By Kelsey McGillis
Law Student Editor
On July 26, 2023, the U.S. Department of Commerce’s Bureau of Security (BIS), the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Justice’s National Security Division (NSD) jointly issued a compliance note outlining their procedures for reporting potential U.S. sanction and export law violations. The note identifies voluntary self-disclosure (VSD) as an alert mechanism for the national security and foreign policy interests of the United States, that can also reduce companies’ civil and criminal liability.
The Department of Justice’s National Security Division (NSD) revised its VSD policy on March 1, 2023, to address unlawful exports by sanctioned individuals, encouraging timely reporting of potential U.S. sanctions and export control violations. Voluntary self-disclosure, cooperation, and effective remediation may lead to non-prosecution agreements and waived fines, while severe misconduct or concealment can result in harsher treatment. Timely, exclusive disclosure to the NSD, along with full cooperation, is essential to obtaining the benefits of waived or mitigated penalties. So is timely and adequate remediation, effective compliance programs, and appropriate disciplinary measures. The NSD has strengthened its policy by appointing a Chief Counsel for Corporate Enforcement and adding twenty-five prosecutors to handle sanctions evasion, export control violations, and related economic crimes.
BIS strongly encourages the voluntary disclosure of potential violations of the Export Administration Regulations (EAR) and related laws. It has announced that timely and comprehensive VSD, coupled with full cooperation, significantly reduce potential civil penalties under its new guidelines. In June 2023, BIS revised its policy, introducing the Office of Export Enforcement (OEE)’s dual-track system by which minor or technical infractions are expedited, resulting in warnings or no-action letters issued within 60 days, while more serious potential violations trigger deeper investigations. OEE clarified that deliberate non-reporting of EAR violations is considered an aggravating factor, while reporting another party’s potential EAR violation is considered a mitigating factor. The effectiveness of a company’s compliance program is also appraised under BIS’s settlement guidelines.
OFAC maintains a policy that promotes disclosure from U.S. companies by treating VSDs as mitigating factors in enforcement actions. When civil monetary penalties are required, VSDs may reduce proposed penalties by up to 50 percent. OFAC evaluates the complete context of the apparent violation, including the nature of the compliance program at the time and the corrective actions taken. To qualify as a VSD, the disclosure must precede OFAC’s discovery of the violation, and disclosures to other agencies may or may not qualify as VSDs on an individual basis. Under the new guidelines, disclosing companies must submit a detailed report along with the VSD to provide a comprehensive view of the violation’s context. OFAC anticipates that those making disclosures will promptly and fully respond to any follow-up inquiries from them in exchange for penalty mitigation.