Administrative and Enforcement Provisions, 75477-75489 [2024-21013]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security

[Federal Register Volume 89, Number 179 (Monday, September 16, 2024)]
[Rules and Regulations]
[Pages 75477-75489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21013]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 764 and 766

[Docket No. 240911-0236]
RIN 0694-AJ84


Administrative and Enforcement Provisions

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Final rule.

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SUMMARY: With this final rule, the Bureau of Industry and Security 
(BIS) amends the Export Administration Regulations (EAR) by making 
certain revisions and clarifications. This final rule revises 
provisions related to the voluntary self-disclosure process for 
exporters who believe that they may have violated the EAR, or any 
order, license or authorization issued thereunder. This final rule also 
provides clarified guidance on charging and penalty determinations in 
settlement of administrative enforcement cases.

DATES: This rule is effective September 16, 2024.

FOR FURTHER INFORMATION CONTACT: For general questions, contact Tracy 
Martin, Office of Export Enforcement, Bureau of Industry and Security, 
U.S. Department of Commerce at (202) 482-1208 or by email: 
[email protected].

SUPPLEMENTARY INFORMATION:

A. Background

    With this rule BIS revises Sec.  764.5 of the EAR regarding the 
procedures for submitting voluntary self-disclosures (VSDs) and 
supplement No. 1 to part 766, which includes guidance on charging and 
penalty determinations in settlement of administrative enforcement 
cases. As discussed in more detail below, these revisions implement 
certain policies related to the VSD process that BIS has announced in 
policy memoranda since 2022, and also makes changes to how BIS 
calculates penalties in administrative cases.

1. Relevant Statutory Authority and Regulatory Framework

    On August 13, 2018, the President signed into law the John S. 
McCain National Defense Authorization Act for Fiscal Year 2019, which 
included the Export Control Reform Act of 2018 (ECRA) (50 U.S.C. 4801-
4852). Section 1760(c) of ECRA (50 U.S.C. 4819(c)) authorizes the 
Secretary of Commerce (Secretary) to impose civil penalties for 
violations of ECRA, its implementing regulations, or any order or 
license issued thereunder. Specifically, ECRA authorizes the Secretary 
to impose the following civil penalties for each violation:
    (A) A fine of not more than $300,000 or an amount that is twice the 
value of the transaction that is the basis of the violation with 
respect to which the penalty is imposed, whichever is greater.
    (B) Revocation of a license issued under [ECRA] to the person.
    (C) A prohibition on the person's ability to export, reexport, or 
in-country transfer any items controlled under [ECRA].

50 U.S.C. 4819(c)(1). The amount of the maximum civil penalty per 
violation under ECRA is subject to adjustment under the Civil Penalties 
Inflation Adjustment Act of 1990 (28 U.S.C. 2461) and is currently 
$364,992. See 15 CFR 6.3(c)(6). Within these limits, 50 U.S.C. 
4819(c)(3) authorizes the Secretary to issue regulations to ``provide 
standards for establishing levels of civil penalty . . . based upon 
factors such as the seriousness of the violation, the culpability of 
the violator, and such mitigating factors as the violator's record of 
cooperation with the Government in disclosing the violation.'' The 
Secretary's authority under ECRA is delegated to BIS (see section 1781 
of ECRA, 50 U.S.C. 4851) and is implemented through the EAR.
    Consistent with these authorities, BIS has implemented regulations 
providing standards for establishing levels of civil penalties in 
supplement No. 1 to part 766, titled ``Guidance on Charging and Penalty 
Determinations in Settlement of Administrative Enforcement Cases'' 
(``BIS Penalty Guidelines''). Last revised in the rule entitled 
``Guidance on Charging and Penalty Determinations in Settlement of 
Administrative Enforcement Cases'' published in the Federal Register on 
June 22, 2016 (81 FR 40506), the BIS Penalty Guidelines describe how 
BIS's Office of Export Enforcement (OEE), the organizational unit of 
BIS that is responsible for enforcing the provisions of the EAR, makes 
penalty determinations in administrative enforcement cases. The BIS 
Penalty Guidelines describe various factors--including aggravating, 
general, and mitigating factors--that OEE will consider in determining 
how to respond to apparent export violations in administrative cases. 
Specifically, the BIS Penalty Guidelines outline how OEE calculates 
monetary penalties for a particular violation, which includes 
determination of the relevant base penalty, and how the various 
aggravating, general, and mitigating factors justify an upward or 
downward departure from that base penalty. As discussed in the BIS 
Penalty Guidelines, the presence of significant aggravating factors may 
lead OEE to consider the conduct to be egregious, which may result in 
considerably higher monetary penalties. Conversely, the presence of 
significant mitigating factors may result in a lower monetary penalty.
    One factor given significant weight in the BIS Penalty Guidelines 
is whether a party submitted a VSD regarding the violation. BIS 
encourages parties who

[[Page 75478]]

may have violated the EAR to submit a VSD and views VSDs as a strong 
indication of a party's commitment to U.S. export control compliance. 
Section 764.5 of the EAR establishes BIS's general policy and 
procedures for disclosing potential violations of ECRA and the EAR to 
BIS. Specifically, BIS encourages the submission of a VSD if a 
potential violation of the EAR is discovered.

2. BIS Enforcement Policy Memoranda

    Beginning in 2022, BIS issued a series of publicly available 
memoranda describing policy changes to strengthen its administrative 
enforcement program and to encourage companies, universities, and 
individuals to submit VSDs. Such disclosures can provide BIS with 
helpful information from industry about export compliance practices, as 
well as information about other potential violations. These memoranda 
include the following: (1) ``Further Strengthening Our Administrative 
Enforcement Program,'' dated June 30, 2022 (https://www.bis.gov/sites/default/files/files/Administrative%20Enforcement%20Memo.pdf) (the 
``2022 Policy Memorandum''); (2) ``Clarifying Our Policy Regarding 
Voluntary Self-Disclosures and Disclosures Concerning Others,'' dated 
April 18, 2023 (https://www.bis.gov/sites/default/files/files/VSD%20Policy%20Memo%20%2804.18.2023%29.pdf) (the ``2023 Policy 
Memorandum''); and (3) ``Further Enhancements to Our Voluntary Self-
Disclosure Process,'' dated January 16, 2024 (https://www.bis.gov/sites/default/files/files/VSD%20MEMO.pdf) (the ``2024 Policy 
Memorandum'') (collectively, the ``Policy Memoranda''). The Policy 
Memoranda emphasize the importance of administrative enforcement 
measures to mitigate the threat that sensitive technologies will fall 
into adversarial hands and focus on the deterrent effect of imposing 
significantly higher penalties for egregious violations that affect 
national security. So that OEE can focus its limited resources on more 
serious cases, the Policy Memoranda also highlight OEE's desire to 
resolve less serious violations as quickly as possible--with lower 
penalties or no penalty where appropriate--and announce new policies 
making it easier to submit disclosures and expanding the beneficial 
effect of submitting a VSD.
    Policy changes that were announced in the Policy Memoranda include: 
(1) the establishment of a ``fast track'' disclosure process for minor 
or technical violations and allowing for companies to submit an 
abbreviated narrative account in connection with such disclosures that 
contains less detail than required by Sec.  764.5; (2) the availability 
of electronic submission of VSDs via email; (3) using non-monetary 
penalties to resolve cases that are not egregious and have not resulted 
in national security harm, but rise above the level of cases warranting 
a warning letter; (4) clarifying that OEE will consider it an 
aggravating factor for purposes of determining a potential penalty if a 
party identifies that it committed a possible violation and then 
chooses not to disclose it; and (5) clarifying and simplifying BIS's 
process for handling requests to take corrective action for unlawfully 
exported items at issue in a VSD that would otherwise be prohibited by 
Sec.  764.2(e)
    The substance of the Policy Memoranda and their codification into 
regulations are firmly within the statutory authority granted by 
section 1760(c) of ECRA (50 U.S.C. 4819(c)). The Policy Memoranda were 
developed in accordance with the legislative framework, which empowers 
the Secretary to implement and enforce policies in this area. By 
translating these memoranda into formal regulations, BIS can ensure 
that the directives are legally binding and consistent with the 
legislative intent, thereby enhancing their effectiveness and 
enforceability while adhering to the statutory requirements.

