5 Key Takeaways From BIS's Newest Voluntary Self-Disclosure Memorandum

In its third memorandum in the past two years,¹ BIS recently announced further updates to its Voluntary Self-Disclosure (VSD) process related to administrative violations. My last article covered BIS's April 18, 2023 memorandum, which discussed incentives for companies to disclose violations after uncovering "significant violations" or risk higher penalties because a failure to disclose will be treated as an aggravating factor.

The latest memorandum came a day before a top U.S. official said businesses should expect much higher penalties for violations of export controls. The penalties could be similar to those in cases related to foreign bribery, which commonly reach fines in the billions of dollars.²

Here are five key takeaways from the January 16, 2024, memorandum:

1. Submissions of VSDs via email is strongly encouraged. You can submit initial notifications, extension requests, and narrative accounts at bis_vsd_intake@bis.doc.gov. In practice, most of us continue submissions of VSDs via email, so we do not expect a major impact or change in practice here.
2. Shorter Narratives. In certain cases where the violations are minor, technical infractions, and subject to BIS's "fast track" resolution policy, you can now submit an abbreviated narrative account. For these types of infractions, parties will not be required to conduct a five-year look back of the violations if there are no aggravating factors present. As such, in evaluating your specific situation, it will be critical to ascertain whether aggravating factors are present in your circumstances. Regardless, the BIS Office of Export Enforcement (OEE) Director reserves the right to request a full narrative account, or five-year look back review with accompanying documentation, in certain instances where aggravating factors are determined to be present and not otherwise identified or disclosed.
3. Quarterly Disclosures. Minor, technical violations can be bundled into quarterly disclosures or reports to BIS.
4. Prohibited Activities. Once you have made a VSD, you have knowledge that a violation has occurred. As such, at the time you make the VSD, you can also request permission to engage in the activities described in 15 C.F.R. § 764.2(e) (commonly referred to as a General Prohibition 10 waiver request), which would otherwise be prohibited. This request for permission should go to BIS's Office of Exporter Services. Now (if you have not done this before), you should also submit a courtesy copy of the request to OEE via email. The OEE will work with the Office of Exporter Services to expedite the review. This is also a good reminder that when you discover violations, you must immediately stop the ongoing wrongful action.

Overall, the changes streamline the VSD review process and hopefully reduce the burden on exporters who uncover minor, administrative violations at their companies. BIS continues to strongly encourage the submission of VSDs in exchange for mitigation. Conversely, companies that do not submit a disclosure are at risk of receiving higher penalties (i.e., failure to submit a VSD will be treated as an aggravating factor).

OEE's willingness to forego the five-year lookback is an interesting development, but it is unclear if mitigation will be afforded to unidentified violations that may be later discovered should OEE request an expanded review. Companies will bear the burden of correctly categorizing violations because, if administrative errors are later deemed by OEE as significant, the company could be subjected to legal exposure.

Footnotes

1. BIS Office of Export Enforcement first published a memorandum on June 30, 2022 discussing export administration regulations enforcement changes and priorities.

2. Richard Vanderford, U.S. Likely to Levy Higher Penalties for Export-Control Violations, The Wall Street Journal (Jan. 17, 2024), https://www.wsj.com/articles/u-s-likely-to-levy-higher-penalties-for-export-control-violations-e729bd2a.

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