Commerce Announces Proposals for Key Changes to US Export Controls Enforcement

On May 16, the US Department of Commerce (Commerce) announced that it is evaluating significant changes to its administrative enforcement policies for export control violations under the Export Administration Regulations (EAR). Matthew S. Axelrod, Assistant Secretary for Export Enforcement at Commerce’s Bureau of Industry and Security (BIS), said the changes are necessary to increase violation transparency, strengthen export controls compliance, and incentivize deterrence. The changes target companies and individuals engaging in prohibited export, reexport, and transfer (in-country) activities involving countries that threaten US national security interests, including China, Russia, Iran, and North Korea.

Commerce highlighted three key anticipated changes:

1. Earlier Publication of Administrative Charging Letters. Under Commerce’s current approach, administrative charging letters (letters initiating an administrative enforcement proceeding) are not made public until after an export enforcement case is resolved. So, the public does not receive notice of violations associated with a company or individual until the enforcement action is complete, sometimes years after the violations occurred and the letter is filed. Commerce believes that immediately publishing charging letters will deter companies engaging in similar conduct from continuing their practices. However, this change may have secondary impacts for companies implicated in the charging letters themselves, including immediate reputational costs associated with an ongoing enforcement proceeding.
2. Reconsideration of Commerce’s No Admit/No Deny Settlement Policy. Commerce currently permits companies and individuals that resolve administrative matters outside of a trial proceeding to pay a reduced fine without admitting to misconduct. Commerce is reconsidering its use of no admit/no deny during settlement proceedings. This change would require companies and individuals to admit to misconduct to qualify for a lesser penalty. According to Commerce, requiring companies and individuals to admit the fact of their violations would deter similarly situated entities from engaging in prohibited conduct in the future.
3. Increased Penalties for EAR Violations. Finally, Commerce is considering increasing penalty amounts associated with US export control violations. Commerce believes that raising penalties for EAR violations may dissuade companies and individuals from performing cost trade-offs between engaging in high-risk business opportunities and investing in strong compliance practices.

The announcement also notes similar potential changes to Commerce’s antiboycott regulations.

The announcement parallels a number of efforts undertaken by Commerce in recent months to encourage compliance with export controls, including broad enforcement efforts with respect to the US government’s sweeping export controls on Russia and Belarus. If implemented, these changes would mark a significant ratcheting up of Commerce’s administrative enforcement practices, which could lead to greater revenue for Commerce but reputational costs for companies and individuals that violate the EAR, even if unknowingly. Commerce anticipates issuing new rules to implement these changes within the coming months.

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