[Federal Register Volume 69, Number 34 (Friday, February 20, 2004)]
[Rules and Regulations]
[Pages 7867-7873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3639]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 764 and 766

[Docket No. 030909226-4048-02]
RIN 0694-AC92


Export Administration Regulations: Penalty Guidance in the 
Settlement of Administrative Enforcement Cases

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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SUMMARY: On September 17, 2003, the Bureau of Industry and Security 
(BIS) published a proposed rule regarding penalty guidance in the 
settlement of administrative enforcement cases (68 FR 54402). After 
considering public comments on that proposed rule, BIS is issuing this 
final rule, which discusses the comments received and the extent to 
which they were adopted. This final rule amends the Export 
Administration Regulations by incorporating guidance on how BIS makes 
penalty determinations when settling administrative enforcement cases 
under the Export Administration Regulations (EAR). This guidance also 
addresses related aspects of how BIS responds to violations of the EAR, 
such as charging decisions. This rule also amends other parts of the 
EAR to conform to this guidance.

DATES: This rule is effective February 20, 2004.

FOR FURTHER INFORMATION CONTACT: Roman W. Sloniewsky, Deputy Chief 
Counsel for Industry and Security, Room 3839, United States Department 
of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 
20230, at (202) 482-5301.

SUPPLEMENTARY INFORMATION:

Background

    As an essential part of its administration of the export control 
system, BIS brings administrative enforcement actions for violations of 
the Export Administration Regulations (EAR). Many administrative 
enforcement cases are resolved through settlements between BIS and the 
respondent.
    This rule incorporates guidance in the EAR--specifically, in a new 
Supplement No. 1 to part 766--on how BIS determines what penalty is 
appropriate for the settlement of an administrative enforcement case. 
This guidance identifies both general factors, such as the destination 
for the export and degree of willfulness involved in violations, and 
specific mitigating and aggravating factors which BIS typically takes 
into account in determining an appropriate penalty. The guidance also 
describes factors that BIS's Office of Export Enforcement (OEE) 
typically considers in describing whether a violation should be 
addressed in a warning letter, rather than in an administrative 
enforcement case. The guidance does not apply to antiboycott matters 
arising under part 760 of the EAR.
    The rule also amends section 764.5(e) of the EAR to state that 
Supplement No. 1 to part 766 describes how BIS typically exercises its 
discretion regarding whether to pursue an administrative enforcement 
case regarding violations reported in a voluntary self-disclosure under 
section 764.5, and what administrative sanctions to seek in settling 
such a case.
    In part 766, the rule amends section 766.3(a) to state that 
Supplement No. 1 to part 766 describes how BIS typically exercises its 
discretion regarding the issuance of charging letters, other than in 
antiboycott matters under part 760. The rule amends section 766.18 to 
add a new paragraph (f), stating that Supplement No. 1 to part 766 
describes how BIS typically exercises its discretion regarding the 
terms under which it is willing to settle particular cases, other than 
antiboycott matters under part 760.
    This guidance is consistent with the objectives of section 223 of 
the Small Business Regulatory Enforcement Fairness Act (Title II, Pub. 
Law 104-121).

Response to Comments

    BIS received five comments on the notice of proposed rulemaking 
published in the Federal Register on September 17, 2003 (68 FR 54402). 
BIS revised the final rule in various respects

[[Page 7868]]

