What is a Voluntary Disclosure and Why It Matters in Export Control?

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:

1. Stop the Activity: If a violation is suspected, stop the activity or transaction immediately.
2. Investigate the Situation: Investigate the situation to be utterly clear of the facts.
3. Produce a Narrative Account: Include a narrative account that describes the suspected violation in detail.
4. Provide Documentation: Provide supporting documentation such as emails, shipping records, or licenses.
5. 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.