a BIS compliance program, did it take appropriate steps to 
enhance the program to prevent the recurrence of similar violations? 
Did the entity provide the individual(s) and/or managers responsible 
for the apparent violation with additional training, and/or take 
other appropriate action, to ensure that similar violations do not 
occur in the future?
    4. Where applicable, whether the Respondent undertook a thorough 
review to identify other possible violations.
    G. Exceptional Cooperation with OEE: The nature and extent of 
the Respondent's cooperation with OEE, beyond those actions set 
forth in Factor F. Among the factors OEE may consider in evaluating 
exceptional cooperation are:
    1. Did the Respondent provide OEE with all relevant information 
regarding the apparent violation at issue in a timely, comprehensive 
and responsive manner (whether or not voluntarily self-disclosed), 
including, if applicable, overseas records?
    2. Did the Respondent research and disclose to OEE relevant 
information regarding any other apparent violations caused by the 
same course of conduct?
    3. Did the Respondent provide substantial assistance in another 
OEE investigation of another person who may have violated the EAR?
    4. Has the Respondent previously made substantial voluntary 
efforts to provide information (such as providing tips that led to 
enforcement actions against other parties) to federal law 
enforcement authorities in support of the enforcement of U.S. export 
control regulations?
    5. Did the Respondent enter into a statute of limitations 
tolling agreement, if requested by OEE (particularly in situations 
where the apparent violations were not immediately disclosed or 
discovered by OEE, in particularly complex cases, and in cases in 
which the Respondent has requested and received additional time to 
respond to a request for information from OEE)? If so, the 
Respondent's entering into a tolling agreement will be deemed a 
mitigating factor.
    Note: A Respondent's refusal to enter into a tolling agreement 
will not be considered by OEE as an aggravating factor in assessing 
a Respondent's cooperation or otherwise under the Guidelines.
    H. License Was Likely To Be Approved. Would an export license 
application have likely been approved for the transaction had

[[Page 40510]]

one been sought? Would the export have qualified for a License 
Exception? Some license requirements sections in the EAR also set 
forth a licensing policy (i.e., a statement of the policy under 
which license applications will be evaluated), such as a general 
presumption of denial or case by case review. OEE may also consider 
the licensing history of the specific item to that destination and 
if the item or end-user has a history of export denials.

Other Relevant Factors Considered on a Case-by-Case Basis

    I. Related Violations. Frequently, a single export transaction 
can give rise to multiple violations. For example, an exporter who 
inadvertently misclassifies an item on the Commerce Control List 
may, as a result of that error, export the item without the required 
export license and file Electronic Export Information (EEI) to the 
Automated Export System (AES) that both misstates the applicable 
Export Control Classification Number (ECCN) and erroneously 
identifies the export as qualifying for the designation ``NLR'' (no 
license required) or cites a license exception that is not 
applicable. In so doing, the exporter commits three violations: one 
violation of Sec.  764.2(a) of the EAR for the unauthorized export 
and two violations of Sec.  764.2(g) of the EAR for the two false 
statements on the EEI filing to the AES. OEE will consider whether 
the violations stemmed from the same underlying error or omission, 
and whether they resulted in distinguished or separate harm. OEE 
generally does not charge multiple violations on a single export, 
and would not consider the existence of such multiple violations as 
an aggravating factor in and of itself. It is within OEE's 
discretion to charge separate violations and settle the case for a 
penalty that is less than would be appropriate for unrelated 
violations under otherwise similar circumstances, or to charge fewer 
violations and pursue settlement in accordance with that charging 
decision. OEE generally will consider inadvertent, compounded 
clerical errors as related and not separate infractions when 
deciding whether to bring charges and in determining if a case is 
egregious.
    J. Multiple Unrelated Violations. In cases involving multiple 
unrelated violations, OEE is more likely to seek a denial of export 
privileges and/or a greater monetary penalty than OEE would 
otherwise typically seek. For example, repeated unauthorized exports 
could warrant a denial order, even if a single export of the same 
item to the same destination under similar circumstances might 
warrant just a civil monetary penalty. OEE takes this approach 
because multiple violations may indicate serious compliance problems 
and a resulting greater risk of future violations. OEE may consider 
whether a Respondent has taken effective steps to address compliance 
concerns in determining whether multiple violations warrant a denial 
order in a particular case.
    K. Other Enforcement Action. Other enforcement actions taken by 
federal, state, or local agencies against a Respondent for the 
apparent violation or similar apparent violations, including whether 
the settlement of alleged violations of BIS regulations is part of a 
comprehensive settlement with other federal, state, or local 
agencies. Where an administrative enforcement matter under the EAR 
involves conduct giving rise to related criminal or civil charges, 
OEE may take into account the related violations, and their 
resolution, in determining what administrative sanctions are 
appropriate under part 766 of the EAR. A criminal conviction 
indicates serious, willful misconduct and an accordingly high risk 
of future violations, absent effective administrative sanctions. 
However, entry of a guilty plea can be a sign that a Respondent 
accepts responsibility for complying with the EAR and will take 
greater care to do so in the future. In appropriate cases where a 
Respondent is receiving substantial criminal penalties, OEE may find 
that sufficient deterrence may be achieved by lesser administrative 
sanctions than would be appropriate in the absence of criminal 
penalties. Conversely, OEE might seek greater administrative 
sanctions in an otherwise similar case where a Respondent is not 
subjected to criminal penalties. The presence of a related criminal 
or civil disposition may distinguish settlements among civil penalty 
cases that appear otherwise to be similar. As a result, the factors 
set forth for consideration in civil penalty settlements will often 
be applied differently in the context of a ``global settlement'' of 
both civil and criminal cases, or multiple civil cases, and may 
therefore be of limited utility as precedent for future cases, 
particularly those not involving a global settlement.
    L. Future Compliance/Deterrence Effect: The impact an 
administrative enforcement action may have on promoting future 
compliance with the regulations by a Respondent and similar parties, 
particularly those in the same industry sector.
    M. Other Factors That OEE Deems Relevant. On a case-by-case 
basis, in determining the appropriate enforcement response and/or 
the amount of any civil monetary penalty, OEE will consider the 
totality of the circumstances to ensure that its enforcement 
response is proportionate to the nature of the violation.

