In exporting, the phrase “It’s better to ask forgiveness than ask permission” is one of the biggest lies an exporter can believe. Your export compliance strategy and execution isn’t the place to seek forgiveness.
The regulations aren’t something you should blow through haphazardly or ignore. They require careful attention, study and thought. And if you don’t think so, take a look at what happens if you aren’t in compliance:
- Fines for export violations can reach up to $1 million per violation in criminal cases according to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS).
- Administrative cases can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction.
- Criminal violators may be sentenced to prison for up to 20 years.
- Administrative penalties may include denial of export privileges—you could lose your company and your livelihood.
These devastating consequences should be enough to scare exporters straight into thoughtfully approaching export compliance in every transaction. But what happens if your company makes a mistake and violates export compliance regulations?
Let’s take a look at what you should know about export compliance self-disclosure.
What is voluntary self-disclosure?
If you believe you may have violated the Export Administration Regulations (EAR), the BIS encourages you to submit a voluntary self-disclosure (VSD). A VSD is a document you’ll complete and submit to the BIS that shows your intent to comply with U.S. export control requirements. A VSD may provide important information on other ongoing violations.
Willful vs. Non-willful Mistakes
Willful vs. non-willful mistakes are an important distinction for the Office of Export Enforcement (OEE) regarding export compliance. Willful mistakes—did you do it on purpose?—vs. non-willful mistakes—were you demonstrating compliance with a program in place when the mistake occurred?—can significantly affect your case.
According to FBI Special Agent Cindy Burnham, a non-willful mistake is less of a problem if you’re demonstrating compliance with a program in place. However, if an unwillful mistake is discovered and is not reported, it turns from unwillful to willful. Voluntary self-disclosure protects a mistake from becoming willful once you discover it occurred.
Why should you self-disclose?
New government guidance released in July 2023 emphasizes the benefits of voluntarily self-disclosing potential violations and makes non-disclosure a particularly risky choice: Third parties that blow the whistle on competitors will be rewarded.
Non-disclosed cases will result in tougher penalties, and according to a notice from the Department of Commerce, Department of the Treasury and the Department of Justice:
“Self-disclosing potential violations can provide significant mitigation of civil or criminal liability, the extent of which depends on the agency, but may extend so far as a nonprosecution agreement or a reduction of 50 percent in the base penalty amount for civil or criminal penalties.”
The BIS reviews VSDs to determine if EAR violations have occurred and to determine the appropriate corrective action when violations have taken place. The deliberate decision not to disclose significant possible violations of the EAR can be considered an aggravating factor against that party, which may result in enhanced penalties.
When you self-disclose, your issue is more likely to be resolved by means other than the issuance of an administrative penalty because you’re demonstrating to the enforcement agency that you’re doing your due diligence and your best to stay compliant. You can find out more about administrative penalties in Supplement No. 1 of Section 766 of the EAR.
Exporters should always strive for 100% compliance with export rules. Although you may not achieve it, as long as you have processes in place and you’re doing your due diligence to try to be compliant, if you do make a mistake, it will make regulatory agencies less inclined to pursue onerous penalties.
When and how should you self-disclose?
According to the BIS, you should begin the process of self-disclosure as soon as you determine that there has been a violation or you suspect a violation. Additionally, while you should already be in regular conversation with someone in your legal department, they need to be immediately notified. If your company does not have a legal department, you should immediately call your legal counsel.
In June 2022, the Office of Export Enforcement (OEE) at BIS introduced a dual-track system for handling VSDs. Under this system, VSDs related to minor or technical violations are expedited, with the objective of issuing a warning or a no-action letter within 60 days of the final submission. The primary purpose behind this fast-tracking approach is to concentrate resources on VSDs involving potentially more significant violations.
Here’s a brief overview of how to get started with the process of self-disclosure:
1. Send initial notification to the OEE. This should be in writing and should include:
- The name of the person making the disclosure;
- A brief description of the suspected violations;
- A contact person regarding the initial notification and that contact person’s current business street address, email address, and telephone number; and
- A description of the general nature and extent of the violations.
You should mail this to: Director, Office of Export Enforcement, 1401 Constitution Ave., Room H4514, Washington, D.C. 20230. If it’s not practical to make an initial notification in writing, OEE should be contacted via phone at (202) 482-5036 or via fax at (202) 482-5889.
2. Once you’ve sent an initial notification, someone from OEE will contact you for the next steps. You should read and refer to the entire statute on self-disclosure to fully understand the process of self-disclosure.
For More Information
Find out more about voluntary self-disclosures from the BIS website’s Voluntary Self-Disclosure page.
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This article was first published in June 2015 and has been updated to include current information, links and formatting.