to address concerns expressed by the commenters and to clarify certain 
provisions. The major concerns addressed in the comments and BIS's 
responses are as follows:
    1. General comments.
    a. Two commenters suggested that BIS provide guidance on compliance 
with the ``catch-all'' license requirements of the Enhanced 
Proliferation Control Initiative (EPCI), contained in part 744. BIS 
expects to address these issues through separate action.
    b. Two commenters called for an express statement that BIS will 
follow the Guidance on Charging and Penalty Determinations in 
Settlement of Administrative Enforcement Cases (``Guidance''). BIS 
believes that the first paragraph of the Guidance and the references to 
the Guidance in new subparagraph (e) of Section 764.5 and the amended 
subparagraph (a) of Section 766.3 make clear that BIS intends to 
consider cases in accordance with the Guidance.
    2. Issuance of warning letters. Several comments addressed the 
provision of Supplement No. 1 to part 766 concerning the issuance of 
warning letters.
    a. Three commenters suggested that the proposed rule was ambiguous 
as to whether the criteria for issuing a warning letter were in the 
disjunctive, i.e., whether a warning letter could be issued if some, 
but not all, of the listed criteria were present. BIS has revised this 
provision to state: ``OEE often issues warning letters for an apparent 
violation of a technical nature, where good faith efforts to comply 
with the law and cooperate with the investigation are present, or where 
the investigation commenced as a result of a voluntary self-disclosure 
satisfying the requirements of section 764.5, provided that no 
aggravating factors exist.'' Thus, in the absence of aggravating 
factors, a warning letter generally could be considered if one of the 
enumerated criteria is present.
    b. Three commenters suggested that the reference in the proposed 
rule to violations ``based on technicalities'' was unclear. The 
corresponding language in the final rule refers to an apparent 
violation ``of a technical nature.'' Because BIS believes that it 
should retain considerable discretion regarding whether a particular 
case should be resolved by a warning letter, BIS does not believe that 
a more specific formulation of this criterion is useful.
    c. One commenter suggested an express statement that OEE would not 
issue a warning letter if it concludes that a violation did not take 
place. BIS has added such a statement to Section I.A. of the Guidance.
    d. Two commenters suggested an express statement that a warning 
letter or administrative penalty will terminate BIS investigation and 
result in the closing of the case file. Although in practice BIS takes 
no further action in most such cases, BIS has not adopted this 
suggestion because it believes that in some circumstances investigation 
should continue after issuance of a warning letter or imposition of an 
administrative penalty, e.g., when one set of violations is resolved 
while investigation of other violations is still underway.
    e. Two commenters suggested the use of ``education letters,'' in 
addition to warning letters. As suggested, ``education letters'' would 
not reflect a finding of an apparent violation, but would point out 
weaknesses in compliance efforts that, if not corrected, could result 
in future violations. In cases where BIS determines that a voluntary 
self-disclosure did not actually involve a violation, BIS typically 
informs the party of this determination. BIS concluded that it is 
unnecessary to establish a broader mechanism by which enforcement 
agents provide feedback on compliance efforts in the absence of a 
violation, and notes that it provides guidance for compliance efforts 
through other means, such as its Export Management System (EMS) 
Guidelines.
    f. Two commenters suggested that voluntary self-disclosures should 
result in a ``rebuttable presumption'' that violations will be resolved 
with a warning letter. BIS concluded that no single factor should carry 
a presumption that no penalty will be sought. BIS notes that the 
submission of a voluntary self-disclosure that satisfies the 
requirements of Section 764.5 is designated a ``great weight'' 
mitigating factor in determining an appropriate penalty in the 
settlement of an administrative enforcement case.
    3. Treatment of high-volume, generally compliant exporters. A 
number of comments suggested that certain aspects of the proposed rule 
inadequately took into account the circumstances of high-volume 
exporters with sound overall compliance practices who, despite their 
best efforts, occasionally violate the EAR. These comments stated that 
it was nearly impossible to reduce to zero the frequency of violations 
by parties who engage in a very large number of export transactions, 
especially insofar as they involve commodities that are subject to 
complex regulatory requirements. BIS considered these comments and 
determined that, as a general matter, it would be inappropriate to 
adopt guidance suggesting that, other things being equal, a violation 
by a large-volume exporter would be treated more leniently than an 
identical violation by a smaller business or a business that only 
occasionally engages in exporting. BIS also notes that an effective, 
high-quality compliance program is a ``great weight'' mitigating 
factor, and that a party who submits a voluntary self-disclosure 
satisfying the requirements of section 764.5 qualifies for a second 
``great weight'' factor. Specific suggestions directed at the 
circumstance of the generally compliant, high-volume exporter are 
included in the response to the following comments:
    a. Two commenters suggested that the discussion of multiple 
unrelated violations in section III.A of the Guidance should state that 
the number of such violations should be considered in the context of 
the overall volume of a party's export activities. BIS did not modify 
the Guidance in this regard; however, as stated in the Guidance, BIS 
will consider in appropriate cases a party's contention that 
information about the volume and nature of a party's export activities 
is ``relevant to the application of this guidance'' to such party's 
case. See Introduction to the Guidance.
    b. Two commenters suggested adding a statement to the discussion of 
related violations to the effect that penalties for multiple violations 
will not be sought where they stem from the same underlying error or 
omission and the exporter exercised reasonable care to comply. While 
BIS did not adopt this suggestion; however, as stated in the Guidance, 
BIS will consider in appropriate cases a party's contention that the 
fact that multiple violations stemmed from the same error or omission 
is ``relevant to the application of this guidance'' to such party's 
case. See Introduction to the Guidance.
    c. Two commenters suggested that what constitutes an ``isolated 
occurrence'' for purposes of mitigating factor 3 should be considered 
in the context of the party's overall volume of exports. BIS did not 
modify the Guidance in this regard; however, as stated in the Guidance, 
BIS will consider in appropriate cases a party's contention that 
information about the volume and extent of a party's export activities 
is ``relevant to the application of this guidance'' to such party's 
case. See Introduction to the Guidance.
    4. The effect of prior violations (mitigating factor 5 and 
aggravating factor 7). Similarly, four commenters expressed concerns 
that the weighing of