B. Purpose of This Final Rule

    The primary purpose of this final rule is twofold: first, to 
incorporate into the EAR the various policies announced in the Policy 
Memoranda, which are designed to encourage industry and academia to 
submit VSDs and to provide for efficient resolution of cases involving 
less serious violations, and second, to revise the BIS Penalty 
Guidelines to change how OEE calculates the base penalty in 
administrative cases, and how it applies various factors to the base 
penalty to determine the final penalty.
    With respect to the changes implementing the elements of the Policy 
Memoranda, BIS is revising Sec.  764.5 (regarding voluntary self-
disclosure) and the BIS Penalty Guidelines. BIS is incorporating into 
the EAR relevant elements from the Policy Memoranda so that the 
regulations contain all relevant policies and procedures for submitting 
VSDs. As a result, industry will not be required to look to multiple 
sources to understand OEE's procedures and expectations regarding the 
submission of VSDs. BIS is also making clear in the BIS Penalty 
Guidelines that for violations of a lower value and with minimal 
aggravating factors, OEE's preference is to impose non-monetary 
penalties to shore up a company's compliance program, which is more 
effective in these types of cases.
    With respect to the changes to the way OEE calculates penalties, 
BIS is revising the BIS Penalty Guidelines so that potential penalties 
more appropriately reflect the seriousness of the offense by linking 
that determination directly to transaction value and other 
circumstances pertaining to a violation. These Penalty Guideline 
changes do so primarily for two reasons. First, BIS has identified 
scenarios in which the previous BIS Penalty Guidelines, which applied 
schedule amounts and caps well below the statutory limitations to 
penalties for non-egregious cases, produce a base penalty that is 
disproportionately low compared to the transaction value, and therefore 
is insufficient to serve as a deterrent or incentive for companies to 
invest properly in export compliance. For example, under the previous 
rule, the penalty for a non-egregious violation disclosed through a VSD 
for a transaction valued at $100 million would be capped at $125,000. 
In this rule, BIS is removing from the BIS Penalty Guidelines the caps 
that previously existed for non-egregious cases. BIS will continue to 
take mitigating factors into account, as described in the revised BIS 
Penalty Guidelines, and to apply an appropriate reduction to the base 
penalty if circumstances warrant it.
    Second, the previous BIS Penalty Guidelines provided specific 
percentage ranges for reductions associated with certain mitigating 
factors (but not all mitigating factors), while it provided no such 
ranges for aggravating or general factors. The inclusion of specific 
percentage ranges for some mitigating factors and not for other factors 
led parties to incorrect assumptions about the range of reduction to 
which they were entitled. For example, the previous BIS Penalty 
Guidelines provided for a reduction of the base penalty amount of up to 
25% for first time violations; however, a party's first offense might 
occur together with aggravating factors or with other mitigating 
factors that, when taken into account, indicate that a penalty based on 
a smaller or larger reduction to the base penalty is appropriate. Since 
it is impossible to associate potential ranges for reductions or 
increases with all mitigating and aggravating factors that would 
appropriately capture every potential combination of facts and 
circumstances associated with a violation, in this rule BIS is removing 
from the BIS Penalty Guidelines all specific ranges for

[[Page 75479]]

potential reduction. With these revisions, OEE is making clear that the 
civil monetary penalty will be adjusted (up or down) to reflect the 
applicable factors for administrative action set forth in the BIS 
Penalty Guidelines. The factors may result in a penalty amount that is 
lower or higher than the base penalty amount, depending upon whether 
they are aggravating or mitigating and how they, in the discretion of 
OEE, apply in totality in a particular case. As before, aggravating 
factors will not be used to increase the base penalty beyond the limits 
established in ECRA.

C. Revisions to Sec.  764.5 (Voluntary Self-Disclosures)

1. Addition of Non-Disclosure as an Aggravating Factor

    Section 764.5 did not previously include as an aggravating factor, 
the failure of a party to submit a voluntary disclosure. In this final 
rule, and consistent with the policy outlined in the 2023 Policy 
Memorandum, BIS revises paragraph (a) of Sec.  764.5 to state that OEE 
will consider a deliberate decision by a firm (as that term is defined 
in Sec.  772.1 of the EAR) not to disclose a significant apparent 
violation to be an aggravating factor when determining what 
administrative sanctions, if any, will be sought. A deliberate decision 
not to disclose occurs when a firm uncovers a significant apparent 
violation that it has committed but then chooses not to file a VSD. 
This new rule effectively enhances the mitigating effect of voluntary 
disclosure, particularly in serious cases. For example, under the 
previous guidelines, if a firm identified a significant apparent 
violation and chose not to disclose it to OEE, the company was only 
choosing to forgo the mitigation credit offered under the guidelines. 
Now, because a deliberate decision not to disclose is an aggravating 
factor, if a firm chooses not to disclose, it not only forgoes the 
mitigation credit, but also faces the possibility that BIS will further 
increase the penalty.
    This change also reflects the importance of a firm's deliberate 
decision not to disclose a significant apparent violation to OEE's 
assessment of the strength of the company's commitment to compliance. 
This revision makes clear that OEE will include in its consideration of 
a firm's commitment to compliance whether the company made a decision 
not to disclose significant apparent violations. It also reflects that 
the deliberate non-disclosure of a significant apparent violation may 
compound the harm to U.S. national security or foreign policy interests 
by preventing the government from taking steps to mitigate the national 
security consequences of the violation in a manner that a firm could 
not. This revision allows OEE to impose penalties--or to charge certain 
conduct that may have otherwise been treated with a warning letter--in 
such cases that are appropriate to deter future noncompliance and 
encourage voluntary disclosure.