IV. Civil Penalties

A. Determining What Sanctions Are Appropriate in a Settlement.

    OEE will review the facts and circumstances surrounding an 
apparent violation and apply the Factors Affecting Administrative 
Sanctions in Section III above in determining the appropriate 
sanction or sanctions in an administrative case, including the 
appropriate amount of a civil monetary penalty where such a penalty 
is sought and imposed. Penalties for settlements reached after the 
initiation of litigation will usually be higher than those described 
by these guidelines.

B. Amount of Civil Penalty.

    1. Determining Whether a Case is Egregious. In those cases in 
which a civil monetary penalty is considered appropriate, OEE will 
make a determination as to whether a case is deemed ``egregious'' 
for purposes of the base penalty calculation. If a case is 
determined to be egregious, OEE also will also determine the 
appropriate base penalty amount within the range of base penalty 
amounts prescribed in paragraphs IV.B.2.a.iii and iv below. These 
determinations will be based on an analysis of the applicable 
factors. In making these determinations, substantial weight will 
generally be given to Factors A (``willful or reckless violation of 
law''), B (``awareness of conduct at issue''), C (``harm to 
regulatory program objectives''), and D (``individual 
characteristics''), with particular emphasis on Factors A, B, and C. 
A case will be considered an ``egregious case'' where the analysis 
of the applicable factors, with a focus on Factors A, B, and C, 
indicates that the case represents a particularly serious violation 
of the law calling for a strong enforcement response. A 
determination by OEE that a case is ``egregious'' must have the 
concurrence of the Assistant Secretary of Commerce for Export 
Enforcement.
    2. Monetary Penalties in Egregious Cases and Non-Egregious 
Cases. The civil monetary penalty amount shall generally be 
calculated as follows, except that neither the base penalty amount 
nor the penalty amount will exceed the applicable statutory maximum:
    a. Base Category Calculation and Voluntary Self-Disclosures.
    i. In a non-egregious case, if the apparent violation is 
disclosed through a voluntary self-disclosure, the base penalty 
amount shall be one-half of the transaction value, capped at a 
maximum base penalty amount of $125,000 per violation.
    ii. In a non-egregious case, if the apparent violation comes to 
OEE's attention by means other than a voluntary self-disclosure, the 
base penalty amount shall be the ``applicable schedule amount,'' as 
defined above (capped at a maximum base penalty amount of $250,000 
per violation).
    iii. In an egregious case, if the apparent violation is 
disclosed through a voluntary self-disclosure, the base penalty 
amount shall be an amount up to one-half of the statutory maximum 
penalty applicable to the violation.
    iv. In an egregious case, if the apparent violation comes to 
OEE's attention by means other than a voluntary self-disclosure, the 
base penalty amount shall be an amount up to the statutory maximum 
penalty applicable to the violation.
    The following matrix represents the base penalty amount of the 
civil monetary penalty for each category of violation:

