Assistant Secretary for Export Enforcement Matt Axelrod announced enhancements and expansions of the Bureau's Voluntary Self-Disclosure program, including simplified reporting, e-mail submittals and expedited handling of corrective action for unlawfully exported items.
In a speech January 16 at NYU School of Law’s Program on Corporate Compliance and Enforcement Mr. Alelrod described the changes, along with an engaging history of the jukebox, details of which can be found in the complete speech. The Assistant Secretary's remarks below have been condensed for readability.
"Our mission has changed significantly over the past decade. As these technologies have grown exponentially more powerful, the importance of the role that export controls play in protecting them, and by extension our national security, has grown in parallel. Export controls and their enforcement are at the forefront of our national security efforts like never before. As I said in a post last year on PCCE’s Compliance and Enforcement blog, we’re in a new era of export enforcement.
"But there’s a wrinkle. Our budget – aptly described by Commerce Secretary Gina Raimondo as still less than “the cost of a few fighter jets” – has not kept pace with the heightened importance of our mission. I have approximately 150 enforcement agents to cover the entire country. By comparison, the Department of Homeland Security’s HSI has more agents than that in Tampa, Florida alone. One direct consequence of this funding lag is that we are constantly aware of the need to strategically prioritize our finite resources so that we can best maximize our national security impact. We are continuously looking for ways to ensure that we’re spending our time on the most consequential work. And we’re continuously looking for partners to do it alongside us, thereby expanding our work’s reach and impact.
"This strategic effort to deploy our resources for maximum national security impact similarly led us to work with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to develop the first-ever “key terms” for banks to use when filing Suspicious Activity Reports (SARs) related to export control evasion. Prior to our work with FinCEN, banks had no uniform way to code SARs related to export control evasion. This meant that our analysts had to hunt through haystacks of SARs looking for the needles of SARs that were filed because the bank suspected a potential export violation. Now, our analysts are able to simply review the SARs that contain either of the two new key terms – one for Russia evasion and one for evasion in the rest of the world.
"We made changes to our voluntary self-disclosure (VSD) program with the same goal in mind: to help prioritize our resources to best meet the most pressing national security threats.
"And last April, we clarified our VSD policies with the goal of driving additional disclosures of significant possible violations of the EAR. When a company thinks about whether or not to disclose an apparent violation, we want them to consider two additional factors: first, that a deliberate non-disclosure of a significant possible violation of the EAR is now considered an aggravating factor under our penalty guidelines. And, second, that if you don’t tell us yourself, your competitor might -- because we now give them cooperation credit for doing so.
Let me take each in turn.
"When someone chooses to file a VSD, they get concrete benefits; when someone affirmatively chooses not to file a VSD, we want them to know that they risk incurring concrete costs. In other words, when a company’s export compliance program uncovers a significant possible violation, we want company leadership to consider not only the risks of disclosing, but the risks of not disclosing. And one of those risks is that we now consider the decision not to disclose as an aggravating factor under our guidelines.
"Further, companies cannot sidestep the “should we or shouldn’t we disclose” decision by self- blinding and choosing not to do an internal investigation in the first place. The existence, nature, and adequacy of a company’s compliance program, including its success at self-identifying and rectifying compliance gaps, is itself considered a “general factor” under our settlement guidelines. This means, for example, that the presence or absence of an effective internal compliance program that uncovers export violations can either mitigate or aggravate a penalty.
"For disclosures concerning the misconduct of others, we want to do everything in our power to encourage a level playing field. But it’s impossible for us to punish violations we don’t know about. We don’t want a company that’s complying with our rules and forgoing sales to suffer in silence while their competitors continue to book revenue. We want them to reach out to us. We will aggressively investigate and, when appropriate, take action.
And if we do take action, there’s something in it for the company that tipped us off. If the tip results in enforcement action, we’ll consider it “exceptional cooperation,” which is a mitigating factor under our settlement guidelines. In other words, the company that tipped us off gets credit in the bank with us if a future enforcement action, even for unrelated conduct, is ever brought against them.
"I’m often asked if these changes are working. The answer is yes – in at least three different ways. First, we’re receiving more VSDs of potentially serious violations than ever before. Second, we’re getting the minor or technical self- disclosures resolved more quickly than ever before. And third, we’re seeing more disclosures about misconduct by others than ever before.
"All of that said, there is still more we can do to further this prioritization effort. That’s why, this evening, I’m publicly announcing four new enhancements to our VSD program. I told our workforce about these enhancements earlier today, through a policy memorandum that we’re also making public on our website. And we’re also launching a newly revamped VSD webpage, which contains further specifics on the policy updates and is designed to help facilitate the submission of disclosures.
"We want to ensure that our policies are designed to drive the prioritization not just of our resources, but of yours too. In other words, we want you spending most of your compliance dollars on preventing (and, if unsuccessful in preventing, then disclosing) the most serious export violations.
"First, for minor or technical violations there is no longer any need to disclose them individually. Instead, we are asking that such violations be bundled together to form a single overarching submission sent to us on a quarterly basis
"Second, companies can now submit an abbreviated “narrative account” for minor or technical infractions. This shorter narrative does not need to include a five-year lookback or the accompanying documentation outlined in our regulations, unless we request it in an individual case. Our updated VSD webpage outlines the specific content required for this new abbreviated narrative account.
Third, seeing as how it’s now 2024, we figured it was about time to enter the 21st century and urge everyone to submit their VSDs by email.
"Fourth and finally, we’ve clarified – and simplified – the process for how we handle requests to take corrective action for unlawfully exported items The way our regulations work, once a party has knowledge that a violation has occurred in connection with the item, they are prohibited from taking further actions, such as transferring, storing, or disposing of the item. In such situations, parties need to request special permission to engage in these otherwise prohibited activities. Today, we’ve made some changes to help expedite these requests.
"We’re focusing our efforts on those export violations that cause the most harm to U.S. national security. We want companies and universities to follow suit. We want you to implement export compliance programs that identify and disclose potentially significant violations, not just minor or technical ones. We want you to tell us when others have committed potentially significant violations so that we can take action and ensure a level playing field. And we want to get illegally exported items back into the legal stream of commerce as quickly as possible to prevent further risks of diversion. We want everyone, both the government and the private sector, focused on prioritizing their enforcement and compliance resources to best protect our national security."
Compared to FCPA cases, penalties for export control violations have been relatively modest. This will change, according to Mr. Axelrod.
“You can expect to see more big-ticket corporate resolutions going forward,” he told the audience.
In a recent post for NYU Law's Compliance & Enforcement blog, Brent Carlson and Michael Huneke compare the disparity between FCPA penalties with those in export control, noting "Tectonic changes are underway though. As export controls and economic sanctions constitute the “new FCPA,” the penalty gap will close quickly."
"The time is now," the authors write, " to take action to get ahead of the new enforcement wave, before it engulfs you, your company, and shareholder value."
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