2. Addition of Dual Track Process for Processing VSDs

    Section 764.5 previously had only one process for handling all 
VSDs, regardless of whether the violation at issue in the VSD was 
significant, or minor. This final rule revises Sec.  764.5 by adding a 
new paragraph (c) regarding disclosures involving minor or technical 
violations. The previous paragraph (c), now paragraph (d), is revised 
to focus on the portion of the dual-track system that relates to 
significant violations. Former paragraphs (d) through (f) are 
redesignated as paragraphs (e) through (g) and are also revised to 
reflect the dual-track system. The redesignation and changes to these 
paragraphs are explained below.
    New paragraph (c) of Sec.  764.5, titled ``Voluntary Self-
Disclosures involving minor or technical violations,'' explains the 
process for submitting VSDs involving minor or technical violations. 
Paragraph (c)(1) explains that a minor or technical violation is one 
that does not include any aggravating factors, as defined in the BIS 
Penalty Guidelines, and includes several examples. Paragraph (c)(2) 
provides guidance on submitting an abbreviated narrative for a VSD 
involving minor or technical violations, including where to submit the 
abbreviated narrative report and what information to include, and 
provides that the Director of OEE may require a full narrative report 
pursuant to new paragraph (d)(3) if OEE suspects that aggravating 
factors are present. Paragraph (c)(3) authorizes parties to bundle the 
submission of multiple minor or technical violations into one 
overarching submission if the violations occurred within the preceding 
quarter. This change allows for disclosures of minor or technical 
violations to be bundled into a single VSD submission on a quarterly 
basis using the abbreviated narrative account process as described 
elsewhere in this rule. This revision will significantly reduce the 
workload of companies submitting minor or technical violations.
    New paragraph (d), which is now titled ``Voluntary Self-Disclosures 
involving significant violations,'' explains the process for 
voluntarily disclosing a significant violation. This paragraph largely 
retains the language of former paragraph (c) regarding how to submit 
the disclosure, what to include in the narrative, the types of 
supporting documentation to include, deadlines regarding submitting 
information, and the related extension request process. BIS has added 
the instruction that a significant violation is one that involves one 
or more of the aggravating factors in the BIS Penalty Guidelines, and 
that parties who are unsure whether their disclosure involves a minor 
or technical violation or a significant violation should follow the 
procedures for disclosing a significant violation.
    Former paragraph (d), now paragraph (e) of Sec.  764.5, has been 
renamed from ``Action by the Office of Export Enforcement'' to ``Dual-
track processing of Voluntary Self-Disclosures by the Office of Export 
Enforcement'' for consistency with the dual-track approach to VSDs. In 
paragraph (e)(1), BIS explains that OEE will generally resolve VSDs 
involving minor or technical violations within 60 days, either by 
informing the submitter that it intends to take no action or by issuing 
a warning letter. In paragraph (e)(2), BIS explains that for VSDs that 
indicate significant violations, BIS will conduct an investigation and, 
as quickly as the facts and circumstances permit, take one of five 
possible actions. The five potential actions correspond to the possible 
actions BIS could take under the former paragraph (d).
    BIS has made conforming changes throughout these paragraphs to 
reflect the updated paragraph numbering, as well as minor revisions for 
clarity. These include consistently using the term ``full narrative'' 
instead of ``narrative account'' to describe the detailed submission 
that follows an initial notification when using the process in 
paragraph (d)(2), adding packing lists to the examples of supporting 
documentation that may be appropriate to include with a full narrative, 
and adding contact information for email submissions.

3. Revisions to Paragraph Regarding Treatment of Unlawfully Exported 
Items

    Former paragraph (f) is now moved to paragraph (g) to accommodate 
the addition of new paragraph (c). Consistent with announcements in the 
2024 Policy Memorandum, this paragraph has been revised to add a clause 
explaining that any person (not just the party submitting a VSD) may 
notify the Director of OEE that a violation has occurred and then 
request

[[Page 75480]]

permission from the Office of Exporter Services to engage in activities 
described in Sec.  764.2(e) that would otherwise be prohibited. 
Previously, this paragraph limited such requests for permission to 
parties who submitted a VSD. This change allows parties in possession 
of or with an interest in an item involved in a VSD that would 
otherwise be subject to the prohibitions in Sec.  764.2(e) to submit a 
request to OEE even if they did not submit a VSD.
    BIS also added paragraph (g)(1)(iii), which explains that in order 
to return to the United States an item that has been unlawfully 
exported and disclosed under Sec.  764.5, a person is only required to 
notify the Director of OEE. BIS adds this language to clarify that OEE 
authorizes the return of any unlawfully exported item to the United 
States and to reduce the burden on industry and BIS by removing the 
need for companies to submit and OEE to review such requests for 
authorization.
    This section also adds a new paragraph detailing how to submit 
requests for authorization and that explains what information is 
required to process requests, which includes: the nature of the 
violation including when and how the violations occurred; description, 
quantity, value in U.S. dollars and Export Control Classification 
Number (ECCN) or other classification of the items involved; license 
reference numbers, if applicable; identities and addresses of all 
individuals and organizations subject to the request; the scope of the 
request specifying the Sec.  764.2(e) activities, including end-use; 
and point of contact.
    Paragraph (g)(4) regarding authorization for reexports of items 
subject to a VSD is revised to clarify that such authorization is 
required for transfers as well. Paragraph (4) is revised to include 
reference to the notifications provided for in the revisions to the 
note to paragraph (g)(1)(ii) discussed above. BIS also adds language to 
this paragraph instructing applicants to include with any request for 
authorization under this paragraph a copy of the relevant VSD or 
notification. A new note to paragraph (g)(4) clarifies that a party may 
submit a request under this section to obtain permission to use a 
license exception or No License Required (NLR) designation so long as 
the reexport or transfer at issue otherwise meets the terms and 
conditions of the relevant license exception or the NLR designation. 
Finally, this additional paragraph (g) clarifies that Automated Export 
System (AES) filing errors, where there is no other violation of the 
EAR, only require notification to OEE under paragraphs (g)(1)(i) and 
(ii) and do not require additional authorization under this paragraph 
(g). Paragraph (g) also clarifies that in such cases, a party must 
correct the AES filing with the Census Bureau before proceeding with 
activities subject to the EAR, provided the activities meet any EAR 
requirements. Removing authorization requests related to AES filing 
errors will save exporter and government resources. If a report 
includes any other violation, such as failure to obtain a required 
license, authorization under section 764 is required.

D. Revisions to the BIS Penalty Guidelines (Supplement No. 1 to Part 
766)

    This rule makes several changes to the BIS Penalty Guidelines in 
supplement no. 1 to part 766 of the EAR, described in greater detail 
below. These include updates to the statutory references, changes to 
the penalty calculations and to certain mitigating or aggravating 
factors, the addition of non-monetary settlements as an action that BIS 
may take, and the removal of language relating to the application of 
penalty amounts toward compliance program enhancements.

