Bigger Fish to Fry: BIS Refines Voluntary Self-Disclosure Process for Minor EAR Violations

Key Takeaways

The US Department of Commerce’s Bureau of Industry and Security (BIS), which administers the Export Administration Regulations (EAR) and regulates most exports from the United States, announced further updates to the process by which persons can voluntarily disclose violations of the EAR and ask for BIS’s determination not to impose a penalty. The agency now encourages abbreviated voluntary self-disclosures (VSDs) for minor or technical EAR violations, which may be consolidated into quarterly submissions and need not include the five-year review that historically has been expected. BIS is also streamlining its review of requests by exporters for authorization to engage with items that have been unlawfully exported, which would otherwise be prohibited under the EAR. These process changes are expected to ease EAR compliance burdens while furthering BIS’s goal to focus enforcement resources on the most significant violations.

Background

BIS administers the EAR, regulating the exportation from the United States — and the reexportation or transfer abroad — of most items of US origin. A person discovering a potential EAR violation may decide to disclose it to BIS, whether because BIS offers credit against a potential penalty, because a counterparty is requiring the disclosure, or for other reasons of corporate hygiene. Despite lengthy processing times, the vast majority of VSDs are closed with the issuance of a warning letter or no-action letter (i.e., without a monetary penalty).

To incentivize VSD filers and optimize efficiency, BIS initiated the now-familiar “dual-track” or “fast-track” processing system in 2022, which announced higher monetary penalties for serious EAR violations but a more lenient, accelerated VSD approach for minor violations. In 2023, BIS honed the fast-track VSD process, including clarifications that minor or technical infractions discovered “close in time” could be covered in a single VSD submission.

BIS is further refining the VSD process for minor violations.

Abbreviated Narrative Accounts

In a January 2024 memo, BIS announced that VSDs presenting only minor or technical violations — i.e., violations that involve no aggravating factors¹ — may be submitted with an abbreviated narrative account that briefly describes the nature of the violations but does not include all supporting documentation nor cover the five-year lookback period. This more streamlined approach is intended to alleviate factors that continue to disincentivize reliance on the VSD process, including diversion of company resources and sometimes lengthy periods of uncertainty about the outcome of a VSD.

Where a VSD may involve an aggravating factor, the submission should default to the full narrative account, including a five-year lookback and all supporting documentation.

Electronic Submission

BIS now strongly encourages VSD submission by email to expedite follow-up and response to the VSD.

Quarterly Submissions for Multiple Minor Violations

The BIS VSD webpage now makes clear that VSDs concerning close-in-time minor or technical violations may be bundled into quarterly submissions.

General Prohibition 10 Waivers

Where a party has unlawfully exported an item, it is generally barred from servicing or carrying out other actions² for that item, absent BIS granting a so-called General Prohibition 10 waiver. This can create problems for the exporter and its customers — e.g., for software companies that are expected to update or patch software whose initial export did not strictly comply with the EAR. To expedite this authorization process, parties are directed to submit the request both to the Office of Exporter Services and (via email) to the Office of Export Enforcement.

Conclusion

These adjustments are consistent with BIS’s efforts to ease pressure on its limited resources and focus enforcement on “bigger fish” — those actors who engage in significant EAR violations presenting greater national security risks. Although parties disclosing minor or technical EAR violations are encouraged to take advantage of the fast-track VSD process, they should also ensure that the underlying investigation is sufficient to determine whether an abbreviated VSD is appropriate.

^[1] Aggravating factors under the EAR include: (1) willful or reckless violations, in which a party has failed to exercise a minimal degree of caution to avoid a violation, including deliberate actions, willful ignorance of warning signs (including a pattern or practice of violative conduct), or efforts to conceal a violation; (2) whether management or other senior leaders were involved in, or knew or had reason to know about, the violative conduct; and (3) whether a party’s conduct undermined US national security or foreign policy objectives — in purpose or effect —by accounting for the reason(s) a subject item is controlled, the sensitivity of the item, and associated licensing policy. These and other factors affecting BIS enforcement decisions are described in Section III of Supplement No. 1 to Part 766 of the EAR.
^[2] Prohibited activities are specified in the Code of Federal Regulations Title 15 sections 736.2(b)(10) and 764.2(e) and include, inter alia, buying, financing, storing, using, selling, disposing, servicing, or transporting the subject item(s).

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