[[Page 7869]]

prior violations under mitigating factor 5 and aggravating factor 7 
unfairly disadvantaged high-volume, generally compliant exporters. 
Specific comments included:
    a. Two commenters suggested that warning letters that resulted from 
prior voluntary self-disclosures should not be considered in applying 
these factors. BIS considered this suggestion, but determined that, 
rather than excluding such prior violations from consideration, it was 
more appropriate to afford them relatively less weight.
    b. Two commenters suggested that the relevant time periods should 
be measured from the time that the violation occurred, rather than from 
the time of resolution (e.g., settlement or a warning letter). A third 
commenter characterized the time periods in the proposed rule as 
``arbitrary'' and suggested that the relevance of prior violations be 
viewed in the context of the volume and complexity of a party's export 
business. BIS did not adopt these suggestions. The time periods 
reflected in the proposed rule were carefully selected in an effort to 
balance the significance of a history of prior violations with a 
recognition that the relevance of certain violations diminishes with 
time.
    c. Two commenters suggested elimination of consideration of 
violations that have not resulted in a settlement, an adjudicated 
administrative enforcement action, a criminal conviction or a warning 
letter. BIS did not adopt this suggestion because in certain 
circumstances it may be appropriate to consider such violations--for 
example, where it is desired to resolve one class of violations, but it 
is clear (e.g., from a voluntary self-disclosure) that a party 
committed other, as yet unresolved, violations.
    d. Three commenters had suggestions regarding the potential effect 
on an acquiring company of violations that an acquired company 
committed prior to the acquisition. BIS adopted in substance the 
suggestion of one commenter that, when the acquiring firm takes 
reasonable steps to uncover, correct, and disclose to BIS the conduct 
that gave rise to such violations, BIS typically will not take such 
violations into account in settling other violations by the acquiring 
firm.
    5. Comments on other general, mitigating, and aggravating factors.
    a. Two commenters suggested adding a reference to ``reasonable 
care'' to the discussion of degree of wilfulness in Section III.A of 
the Guidance, to make clear that violations despite reasonable care to 
comply may be resolved more leniently than comparable violations 
resulting from negligence. BIS has not adopted the suggested revision, 
but notes that the principle that reasonable compliance efforts may be 
weighed in a respondent's favor is reflected in ``great weight'' 
mitigating factor 2.
    a. BIS has adopted the suggestion of one commenter that the final 
rule expressly state that the listing of specific mitigating and 
aggravating factors is not exhaustive.
    b. The comments included a number of suggestions for additional 
mitigating factors. Several of these suggested factors rest on 
considerations, especially compliance efforts, that are already 
reflected in mitigating factors in the proposed rule. Others refer to 
factors that may, in certain circumstances, be viewed as mitigating, 
but are unlikely to arise in a large number of cases (e.g., exporter 
confusion arising from a jurisdictional dispute). BIS has not expressly 
incorporated these factors into the Guidance. However, since the 
listing of mitigating and aggravating factors is non-exhaustive, BIS 
will consider a party's contention that circumstances not specifically 
identified as mitigating should be given such effect in the context of 
a particular case.
    c. One commenter suggested adding a new, ``great weight'' 
mitigating factor for steps taken to address compliance concerns raised 
by the violation, including efforts to prevent the reoccurrence of the 
violation. BIS has revised ``great weight'' mitigating factor 2 to 
include such steps.
    d. Two commenters suggested that mitigating factor 4--that proper 
authorization would likely have been granted, if requested--should 
receive great weight. BIS has concluded that it would not generally 
afford this circumstance the same weight as the mitigating factors 
identified as ``great weight,'' and therefore has not adopted this 
suggestion. BIS notes that many cases implicating mitigating factor 4 
also will implicate mitigating factor 8 (that the violation was not 
likely to involve harm of the nature that the applicable provisions of 
the EAA, EAR or other authority (e.g., a license condition) were 
intended to protect against).
    e. Two commenters suggested that mitigating factor 6 was unduly 
restrictive in its reference to an ``exceptional'' level of 
cooperation. BIS concluded that this language was appropriate, insofar 
as all parties are generally expected to cooperate with investigations.
    f. Two commenters suggested revising mitigating factor 8, so that 
it would encompass any violation that did not fall under aggravating 
factor 3. BIS did not adopt this suggestion because it concluded that 
it would better serve the objectives of this Guidance to retain a 
middle category of violations that do not fall within mitigating factor 
8 or aggravating factor 3, i.e., that may have involved harm of the 
nature that the applicable provisions of the EAA, EAR or other 
authority (e.g., a license condition) were intended to protect against, 
but did not, in purpose or effect, substantially implicate national 
security or other essential interests protected by the U.S. export 
control system.
    g. One commenter suggested a new mitigating factor for valid legal 
defenses, such as First Amendment or other constitutional claims. BIS 
did not add such a specific mitigating factor, but notes that the 
Guidance states that BIS ``will give serious consideration to 
information and evidence that parties believe are relevant * * * to 
whether they have affirmative defenses to potential charges.''
    h. Two commenters suggested revising aggravating factor 1 to state 
that discovering a past violation, taking corrective action, but not 
self-disclosing the violation would not constitute deliberate 
concealment for purposes of this factor. BIS has not revised the 
Guidance in this regard, but observes that it would not consider 
failure to self-disclose a violation, in and of itself, a circumstance 
that would implicate aggravating factor 1.