1. Updates to Statutory References

    This rule revises the BIS Penalty Guidelines to replace references 
to outdated statutes. References to the Export Administration Act of 
1979 (EAA) are replaced by references to ECRA; additionally, references 
to the ``Federal Civil Penalties Inflation Adjustment Act of 1990'' 
(FPIAA 1990) are replaced by the ``Federal Civil Penalties Inflation 
Adjustment Act Improvements Act of 2015'' (FCPIAAIA 2015). These 
changes are made to reflect BIS's current statutory authorities.

2. Removal of Applicable Schedule Amounts From the BIS Penalty 
Guidelines

    Under section I ``Definitions,'' BIS is removing the definition of 
``applicable schedule amount'' completely. BIS is also removing the 
corresponding references in the base penalty matrix and in the 
explanation of the base penalty calculation in non-egregious cases in 
section IV.B. This change will make administrative penalties more 
straightforward and in line with the overall value of the transaction 
at issue. Previously, these schedule amounts limited the amount of the 
penalty in situations where they applied. For example, penalties for a 
transaction valued at $170,000 or more were capped at $250,000. OEE is 
removing this limitation so that it can impose penalties with 
sufficient deterrent effect in situations where transaction values are 
high.

3. Changes to Section II To Clarify and Expand the Range of Possible 
OEE Responses to Apparent Violations of the EAR

a. Addition of Paragraph (II)(C) for the Provision of Non-Monetary 
Penalties
    In the 2022 Policy Memorandum, BIS introduced non-monetary 
resolutions as a new type of penalty response to resolve enforcement 
cases that involve non-egregious conduct and that have not resulted in 
serious national security harm, but remain serious enough to warrant 
more than a warning letter or no-action letter. Such resolutions 
require remediation through the imposition of a suspended denial order 
with certain conditions, such as training and compliance requirements, 
as appropriate, to mitigate harm from past violations and prevent 
future ones. Non-monetary resolutions give OEE the flexibility to 
impose sanctions that require a company to improve its compliance 
program even when a monetary penalty would not be appropriate or the 
value of such a penalty would be too low to have a deterrent effect. In 
this rule, BIS formalizes non-monetary resolutions as an enforcement 
response by listing it under paragraph (II)(D) of the BIS Penalty 
Guidelines. The subsequent subparagraphs under section II to supplement 
no. 1 are renumbered paragraph (II)(E) through new paragraph (II)(H).
b. Removal of Application of Penalty Toward Compliance Enhancements in 
OEE Consideration of Suspended or Deferred Penalties.
    Paragraphs (II)(G) and (II)(H), formerly paragraphs (II)(F) and 
(II)(G), are revised to remove reference to the practice of allowing a 
Respondent to apply a portion of a suspended or deferred penalty toward 
compliance program enhancements. This change reflects BIS's view that 
companies should independently make appropriate investments in their 
compliance program sufficient to identify and prevent potential 
violations, and generally should not expect to receive credit for the 
cost of making such investments against administrative penalties for 
past misconduct.

4. Changes to Section III, ``Factors Affecting Administrative 
Sanctions''

    BIS also makes several changes to section III regarding 
aggravating, general, and mitigating factors affecting

[[Page 75481]]

administrative sanctions. These changes include revising the foreign 
policy considerations in paragraph (III)(C)(2) and adding a paragraph 
(N) under section III. Paragraphs (III)(D) through the new paragraph 
(III)(N) and their headings and content are changed accordingly and 
redesignated to accommodate this additional paragraph (N). The 
revisions, redesignation, and changes to these paragraphs are explained 
below.
a. Amending Factor C To Include OEE's Consideration of Conduct Enabling 
Human Rights Abuses
    ECRA authorizes BIS to implement export controls ``to carry out the 
foreign policy of the United States, including the protection of human 
rights and the promotion of democracy,'' 50 U.S.C. 4811(2)(D). 
Consistent with this authority, and in line with U.S. foreign policy 
objectives, BIS is amending Aggravating Factor C, Harm to Regulatory 
Program Objectives, at Paragraph (III)(C)(2) to include the enabling of 
human rights abuses as a specific consideration when BIS assesses the 
potential impact of an apparent violation on U.S. foreign policy 
objectives.
b. Addition of New Aggravating Factor for Deliberate Failure To 
Disclose a Significant Apparent Violation
    This rule adds a new aggravating factor at paragraph (III)(D), 
titled ``Failure to disclose a significant apparent violation,'' This 
new paragraph (III)(D) is added to clarify that OEE will consider a 
deliberate decision by a firm (as that term is defined in Sec.  772.1 
of the EAR) not to disclose a significant apparent violation to be an 
aggravating factor when determining what administrative sanctions, if 
any, will be sought. This is consistent with the corresponding change 
to Sec.  764.5 discussed above. As discussed above, this revision is 
intended to encourage disclosure by industry when significant apparent 
violations are uncovered. The text previously found in paragraph 
(III)(D) is relocated to paragraph (III)(E), and all of the subsequent 
factors in section III are renumbered through new factor N at paragraph 
(III)(N).
    BIS has made two additional changes for consistency with the 
addition of this aggravating factor. First, BIS has also deleted the 
note under ``Concealment'' in Aggravating Factor A, which previously 
stated that failure to file a VSD does not constitute concealment. 
Second, BIS has added a sentence under ``Compliance Program'' in new 
paragraph (F), previously paragraph (E), stating that OEE will consider 
whether a firm has made a deliberate decision not to voluntarily 
disclose a significant apparent violation uncovered by its compliance 
program as part of its consideration of the compliance program under 
General Factors.
c. Clarifying ``Regulatory History'' and ``Criminal Convictions'' 
Subfactors Under General Factors
    BIS has changed two subfactors to Factor E (previously D), titled 
``Individual Characteristics,'' to clarify how it considers the 
respondent's prior history. First, in subfactor 4, which relates to the 
respondent's regulatory history, BIS has removed language that 
previously excluded a respondent's history relating to antiboycott 
matters from consideration, as well as language that limited BIS's 
review of prior history to five years preceding the date of the 
transaction giving rise to the apparent violation. This change was made 
to focus OEE penalty decisions on the most relevant prior conduct. BIS 
has also made clarifying revisions, including bringing the information 
that OEE will consider previous penalties, warning letters, or 
administrative actions (including settlements)--which was already 
reflected in the header for this subfactor--into the explanatory text.
    Second, subfactor 6 at paragraph (III)(E)(6), ``Criminal 
Convictions,'' is revised to clarify that, in addition to considering 
whether a respondent has been convicted or entered a guilty plea as 
part of a resolution with the Department of Justice, OEE also may 
consider whether a respondent has entered into any other type of 
resolution with the Department of Justice or other prosecutorial 
authorities related to a criminal violation. This change clarifies that 
OEE will consider resolutions other than a criminal conviction, such as 
Deferred Prosecution Agreements or Non-Prosecution Agreements, as part 
of the respondent's criminal history.
d. Clarifying What Constitutes Exceptional Cooperation Under Mitigating 
Factors
    The mitigating factor ``Exceptional Cooperation with OEE,'' 
previously Factor G, is now renumbered under Factor H at paragraph 
(III)(H), and continues to list illustrative examples of how OEE 
evaluates exceptional cooperation. Paragraph (III)(H)(4) under this 
factor is revised to list an additional consideration regarding whether 
the Respondent has previously disclosed information regarding the 
conduct of others that led to an enforcement action by OEE. This change 
is made to provide an incentive for companies to disclose the wrongful 
conduct of others.

