BIS Considering Higher Penalties, Other Changes to Enforcement Policies

The Bureau of Industry and Security is considering several major changes to its administrative enforcement authorities, including publicizing its charging letters before cases are resolved and increasing penalty amounts for export violations. The agency may also limit its use of no admit/no deny settlements, which allow companies to avoid admitting explicit wrongdoing.

The policy changes are expected to be rolled out in the “coming months,” Matthew Axelrod, BIS’s top export enforcement official, said during a May 16 virtual conference hosted by the Society for International Affairs. He said BIS hopes the changes increase prevention of export control violations, bring more transparency to the agency’s enforcement efforts and help incentivize compliance.

Even though BIS’s enforcement authorities, on their own, don’t lead to prison time, Axelrod said they can “result in nearly the same punishment that a criminal conviction would bring,” specifically pointing to monetary fines, forced corporate compliance changes or export denial orders. Given the “powerful potential” of BIS penalties, Axelrod said, the agency wants to “make sure we’re doing everything necessary on the policy front to make our administrative authorities as nimble as possible.”

One change could affect the publication of BIS’s charging letters. Because some letters aren’t published until “years” after the violations have ended, Axelrod said, companies conducting “similar misconduct aren’t fully disincentivized to stop, given that they aren’t being shown a real time example of what happens when you break our rules.” He said BIS is considering making the charging letters public as soon as they are filed, similar to criminal or administrative charges brought by the Securities and Exchange Commission.

BIS is also “reconsidering” its use of no admit/no deny settlements, which Axelrod said have “two significant downsides.” In those settlements, there is “no statement of facts that the company admits to -- no factual recitation that lays out what the company did that got it into trouble,” he said. “Without such an admitted statement of facts, it is more difficult for other companies to learn from their peers’ mistakes and adjust their behavior accordingly.”

Axelrod also said companies in “other enforcement contexts” are required to admit their wrongdoing in order to resolve their violations and qualify for a reduced penalty. With BIS, companies aren’t held to the same standard, Axelrod said. “Our concern is that without admitted facts, we may not be sending a deterrent message as strong as we believe warranted when the export laws are violated,” he said, “especially given the magnitude of the national security threats those laws are designed to help combat.”

The agency may also increase its penalties for export violations, which “deserve commensurate punishment” to match the level of severity of modern national security threats. “Given the amount of federal resources it takes to gather the evidence necessary to bring one of these cases, and the national security stakes, penalties must be high enough to both punish and deter those who would violate the law,” Axelrod said. Low penalties make it “too easy for companies to do a cost-benefit analysis and conclude that they would rather risk paying a small fine on the back end if they get caught than invest in compliance systems or forgo revenue from sales they should be turning down up front.”

Along with changes to its administrative enforcement policies for export violations, Axelrod said the agency is also reviewing its policies for antiboycott enforcement. BIS is reviewing whether to limit its use of no admit/no deny settlements in those cases, he said, and are “weighing whether and how far to raise penalties for violations.” He said the agency met with members of the Regulations and Procedures Technical Advisory Committee last week to discuss whether BIS should “reprioritize the categories of antiboycott violations in a way that better aligns them with the violations’ relative severity.”

Although BIS believes “most” U.S. companies want to do the “right thing and work hard to ensure that their sensitive technologies and goods don’t end up in places where they could harm our national security,” Axelrod said, others don’t want to comply. “When faced with the stark choice of complying with the export laws or booking revenue, some companies choose mammon before country,” he said. “If we are not vigorously enforcing against violators, then those companies that are obeying the law are unfairly disadvantaged in the marketplace.”