A voluntary self-disclosure is just that: voluntary. You are not charged for not disclosing a previous violation — as long as you do not continue the violation post-discovery. If the company, however, opts to initiate a voluntary self-disclosure, then it will need to consider a number of factors.
I have spent a considerable amount of time during my 45 years in export compliance working with various enforcement agencies, so I feel that I’m in a very good position to understand the mechanics, psychology and politics of dealing with these enforcement issues.
The first thing a company should consider when it comes to a possible export violation is how egregious it truly is, and this includes an assessment of the impact that these violations have on U.S. national security and export control policies.
Next, the company should ask itself what is the likelihood of discovery by the enforcement agencies.
The cold, hard facts are that a discovery of the violation by an enforcement agency eliminates any mitigation assigned to the company that’s making the voluntary self-disclosure. This should be looked at carefully, because discovery by an enforcement agency could be an aggravating factor if the company is shown to have known about the violations and continued violating anyway.
What are the potential methods of a violation’s discovery? A competitor may notify the enforcement agency based on real or perceived facts. A disgruntled employee may use his or her whistleblowing powers to report the violation. It may be a third-party logistics provider involved with a transaction that’s simply trying to protect its interests. In some cases, the enforcement agencies may discover the violation via their own paper-based and electronic searches of export data.
A company also must consider the fact that the Commerce Department’s Bureau of Industry and Security (BIS) has the authority to impose penalties of up to $302,584 per charge for each violation of the International Emergency Economic Powers Act, while the Treasury Department’s Office of Foreign Assets Control (OFAC) could assess similar penalties or twice the value of the violations, whichever is greater. The statute of limitations is five years from the date of the violating transaction.
There is also the potential for the company to lose its export privileges and, in all likelihood, facing negative exposure in the press, not to mention the cost implications related to human and financial resources that the company will need to commit throughout the enforcement agency’s investigation.
If you choose the path of making a voluntary self-disclosure, keep in the mind that the enforcement agency will scrutinize violations closely. Traditionally, however, there has been an unwritten rule among the enforcement agencies that a 50 percent mitigation is assigned to voluntary self-disclosures.
However, before a voluntary self-disclosure is filed, the company needs to identify the relevant agency and contact the enforcement office to notify them that a potential violation might have been committed. Then the clock begins on delivering the narrative account for the voluntary self-disclosure to the agency. In the case of BIS, it’s 180 days between the agency’s receipt of the initial notification and submission.
Voluntary self-disclosures are thorough documents. They must identify all parties to the transactions, including names, addresses and relationships. For the scope of the violation, the company must clearly identify what happened, why it happened and why it’s believed to be a violation of U.S. export regulations. The company must include individual transaction details, such as dates of alleged violations; description of commodities and technical data, including identifying characteristics and export classifications; quantity of effected items; and monetary values of the transactions.
Highlight in the voluntary self-disclosure if there were any extenuating circumstances that resulted in the export violations and explain if the company had submitted a license application, it would have likely received approval from the enforcement agency.
Most important, the voluntary self-disclosure should include an explanation of the corrective actions taken by the company after the violation was discovered and other commitments initiated to further enhance the corporate export compliance program.
Like I always tell my clients, the key to bringing the optimum result for a voluntary self-disclosure with BIS is the “preparation” for a potential meeting with the special agent for the Office of Export Enforcement who is assigned the case and the follow-up to that meeting. BIS field offices are located in key U.S. commercial centers, such as New York, Boston, Dallas, Miami, Chicago, San Jose, Washington and Los Angeles.
During these meetings, the enforcement agency is looking to see whether the company is committed to following through on a comprehensive and implementable compliance program that demonstrates respect for the agency and federal regulations. The attitude of the company to the subject matter is a priority in the eyes of the enforcement agency and therefore needs to be displayed in a positive light.
The bottom line is that I am not advising you to negate making a voluntary self-disclosure, but rather do your research, consider all the factors I have mentioned and make a “measured decision.” Document the basis for your conclusion and take corrective action to avoid repeating the violations that may have occurred.
If you decide to go forward with a voluntary self-disclosure, most importantly you must ensure that the company, educational institute, bank or other entity gets directly engaged in the dialogue with the oversight agency and not do a “dump and run” on your outside counsel or consultant. If the overseeing agency judges that the violating entity is fully committed to addressing the compliance issues, then it’s more likely to take a benevolent approach to settling the case.
DiVecchio, principal of Boston-based DiVecchio & Associates, has provided export compliance consulting services to U.S. exporters for more than 35 years. He may be reached by email at email@example.com.