Rulemaking Requirements

    1. This rule has been determined to be not significant for purposes 
of E.O. 12866.
    2. Notwithstanding any other provision of law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with a collection of information, subject to the 
requirements of the Paperwork Reduction Act (PRA), unless that 
collection of information displays a currently valid OMB Control 
Number. This rule involves a collection of information subject to the 
requirements of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et 
seq.). This collection has been approved by the Office of Management 
and Budget under Control Number 0694-0058, and carries an annual burden 
hour estimate of 800 hours and a cost to the public of approximately 
$32,000.
    3. This rule does not contain policies with Federalism implications 
as this term is defined in Executive Order 13132.
    4. Pursuant to 5 U.S.C. 553(b)(A), the provisions of the 
Administrative Procedure Act requiring a notice of

[[Page 7870]]

proposed rulemaking and the opportunity for public comment are waived, 
because this regulation involves a general statement of policy and rule 
of agency procedure. No other law requires that a notice of proposed 
rulemaking and an opportunity for public comment be given for this 
rule. Because a notice of proposed rulemaking and an opportunity for 
public comment are not required to be given for this rule under the 
Administrative Procedure Act or by any other law, the analytical 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
are not applicable. However, in view of the importance of this rule, 
which represents the first comprehensive statement of BIS's approach 
toward these issues, BIS sought and considered public comments before 
issuing a final rule. Those public comments, and the extent to which 
BIS adopted them, are summarized above. This regulation is now being 
issued in final form.

List of Subjects

15 CFR Part 764

    Administrative practice and procedure, Exports, Foreign trade, Law 
enforcement, Penalties.

15 CFR Part 766

    Administrative practice and procedure, Confidential business 
information, Exports, Foreign trade.

0
Accordingly, this rule amends part 764 and part 766 of the EAR as 
follows:
0
1. The authority citation for 15 CFR part 764 is revised to read as 
follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
E.O. 13222, 66 FR 44025, 3 CFR., 2001 Comp., p. 783; Notice of 
August 7, 2003 (68 FR 47833, August 11, 2003).

PART 764--[AMENDED]

0
2. Section 764.5, paragraph (e) is revised to read as follows:


Sec.  764.5  Voluntary self-disclosure.

* * * * *
    (e) Criteria. Supplement No. 1 to part 766 describes how BIS 
typically exercises its discretion regarding whether to pursue an 
administrative enforcement case under part 766 and what administrative 
sanctions to seek in settling such a case.

0
3. The authority citation for 15 CFR part 766 continues to read as 
follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
E.O. 13222, 66 FR 44025, 3 CFR., 2001 Comp., p. 783; Notice of 
August 7, 2003 (68 FR 47833, August 11, 2003).

PART 766--[AMENDED]

0
4. Section 766.3, paragraph (a) is revised to read as follows:


Sec.  766.3  Institution of administrative enforcement proceedings.

    (a) Charging letters. The Director of the Office of Export 
Enforcement (OEE) or the Director of the Office of Antiboycott 
Compliance (OAC), as appropriate, or such other Department of Commerce 
official as may be designated by the Assistant Secretary of Commerce 
for Export Enforcement, may begin administrative enforcement 
proceedings under this part by issuing a charging letter in the name of 
BIS. Supplement No. 1 to this part describes how BIS typically 
exercises its discretion regarding the issuance of charging letters, 
other than in antiboycott matters under part 760 of the EAR. The 
charging letter shall constitute the formal complaint and will state 
that there is reason to believe that a violation of the EAA, the EAR, 
or any order, license or authorization issued thereunder, has occurred. 
It will set forth the essential facts about the alleged violation, 
refer to the specific regulatory or other provisions involved, and give 
notice of the sanctions available under part 764 of the EAR. The 
charging letter will inform the respondent that failure to answer the 
charges as provided in Sec.  766.6 of this part will be treated as a 
default under Sec.  766.7 of this part, that the respondent is entitled 
to a hearing if a written demand for one is requested with the answer, 
and that the respondent may be represented by counsel, or by other 
authorized representative who has a power of attorney to represent the 
respondent. A copy of the charging letter shall be filed with the 
administrative law judge, which filing shall toll the running of the 
applicable statute of limitations. Charging letters may be amended or 
supplemented at any time before an answer is filed, or, with permission 
of the administrative law judge, afterwards. BIS may unilaterally 
withdraw charging letters at any time, by notifying the respondent and 
the administrative law judge.
* * * * *

0
5. Section 766.18 is amended to add a new paragraph (f) to read as 
follows:


Sec.  766.18  Settlement.

* * * * *
    (f) Supplement No. 1 to this part describes how BIS typically 
exercises its discretion regarding the terms under which it is willing 
to settle particular cases, other than antiboycott matters under part 
760 of the EAR.

