Additional Information on BIS' Proposed Antiboycott Penalty Guidelines

This proposed rule also would amend 15 CFR Part 766 to include guidelines that BIS considers when deciding whether to pursue administrative charges or settle allegations of such violations, as well as the factors that BIS considers when deciding what level of penalty to seek in administrative cases.

According to BIS sources, this proposed rule serves to codify and clarify BIS' current policies regarding voluntary self disclosures of antiboycott violations.

(Among other things, the antiboycott provisions prohibit U.S. persons from complying with certain requirements of unsanctioned boycotts by furnishing information about business relationships with or in Israel. More information on antiboycott compliance is available at http://www.bis.doc.gov/AntiboycottCompliance/oacrequirements.html.)

(See ITT's Online Archives or 07/19/06 news, 06071925, for earlier BP summary of BIS' proposed rule, which provides a general overview of BIS' proposals.)

Highlights of Proposed Reporting Requirements for Voluntary Disclosures

In proposed 15 CFR 764.8, BIS defines what constitutes a voluntary self-disclosure and also provides the procedures for making such disclosure. BIS' proposed requirements include (partial list):

Voluntary disclosures would have to be in writing & received by OAC before it learns of information from another source. Proposed 15 CFR 764.8 requires, among other things, that voluntary self-disclosures be in writing and that they be received by the Office of Antiboycott Compliance (OAC) before OAC learns of the same or substantially similar information from "another source'' and has commenced an investigation or inquiry in connection with that information.

The proposed rule provides that persons may make an initial written notification followed by submission of a more detailed narrative account and supporting documents. BIS states that the date of the voluntary self-disclosures would be deemed to be the date that OAC received the initial notification if the person making the disclsoure subsequently submits the required narrative and supporting documentation.

Reports on boycott requests would constitute "information received from another source." 15 CFR 760.5 requires any "U.S. person who receives a request to take any action that would have the effect of furthering or supporting a restrictive trade practice or boycott fostered or imposed by a foreign country against a country friendly to the U.S. or against any U.S. person'' to report to OAC both receipt of the request and the action that the person took in response to that request. In some instances, taking the requested action would be a violation of 15 CFR 760.2. BIS recognizes that, in such instances, the reporting requirements of 15 CFR 760.5 would have the effect of requiring a person to disclose a violation that it had committed.

The proposed rule would provide that reports filed pursuant to 15 CFR 760.2 constitute "information received from another source.'' Thus, a person who wishes to make a voluntary self-disclosure of a violation that is based on an action that 15 CFR 760.5 requires that person to report would have to make sure that OAC receives the written initial notification portion of the voluntary self-disclosure before OAC began an investigation or inquiry based on the information received in the required report. The report itself would not serve as the initial notification. However, if OAC received the report and the initial notification simultaneously, it would be deemed to have received the initial notification before it had begun an investigation or inquiry based on the report. That person would then have to comply with the remaining requirements of 15 CFR 764.8.

Voluntary self-disclosure of violations revealed in requests for advice from BIS. According to the proposed rule, OAC will not treat violations revealed in telephone or e-mail requests for advice concerning the antiboycott provisions as information received from another source. However, to meet the requirements of 15 CFR 764.8, the person wishing to make a voluntary self-disclosure would have to make a written disclosure pursuant to 15 CFR 764.8. The information provided over the telephone or via e-mail while seeking advice would not constitute a voluntary self-disclosure or even an initial notification of a voluntary self-disclosure.

Highlights of Proposed Guidance on Charging and Penalty Determinations

BIS' proposed rule would also create a new Supplement No. 2 to 15 CFR Part 766 to set forth publicly BIS' practices with respect to violations of the antiboycott provisions. Highlights of the proposed supplement include (partial list):

OAC's possible actions in response to antiboycott violations. Proposed paragraph (b) of the proposed supplement would set forth the three actions that OAC may take in response to a violation, which are: issue a warning letter, pursue an administrative case, and refer a case to the Department of Justice for criminal prosecution. This paragraph also lists the factors that often cause OAC to issue a warning letter. It also notes OAC's ability to issue proposed administrative charging letters rather than actual administrative charging letters. BIS explains that proposed charging letters are issued informally to provide an opportunity for settlement before initiation of a formal administrative proceeding.

Applicable administrative sanctions. Proposed paragraph (c) of the proposed supplement lists the types of administrative sanctions that may be imposed in administrative cases. Those sanctions are: a monetary penalty, a denial of export privileges and an order excluding the party from practice before BIS.

OAC methods for determining appropriate settlements. Proposed paragraph (d) provides information about how OAC determines what sanctions are appropriate in settlement of administrative enforcement cases. The paragraph describes the seven general factors that BIS believes are important in cases concerning violations of the antiboycott provisions. Examples of general factors include degree of seriousness, category of violation, number of violations, etc.

The paragraph then describes eight specific mitigating and nine specific aggravating factors which OAC considers in determining what sanctions should apply in a given settlement. Examples of mitigating factors include: voluntary self disclosure, effective compliance program, limited business with or in boycotting countries, etc. Examples of aggravating factors include: concealment or obstruction, serious disregard for compliance responsibilities, familiarity with the type of transaction at issue, etc.

Three categories of violations. Proposed paragraph (d) would also set forth three categories of violations which reflect the relative seriousness of a violation (with Category A being the most serious and typically warranting the most stringent penalties):

Category A. Category A violations include discriminating against U.S. persons on the basis of race, religion, sex, or national origin; refusing to do business or agreeing to refuse to do business; furnishing information about race, religion, sex or national origin of U.S. persons (including, but not limited to, providing information in connection with a boycott questionnaire about the religion of employees); etc.

Category B. Category B violations consist of: furnishing information about associations with charitable or fraternal organizations which support a boycotted country, and making recordkeeping violations.

Category C. A Category C violation consists of failing to report timely receipt of boycott requests.

Scenarios illustrating how OAC may view certain violative transactions. Proposed paragraph (d) also contains three illustrative scenarios to demonstrate how OAC might view transactions that lead to multiple violations.

Factors OAC may consider in deciding whether to suspend or defer penalties or denial of export privileges. Proposed paragraph (f) provides examples of factors that OAC may consider in deciding whether to suspend or defer a monetary penalty, or suspend an order denying export privileges or an order providing an exclusion from practice. With respect to suspension or deferral of monetary penalties OAC may consider whether the party has demonstrated a limited ability to pay a penalty that would be appropriate for such violation, so that suspended or deferred payment can be expected to have sufficient deterrent value, and whether the impact of the penalty would be consistent with the impact of penalties on other parties who commit similar violations.

-written comments must be received by August 29, 2006

BIS Contact - Edward Weant (202) 482-2381

BIS Proposed Rule (D/N 060511128-6128-01, FR Pub 06/30/06) available at http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-5917.pdf

BIS Technical Correction to Proposed rule (D/N 060511128-6128-01, FR Pub 07/06/06) available athttp://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/E6-10560.pdf