On January 16, 2024, BIS issued a memorandum highlighting several key updates to the VSD process, including the creation of an abbreviated disclosure process for minor or technical violations. Most notably, the new BIS guidance allows parties to:

• Submit abbreviated disclosures regarding minor/technical violations without including all of the information ordinarily required in order to receive voluntary disclosure credit; and
• Wait to file disclosures regarding multiple minor/technical violations on a quarterly basis, without first filing an initial notification.

Per BIS’s guidance, “[e]xamples of minor or technical violations include, but are not limited to, immaterial EEI filing errors, inadvertent record keeping violations resulting from failed file retrieval or retention mechanisms (e.g., physical damage caused by flood or fire and/or electronic corruption due to malware, virus, or outage), incorrect use of one license exception where other license exceptions were available, etc.” These changes aim to expedite BIS’s follow-up and response process for disclosures and to allow the agency to focus its resources on more serious violations.

The changes are intended to better support compliance efforts and streamline BIS’s internal review processes. These most recent updates build on policy changes released on June 30, 2022, April 18, 2023, and July 26, 2023. Hogan Lovells’ previous client alerts regarding these changes are available here and here.

Abbreviated narrative account of certain disclosures

Per BIS’s “fast-track” resolution policy, implemented in June 2022 for VSDs that involve only minor or technical infractions with no aggravating factors, such disclosures should receive a warning or no-action letter from BIS within 60 days of the final submission. With the January 2024 update, the “fast-track” option also includes an abbreviated “narrative account” option.

In order to qualify for the abbreviated narrative account option, the disclosed violation cannot have any aggravating factors. As set forth in Section III(A) of Supplement No. 1 to Part 766 of the Export Administration Regulations (EAR), some of these aggravating factors include: wilfulness, concealment, a pattern of conduct, and management involvement in the violation(s). The abbreviated narrative account must briefly describe the nature of the violations as outlined in Section 764.5(c)(3), but does not need to include all of the accompanying documentation set forth in Section 764.5(c)(4), unless specifically requested by the Office of Export Enforcement (OEE). Further, parties submitting these abbreviated narrative accounts do not need to conduct the full five-year lookback unless specifically requested by OEE.

Potential violations involving aggravating factors should include a full five-year lookback in the review and VSD submission along with a thorough review of all export-related transactions.

BIS’s VSD website includes additional detail regarding what must be included in the abbreviated narrative account: (1) a notation at the top of the submission stating “Abbreviated Narrative Account,” (2) the disclosing person’s name, (3) the nature of the violations (i.e., a description of the suspected violations and their underlying cause), (4) an explanation of why these violations are not considered significant (i.e., do not involve aggravating factors), and (5) a description of any mitigating circumstances, to include an explanation of the remedial compliance measures taken.

Voluntary disclosures regarding minor or technical violations can be bundled together and filed on a quarterly basis

Under the formal voluntary disclosure provisions of the EAR, parties seeking mitigation credit for voluntarily disclosing violations are expected to submit an initial notification to BIS “as soon as possible after violations are discovered,” and then must file a full narrative account within 180 days of the initial notification date. Under the new January 16 guidance, parties may wait to file disclosures regarding minor or technical violations on a quarterly basis. This change builds upon changes BIS previously announced on April 18, 2023, which authorized parties to bundle disclosures regarding multiple minor violations into a single submission to BIS.

Companies and universities should submit VSDs via email (bis_vsd_intake@bis.doc.gov) to electronically submit initial notifications, extension requests, and narrative accounts. BIS will continue to accept hard-copy, written paper submissions, but it encourages parties to provide an email address on the hard-copy submission in order to receive communications regarding the disclosure.

Eligibility for General Prohibition 10 authorizations related to unlawfully exported items

Under Section 764.2(e) of the EAR and its related “General Prohibition 10,” all parties are prohibited from buying, disposing of, transferring, or storing any item subject to the EAR with knowledge that the item was or will be involved in an EAR violation. However, any parties (not just the party submitting a VSD) may apply to BIS for special permission (often referred to as “GP10 authorization”) to engage in activity that is otherwise prohibited under the EAR. These requests must be formally submitted to BIS’s Office of Exporter Services (OExS), and BIS recommends that parties submitting the request send courtesy copy of the request to OEE to expedite the review. For parties seeking to return an unlawfully exported item back to the United States, the presumptive recommendation from OEE to BIS will be to authorize such reexports, regardless of who seeks that permission.

Further, the VSD website now makes it clear that any person (i.e., not just a party submitting a VSD) may notify the OEE Director that a violation has occurred and request permission from the OExS to engage in activities that are otherwise prohibited under the EAR. Under Section 764.5(f), the VSD submitter may request permission to engage in otherwise prohibited activities, such as buying, disposing of, transferring or storing items (as set forth in Section 764.2(e)). These updates are intended to make clear that parties who did not commit the violation can seek authorization to deal with the unlawfully exported item. These disclosures will be considered to fulfil the requirements of Section 764.5(f) even when the submitter does not disclose a violation by the submitter, so long as there is no violation to disclose. OEE will not treat the disclosure as a VSD if the submitting party does not want the disclosure treated as a VSD and the submitting party does not believe that they have potentially committed a violation. The submissions can either be submitted by emailing EELead@bis.doc.gov or through BIS’s confidential reporting form.

Per BIS’s prior guidance on April 18 and July 26, 2023, BIS will consider a deliberate non-disclosure of a significant potential violation of the EAR an aggravating factor under BIS penalty guidelines. Therefore, if the party responsible for a significant potential violation of the EAR deliberately does not submit a VSD and BIS learns of the potential violation through another party, such as through submission described above the responsible party (1) would lose the ability to count a subsequent disclosure as a mitigating factor; and (2) would have to contend with an aggravating circumstance under BIS penalty guidelines.

Next steps

Companies should implement and maintain a robust export compliance program, including an escalation process in the event a suspected violation is discovered. Procedures for addressing suspected violations should be refreshed and re-evaluated in light of these developments.