0
6. Part 766 is amended to add a new Supplement No. 1 to read as 
follows:

SUPPLEMENT NO. 1 TO PART 766--GUIDANCE ON CHARGING AND PENALTY 
DETERMINATIONS IN SETTLEMENT OF ADMINISTRATIVE ENFORCEMENT CASES

Introduction

    This Supplement describes how BIS responds to violations of the 
Export Administration Regulations (EAR) and, specifically, how BIS 
makes penalty determinations in the settlement of civil 
administrative enforcement cases under part 764 of the EAR. This 
guidance does not apply to enforcement cases for antiboycott 
violations under part 760 of the EAR.
    Because many administrative enforcement cases are resolved 
through settlement, the process of settling such cases is integral 
to the enforcement program. BIS carefully considers each settlement 
offer in light of the facts and circumstances of the case, relevant 
precedent, and BIS's objective to achieve in each case an 
appropriate level of penalty and deterrent effect. In settlement 
negotiations, BIS encourages parties to provide, and will give 
serious consideration to, information and evidence that parties 
believe are relevant to the application of this guidance to their 
cases, to whether a violation has in fact occurred, or to whether 
they have an affirmative defense to potential charges.
    This guidance does not confer any right or impose any obligation 
regarding what penalties BIS may seek in litigating a case or what 
posture BIS may take toward settling a case. Parties do not have a 
right to a settlement offer, or particular settlement terms, from 
BIS, regardless of settlement postures BIS has taken in other cases.

I. Responding to Violations

    The Office of Export Enforcement (OEE), among other 
responsibilities, investigates possible violations of the Export 
Administration Act of 1979, as amended, the EAR, or any order, 
license or authorization issued thereunder. When it appears that 
such a violation has occurred, OEE investigations may lead to a 
warning letter or a civil enforcement proceeding. A violation may 
also be referred to the Department of Justice for criminal 
prosecution. The type of enforcement action initiated by OEE will 
depend primarily on the nature of the violation.
    A. Issuing a warning letter: Warning letters represent OEE's 
conclusion that an apparent violation has occurred. In the exercise 
of its discretion, OEE may determine in certain instances that 
issuing a warning letter, instead of bringing an administrative 
enforcement proceeding, will achieve the appropriate enforcement 
result. A warning letter will fully explain the apparent violation 
and urge compliance. OEE often issues warning letters for an 
apparent violation of a technical nature, where good faith efforts 
to comply with the law and cooperate with the investigation are 
present, or where the investigation commenced as a result of a 
voluntary self-disclosure satisfying the requirements of Sec. 764.5 
of the EAR, provided that no aggravating factors exist.

[[Page 7871]]

    OEE will not issue a warning letter if it concludes, based on 
available information, that a violation did not occur. A warning 
letter does not constitute a final agency determination that a 
violation has occurred.
    B. Pursuing an administrative enforcement case: The issuance of 
a charging letter under Sec. 766.3 of the EAR initiates an 
administrative enforcement proceeding. Charging letters may be 
issued when there is reason to believe that a violation has 
occurred. Cases may be settled before or after the issuance of a 
charging letter. See Sec. 766.18 of the EAR. BIS prepares a proposed 
charging letter when a case is settled before issuance of an actual 
charging letter. See section 766.18(a). In some cases, BIS also 
sends a proposed charging letter to a party in the absence of a 
settlement agreement, thereby informing the party of the violations 
that BIS has reason to believe occurred and how BIS expects that 
those violations would be charged.
    C. Referring for criminal prosecution: In appropriate cases, BIS 
may refer a case to the Department of Justice for criminal 
prosecution, in addition to pursuing an administrative enforcement 
action.

II. Types of Administrative Sanctions

    There are three types of administrative sanctions under 
Sec. 764.3(a) of the EAR: a civil penalty, a denial of export 
privileges, and an exclusion from practice before BIS. 
Administrative enforcement cases are generally settled on terms that 
include one or more of these sanctions.
    A. Civil penalty: A monetary penalty may be assessed for each 
violation. The maximum amount of such a penalty per violation is 
stated in Sec. 764.3(a)(1), subject to adjustments under the Federal 
Civil Penalties Adjustment Act of 1990 (28 U.S.C. 2461, note 
(2000)), which are codified at 15 CFR 6.4.
    B. Denial of export privileges: An order denying a party's 
export privileges may be issued, as described in Sec. 764.3(a)(2) of 
the EAR. Such a denial may extend to all export privileges, as set 
out in the standard terms for denial orders in Supplement No. 1 to 
part 764, or may be narrower in scope (e.g., limited to exports of 
specified items or to specified destinations or customers).
    C. Exclusion from practice: Under Sec. 764.3(a)(3) of the EAR, 
any person acting as an attorney, accountant, consultant, freight 
forwarder or other person who acts in a representative capacity in 
any matter before BIS may be excluded from practicing before BIS.