5. Changes to Section IV, ``Civil Penalties''

a. Revisions to Paragraph (IV)(B)(1) To Identify Decision Maker for 
Egregiousness Determination
    The previous paragraph (IV)(B)(1) said simply that ``OEE'' will 
determine whether a case is considered ``egregious'' under the BIS 
Penalty Guidelines. BIS has revised this paragraph to specify that the 
OEE Director will make determinations as to whether a case is deemed 
egregious for purposes of the base penalty calculation. This 
determination no longer requires the Assistant Secretary of Commerce 
for Export Enforcement to give concurrence. The Assistant Secretary is 
already the signature authority on final orders implementing settlement 
agreements, so the Assistant Secretary's additional concurrence is 
unnecessary.
b. Revisions to Paragraph (IV)(B)(2)
    The ``Base Penalty Matrix'' under paragraph (IV)(B)(2)(a) and 
paragraph (IV)(B)(2)(b) are edited as follows: paragraph 
(IV)(B)(2)(a)(i) provides that in non-egregious VSD cases, the base 
penalty amount is no longer capped at a maximum of $125,000, but is 
instead capped at one-half of the transaction value. Paragraph 
(IV)(B)(2)(a)(ii) provides that, in a non-egregious case not initiated 
by a VSD, the base penalty amount is no longer based on the applicable 
schedule amount or capped at $250,000, but is instead capped at the 
full transaction value. BIS is removing from the base penalty matrix 
and related text the previously established schedule amounts and 
penalty caps for non-egregious cases to allow penalties to be 
calculated based on transactional value instead of progressive brackets 
that round up. For example, a transaction valued at $100,000 would have 
a schedule amount of $170,000 under existing guidelines. The penalty 
cap is removed to recognize that certain transactions are of such high 
value, that any potential penalty under the cap would not serve as an 
effective deterrent.
    Additionally, in paragraph (IV)(B)(2)(b) ``Adjustment for 
Applicable Relevant Factors,'' this rule removes references to 
percentages and reductions that may correspond to certain factors 
affecting administrative sanctions in a specific case and replaces them 
with an explanation that the application of the factors, as they apply 
in combination to a particular case, may result in a penalty

[[Page 75482]]

amount that is higher or lower than the base penalty amount. As 
discussed in the background section above, this change is necessary 
because the previous guidelines, which assigned percentages to certain 
factors but not to other factors, reduced OEE's flexibility to impose 
appropriate penalties that serve as a deterrent and created a 
misperception that those percentages could not be offset by aggravating 
factors.
c. Addition of Paragraph (IV)(B)(2)(a)(v) To Clarify Annual Adjustments 
to Statutory Maximum Penalty
    BIS is adding paragraph (IV)(B)(2)(a)(v). This new paragraph 
describes the applicable statutory maximum civil penalty per violation 
as established by ECRA, and which is adjusted annually under FCPIAAIA 
2015.

Export Control Reform Act of 2018

    On August 13, 2018, the President signed into law the John S. 
McCain National Defense Authorization Act for Fiscal Year 2019, which 
included the Export Control Reform Act (ECRA), 50 U.S.C. 4801-4852. 
ECRA, as amended, provides the legal basis for BIS's principal 
authorities and serves as the authority under which BIS issues this 
rule.

Rulemaking Requirements

    1. Executive Orders 12866, 13563, and 14094 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 and distributive impacts and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits and of reducing costs, harmonizing rules, and 
promoting flexibility.
    Pursuant to E.O. 12866, this final rule has been determined to not 
be a significant regulatory action. This rule does not contain policies 
with Federalism implications as that term is defined under Executive 
Order 13132.
    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 of 1995 (44 U.S.C. 3501 et 
seq.) (PRA), unless that collection of information displays a currently 
valid Office of Management and Budget (OMB) Control Number. BIS 
believes that the regulation will reduce the overall burden hours and 
costs associated with the following information collections. However, 
the minimal reduction of burden hours falls within the existing 
estimates currently associated with these control numbers.
     0694-0088, ``Simplified Network Application Processing 
System,'' which carries a burden-hour estimate of 29.7 minutes for a 
manual or electronic submission;
     0694-0137 ``License Exceptions and Exclusions,'' which 
carries a burden-hour estimate of 1.5 hours per submission (Note: 
submissions for License Exceptions are rarely required);
     0694-0096 ``Five Year Records Retention Period,'' which 
carries a burden-hour estimate of less than 1 minute; and
     0607-0152 ``Automated Export System (AES) Program,'' which 
carries a burden-hour estimate of 3 minutes per electronic submission.
    Additional information regarding these collections of information--
including all background materials--can be found at https://www.reginfo.gov/public/do/PRAMain and using the search function to 
enter either the title of the collection or the OMB Control Number.
    3. Pursuant to section 1762 of ECRA (50 U.S.C. 4821), this action 
is exempt from the Administrative Procedure Act (APA) (5 U.S.C. 553) 
requirements for notice of proposed rulemaking, opportunity for public 
participation and delay in effective date.
    4. Because a notice of proposed rulemaking and an opportunity for 
public comment are not required to be given for this rule by 5 U.S.C. 
553, or by any other law, the analytical requirements of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., are not applicable. 
Accordingly, no regulatory flexibility analysis is required, and none 
has been prepared.

List of Subjects in 15 CFR Parts 764 and 766

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

    Accordingly, parts 764 and 766 of the Export Administration 
Regulations (15 CFR parts 730 to 774) are amended as follows:

PART 764--ENFORCEMENT AND PROTECTIVE MEASURES

0
1. The authority citation for part 764 continues to read as follows:

    Authority: 50 U.S.C. 4801-4852; 50 U.S.C. 4611-4613; 50 U.S.C. 
1701 et seq.; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783.


0
2. Section 764.5 is amended by revising paragraphs (a) and (b) through 
(f) and adding paragraph (g) to read as follows:


Sec.  764.5  Voluntary self-disclosure.

