Departments of Justice, Commerce and Treasury Issue Joint Compliance Note on Voluntary Self-Disclosure of Potential Violations

This week a triumvirate comprising the US Department of Commerce, Department of the Treasury, and Department of Justice (DOJ) issued this so-called “Tri-Seal” compliance note to assist businesses in ensuring they disclose potential violations of sanctions and export controls appropriately and in a timely manner. The note describes voluntary self-disclosure (VSD) policies that apply to U.S. sanctions, export controls, and other national security laws as well as recent updates that have been made to some of these policies. As the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is the most relevant to energy and commodity firms we provide brief summary of OFAC’s rules and expectations below:

• OFAC encourages voluntary disclosures of suspected sanctions violations;
• OFAC considers VSDs to be a mitigating factor when determining appropriate enforcement action to take in response to a particular case;
• In cases where a civil monetary penalty is warranted, a qualifying VSD can result in a 50 percent reduction in the base amount of a proposed civil penalty;
• In reviewing the conduct in a VSD, they consider the totality of the circumstances surrounding the apparent violation, including the existence, nature, and adequacy of the subject’s compliance programme at the time of the violation and the corrective actions taken in response to an apparent violation;
• Qualifying VSDs must occur prior to, or simultaneous with, the discovery by OFAC (or another agency) of the violation or a substantially similar violation;
• Whether a notification of a VSD to another agency will qualify as a VSD to OFAC is determined on a case-by-case basis;
• Disclosures to OFAC will not qualify as VSDs under some circumstances, including where:

1. A third party is required to, and does indeed, notify OFAC of the apparent violation because a transaction was blocked/rejected by that third party (regardless of when OFAC receives such notice or whether the subject person was aware of the third party’s disclosure);
2. The disclosure includes false or misleading information;
3. The disclosure is not self-initiated including when the disclosure derives from a suggestion of a federal or state agency or official, or when the subject is an entity and the disclosure is made by an individual without the authorization of the entity’s senior management (presumably this considered as whistleblowing);
4. Any responses to an administrative subpoena or other inquiry; or
5. The disclosure that is materially incomplete.

• OFAC requires VSDs to include a sufficiently detailed report that provides a complete understanding of the circumstances of the violation (this should be provided immediately or within a reasonable time frame);
• The persons disclosing violations should be responsive to any follow-up inquiries from OFAC.

RegTrail Insights

Firms that believe they might be exposed through their activities to the DOJ National Security Division or the Department of Commerce Bureau of Industry and Security’s (BIS) Export Administration Regulations (EAR), or any related orders, licenses, or authorizations will find benefit in reading this compact document in full.