In a memorandum published by the Bureau of Industry and Security on April 18, 2023, the Office of Export Enforcement (OEE) announced that it wants to incentivize voluntary self-disclosures (VSDs) after a party uncovers “significant” possible violations of the Export Administration Regulations (EAR), the types of violations that reflect national security harm.

In its announcement today, OEE spelled out the types of benefits that industry or academia gets when deciding to file a VSD, which often include a substantial reduction in potential monetary liability. Today’s announcement comes after OEE’s announcement last year, shifting administrative enforcement policies that impacted the VSD process.

Further, OEE clarified that effective immediately, when someone chooses not to file a VSD, they risk incurring material costs. Focusing on the settlement guidelines, OEE stated that going forward, when a party’s compliance program uncovers a violation but does not submit a VSD, they will consider it an aggravating factor. As such, companies that discover violations but decide not to disclose will run a substantial risk: rather than benefiting from a sharply reduced penalty should they disclose, they instead risk a sharply increased penalty.

OEE also encouraged industry to blow the whistle on parties who may not be following the rules via the confidential reporting form, which OEE promises to investigate aggressively. Importantly, OEE attempts to incentivize whistleblowers by reminding them that one of the three “Mitigating Factors” contained in their enforcement guidelines is “Exceptional Cooperation” with OEE. In evaluating “Exceptional Cooperation,” OEE will assess whether the party has

“previously made substantial voluntary efforts to provide information (such as providing tips that led to enforcement actions against other parties) to federal law enforcement authorities in support of the enforcement of U.S. export control regulations.”

In other words, if you know someone is breaking the law and you inform BIS, you get extra credit should you ever find yourself in trouble for violating the EAR. What’s more, if you are lucky enough, you might even get a monetary reward should your confidential tip also involve economic sanctions violations. The Financial Crimes Enforcement Network (FinCEN) now maintains a robust whistleblower program, which our firm has previously written about HERE.

Whether parties will be effectively persuaded to blow the whistle for credit remains to be seen, but given the success of False Claims Act qui tam actions and their increased use in Customs and export/economic sanctions violations, the government’s approach may provide enough incentives to encourage whistleblowing. As we recently wrote about in our article Trade Violations Under the False Claims Act, the 2022 fiscal year had the second highest number of settlements and judgments for any given year in the False Claims Act history. It is worth noting that False Claims Act cases involving customs violations, U.S. export controls laws, and economic sanctions are becoming more common, so parties should strengthen their compliance programs and weigh the pros and cons of submitting voluntary disclosures to the government.

For more information on the voluntary self-disclosure process with multiple trade and national security agencies, please see our VSD handbook available HERE (last updated November 17, 2022).

If you have any questions regarding this trade alert, internal company investigations, or the disclosure process, feel free to contact us at info@torrestradelaw.com.