    (a) General policy. BIS strongly encourages disclosure to the 
Office of Export Enforcement (OEE) if you believe that you may have 
violated the EAR, or any order, license or authorization issued 
thereunder. As described in supplement no. 1 to part 766, voluntary 
self-disclosure is a mitigating factor, and a firm's deliberate 
decision not to disclose significant apparent violations is an 
aggravating factor in determining what administrative sanctions, if 
any, will be sought by OEE. A deliberate decision not to disclose 
occurs when a firm uncovers a significant apparent violation that it 
has committed but then chooses not to file a VSD.
* * * * *
    (c) Voluntary self-disclosures involving minor or technical 
violations--(1) General. Any person wanting to voluntarily disclose a 
minor or technical violation should submit an abbreviated narrative 
report, as described in paragraph (c)(2) of this section. A minor or 
technical violation is one that does not contain any aggravating 
factors present as defined in section III(A) of supplement no. 1 to 
part 766. Examples of minor or technical violations include, but are 
not limited to, immaterial Electronic Export Information (EEI) filing 
errors, inadvertent record keeping violations resulting from failed 
file retrieval or retention mechanisms (e.g., physical damage caused by 
flood or fire and/or electronic corruption due to malware, virus, or 
outage), incorrect use of one license exception where other license 
exceptions were available, etc.
    (2) Abbreviated narrative report. The abbreviated narrative report 
should be submitted by email to [email protected] or in 
writing to the address in paragraph (d)(7) of this section. The email 
subject line should include the word ``abbreviated'' if it is an 
abbreviated VSD.:
    (i) The notification should include:
    (A) The name of the person making the disclosure and should 
designate a contact person regarding the abbreviated narrative report 
and provide that contact person's current business street address, 
email address, and telephone number; and
    (B) A description of the general nature and extent of the 
violations (including, but not limited to, the destination and

[[Page 75483]]

parties involved in any transaction, and the number, classification, 
and value of any items involved). Parties may itemize the various minor 
or technical violations in list or spreadsheet form.
    (ii) The Director of OEE at their discretion may request a full 
narrative report pursuant to paragraph (d)(3) of this section if OEE 
suspects the presence of aggravating factors which will be due in 180 
days from the date of the OEE Director's request.
    (3) Bundling of minor/technical violations. Parties may bundle 
multiple minor or technical violations into one overarching submission, 
if the violations occurred within the preceding quarter. Parties may 
submit such minor or technical violations into a single VSD submission 
on a quarterly basis using the abbreviated narrative account process 
identified in paragraph (c)(2) of this section.
    (d) Voluntary self-disclosures involving significant violations--
(1) General. Any person wanting to voluntarily disclose a significant 
violation should, in the manner outlined in paragraph (c)(2) of this 
section, initially notify OEE as soon as possible after violations are 
discovered, and then conduct a thorough review of all export-related 
transactions where violations are suspected. A significant violation is 
one that involves one or more aggravating factors as defined in section 
III(A) of supplement no. 1 to part 766. Those unsure of whether their 
possible disclosure relates to a minor or technical violation, or a 
significant violation, should follow the procedure in paragraph (d)(2) 
of this section for a significant violation.
    (2) Initial notification--(i) Manner and content of initial 
notification. The initial notification should be submitted by email to 
[email protected] or in writing to the address in paragraph 
(d)(7) of this section. The notification should include the name of the 
person making the disclosure and a brief description of the suspected 
violations and should designate a contact person regarding the initial 
notification and provide that contact person's current business street 
address, email address, and telephone number. The notification should 
describe the general nature and extent of the violations. OEE 
recognizes that there may be situations where it will not be practical 
to make an initial notification in writing. For example, written 
notification may not be practical if a shipment leaves the United 
States without the required license, yet there is still an opportunity 
to prevent acquisition of the items by unauthorized persons. In such 
situations, OEE should be contacted promptly at the office listed in 
paragraph (d)(7) of this section.
    (ii) Initial notification date. For purposes of calculating when a 
complete narrative account must be submitted under paragraph 
(d)(2)(iii) of this section, the initial notification date is the date 
the notification is received by OEE. OEE will notify the disclosing 
party in writing of the date that it receives the initial notification. 
At OEE's discretion, such writing from OEE may be on paper, or in an 
email message or facsimile transmission from OEE, or by any other 
method for the transmission of written communications. Where it is not 
practical to make an initial notification in writing, the person making 
the notification should confirm the oral notification in writing as 
soon as possible.
    (iii) Timely completion of narrative accounts. The full narrative 
account required by paragraph (d)(3) of this section must be received 
by OEE within 180 days of the initial notification date for purposes of 
paragraph (b)(3) of this section, absent an extension from the Director 
of OEE. If the person making the initial notification subsequently 
completes and submits to OEE the narrative account required by 
paragraph (d)(3) of this section such that OEE receives it within 180 
days of the initial notification date, or within the additional time, 
if any, granted by the Director of OEE pursuant to paragraph (d)(2)(iv) 
of this section, the disclosure, including violations disclosed in the 
narrative account that were not expressly mentioned in the initial 
notification, will be deemed to have been made on the initial 
notification date for purposes of paragraph (b)(3) of this section if 
the initial notification was made in compliance with paragraphs (d)(1) 
and (2) of this section. Failure to meet the deadline (either the 
initial 180-day deadline or an extended deadline granted by the 
Director of OEE) would not be an additional violation of the EAR, but 
such failure may reduce or eliminate the mitigating impact of the 
voluntary disclosure under supplement no. 1 to this part. For purposes 
of determining whether the deadline has been met under this paragraph, 
a complete narrative account must contain all of the pertinent 
information called for in paragraphs (d)(3) through (5) of this 
section, and the voluntary self-disclosure must otherwise meet the 
requirements of this section.
    (iv) Deadline extensions. The Director of OEE may extend the 180-
day deadline upon a determination in his or her discretion that U.S. 
Government interests would be served by an extension or that the person 
making the initial notification has shown that more than 180 days is 
reasonably needed to complete the narrative account.
    (A) Conditions for extension. The Director of OEE in his or her 
discretion may place conditions on the approval of an extension. For 
example, the Director of OEE may require that the disclosing person 
agree to toll the statute of limitations with respect to violations 
disclosed in the initial notification or discovered during the review 
for or preparation of the narrative account, and/or require the 
disclosing person to undertake specified interim remedial compliance 
measures.
    (B) Contents of request. (1) In most instances 180 days should be 
adequate to complete the narrative account. Requests to extend the 180-
day deadline set forth in paragraph (d)(2)(iii) of this section will be 
determined by the Director of OEE pursuant to his or her authority 
under this paragraph (d)(2)(iv) based upon his consideration and 
evaluation of U.S. Government interests and the facts and circumstances 
surrounding the request and any related investigations. Such requests 
should show specifically that the person making the request:
    (i) Began its review promptly after discovery of the violations;
    (ii) Has been conducting its review and preparation of the 
narrative account as expeditiously as can be expected, consistent with 
the need for completeness and accuracy;
    (iii) Reasonably needs the requested extension despite having begun 
its review promptly after discovery of the violations and having 
conducted its review and preparation of the narrative account as 
expeditiously as can be expected consistent with the need for 
completeness and accuracy; and
    (iv) Has considered whether interim compliance or other corrective 
measures may be needed and has undertaken such measures as appropriate 
to prevent recurring or additional violations.
    (2) Such requests also should set out a proposed timeline for 
completion and submission of the narrative account that is reasonable 
under the applicable facts and circumstances and should also designate 
a contact person regarding the request and provide that contact 
person's current business street address, email address, and telephone 
number. Requests may also include additional information that the 
person making the request reasonably believes is pertinent to the 
request under the applicable facts and circumstances.
    (C) Timing of requests. Requests for an extension should be made 
before the 180-day deadline and as soon as

