United States: Commerce Department To Penalize Failure To Voluntarily Self-Disclose Significant Export Violations

In concert with the Department of Justice's (DOJ) focus on voluntary self-disclosure of corporate misconduct, as well as DOJ's commitment to addressing sanctions evasion, export control violations and similar economic crimes,¹ the Department of Commerce (DOC) recently announced clarifications to its own policies incentivizing affirmative corporate compliance.

On April 18, Matthew S. Axelrod, assistant secretary for export enforcement at DOC's Bureau of Industry and Security, clarified DOC's policies on voluntary self-disclosure of violations of the Export Administration Regulations (EAR) in a memorandum to all export enforcement employees.² The EAR are designed to protect sensitive U.S. technologies and goods, in particular those that may have dual military and commercial application, from misuse by foreign adversaries.

First, Axelrod's memorandum clarifies how the Office of Export Enforcement (OEE) will assess appropriate penalties "in situations where there is a deliberate non-disclosure of significant possible [EAR] violations." Whereas the OEE has consistently considered the strength of an entity's compliance regime, including preventive measures and the submission of the voluntary self-disclosure report, as a mitigating factor in assessing the applicable civil penalty, on a going-forward basis, OEE will similarly consider failure to self-disclose as an aggravating factor should a "significant possible violation [be] uncovered by a party's export compliance program but no [voluntary self-disclosure] [be] submitted." As Axelrod cautions, "companies and universities should carefully weigh any decision not to disclose significant possible violations." The memorandum is careful to note that the emphasis is on "significant" violations and that the DOC is "not focused on increasing the number of minor or technical" voluntary self-disclosures.

In addition, the policy encourages confidential reporting of potential violations by others. Should a tip result in an enforcement action, it may be rewarded as exceptional cooperation with OEE "if a future enforcement action, even for unrelated conduct, is ever brought against the disclosing party." Beyond consideration as a mitigating factor for an entity's own misconduct, there may also be monetary rewards available if such reporting discloses not just a potential export violation but also a potential sanctions violation, assuming the Treasury Department or DOJ takes any qualifying action based on the whistleblower report.

Footnotes

1. Press Release, Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime, Dep't of Justice (Mar. 2, 2023); see also Client Alert, DOJ Reinforces Its Focus on Affirmative Corporate Accountability at the ABA's 38th Annual White Collar Conference, Kramer Levin (Mar. 10, 2023).

2. Voluntary Self-Disclosure, Bureau of Industry and Security, U.S. Dep't of Commerce; Memorandum, Clarifying Our Policy Regarding Voluntary Self-Disclosures and Disclosures Concerning Others, U.S. Dep't of Commerce (Apr. 18, 2023).

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