III. How BIS Determines What Sanctions Are Appropriate in a Settlement

    A. General Factors: BIS usually looks to the following basic 
factors in determining what administrative sanctions are appropriate 
in each settlement:
    Degree of Willfulness: Many violations involve no more than 
simple negligence or carelessness. In most such cases, BIS typically 
will seek a settlement for payment of a civil penalty (unless the 
matter is resolved with a warning letter). In cases involving gross 
negligence, willful blindness to the requirements of the EAR, or 
knowing or willful violations, BIS is more likely to seek a denial 
of export privileges or an exclusion from practice, and/or a greater 
monetary penalty than BIS would otherwise typically seek. While some 
violations of the EAR have a degree of knowledge or intent as an 
element of the offense, see, e.g., Sec. 764.2(e) of the EAR (acting 
with knowledge of a violation) and Sec. 764.2(f) (possession with 
intent to export illegally), BIS may regard a violation of any 
provision of the EAR as knowing or willful if the facts and 
circumstances of the case support that conclusion. In deciding 
whether a knowing violation has occurred, BIS will consider, in 
accordance with Supplement No. 3 to part 732 of the EAR, the 
presence of any red flags and the nature and result of any inquiry 
made by the party. A denial or exclusion order may also be 
considered even in matters involving simple negligence or 
carelessness, particularly if the violations(s) involved harm to 
national security or other essential interests protected by the 
export control system, if the violations are of such a nature and 
extent that a monetary fine alone represents an insufficient penalty 
or if the nature and extent of the violation(s) indicate that a 
denial or exclusion order is necessary to prevent future violations 
of the EAR.
    Destination Involved: BIS is more likely to seek a greater 
monetary penalty and/or denial of export privileges or exclusion 
from practice in cases involving:
    (1) Exports or reexports to countries subject to anti-terrorism 
controls, as described at Sec. 742.1(d) of the EAR.
    (2) Exports or reexports to destinations particularly implicated 
by the type of control that applies to the item in question--for 
example, export of items subject to nuclear controls to a country 
with a poor record of nuclear non-proliferation.
    Violations involving exports or reexports to other destinations 
may also warrant consideration of such sanctions, depending on 
factors such as the degree of willfulness involved, the nature and 
extent of harm to national security or other essential interests 
protected by the export control system, and what level of sanctions 
are determined to be necessary to deter or prevent future violations 
of the EAR.
    Related Violations: Frequently, a single export transaction can 
give rise to multiple violations. For example, an exporter who mis-
classifies an item on the Commerce Control List may, as a result of 
that error, export the item without the required export license and 
submit a Shipper's Export Declaration (SED) that both misstates the 
applicable Export Control Classification Number (ECCN) and 
erroneously identifies the export as qualifying for the designation 
``NLR'' (no license required). In so doing, the exporter committed 
three violations: one violation of Sec.  764.2(a) of the EAR for the 
unauthorized export and two violations of Sec.  764.2(g) for the two 
false statements on the SED. It is within the discretion of BIS to 
charge three separate violations and settle the case for a penalty 
that is less than would be appropriate for three unrelated 
violations under otherwise similar circumstances, or to charge fewer 
than three violations and pursue settlement in accordance with that 
charging decision. In exercising such discretion, BIS typically 
looks to factors such as whether the violations resulted from 
knowing or willful conduct, willful blindness to the requirements of 
the EAR, or gross negligence; whether they stemmed from the same 
underlying error or omission; and whether they resulted in 
distinguishable or separate harm.
    Multiple Unrelated Violations: In cases involving multiple 
unrelated violations, BIS is more likely to seek a denial of export 
privileges, an exclusion from practice, and/or a greater monetary 
penalty than BIS would otherwise typically seek. For example, 
repeated unauthorized exports could warrant a denial order, even if 
a single export of the same item to the same destination under 
similar circumstances might warrant just a monetary penalty. BIS 
takes this approach because multiple violations may indicate serious 
compliance problems and a resulting risk of future violations. BIS 
may consider whether a party has taken effective steps to address 
compliance concerns in determining whether multiple violations 
warrant a denial or exclusion order in a particular case.
    Timing of Settlement: Under Sec.  766.18, settlement can occur 
before a charging letter is served, while a case is before an 
administrative law judge, or while a case is before the Under 
Secretary for Industry and Security under Sec.  766.22. However, 
early settlement--for example, before a charging letter has been 
served--has the benefit of freeing resources for BIS to deploy in 
other matters. In contrast, for example, the BIS resources saved by 
settlement on the eve of an adversary hearing under Sec.  766.13 are 
fewer, insofar as BIS has already expended significant resources on 
discovery, motions practice, and trial preparation. Because the 
effective implementation of the U.S. export control system depends 
on the efficient use of BIS resources, BIS has an interest in 
encouraging early settlement and may take this interest into account 
in determining settlement terms.
    Related Criminal or Civil Violations: Where an administrative 
enforcement matter under the EAR involves conduct giving rise to 
related criminal or civil charges, BIS may take into account the 
related violations, and their resolution, in determining what 
administrative sanctions are appropriate under part 766. A criminal 
conviction indicates serious, willful misconduct and an accordingly 
high risk of future violations, absent effective administrative 
sanctions. However, entry of a guilty plea can be a sign that a 
party accepts responsibility for complying with the EAR and will 
take greater care to do so in the future. In appropriate cases where 
a party is receiving substantial criminal penalties, BIS may find 
that sufficient deterrence may be achieved by lesser administrative 
sanctions than would be appropriate in the absence of criminal 
penalties. Conversely, BIS might seek greater administrative 
sanctions in an otherwise similar case where a party is not 
subjected to criminal penalties. The presence of a related criminal 
or civil disposition may distinguish settlements among civil penalty 
cases that appear otherwise to be similar. As a result, the factors 
set forth for consideration in civil penalty settlements will often 
be applied differently in the context of a ``global