[[Page 75484]]

possible once a disclosing person determines that it will be unable to 
meet the deadline or the extended deadline where an extension 
previously has been granted, and possesses the information needed to 
prepare an extension request in accordance with paragraph (d)(2)(iv)(B) 
of this section. Requests for extension that are not received before 
the deadline for completing the narrative account has passed will not 
be considered. Parties who request an extension shortly before the 
deadline incur the risk that the Director of OEE will be unable to 
consider the request, determine whether or not to grant the extension, 
and communicate his or her decision before the deadline, and that any 
subsequently submitted narrative account will be considered untimely 
under paragraph (d)(2)(iii) of this section.
    (3) Full narrative. After the initial notification, a thorough 
review should be conducted of export-related transactions where 
violations with potentially aggravating factors are suspected (as 
defined in section III(A) of supplement no. 1 to part 766). OEE 
recommends that the review cover a period of five years prior to the 
date of the initial notification. If your review goes back less than 
five years, you risk failing to discover violations that may later 
become the subject of an investigation. Any violations not voluntarily 
disclosed do not receive consideration under this section. However, the 
failure to make such disclosures will not be treated as a separate 
violation unless some other section of the EAR or other provision of 
law requires disclosure. Upon completion of the review, OEE should be 
furnished with a narrative account that sufficiently describes the 
suspected violations so that their nature and gravity can be assessed. 
The narrative account should also describe the nature of the review 
conducted and measures that may have been taken to minimize the 
likelihood that violations will occur in the future. The narrative 
account should include:
    (i) The kind of violation involved, for example, a shipment without 
the required license or dealing with a party denied export privileges;
    (ii) An explanation of when and how the violations occurred;
    (iii) The complete identities and addresses of all individuals and 
organizations, whether foreign or domestic, involved in the activities 
giving rise to the violations;
    (iv) License numbers;
    (v) The description, quantity, value in U.S. dollars and ECCN or 
other classification of the items involved; and
    (vi) A description of any mitigating circumstances.
    (4) Supporting documentation. (i) The narrative account should be 
accompanied by copies of documents that explain and support it, 
including:
    (A) Licensing documents such as licenses, license applications, 
import certificates and end-user statements;
    (B) Shipping documents such as Shipper's Export Declarations, air 
waybills, bills of lading and packing lists; and
    (C) Other documents such as letters, facsimiles, telexes and other 
evidence of written or oral communications, internal memoranda, 
purchase orders, invoices, letters of credit and brochures.
    (ii) Any relevant documents not attached to the narrative account 
must be retained by the person making the disclosure until OEE requests 
them, or until a final decision on the disclosed information has been 
made. After a final decision, the documents should be maintained in 
accordance with the recordkeeping rules in part 762 of the EAR (15 CFR 
part 762).
    (5) Certification. A certification must be submitted stating that 
all of the representations made in connection with the voluntary self-
disclosure are true and correct to the best of that person's knowledge 
and belief. Certifications made by a corporation or other organization 
should be signed by an official of the corporation or other 
organization with the authority to do so. Sec.  764.2(g), relating to 
false or misleading representations, applies in connection with the 
disclosure of information under this section.
    (6) Oral presentations. OEE believes that oral presentations are 
generally not necessary to augment the written narrative account and 
supporting documentation. If the person making the disclosure believes 
otherwise, a request for a meeting should be included with the 
disclosure.
    (7) Where to make voluntary self-disclosures. The information 
constituting a voluntary self-disclosure or any other correspondence 
pertaining to a voluntary self-disclosure may be submitted by email to 
[email protected] or mailed to: Director, Office of Export 
Enforcement, 1401 Constitution Ave., Room H4514, Washington, DC 20230, 
Tel: (202) 482-5036.
    (e) Dual-track processing of Voluntary Self-Disclosures by the 
Office of Export Enforcement. (1) For VSDs that involve minor or 
technical infractions, including abbreviated VSDs, OEE will generally 
resolve the VSD within 60 days of a final VSD submission with one of 
the actions in paragraphs (e)(1)(i) and (ii) of this section.
    (i) Inform the person making the disclosure that, based on the 
facts disclosed, it plans to take no action; or
    (ii) Issue a warning letter.
    (2) For VSDs that indicate significant violations, OEE will conduct 
an investigation, and as quickly as the facts and circumstances of a 
given case permit, OEE may take any of the following actions:
    (i) Inform the person making the disclosure that, based on the 
facts disclosed, it plans to take no action;
    (ii) Issue a warning letter;
    (iii) Issue a proposed charging letter pursuant to Sec.  766.18 of 
the EAR and attempt to settle the matter;
    (iv) Issue a charging letter pursuant to Sec.  766.3 of the EAR if 
a settlement is not reached; and/or
    (v) Refer the matter to the Department of Justice for criminal 
prosecution.
    (f) Criteria. Supplement no. 1 to part 766 describes how BIS 
typically exercises its discretion regarding whether to pursue an 
administrative enforcement case under part 766 and what administrative 
sanctions to seek in settling such a case.
    (g) Treatment of unlawfully exported items. (1) Any person taking 
certain actions with knowledge that a violation of ECRA or the EAR has 
occurred has violated Sec.  764.2(e).
    (i) Any person who has made a voluntary self-disclosure knows that 
a violation may have occurred. Therefore, at the time that a voluntary 
self-disclosure is made, the person making the disclosure may request 
permission from BIS to engage in the activities described in Sec.  
764.2(e) that would otherwise be prohibited.
    (ii) Any person may also notify the Director of OEE that a 
violation has occurred and request permission from BIS to engage in the 
activities described in Sec.  764.2(e) that would otherwise be 
prohibited.
    (iii) Actions to return to the United States an item that has been 
unlawfully exported and disclosed under this section only require 
notification to the Director of OEE. Items subject to a violation that 
have been returned to the United States do not require further 
authorization under this paragraph (g) for future activities, provided 
that those future activities comply with any applicable EAR 
requirements.
    (2) How to submit a request under paragraphs (g)(1)(i) through 
(iii) of this section: A request should be submitted on letterhead, 
signed, and sent to the Director of the Office of Exporter

[[Page 75485]]


Services at [email protected] with a copy sent to 
[email protected]. The request should be specific and detail 
the following information: nature of the violation including when and 
how the violations occurred; description, quantity, value in U.S. 
dollars and ECCN or other classification of the items involved; license 
numbers, if applicable; identities and addresses of all individuals and 
organizations subject to the request, the scope of the request 
specifying the Sec.  764.2(e) activities, including end-use, and point 
of contact. A copy of the initial or final VSD or notification made to 
the Director of OEE should be attached to the request.
    (3) If a request submitted pursuant to paragraph (g)(1)(i) or (ii) 
of this section is granted by the Office of Exporter Services in 
consultation with OEE, future activities with respect to those items 
that would otherwise violate Sec.  764.2(e) will not constitute 
violations.

