United States international trade regulatory agencies have updated voluntary self-disclosure (“VSD”) policies and guidance in an effort to incentivize private sector companies and individuals to self-report violations of U.S. sanctions, export controls, and other national security laws. Notably, the joint compliance note issued on July 26, 2023, by the U.S. Department of Justice (“DOJ”), the U.S. Department of Commerce, and the U.S. Department of the Treasury is only the second collective announcement of its kind. This joint compliance note highlights the recent trend of increased enforcement of international trade regulations. Parties involved in international trade, business development, and supply chain management should review these updates to determine whether internal policies should be revised.
The unified message from the three agencies is clear: parties that promptly self-disclose potential or actual violation to the appropriate agency will significantly mitigate administrative or criminal liability. The extent of mitigation a self-disclosing party could receive is agency-specific, and dependent upon several other factors including the VSDs timeliness, completeness, and the seriousness of the underlying misconduct. The potential mitigation applies to voluntary self-disclosures of both, administrative and/or criminal violations. Self-disclosing a violation can result in mitigation up to a non-prosecution agreement or reduction of the base penalty amount by as much as 50 percent.
U.S. Department of Justice Updated VSD Policy
The National Security Division of the DOJ updated its VSD policy to provide incentives for parties to timely self-disclose criminal violations of export controls and sanctions, including the Arms Export Control Act (“AECA”), 22 U.S.C. § 2778, the Export Control Reform Act (“ECRA”), 50 U.S.C. § 4801 et seq., the International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. § 1705, and the Foreign Agents Registration Act (“FARA”), 22 U.S.C. § 611 et seq. Under the DOJ’s updated policy, a party that voluntarily self-discloses potential criminal violations, fully cooperates with the DOJ’s investigation, and timely and effectively remediates the violation will be presumed eligible for a non-prosecution agreement and will not be required to pay a monetary penalty.
This presumption in favor of a non-prosecution agreement does not extend to self-disclosures of criminal violations that include aggravating factors. These factors include egregious or pervasive criminal misconduct by the reporting party, concealment of involvement by upper management, a history of violations of national security laws, the export of items that are particularly sensitive or to end users of heightened concern, and a significant profit to the party from the misconduct. However, the updated policy provides the DOJ with the discretion to use other enforcement methods (e.g., deferred prosecution agreements or guilty pleas) to reach resolutions in instances where aggravating factors do exist.
U.S. Department of Commerce Updated VSD Guidance
The Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce joined the DOJ’s push to incentivize VSDs by updating guidance for parties who self-disclose potential or actual violations of the Export Administration Regulations (“EAR”), or any other, license, or authorization issued thereunder. According to the updated guidance, a VSD must be timely, comprehensive, and involve full cooperation by the disclosing party to substantially mitigate applicable civil penalty.
Another notable action taken by BIS to incentivize VSDs is the implementation of a dual-track system to resolve VSDs. Under this system, VSDs involving minor or technical violations are fast-tracked to a mitigated resolution such as warning or no-action letter within 60 days of the VSD’s submission. This expediated timeline is a stark contrast to the previous system where these types of violations could take an unlimited amount of time to resolve, usually months. The second track applies to serious violations requiring a more extensive review. While this second track does not provide a specific resolution timeline, the dual-track system is also expected to expediate the review process. Regardless, both tracks provide self-disclosing parties mitigation credit.
U.S. Department of the Treasury Updated VSD Guidelines
The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury similarly updated its Enforcement Guidelines to ensure VSDs are appropriately considered as a mitigating factor in enforcement decisions. The updated guidelines also note that civil monetary penalties may be reduced by up to 50 percent when a party self-discloses a violation.
In order to qualify for this mitigation, a VSD must be made prior to, or simultaneously with, OFAC’s or another agency’s discovery of the violation, or a substantially similar apparent violation. The VSD must also include a sufficiently detailed report that provides a thorough review of the underlying circumstances of the violation.
Of note, the guidelines exclude certain disclosures made to OFAC from qualifying as a VSD. For example, disclosures that provide false or misleading information, or disclosures that are not self-initiated will not be regarded as VSDs under the guidelines and will not receive mitigation credit. Moreover, furnishing false information to a government agency is punishable under the False Statements Accountability Act (“FSAA”) 18 U.S.C. § 1001, and other federal statutes and regulations.
Next Steps
These updates to VSD policies and guidance by each of these agencies provide parties with significant incentives to self-disclose violations in a timely and comprehensive manner. Parties involved in international trade, business development, and supply chain management should consider reviewing and updating relevant policies to encourage self-reporting and emphasize the benefits of VSDs.
In particular, parties should review the internal mechanisms available to employees and other agents to report suspected violations. Parties without such reporting mechanisms should view this joint compliance note as a warning sign of increased enforcement and an opportunity to investigate and determine whether a VSD is warranted.
Each agency has different standards for providing self-disclosure mitigation credit, including the scope of information that needs to be furnished and the supporting documentation required. As such, parties should be cognizant of these updates when disclosing potential or actual violations to ensure the appropriate standards are met and to avoid unintended consequences.
Although companies and individuals often retain non-lawyer outside consultants to assist on compliance matters, parties should be aware that any investigation or review conducted by a non-lawyer is not covered by the Attorney-Client Privilege or Work Product Doctrine. Accordingly, parties should appropriately assess the scope of any internal investigation or review that may result in a VSD to a government agency.