[[Page 40511]]



                           Base Penalty Matrix
------------------------------------------------------------------------
                                              Egregious Case?
   Voluntary Self-Disclosure?    ---------------------------------------
                                          NO                  YES
------------------------------------------------------------------------
YES.............................  (1)...............  (3)
                                  One-Half of the     Up to One-Half of
                                   Transaction Value   the Applicable
                                   (capped at          Statutory
                                   $125,000 per        Maximum.
                                   violation).
NO..............................  (2)...............  (4)
                                  Applicable          Up to the
                                   Schedule Amount     Applicable
                                   (capped at          Statutory
                                   $250,000 per        Maximum.
                                   violation).
------------------------------------------------------------------------

    Note to paragraph IV.B.2. The dollar values that appear in 
IV.B.2.a.i and .ii, and in the Base Penalty Matrix may be adjusted 
in accordance with U.S. law, e.g., the Federal Civil Penalties 
Inflation Adjustment Act Improvements Act of 2015 (Pub. L. 114-74, 
sec. 701).
    b. Adjustment for Applicable Relevant Factors.
    In non-egregious cases the base penalty amount of the civil 
monetary penalty may be adjusted to reflect applicable Factors for 
Administrative Action set forth in Section III of these Guidelines. 
In egregious cases the base penalty amount of the civil monetary 
penalty will be set based on applicable Factors for Administrative 
Action set forth in Section III of these Guidelines. A Factor may 
result in a lower or higher penalty amount depending upon whether it 
is aggravating or mitigating or otherwise relevant to the 
circumstances at hand. Mitigating factors may be combined for a 
greater reduction in penalty, but mitigation will generally not 
exceed 75 percent of the base penalty, except in the case of VSDs, 
where full suspension is possible with conditions in certain non-
egregious cases. Subject to this limitation, as a general matter, in 
those cases where the following Mitigating Factors are present, OEE 
will adjust the base penalty amount in the following manner:
    In cases involving exceptional cooperation with OEE as set forth 
in Mitigating Factor G, but no voluntary self-disclosure as defined 
in Sec.  764.5 of the EAR, the base penalty amount generally will be 
reduced between 25 and 40 percent. Exceptional cooperation in cases 
involving voluntary self-disclosure may also be considered as a 
further mitigating factor.
    In cases involving a Respondent's first violation, the base 
penalty amount generally will be reduced by up to 25 percent. An 
apparent violation generally will be considered a ``first 
violation'' if the Respondent has not been convicted of an export-
related criminal violation or been subject to a BIS final order in 
five years, preceding the date of the transaction giving rise to the 
apparent violation. A group of substantially similar apparent 
violations addressed in a single Charging Letter shall be considered 
as a single violation for purposes of this subsection. In those 
cases where a prior Charging Letter within the preceding five years 
involved conduct of a substantially different nature from the 
apparent violation at issue, OEE may consider the apparent violation 
at issue a ``first violation.'' Warning Letters issued within the 
preceding five years are not factored into account for purposes of 
determining eligibility for ``first offense'' mitigation. When an 
acquiring firm takes reasonable steps to uncover, correct, and 
disclose or cause to be disclosed to OEE conduct that gave rise to 
violations by an acquired business before the acquisition, OEE 
typically will not take such violations into account as an 
aggravating factor in settling other violations by the acquiring 
firm.
    iii. In cases involving charges pertaining to transactions where 
a license exception would have been available or a license would 
likely have been approved had one been sought as set forth in 
Mitigating Factor H, the base penalty amount generally will be 
reduced by up to 25 percent.
    In all cases, the penalty amount will not exceed the applicable 
statutory maximum. Similarly, while mitigating factors may be 
combined for a greater reduction in penalty, mitigation will 
generally not exceed 75 percent of the base penalty, except in the 
case of VSDs, where full suspension is possible with conditions in 
certain non-egregious cases.

C. Settlement Procedures.

    The procedures relating to the settlement of administrative 
enforcement cases are set forth in Sec.  766.18 of the EAR.

    Dated: June 15, 2016.
David W. Mills,
Assistant Secretary for Export Enforcement.
[FR Doc. 2016-14770 Filed 6-21-16; 8:45 am]
 BILLING CODE 3510-33-P