BIS Announces More Changes to VSD Policies, Seeing Spike in Serious Disclosures

The Bureau of Industry and Security this week unveiled a new set of changes to its voluntary self-disclosure policies that it hopes will allow compliance professionals to spend more time and money preventing serious export violations and less resources on reporting minor ones. The agency also said it has seen a sharp uptick in self-disclosures of serious violations over the last year and has been getting more tips from businesses about possible violations committed by their competitors.

The changes, announced by Matthew Axelrod, the top BIS export enforcement official, follow a host of other revisions and clarifications to the agency’s administrative enforcement policies over the last two years, including higher penalties for more serious violations and changes to how the agency considers aggravating factors in its investigations (see 2304180071 and 2206300069). Axelrod, speaking during a Jan. 16 event hosted by the New York University School of Law, said the latest changes build on BIS efforts to draw more agency and industry resources toward addressing significant violations.

One change will allow companies to submit a quarterly notification to BIS with all their technical or minor disclosures from the last four months, instead of requiring them to submit individual disclosures for each potential violation. Another change nixes a requirement that had forced exporters to launch a five-year review of transactions that took place before the voluntary self-disclosure, Axelrod said, unless that five year “lookback” is specifically requested by the Office of Export Enforcement.

He also said the agency is now accepting voluntary self-disclosures by email and has made changes to how it handles requests by exporters who try to retrieve an item that was illegally exported. In those cases, exporters still need to request “special permission” from BIS to transfer, store or dispose of the item, but Axelrod said the agency will now start speeding up and streamlining those requests.

The changes are meant to slash some of the red tape and resource thresholds compliance departments face when reporting or addressing more minor violations, Axelrod said.

“In other words, we want you spending most of your compliance dollars on preventing (and, if unsuccessful in preventing, then disclosing) the most serious export violations,” he said, according to a copy of his prepared remarks released Jan. 17.

The changes are also meant to save time and money for BIS, Axlelrod said. He said BIS needs to find creative solutions to free up resources because the agency’s budget hasn’t “kept pace” with the rising importance of export controls. Those concerns were echoed last year by Commerce Secretary Gina Raimondo and BIS Undersecretary Alan Estevez, who called the BIS annual budget “pocket change” (see 2312070074 and 2312040041).

Axlerod said he oversees 150 agents across the country, but Homeland Security Investigations at DHS “has more agents than that in Tampa, Florida, alone.”

“We are constantly aware of the need to strategically prioritize our finite resources so that we can best maximize our national security impact,” he said. The updated policies announced this week should help drive “prioritization of your time -- and ours -- so that it’s spent on the most significant threats to our national security.”

With the elimination of the five-year lookback requirement (see 2306210043), exporters will only need to submit a “succinct narrative account that focuses only on the most immediate violation” for minor or technical export violations, Alexrod said. The exporter won't need to include the “significant documentation” that often accompanied those five-year lookbacks.

Exporters will only need to submit a five-year review if OEE specifically asks for one, Axelrod said, such as if the OEE agent suspects the exporter didn’t disclose certain “aggravating factors.” He said BIS updated the voluntary-disclosure landing page on its website to reflect this change and others.

BIS also is updating the process for how it handles requests by exporters who want to take “corrective action” for an illegal export. Although exporters still must submit a special request to BIS in order to handle the item, Axelrod said exporters also should now email a copy of their request to OEE, which will work with the Office of Exporter Services to speed up decisions on those permissions.

“Parties who become aware that an item has been unlawfully exported often seek to take corrective action to get that item back into the lawful stream of commerce,” he said. “That’s something we want to encourage.”

These latest updates follow a set of similar policy changes announced by Axelrod in April, including one that clarified that BIS will consider a company’s failure to disclose a serious potential violation as an “aggravating factor” when the agency calculates penalty amounts (see 2304180071). In that same announcement, Axelrod said BIS would start giving credit to companies that tip off the agency about their competitors’ wrongdoings.

Axelrod said both changes are working. During the last fiscal year, he said, the agency saw an 80% increase in disclosures of potentially serious violations compared with the year before. And since Axelrod announced the changes in April, BIS has received 33% more tips from industry than it did during the same period from the previous year.

“We’re receiving more disclosures about misconduct by others than ever before,” he said.

He also noted that OEE is resolving minor or technical self-disclosures “more quickly than ever before,” allowing BIS agents to “focus more of their time on the more serious violations.” The agency’s average processing time for a minor disclosure is “well under” the required 60-day window, he said.

“The bottom line here is that our policies are working,” Axelrod said. “The disclosure pattern over the past year -- with the increases in serious disclosures and in tips about misconduct by others -- has allowed us to focus our investigative resources on the matters most important to protecting our national security.”

He also highlighted BIS work with the Treasury Department’s Financial Crimes Enforcement Network, including their release last year of two codes for banks to include in their suspicious activity reports, which signal to FinCEN that their report involves a suspected violation of sanctions or export controls (see 2311060055, 2212160027, 2207130014 and 2309110049). Previously, BIS analysts had to “hunt through haystacks” of reports “looking for the needles” of banks reporting export control breaches, but now they only need to search for the two codes, Axelrod said.

Since the codes were released, BIS has reviewed more than 500 suspicious activity reports, he said, and 20% of them have contributed to BIS "cutting leads" to its enforcement agents or have helped BIS craft Entity List packages.

Axelrod also mentioned another internal change the agency made in October to better track its investigative efforts. He said BIS is now including a new “metrics initiative” in the “performance plans” for OEE managers to measure how well their field office’s investigations or leads “connect to our highest-priority areas.” Those areas include critical technologies like supercomputers, artificial intelligence and hypersonics as well as end users and end uses of “greatest concern,” such as adversarial militaries and human rights abuses.

“With this enhanced focus,” he said, “we can better ensure that our agents and analysts are spending their time where it can have the maximum impact.”