    Note 1 to paragraph (g)(3): Even if permission is granted, the 
person making a voluntary self-disclosure pursuant to paragraph 
(g)(1)(i) of this section is not absolved from liability for any 
violations disclosed nor relieved of the obligation to obtain any 
required reexport authorizations.

    (4) Reexports and transfers (in-country). To reexport or transfer 
(in-country) items that are the subject of a voluntary self-disclosure 
or notification, and that have been exported contrary to the provisions 
of ECRA or the EAR, authorization may be requested from BIS in 
accordance with the provisions of part 748 of the EAR (15 CFR part 
748). If the applicant who submitted the reexport or transfer 
authorization knows that the items are the subject of a voluntary self-
disclosure or notification, the request should state that a voluntary 
self-disclosure or notification was made in connection with the export 
of the items for which authorization is sought and a copy of the 
voluntary self-disclosure or notification should be included with the 
license application.

    Note 2 to paragraph (g)(4): If the items are otherwise eligible 
for reexport or transfer under a license exception or the No License 
Required (NLR) designation, a request under this paragraph (g) may 
be submitted to obtain permission for the use of the license 
exception or NLR designation for such reexport or transfer, provided 
the transaction otherwise meets the terms and conditions of the 
license exception or NLR designation.

    (5) Automated Export System (AES) filing errors. Disclosures and 
notifications of AES filing errors reported to OEE under paragraphs 
(g)(1)(i) and (ii) of this section, where no other violation of the EAR 
only require notification to OEE and do not require authorization under 
this paragraph (g) to engage in activities subject to the EAR. The AES 
filing must be corrected with the Census Bureau before proceeding with 
such activities provided the activities meet any applicable EAR 
requirements. If another violation, such as failure to obtain a 
required license, has occurred in addition to the AES filing error, 
authorization under this paragraph (g) is required.

PART 766--ADMINISTRATIVE ENFORCEMENT PROCEEDINGS

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

    Authority: 50 U.S.C. 4801-4852; 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.


0
4. 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.
    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 Control Reform Act of 2018, the 
EAR, other statutes administered or enforced by BIS, as well as 
executive orders, regulations, orders, directives, or licenses 
issued pursuant thereto.
    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

[[Page 75486]]

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 minor or 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 Federal Civil Penalties 
Inflation Adjustment Act Improvements Act of 2015 (Pub. L. 114-74, 
sec. 701), 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. Non-Monetary Penalty. OEE may seek a non-monetary penalty if 
OEE determines the violations are not egregious and have not 
resulted in serious national security harm, but rise above the level 
of cases warranting a warning letter or no-action letter. Instead of 
requiring monetary penalties, such agreements will require 
remediation through the imposition of a suspended denial order with 
certain conditions, such as training and compliance requirements, as 
appropriate, to mitigate harm from past violations and prevent 
future ones.
    E. 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.
    F. 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.
    G. 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 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.
    H. 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.

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. In other cases, where the imposition of an administrative 
penalty is deemed appropriate, 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 paragraphs II(A) through (D) and (G) through (I). 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 OEE'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 (15 CFR part 732), 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 (15 
CFR parts 764 and 772). 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.

[[Page 75487]]

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?
    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 
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 is 
present where the conduct in question, in purpose or effect, 
substantially implicates national security, foreign policy or other 
essential interests protected by the U.S. export control system. 
Among other things, OEE may consider 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, or otherwise used to enable human rights abuses, OEE 
would consider the implications of the apparent violation to be 
significant.
    D. Failure to disclose a significant apparent violation. If a 
firm (as that term is defined in Sec.  772.1 of the EAR) 
deliberately chooses not to disclose a significant apparent 
violation that it has identified, OEE will consider that non-
disclosure to be an aggravating factor when assessing what 
administrative sanctions, if any, will be sought. A deliberate 
decision not to disclose occurs when a firm uncovers a significant 
apparent violation that they have committed but then chooses not to 
file a VSD.

General Factors

    E. 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). OEE will 
consider a Respondent's past regulatory history, including OEE's 
issuance of prior penalties, warning letters, or other 
administrative actions (including settlements). When an acquiring 
firm takes reasonable steps to

[[Page 75488]]

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 intellectual property theft, economic 
espionage or money laundering?
    6. Criminal Convictions. Has the Respondent previously been 
convicted of a criminal violation or otherwise entered into a 
resolution with the Department of Justice or other prosecutorial 
authority related to a 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.
    F. 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 
Compliance Guidelines. Information about the Export Compliance 
Guidelines can be accessed through the BIS website at https://www.bis.gov/. 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. 
Conversely, OEE will also consider whether a firm has deliberately 
failed to voluntarily disclose a significant apparent violation 
uncovered by a company's export compliance program.

Mitigating Factors

    G. 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 apparent violations.
    H. 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? Has the Respondent previously disclosed 
information regarding the conduct of others that led to enforcement 
action by OEE?
    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 may 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.
    I. License Was Likely To Be Approved. Would an export license 
application have likely been approved for the transaction had 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

    J. 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.
    K. 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.
    L. 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 (15 CFR part 766). A criminal 
conviction indicates serious, willful misconduct and an accordingly 
high risk of future violations, absent effective

[[Page 75489]]

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.
    M. 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.
    N. 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 of this supplement 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, the OEE 
Director 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, the OEE Director 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 of 
this supplement. 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.
    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 up to one-half of the transaction value.
    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 up to the transaction value.
    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.
    v. The applicable statutory maximum civil penalty per violation 
of the Export Control Reform Act (ECRA) of 2018 is a fine defined in 
ECRA and 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), which in 2024 was $364,992, or an amount 
that is twice the value of the transaction that is the basis of the 
violation with respect to which the penalty is imposed, whichever is 
greater.
    The following matrix represents the base penalty amount of the 
civil monetary penalty for each category of violation:

                           Base Penalty Matrix
------------------------------------------------------------------------
                                            Egregious case?
 Voluntary self-disclosure?  -------------------------------------------
                                       NO                    YES
------------------------------------------------------------------------
YES.........................  (1) Up to One-Half    (3) Up to One-Half
                               of the Transaction    of the Applicable
                               Value.                Statutory Maximum.
NO..........................  (2) Up to the         (4) Up to the
                               Transaction Value.    Applicable
                                                     Statutory Maximum.
------------------------------------------------------------------------

    b. Adjustment for Applicable Relevant Factors. The base penalty 
amount of the civil monetary penalty will be adjusted to reflect 
applicable Factors for Administrative Action set forth in section 
III of these guidelines. The Factors may result in a penalty amount 
that is lower or higher than the base penalty amount depending upon 
whether they are aggravating or mitigating and how they, in the 
discretion of OEE, apply in combination in a particular case.

C. Settlement Procedures

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

Thea D. Rozman Kendler,
Assistant Secretary for Export Administration.
[FR Doc. 2024-21013 Filed 9-12-24; 8:45 am]
BILLING CODE 3510-33-P