United States: Voluntary Self-Disclosures: Recent Guidance From BIS, OFAC & DOJ

If an individual or company believes it has violated US trade laws, proactively disclosing the potential violation can substantially reduce penalties. A system of disclosures, known as Voluntary Self-Disclosures (VSDs) and Prior Disclosures (PDs), exists for a wide array of federal agencies, including Customs and Border Protection (CBP), Bureau of Industry & Security (BIS), the Department of the Treasury's Office of Foreign Assets Control (OFAC), and the Department of Justice (DOJ).

Self-Disclosure Process & Benefits of Disclosing

Each agency has different requirements and processes for submitting VSDs or PDs. However, the process generally includes an initial notification to the agency followed by a supplemental narrative. Regardless of the agency involved, an initial notification of a violation should be transmitted as soon as it is discovered. Delaying disclosure after an apparent violation is discovered can disqualify a VSD or PD or even lead to more severe penalties when an agency initiates an enforcement action.

Agencies encourage parties to submit VSDs and PDs if they believe they have violated US trade laws and regulations. According to BIS, doing so is an "excellent indicator of a party's intent to comply with U.S. export control requirements."

Parties who disclose may benefit from significantly mitigated penalties. For example, minor or technical violations disclosed to BIS can be resolved through the BIS "fast-track" process which often results in a warning issued within 60 days of the disclosure. Disclosures made to OFAC in cases where a monetary penalty may be imposed, a VSD can lead to a 50% reduction in the proposed penalty amount.

New Compliance Guidance

In July 2023, DOJ, BIS, and OFAC issued a "tri-seal compliance note" focusing on the voluntary self-disclosure policies that apply to US sanctions, export controls, and other national security laws, including recent updates to some of those policies.

The note calls on US businesses to self-report potential violations and aims to assist the private sector in ensuring that businesses timely and appropriately disclose. The note summarizes procedures for voluntarily self-disclosing violations of US sanctions and export control laws to DOJ, BIS, and OFAC.

The note also explains that self-disclosing potential violations can provide significant mitigation of civil or criminal liability and can alert key national security agencies to activities that may pose a threat to the national security and foreign policy objectives of the US.

DOJ Updated VSD Policy

In March 2023, the DOJ's National Security Division (NSD) issued an updated VSD policy covering potential criminal violations of export control and sanctions laws. The new policy states that when a company voluntarily self-discloses potential criminal violations, timely and appropriately remediates the violations, and fully cooperates, the DOJ will not seek a guilty plea. Instead, there will be a presumption that the company will receive a non-prosecution agreement and will not pay a fine.

The presumption of a non-prosecution agreement does not apply when there are aggravating factors such as pervasive or egregious criminal misconduct, concealment by upper management, or repeated violations of national security laws. The new policy is designed to provide incentives for members of the trade community to come forward right away when they become aware of violations.

BIS Updated VSD Guidance

In April 2023, BIS issued guidance clarifying their policies regarding voluntary self-disclosures to further incentivize the submission of VSDs for significant violations. According to the agency, the guidance underscores a commitment to fostering and incentivizing a strong culture of compliance.

The guidance specifically addresses how BIS applies existing guidelines in situations where there is a deliberate non-disclosure of significant violations. BIS will now apply affirmatively choosing not to file a VSD for a significant violation as an aggravating factor. In other words, if a company or individual uncovers a significant possible violation but then affirmatively chooses not to file a VSD and BIS later uncovers the violation, they will consider the decision not to file as an aggravating factor under their existing guidelines.

The guidance also attempts to incentivize individuals, companies, and universities to disclose when they become aware of others who are violating the rules. The guidance makes explicit that disclosing another party's violation will be considered as an "exceptional cooperation" mitigation with BIS. That is, if a company becomes aware of another company's violating conduct and discloses such conduct, the tip—if it results in an enforcement action—will be considered a mitigating factor if a future enforcement action is ever brought against the disclosing party.

For individuals, when conduct of an export control violation is disclosed, there may be monetary awards available.

OFAC VSD Policy

The compliance note reiterated OFAC's existing approach to VSDs and their existing guidelines. OFAC considers VSDs to be a mitigating factor when deterring appropriate enforcement action to take against a violating party. In cases where a violating party may receive a civil monetary penalty, a qualifying VSD can result in a 50% reduction in the base amount of the proposed penalty.

In reviewing the VSD, OFAC considers the totality of the circumstances and a variety of factors including the adequacy of the subject's compliance program and the actions taken in response to a violation. Disclosures to OFAC will not qualify as a VSD under certain circumstances including when the disclosure includes misleading information or when the disclosure is not self-initiated. OFAC also requires VSDs to include—or be followed by—a detailed report that provides a complete understanding of the apparent violation or violations.

Takeaways

The compliance note makes clear that companies play a critical role in identifying violating conduct and helping to protect the US's national security. The compliance note also makes clear that simply filing a disclosure is not enough to qualify for the benefits of proactively disclosing. Companies must take action to engage in corrective actions to remedy violations in order to avail themselves of the full potential benefits of mitigated penalties.

It is no longer enough for companies to have compliance programs that focus solely on avoiding violations. A robust compliance program also needs to account for situations when things don't always go according to plan. Having processes and procedures in place that are responsive to apparent violations can mean the difference between meaningfully mitigated penalties and minimal relief.

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