BIS proposed rule, revised penalty determinations

BIS proposed rule, revised penalty determinations

The Bureau of Industry and Security (BIS) of the U.S. Commerce Department has proposed to rewrite Supplement No. 1 to 15 CFR Part 766 of the Export Administration Regulations (EAR), and to set forth factors that BIS would consider when setting administrative penalty amounts.

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The penalty amounts would still be determined on a case-by-case basis with considerable discretion by BIS. However, the changes are intended to make BIS penalties more predictable, transparent, and aligned with the penalties imposed by Treasury’s Office of Foreign Assets Controls (OFAC).

Read the BIS proposed rule

Overview

Some the key differences between the proposal and current guidelines include the following:

  • The potential range of penalty amounts could be calculated with greater predictability through the application of formulaic additions/reductions to the “base penalty” if certain factors are present (i.e., certain reductions are set out as percentages in the proposal, intended to replace the ambiguous “great weight” concept afforded to certain factors under current guidelines).
  • The existence of a voluntary self-disclosure (VSD) would be used essentially to reduce the base penalty amount by half (i.e., a 50% reduction of the maximum penalty for each category of violation, subject to a “cap”), instead of being afforded “great weight” as a mitigating factor under the current guidelines.
  • The base penalty amount would be determined by two key factors: (1) whether the violation is considered “egregious” or “non-egregious” and (2) whether the violator has filed a VSD.
  • A determination as to whether a violation is egregious would be made with a focus on three factors (with “substantial weight” afforded these three factors).
  • Once the “base penalty” has been determined, then factors set forth in the proposal would be applied to determine whether the base penalty ought to be further adjusted upward or downward (but not greater than the applicable statutory maximum penalty, and the mitigation reduction generally not to exceed 75% of the base penalty).
 
 
  Not egregious Egregious
VSD filed

One-half transaction *    

(capped at $125,000 a violation)

One-half of applicable

statutory maximum 
VSD not filed 

Applicable schedule amount**

(capped at $250,000 a violation)

Applicable statutory maximum
 
 
*For these purposes, ”transaction value” is defined as the dollar value of a subject transaction (not necessarily CBP’s “transaction value”).
 
** Schedule amounts would be included in the final guidelines.
 
 

Factors

The “factors” are grouped into four categories: 

Aggravating (increase the penalty)

  • Willful or reckless violation of law 
  • Awareness of conduct at issue
  • Harm to regulatory program objectives

General (may be considered either aggravating or mitigating)

  • Individual characteristics of the respondent (e.g., first violation, up to a 25% reduction)
  • Compliance program 

Mitigating (reduce the penalty)

  • Remedial response
  • Exceptional cooperation (25% to 40% reduction without a VSD)
  • License was likely to be approved (had it been requested)  (up to 25% reduction)

Other relevant factors (case-by-case consideration)

  • Related violations
  • Multiple unrelated violations
  • Other enforcement
  • Future compliance/deterrence effect
  • Other factors that BIS deems relevant 

The enforcement actions available to BIS’s Office of Export Enforcement (OEE) to address export violations will remain unchanged. OEE may still choose to issue warning letters, open administrative enforcement cases, seek civil penalties, make criminal referrals, revoke or suspend export licenses, deny export privileges, exclude company representatives from practicing, require training and audits, or take no action at all. 

KPMG observation

This is only a proposed rule—it is not final. BIS is accepting comments on the guidelines until February 26, 2016. The current regulations will stay in effect until a revised version is released in final form. 

 

For more information, contact a professional with KPMG’s Trade & Customs practice:

Douglas Zuvich | +1 (312) 665-1022 | dzuvich@kpmg.com

Andrew Siciliano | +1 (631) 425-6057 | asiciliano@kpmg.com

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