What is a Voluntary Disclosure and Why It Matters in Export Control?
Article Summary
A voluntary disclosure is a self-reported admission of non-compliance with export control regulations, submitted to regulatory authorities.
It demonstrates good faith, mitigates penalties, and helps businesses resolve compliance issues proactively.
It should be submitted when a company identifies a potential or actual violation of export control laws, such as ITAR or EAR.
Benefits include reduced penalties, improved relationships with regulators, and the opportunity to correct compliance gaps.
Failure to disclose violations can result in severe penalties, loss of export privileges, and reputational damage.
A voluntary disclosure is a notification to a federal agency (such as the Bureau of Industry and Security) when a party suspects or becomes aware of a potential violation of the applicable regulations, such as the Export Administration Regulations (EAR). It serves as an indication of the party’s commitment to complying with U.S. export control requirements.
Understanding the Sequence of a Voluntary Disclosure
When initiating a voluntary disclosure, it’s crucial to follow a structured process. Below is a step-by-step guide to ensure all necessary actions are taken:
- Stop the Activity: If a violation is suspected, stop the activity or transaction immediately.
- Investigate the Situation: Investigate the situation to be utterly clear of the facts.
- Produce a Narrative Account: Include a narrative account that describes the suspected violation in detail.
- Provide Documentation: Provide supporting documentation such as emails, shipping records, or licenses.
- Prepare Mitigation Efforts: Describe efforts to mitigate harm and remediate the causes of the violation
Why are Voluntary Disclosures More Common?
Voluntary Disclosures (VDs) are now crucial strategy decisions for organizations to proactively manage risks in their export control compliance program. VDs are increasingly common for several practical reasons:
- Incentives for Compliance Whistleblowers: There have always been tips from disgruntled employees or competitors but lately, the U.S. Department of Justice (DOJ), the Bureau of Industry and Security (BIS), and the Office of Foreign Assets Control (OFAC) have begun offering monetary awards to whistleblowers who provide damaging evidence and information about sanctions and export control violations.
- Increased Enforcement Resources: With additional government resources allocated to investigating and prosecuting sanctions evasion and export control violations, there is greater coordination among agencies in pursuing violations and enforcement actions1. The National Security Division (NSD) has hired new prosecutors, and Congress has provided resources to BIS, OFAC, and FinCEN’s whistleblower program.
Benefits of Disclosing Violations Proactively
Taking the initiative to disclose violations offers several significant advantages. Here are the key benefits organizations can gain from voluntary disclosure:
- Mitigating Factor: The disclosure is seen as a mitigating factor when determining penalties
- Acknowledgment and Rectification: The party acknowledges its mistake and shows a willingness and active progress to rectify it.
- Positive Relationships: Companies build a positive relationship, as opposed to defensive or adversarial positions, with the pertinent enforcement agencies.
- Commitment to Compliance: Disclosures signal an ongoing commitment to develop and maintain export compliance.
Key Takeaways for Effective Voluntary Disclosures
Voluntary self-disclosure is a proactive way for parties to address export control violations, demonstrate compliance, and work toward resolving outstanding issues. They serve as a bridge between companies and regulatory authorities, emphasizing cooperation and commitment to ongoing export regulations. By taking responsibility and showing a willingness to improve, organizations can build stronger relationships with regulatory bodies. Ultimately, proactive disclosure helps foster a culture of compliance and accountability, essential for long-term success in international trade.
Key Points
What is a voluntary disclosure, and why is it significant?
A voluntary disclosure is a self-reported admission of non-compliance with export control regulations, such as ITAR (International Traffic in Arms Regulations) or EAR (Export Administration Regulations). It is submitted to the relevant regulatory authority, such as the Directorate of Defense Trade Controls (DDTC) or the Bureau of Industry and Security (BIS). Voluntary disclosures are significant because they demonstrate a company’s commitment to compliance, help mitigate penalties, and provide an opportunity to address and correct compliance gaps.
Why is voluntary disclosure important for businesses?
Voluntary disclosure is important because it:
- Demonstrates Good Faith: By self-reporting violations, businesses show regulators that they take compliance seriously and are committed to rectifying issues.\
- Mitigates Penalties: Regulatory authorities often reduce penalties for companies that voluntarily disclose violations, as opposed to those discovered through audits or investigations.
- Resolves Compliance Issues: Disclosures provide an opportunity to address and correct compliance gaps, preventing future violations.
- Protects Reputations: Proactively addressing violations can help maintain trust with customers, partners, and regulators.
When should a voluntary disclosure be submitted?
A voluntary disclosure should be submitted when a company identifies a potential or actual violation of export control laws. Examples include:
- Exporting controlled items without the required licenses.
- Transferring technical data to unauthorized parties.
- Failing to comply with end-use or end-user restrictions.
- Violating embargoes or sanctions.
It is critical to act promptly upon discovering a violation to demonstrate good faith and minimize potential penalties.
What are the benefits of submitting a voluntary disclosure?
The key benefits of submitting a voluntary disclosure include:
- Reduced Penalties: Regulatory authorities may waive or significantly reduce fines and other penalties for self-reported violations.
- Improved Relationships with Regulators: Demonstrating transparency and accountability fosters trust with regulatory agencies.
- Opportunity to Correct Compliance Gaps: Disclosures often lead to recommendations for improving compliance programs, strengthening overall operations.
- Avoidance of Escalated Enforcement Actions: Proactively addressing violations reduces the likelihood of audits, investigations, or criminal charges.
These benefits make voluntary disclosure a valuable tool for managing compliance risks.
What are the risks of not submitting a voluntary disclosure?
Failing to disclose violations can result in:
- Severe Penalties: Companies may face significant fines, loss of export privileges, and other enforcement actions.
- Reputational Damage: Non-compliance can harm a company’s reputation and relationships with customers and regulators.
- Increased Scrutiny: Undisclosed violations discovered during audits or investigations can lead to escalated enforcement actions.
- Legal Consequences: Deliberate non-disclosure may result in criminal charges for individuals involved.
By not addressing violations proactively, businesses expose themselves to greater risks and liabilities.
How can businesses ensure effective voluntary disclosures?
To ensure effective voluntary disclosures, businesses should:
- Act Promptly: Submit disclosures as soon as a violation is identified to demonstrate good faith.
- Provide Complete Information: Include all relevant details about the violation, including the nature of the issue, affected items, and corrective actions taken.
- Engage Experts: Work with export compliance specialists or legal counsel to prepare and submit disclosures.
- Implement Corrective Actions: Address the root causes of the violation to prevent recurrence.
- Maintain Documentation: Keep detailed records of the disclosure process and corrective actions for future reference.
By following these steps, businesses can navigate the voluntary disclosure process effectively and minimize the impact of compliance violations.