[[Page 7872]]

settlement'' of both civil and criminal cases, or multiple civil 
cases, and may therefore be of limited utility as precedent for 
future cases, particularly those not involving a global settlement.
    B. Specific Mitigating and Aggravating Factors: In addition to 
the general factors described in Section III.A. of this Supplement, 
BIS also generally looks to the presence or absence of the following 
mitigating and aggravating factors in determining what sanctions 
should apply in a given settlement. These factors describe 
circumstances that, in BIS's experience, are commonly relevant to 
penalty determinations in settled cases. However, this listing of 
factors is not exhaustive and, in particular cases, BIS may consider 
other factors that may indicate the blameworthiness of a party's 
conduct, the actual or potential harm associated with a violation, 
the likelihood of future violations, and/or other considerations 
relevant to determining what sanctions are appropriate.
    Where a factor admits of degrees, it should accordingly be given 
more or less weight. Thus, for example, one prior violation should 
be given less weight than a history of multiple violations, and a 
previous violation reported in a voluntary self disclosure by an 
exporter whose overall export compliance efforts are of high quality 
should be given less weight than previous violation(s) not involving 
such mitigating factors.
    Some of the mitigating factors listed in this section are 
designated as having ``great weight.'' When present, such a factor 
should ordinarily be given considerably more weight than a factor 
that is not so designated.

Mitigating Factors

    1. The party made a voluntary self-disclosure of the violation, 
satisfying the requirements of Sec.  764.5 of the EAR. All voluntary 
self-disclosures meeting the requirements of Sec.  764.5 will be 
afforded ``great weight,'' relative to other mitigating factors not 
designated as having ``great weight.'' Voluntary self-disclosures 
receiving the greatest mitigating effect will typically be those 
concerning violations that no BIS investigation in existence at the 
time of the self-disclosure would have been reasonably likely to 
discover without the self-disclosure. (GREAT WEIGHT)
    2. The party has an effective export compliance program and its 
overall export compliance efforts have been of high quality. In 
determining the presence of this factor, BIS will take account of 
the extent to which a party complies with the principles set forth 
in BIS's Export Management System (EMS) Guidelines. Information 
about the EMS Guidelines can be accessed through the BIS Web site at 
www.bis.doc.gov. In this context, BIS will also consider whether a 
party's export compliance program uncovered a problem, thereby 
preventing further violations, and whether the party has taken steps 
to address compliance concerns raised by the violation, including 
steps to prevent reoccurrence of the violation, that are reasonably 
calculated to be effective. (GREAT WEIGHT)
    3. The violation was an isolated occurrence or the result of a 
good-faith misinterpretation.
    4. Based on the facts of a case and under the applicable 
licensing policy, required authorization for the export transaction 
in question would likely have been granted upon request.
    5. Other than with respect to antiboycott matters under part 760 
of the EAR:
    (a) The party has never been convicted of an export-related 
criminal violation;
    (b) In the past five years, the party has not entered into a 
settlement of an export-related administrative enforcement case with 
BIS or another U.S. Government agency or been found liable in an 
export-related administrative enforcement case brought by BIS or 
another U.S. Government agency;
    (c) In the past three years, the party has not received a 
warning letter from BIS; and
    (d) In the past five years, the party has not otherwise violated 
the EAR.
    Where necessary to effective enforcement, the prior involvement 
in export violation(s) of a party's owners, directors, officers, 
partners, or other related persons may be imputed to a party in 
determining whether these criteria are satisfied. When an acquiring 
firm takes reasonable steps to uncover, correct, and disclose to BIS 
conduct that gave rise to violations by an acquired business before 
the acquisition, BIS typically will not take such violations into 
account in applying this factor in settling other violations by the 
acquiring firm.
    6. The party has cooperated to an exceptional degree with BIS 
efforts to investigate the party's conduct.
    7. The party has provided substantial assistance in BIS 
investigation of another person who may have violated the EAR.
    8. The violation was not likely to involve harm of the nature 
that the applicable provisions of the EAA, EAR or other authority 
(e.g., a license condition) were intended to protect against; for 
example, a false statement on an SED that an export was ``NLR,'' 
when in fact a license requirement was applicable, but a license 
exception was available.
    9. At the time of the violation, the party: (1) Had little or no 
previous export experience; and (2) Was not familiar with export 
practices and requirements. (Note: The presence of only one of these 
elements will not generally be considered a mitigating factor.)

