The vast majority of cases brought to the government’s attention through VSDs result in the issuance of warning letters. Fewer than 1% of VSDs submitted result in more than a warning letter or no action letter. These results differ drastically from the outcomes of investigations the government initiates. Depending on the facts, exporters have a significantly higher chance of facing civil penalties, suspension of export privileges, or even criminal prosecution from a government initiated investigation.
The Office of Export Enforcement
(OEE) generally issues warning letters in cases involving inadvertent violations and minor or isolated compliance deficiencies, absent the presence of aggravating factors. BIS extends VSD filers great weight mitigation for making the disclosure and additional mitigation if the filers have an export management and compliance system in place that results in voluntary self-disclosures.
Based on these parameters, it is in a filer’s best interest to file a VSD as soon as a violation is identified:
- The filer reaps the mitigating benefits of as much as 50% on any potential civil fine.
- The filer demonstrates their willingness to be cooperative and transparent.
- The filer will have an opportunity to develop relationships inside BIS, i.e. the appropriate licensing officer or export compliance contacts, for future assistance.
From a practical standpoint, the following steps can help resolve the VSD investigation more quickly and make the process less ominous for the filer:
1) Do not equivocate. If you committed a violation, say so. One of the purposes of filing the VSD is to clean house and make a fresh start. You may submit a VSD if you think a violation occurred, but you should not submit a VSD anticipating you will receive a government blessing on a transaction or set of transactions. Seeking this sort of review is a waste of resources since the government does not have the mechanism to process such requests. In addition, the investigating agent may perceive this as a “work around” to circumvent the normal licensing process.
2) Provide specific information detailing how the violation occurred.
b) Provide confirmation that management/ownership of the violating company supports the filing of the VSD.
c) Detail the company’s investigative steps including, but not limited to tangible evidence or sources for the assertions made in the VSD.
d) Specify the location where the violation occurred. OEE’s investigative standard operating procedures dictates that the OEE office where the violation occurred will investigate the VSD. For example, if the company is headquartered in New York City, but the violation occurred at the distribution center in Indianapolis, the Chicago field office will investigate the matter. If a law firm files on behalf of a client, include the location of the client’s office where the violation occurred.
e) Provide a chart listing the violations, applicable ECCNs, and value of the violating shipments, when multiple violations or different groups of violations are involved.
f) List the names of the people who were involved in the violation.
3) Conduct a complete audit of your exporting activity and file an initial VSD as soon as you discover a violation. This process puts the government on notice of your findings. Then, perform a complete “scrubbing” of the entire system. You may need outside assistance to conduct the investigation to ensure its completeness. Problems often arise when the government has to come back and question whether or not your look back included the full five years of the statute of limitations to search for issues.
4) Understand that VSDs are also a tool for the OEE agents. VSDs can serve as a pretext to learn more about your company and your company’s customers. If you are in the business of exporting sensitive technology or commodities which the government learns may have reached locations and/or people they should not have reached, the government will want to see that you have proper safeguards in place to prevent such violations from occurring or reoccurring. The government will also want you to know that they have an interest in protecting your commodities/technologies. In addition, the government will work with you and provide guidance to better protect your items.
5) Follow through with a VSD filing after an OEE inquiry results in a violation. If an OEE agent comes to your office to conduct an outreach or meet with your export compliance people and you find a violation as a result of their inquiry, you should still file a report with OEE and perform a complete scrubbing of your export activities. Your admission may not result in the full mitigation benefits of a VSD, but your cooperation and your forthrightness will certainly help you in the process.
6) Provide electronic copies of the VSD and exhibits. The government’s email systems may not be able to handle the volume of exhibits you want to include in your filling but providing the data on electronic media such as a DVD, CD, or thumb drive will make the investigation easier for the investigating agents.
7) Cease the noncompliant behavior and explain the steps you have taken to remediate the violation. Detail the audit steps you have taken; identify the risks, note the qualifications of the team conducting the audit; fire, if appropriate, the person(s) responsible for the violation; update your manual to address new regulations; and/or provide updated training for the individuals involved.
8) Include a waiver request pursuant to section 764.5(f) to authorize action that would otherwise be illegal under section 764.5(e).
For example, if you exported items without the appropriate license, but the license would have been approved as the export was not against government policy, you may request a waiver to support the installation, maintenance, or upgrading of the commodity. If you want to retrieve or destroy the unlicensed export, you will need a waiver. Do not aggravate the existing violation by committing another violation.
While the steps above may seem overwhelming for a company to implement, there are resources available. Your company’s dedication to export compliance validates its commitment to protect sensitive commodities/technologies; demonstrates to the government your understanding of their limited resources; and exhibits your full preparation to meet EAR requirements. Consider engaging an experienced compliance consultant with expertise in U.S. export control requirements
who can assess your current program and help streamline your process.
About the Author
Richard P. Jereski
Richard P. Jereski
is a managing director in the Washington, D.C. office of Guidepost Solutions. Most recently, he was a Senior Special Agent with the U.S. Department of Commerce Office of Export Enforcement where he investigated numerous complex criminal and civil cases related to violations of the International Economic Emergency Powers Act, Foreign Corrupt Practices Act, Office of Foreign Assets Control, and other sanctions. He worked closely with corporate sector stakeholders and representatives on criminal and civil issues pertinent to their business and served as a project manager for the voluntary disclosure program that included revamping the process for handling cases and developing procedures for maintaining the consistent management of such matters.