Torres Law, PLLC is an international trade and national security law firm that assists clients with the import and export of goods, technology, and services. The firm has extensive experience with the various regimes and agencies governing trade such as the Directorate of Defense Trade Controls, the Bureau of Industry and Security, the Office of Foreign Assets Control, the U.S. Customs and Border Protection and others. Our group provides clients with full support for all trade law issues, including U.S. export control and sanctions laws, industrial security, the Foreign Corrupt Practices Act, anti-boycott laws, and customs law.
This Voluntary Self-Disclosure Handbook has been prepared as an industry reference only, and is not official direction or instruction, nor does it constitute legal advice. It is not intended to be used in place of any U.S. Government statute, regulation, authorization, or guidance. This Voluntary Self-Disclosure Handbook is intended to provide a reference as of the date of publication and is not meant to be a comprehensive review of the pros and cons of filing disclosures. Please ensure that you consider any updates to U.S. Government statutes, regulations, or guidance that may have occurred since publication when you use this Torres Law Voluntary Self-Disclosure Handbook.
A. What are VSDs?
A voluntary self-disclosure ("VSD") (also known as voluntary disclosures or prior disclosures depending on the governing agency) is a narrative account with supporting documentation that describes violations or suspected violations of import or export regulations, and ideally, describes a party's efforts to mitigate the harm caused by such violations or efforts to remediate the causes of such violations. Most government agencies permit companies to file an Initial Notification of the VSD before submitting the full VSD. In general, the Initial Notification serves as a notice to the regulatory and enforcement agencies of the general nature and extent of the potential violations.
B. Why file a VSD?
Filing a VSD can have a number of benefits with respect to reducing the likelihood and severity of monetary fines and administrative actions by regulators in the event of the discovery of violations as well as establish a positive relationship with such regulators in the event of any future regulatory issues. A VSD can:
- Reduce the likelihood of future violations.
- Help to avoid directed disclosures (disclosures required by a regulator, which limit ability to mitigate penalties for any violations).
- Reduce reputational harm.
- Act as a mitigating factor when determining the amount and severity of penalties for violations.
C. What are the risks of a VSD?
Filing a VSD does entail some risk to the filer. Consult with qualified legal counsel prior to deciding to file a VSD to effectively assess these risks, which can include, but are not limited to:
- A VSD is an admission of potentially improper conduct.
- Criminal violations may be referred to the U.S. Department of Justice ("DOJ") for prosecution.
- A VSD creates knowledge of violations, which could create liability should "knowing" violations occur after disclosure.
- A VSD can lead to loss of confidentiality.
- Regulatory authorities may require waiver of certain defenses or extension of time period (tolling) of statute of limitations on violations.
- Additional questions may follow, as well as increased regulatory scrutiny.
- Violations may involve other laws (beyond those related to international trade compliance).
II. KEY STEPS PRIOR TO FILING A VSD
A. Stop Any Potential Ongoing Violations
To the extent that specific potential violations have been identified (for example, items exported without a required export license), it is critical that steps are taken to stop similar additional violations. This may require institution of "stop-ship" orders, changes to physical or electronic access to technical data/technology, application to regulators for licenses or agreements, or other remedial measures designed to stop ongoing violations and prevent, in the near term, future violations.
B. Start Further Investigation Promptly
As described below, it is also critical that upon filing an initial disclosure, further investigation of the nature, scope, cause, and impact of the potential or apparent violations is undertaken promptly and thoroughly documented. A thorough investigation plan should be prepared by the investigator and key witnesses or potential interviewees identified.
C. Consult Counsel to Establish Legal Privilege Regarding Any Investigation
It is strongly recommended that the investigation of potential or apparent violations as part of a disclosure be conducted by, or at the direction of, an attorney, in order to preserve attorney-client privilege regarding advice and materials produced as a result of the investigation.
D. Issue Legal Holds
A legal hold (or litigation hold) must occur to preserve data potentially relevant to anticipated, pending, or active litigations, investigations, or other legal disputes. Issuing a legal hold is an essential early step in the discovery or investigation process, and crucial to showing defensible and good faith efforts to preserve evidence. The goal of preserving information is to ensure that the information's evidentiary integrity is maintained for potential use in the case.
E. Upjohn Rights
In an internal investigation an attorney acts on behalf of the corporation, which may have differing interests than the directors, officers, and employees through whom the corporation functions. One of the most important steps in reducing risk of a conflict is the Upjohn warning, which involves corporate counsel advising individual employees that counsel represents only the corporation and not the individual. Providing the Upjohn warning can avoid hazards for the corporation, the individuals, and counsel.
III. UNDERSTAND WHICH GOVERNMENT REGULATORS MAY BE INVOLVED IN A VSD
Various U.S. government agencies have different regulations, policies, and official guidance regarding the ability of parties to file VSDs, how such VSDs are assessed, and the impact such VSDs may have on enforcement actions.
For purposes of this handbook, we will focus on the U.S. Department of Justice; the U.S. Department of Commerce, Bureau of Industry and Security ("BIS"); the U.S. Census Bureau ("Census"); the U.S. Department of State, Directorate of Defense Trade Controls ("DDTC"); and the U.S. Department of the Treasury, Office of Foreign Assets Control ("OFAC").
Keep in mind that other U.S. government agencies (and foreign agencies) involved in regulating other aspects of international trade may also have jurisdiction over the activities being disclosed – for example, the Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF") or the Food and Drug Administration ("FDA")–and the risks of disclosure should also be assessed in this light as well.
It is common to file multiple disclosures amongst various agencies simultaneously to ensure that one agency does not share evidence of a potential or apparent violation with another agency before the disclosing party does (in which case a party may lose "credit" for the disclosure being "voluntary").
It should also be noted that DOJ has created a parallel voluntary disclosure program permitting submission of voluntary self-disclosures directly to the DOJ for potential criminal violations of the export control and sanction laws. DOJ has indicated that such disclosure may "significantly" reduce criminal penalties, including "a non-prosecution agreement ("NPA"), a reduced period of supervised compliance, a reduced fine and forfeiture, and no requirement for a monitor." As described below, companies typically submit initial disclosures to the regulatory agencies followed up by final disclosures at a later date, and the agencies have the discretion to refer criminal matters to DOJ during this period. In this case, companies may have to consider early in their investigation whether the circumstances demonstrate a potential benefit to filing a VSD with DOJ concurrently with self-disclosures with the other regulatory agencies.