Aggravating Factors

    1. The party made a deliberate effort to hide or conceal the 
violation(s). (GREAT WEIGHT)
    2. The party's conduct demonstrated a serious disregard for 
export compliance responsibilities. (GREAT WEIGHT)
    3. The violation was significant in view of the sensitivity of 
the items involved and/or the reason for controlling them to the 
destination in question. This factor would be present where the 
conduct in question, in purpose or effect, substantially implicated 
national security or other essential interests protected by the U.S. 
export control system, in view of such factors as the destination 
and sensitivity of the items involved. Such conduct might include, 
for example, violations of controls based on nuclear, biological, 
and chemical weapon proliferation, missile technology proliferation, 
and national security concerns, and exports proscribed in part 744 
of the EAR. (GREAT WEIGHT)
    4. The violation was likely to involve harm of the nature that 
the applicable provisions of the EAA, EAR or other authority (e.g., 
a license condition) are principally intended to protect against, 
e.g., a false statement on an SED that an export was destined for a 
non-embargoed country, when in fact it was destined for an embargoed 
country.
    5. The quantity and/or value of the exports was high, such that 
a greater penalty may be necessary to serve as an adequate penalty 
for the violation or deterrence of future violations, or to make the 
penalty proportionate to those for otherwise comparable violations 
involving exports of lower quantity or value.
    6. The presence in the same transaction of concurrent violations 
of laws and regulations, other than those enforced by BIS.
    7. Other than with respect to antiboycott matters under part 760 
of the EAR:
    (a) The party has been convicted of an export-related criminal 
violation;
    (b) In the past five years, the party has entered into a 
settlement of an export-related administrative enforcement case with 
BIS or another U.S. Government agency or has been found liable in an 
export-related administrative enforcement case brought by BIS or 
another U.S. Government agency;
    (c) In the past three years, the party has received a warning 
letter from BIS; or
    (d) In the past five years, the party otherwise violated the 
EAR.
    Where necessary to effective enforcement, the prior involvement 
in export violation(s) of a party's owners, directors, officers, 
partners, or other related persons may be imputed to a party in 
determining whether these criteria are satisfied. When an acquiring 
firm takes reasonable steps to uncover, correct, and disclose to BIS 
conduct that gave rise to violations by an acquired business before 
the acquisition, BIS typically will not take such violations into 
account in applying this factor in settling other violations by the 
acquiring firm.
    8. The party exports as a regular part of the party's business, 
but lacked a systematic export compliance effort.
    In deciding whether and what scope of denial or exclusion order 
is appropriate, the following factors are particularly relevant: the 
presence of mitigating or aggravating factors of great weight; the 
degree of willfulness involved; in a business context, the extent to 
which senior management participated in or was aware of the conduct 
in question; the number of violations; the existence and seriousness 
of prior violations; the likelihood of future violations (taking 
into account relevant export compliance efforts); and whether a 
monetary penalty can be expected to have a sufficient deterrent 
effect.

IV. How BIS Makes Suspension and Deferral Decisions

    A. Civil Penalties: In appropriate cases, payment of a civil 
monetary penalty may be deferred or suspended. See Sec.  
764.3(a)(1)(iii) of the EAR. In determining whether

[[Page 7873]]

suspension or deferral is appropriate, BIS may consider, for 
example, whether the party has demonstrated a limited ability to pay 
a penalty that would be appropriate for such violations, so that 
suspended or deferred payment can be expected to have sufficient 
deterrent value, and whether, in light of all of the circumstances, 
such suspension or deferral is necessary to make the impact of the 
penalty consistent with the impact of BIS penalties on other parties 
who committed similar violations.
    B. Denial of Export Privileges and Exclusion from Practice: In 
deciding whether a denial or exclusion order should be suspended, 
BIS may consider, for example, the adverse economic consequences of 
the order on the respondent, its employees, and other parties, as 
well as on the national interest in the competitiveness of U.S. 
businesses. An otherwise appropriate denial or exclusion order will 
be suspended on the basis of adverse economic consequences only if 
it is found that future export control violations are unlikely and 
if there are adequate measures (usually a substantial civil penalty) 
to achieve the necessary deterrent effect.

    Dated: February 11, 2004.
Kenneth I. Juster,
Under Secretary of Commerce for Industry and Security.
[FR Doc. 04-3639 Filed 2-19-04; 8:45 am]
BILLING CODE 3510-33-P