US updates export control voluntary self-disclosure policy

Out-Law News | 19 Dec 2019 | 2:40 pm | 2 min. read

Businesses which voluntarily disclose export control or sanctions violations directly to the US Department of Justice (DoJ) can expect more lenient treatment.

The DoJ has updated its voluntary self-disclosure (VSD) policy for businesses (6-page / 214KB PDF) in respect of export control and sanctions violations. The document, which will be formally incorporated into the US justice manual, states that companies which self-report these offences, fully cooperate with the DoJ and remediate the offence will usually receive a non-prosecution agreement and will not usually be fined "absent aggravating factors".

Previous editions of the policy did not incorporate a presumption against prosecution or guarantee any concrete benefits to self-reporting businesses.

Keen Stacy

Stacy Keen

Senior Associate

Voluntary disclosures and cooperation can have a significant impact on the value of any penalty imposed, for example in relation to a breach of financial sanctions.

Where aggravating factors justifying additional enforcement action exist, the policy states that the DoJ will recommend a fine that is at least 50% lower than would have otherwise applied and will not require the business to appoint a compliance monitor. To qualify, businesses must self-report, fully cooperate with the DOJ and take "timely and appropriate" remedial action.

Examples of aggravating factors included in the policy are exports of items that are particularly sensitive or to end users that are of heightened concern; repeated violations; involvement of company senior management; and significant profits.

Voluntary disclosures to regulatory agencies and not to the DoJ's National Security Division will not qualify for the benefits set out in the policy, according to the document.

The policy applies to "potentially wilful violations" of the US government's main export control and sanctions regimes: the Arms Export Control Act; the Export Control Reform Act; and the International Emergency Economic Powers Act. It is effective as of 13 December 2019.

John Demers, assistant attorney general for national security, said: "Protecting our nation's sensitive technologies and preventing transactions with sanctioned entities are DoJ priorities, but we cannot succeed alone".

"We need the private sector to come forward and work with the DoJ. The revised VSD policy should reassure companies that, when they do report violations directly to the DoJ, the benefits of their cooperation will be concrete and significant," he said.

Financial sanctions expert Stacy Keen of Pinsent Masons, the law firm behind Out-Law, said that the UK authorities placed similar value on corporate voluntary self-disclosure as the DoJ.

"Voluntary disclosures and cooperation can have a significant impact on the value of any penalty imposed, for example in relation to a breach of financial sanctions," she said.

"In its own guidance on monetary penalties for breaches of financial sanctions (34-page / 822KB PDF), the UK's Office of Financial Sanctions Implementation (OFSI) says that a voluntary disclosure may be a mitigating factor when assessing a case and may also have a real effect on any subsequent decision to apply a penalty. The first two civil penalties imposed by OFSI, on Raphael & Sons plc in January 2019 and Travelex UK Ltd in March 2019 relating to the same dealing with the funds of an Egyptian sanctions target, make this point blatantly clear. Because Raphaels Bank made a disclosure of the breach and cooperated with the investigation, OFSI reduced the penalty by 50%, but no such reduction was offered to Travelex UK," she said.

"OFSI expects breaches to be disclosed in a timely fashion, as soon as reasonably practicable after discovery of the breach. It is accepted that an organisation will take some time to assess the nature and extent of any breach and seek legal advice – however, OFSI is clear that this should not delay an effective response to any breach. OFSI advises that where full disclosure is not possible, an early disclosure with partial information can be made on the basis that the facts are still being worked out and a further disclosure will be made as soon as possible," she said.