Axelrod Clarifies Self Disclosure Policy

Disclosing results in reduced penalties; not disclosing risks increased penalties. 


Assistant Secretary of Commerce for Export Enforcement Matt Axelrod issued an update to prior guidance on voluntary self-disclosure of possible violations of Export Administration Regulations (EAR) and disclosures about possible EAR violations by others.   

The most significant change is that while self-disclosure continues to be considered a mitigating factor, the policy now clarifies that deliberate non-disclosure of significant violations will be considered an aggravating factor, increasing potential penalties.

Last June, a dual-track system for VSDs was implemented, resolving most minor infractions within 60 days. The policy update focuses on incentivizing submission of VSDs for significant violations.   Since the change, BIS has not seen a material change up or down in the number of VSDs received. 

Today's policy announcement is different from last June's. We specifically want to further incentivize the submission of VSDs when industry or academia uncovers significant possible violations of the EAR.

Note the modifier "significant" before "possible violations of the EAR." We're not focused on increasing the number of minor or technical VSDs we receive. In fact, we want to let VSD filers know that when they identify multiple minor technical violations close in time, they can submit one overarching submission (as opposed to in multiple separate VSDs) to help streamline the process on their end and conserve resources on ours.

 Instead, we're interested in increasing the number of VSDs we receive that disclose significant possible violations - the types of violations that reflect potential national security harm.

To do that, we want everyone to understand the risk calculus. Under the existing BIS settlement guidelines, a VSD that is timely, comprehensive, and involves full cooperation substantially reduces the applicable civil penalty under the base penalty matrix. It may also entitle the filer to additional mitigation, including the possibility of a fully suspended penalty in certain cases.

Companies and universities should carefully consider the consequences of not disclosing significant possible violations. Disclosing results in reduced penalties, while not disclosing risks increased penalties.  So, whatever the situation, a voluntary self-disclosure entitles the reporting entity to a steep and concrete reduction in potential monetary liability.

What we're clarifying, effective immediately, is how we apply the existing guidelines in situations where there is a deliberate non-disclosure of significant possible violations. When someone chooses to file a VSD, they get concrete benefits; when someone affirmatively chooses not to file a VSD, however, we want them to know that they risk incurring concrete costs.

Because this factor is a "General Factor," it is designed to be "either mitigating or aggravating." In the past, we have consistently applied it as a mitigating factor when a VSD has been filed after a potential violation was uncovered.

Going forward, we will also consistently apply this factor as an aggravating factor when a significant possible violation has been uncovered by a party's export compliance program but no VSD  has been submitted.

In other words, when someone submits a VSD, they receive concrete and identifiable benefits under our guidelines. By the same token, however, when someone uncovers a significant possible violation but then affirmatively chooses not to file a VSD, they are running a substantial risk - because if it does come to our attention, the decision not to disclose will be considered an aggravating factor under our existing guidelines.

Encouraging strong compliance programs and compliance with rules also involves incentivizing reporting of potential EAR violations by others. Disclosing another party's possible violation can be considered a mitigating factor in future enforcement actions.

If a potential export control violation also involves sanctions violation, monetary rewards may be available through the Financial Crimes Enforcement Network (FinCEN) whistleblower program.

[copy of memo]


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