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On January 16, 2024, the Bureau of Industry and Security within the Department of Commerce (BIS) issued a <a href="https://www.bis.doc.gov/index.php/documents/enforcement/3435-vsd-policy-memo-01-16-2024/file">major policy memorandum</a> of “further enhancements to our voluntary self-disclosure process” prescribed in the Export Administration Regulations (EAR).

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Specifically, the memorandum details four improvements to the voluntary self-disclosure (VSD) process, which the Assistant Secretary for Export Enforcement, Matthew Axelrod, described in <a href="https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/3436-vsd-speech-final-01-16-2024/file">a subsequent speech detailing the improvements</a> as a win-win for government and industry. He noted that the changes will not only help both the public and private sectors conserve finite compliance and enforcement resources but also “further drive prioritization…of your time—and ours—so that it’s spent on the most significant threats to our national security.”

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Update #1: Emphasis on Electronic Submission of VSDs

The policy memorandum “strongly encourag[es]” companies to submit VSDs to BIS by email.&nbsp; Electronic submissions of initial notifications, extension requests and narrative accounts of disclosure can be sent to BIS via the email address <a href="mailto:bis_vsd_intake@bis.doc.gov">bis_vsd_intake@bis.doc.gov</a>.

Electronic submission was already available, but this change emphasizes that parties submitting electronically should expect a quicker response from BIS.  As noted by the policy memorandum, email submissions allow the agency to receive, monitor and track submissions more effectively.

Update #2: Abbreviated Narrative Account for Minor or Technical Violations

In its <a href="https://www.bis.doc.gov/index.php/documents/enforcement/3062-administrative-enforcement-memo/file">June 30, 2022 policy memorandum</a>, BIS established a fast track to resolve VSDs covering minor or technical infractions with a warning letter or no-action letter within 60 days of receipt of a final submission.

The policy memorandum provides companies the option to submit an abbreviated “narrative account” if they believe their violation is a minor or technical infraction, i.e., those without aggravating factors, which can be found in Section III(A) of Supplement No. 1 to Part 766 of the EAR.&nbsp;

Like a full narrative account, the abbreviated version should continue to synthesize the nature of the violation of U.S. export controls and an explanation of when and how the violation occurred, as required by 15 C.F.R. § 764.5(c)(3).  However, unlike a full narrative account, the abridged version does not have to be accompanied by all the supporting documentation listed in 15 C.F.R. § 764.5(c)(4).  Additionally, the abbreviated narrative account does not have to include a full five-year review of all export-related transactions that occurred before the VSD, as recommended by BIS.

Notably, the policy memorandum warns that if the Office of Export Enforcement (OEE) suspects “the presence of aggravating factors,” OEE reserves the authority to reject the submission as insufficient and request a full narrative account with accompanying documentation and a five-year lookback. The policy memorandum states such a request will be explicitly made by OEE.

Update #3: Revised Timeline for Disclosing Minor or Technical Violations

The third and arguably most prominent improvement to the VSD process prescribed by the policy memorandum is a change to the bundling option introduced in the second policy memorandum published on April 18, 2023. In <a href="https://www.bis.doc.gov/index.php/documents/enforcement/3262-vsd-policy-memo-04-18-2023/file">that earlier policy memorandum</a>, BIS noted that disclosing parties could “bundle” multiple minor or technical violations in one comprehensive submission if the violations occurred within a relatively close timeframe from one another.&nbsp; (For more information about the April 18, 2023 policy memorandum, see <a href="https://www.thompsonhinesmartrade.com/2023/04/commerce-issues-policy-memo-to-incentivize-more-disclosures-of-export-violations/">Update of April 25, 2023</a>).&nbsp; As updated in this policy memorandum, parties can now bundle their minor or technical violations in one overarching disclosure every quarter—i.e., one submission every three months.

Update #4: Expedient Handling of Requests to Take Corrective Action for an Unlawfully Exported Item

Finally, the policy memorandum improves the VSD process by clarifying how BIS will handle requests from parties who, after becoming aware of an illegally exported item, seek to take corrective actions to ameliorate the fallout of such an unlawful export.&nbsp; As indicated in the Assistant Secretary’s speech, parties who employ corrective action may be undertaking a noble pursuit, but doing so can be tricky to implement as parties often inadvertently further violate export control regulations by “acting with knowledge of a violation” pursuant to 15 C.F.R. § 764.2(e).&nbsp; Accordingly, the update provides that parties engaged in a VSD who seek authorization from BIS’s Office of Exporter Services for special permission to engage in otherwise prohibited corrective actions should send “courtesy copies of such requests…to OEE via email” as well.&nbsp; In doing so, OEE will help expedite the request.

The policy memorandum also clarifies that any person—i.e., not just the party submitting a VSD to BIS—may notify OEE of a violation of U.S. export controls and, as such, seeks special permission to now engage in activities otherwise proscribed by 15 C.F.R. § 764.2(e).  Moreover, OEE will adopt a “presumptive recommendation” policy to approve requests seeking to return an unlawfully exported item back to the United States.

These changes demonstrate that BIS is continuing its efforts to eliminate red tape on minor or technical infractions to reorient the agency’s resources to significant export violations.  Indeed, as echoed by the speech delivered by the top BIS export enforcement official lauding the improvements, “we want you spending most of your compliance dollars on preventing (and, if unsuccessful in preventing, then disclosing) the most serious export violations.  To help drive this behavior, [therefore,] we’re making some changes to reduce the administrative burden associated with submitting disclosures for more minor or technical violations[.]”

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

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BIS Issues Policy Memo on the Voluntary Self-Disclosure Process

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