Commerce Department Tacks to New Aggressive Enforcement Program
The Commerce Department’s Bureau of Industry and Security (“BIS”) has decided to join the enforcement club. BIS’s recent announcement of new policies to administrative actions should not be surprising.
Matthew Axelrod, the Assistant Secretary of Commerce for Export Enforcement, promised to ramp up enforcement during his confirmation hearings. The Biden Administration has promised an increase in regulatory enforcement, and there is no question that enforcement is increasing. In the international trade arena, the Treasury Department’s Office of Foreign Asset Control (“OFAC”) has committed to aggressive enforcement of the Russian Sanctions Program.
In a major policy shift, in late June 2022, Axelrod announced several revisions to its enforcement program. Axelrod explained that the primary reason for the new policies is the need to focus on increasing threats from nation states including China, Russia, Iran and North Korea.
The most significant change is the anticipated increase in participation of DOJ prosecutors from the National Security Division in joint investigation and enforcement actions. Like the SEC and DOJ partnership in FCPA, and the OFAC and DOJ partnership in trade sanctions cases, Axelrod highlighted the increased role of DOJ prosecutors in export control cases. This is consistent with DOJ’s increased focus on trade sanctions enforcement.
Aside from this major policy shift, Axelrod announced several other changes.
First, BIS will assign greater weight to the aggravating factors place greater outlined in the existing BIS enforcement guidance. As a result, a laarger proportion of cases with fall into the “egregious” category, resulting in higher penalties.
Second, going forward, BIS will require entities and individuals subject to an enforcement settlement to admit the underlying factual statement. BIS claimed that an admissions requirement will ensure that companies understand the nature and scope of the violation and therefore facilitate compliance remediation.
Third, in cases where BIS would typically issue a warning letter or no-action letter, BIS will offer settlements with no penalty but require specific compliance remediation commitments. Under this approach, the remedial measures will be enforced through temporary denial orders condition on specific remedial measures (e.g. training).
Fourth, BIS is creating a dual-track approach to voluntary disclosures, offering resolutions within 60 days of final submission of factual statements for situations involving only minor or technical infractions. For more serious cases, BIS will now assign both an enforcement agent and an Office of Chief Counsel attorney to investigate the matter.
In the most serious cases, the DOJ’s National Security Division prosecutors will be assigned to the investigation.
DOJ, BIS and OFAC officials have specifically emphasized that a BIS or OFAC disclosure does not qualify as a DOJ voluntary disclosure. The distinction between the two different tracks — DOJ v. OFAC & BIS — turns on whether the conduct was “willful,” meaning with knowledge that the conduct was unlawful. OFAC and BIS violations are strict liability offenses.
Companies that face decisions to submit a voluntary disclosure may think twice before notifying BIS. Companies routinely disclose violations because of the importance of maintaining a positive relationship with BIS and secure licenses in a timely manner.