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|What to do If You Discover You May Have Violated The EAR|
|Wednesday, July 18 2012 11:13|
By: Margaret Jones Hopson
Jackson Walker L.L.P.
(Third of a 3 Part Series)
Introduction: In the first installment of this series, we discussed that U.S. export controls, specifically
those found in the Export Administration Regulations1 (EAR), apply not only to companies dealing
internationally in military, high tech or otherwise sensitive goods and technology, but to activities that are
wholly domestic and not readily recognized as international, as well. We outlined ways in which the EAR
may be violated, and discussed that the consequences for violating the EAR are criminal and
administrative penalties of up to $250,000 or twice the value of the transaction and a fine of up to one
million dollars and/or up to 20 years in prison, respectively. For both civil and criminal violations, a denial
of export privileges may result. In the second installment, we discussed the nine elements of an effective
export compliance program.
In this installment, we will discuss what to do in the event you discover that you may have violated the
Voluntary Self-Disclosures: The Bureau of Industry & Security (BIS), the agency that enforces and
administers the EAR, encourages the submission of Voluntary Self Disclosures (VSD)2 by parties who
believe they may have violated the EAR. The BIS views VSDs as a sign of a party’s sincere intent to
comply with U.S. export control requirements, and may provide BIS valuable information on other ongoing
In order for a VSD to be effective, the following caveats must be considered:
1. A VSD must be received by BIS for review prior to the time that BIS enforcement, or any other
agency of the United States Government, has learned the same or substantially similar information from
another source and has commenced an investigation or inquiry in connection with that information; and
2. A firm will not be deemed to have made a disclosure under this section unless the individual
making the disclosure did so with the full knowledge and authorization of the firm’s senior management.
The regulations provide that the following information must be included in each VSD:
A. The kind of violation involved;
B. An explanation of when and how the violations occurred;
C. The complete identities and addresses of all individuals and organizations involved in the
activities giving rise to the violations;
D. License numbers;
E. The description, quantity, value and ECCN or other classification of the items involved;
F. A description of any mitigating circumstances.
1 15 C.F.R. §§ 730-774
2 Id. at § 764.5
In addition, the following supporting documentation should be included: licensing documents; shipping
documents; other documents such as letters, facsimiles, telexes and other evidence of written or oral
communications, internal memoranda, purchase orders, invoices, letters of credit and brochures. Finally,
a certification must be submitted stating that all of the representations made in connection with the
voluntary self-disclosure are true and correct.
Mitigating and Aggravating Factors: A VSD is a mitigating factor in determining what administrative
sanctions, if any, will be sought by the BIS. In determining what weight to give the VSD, the BIS will take
into account all mitigating and aggravating factors. General factors are the: destination of the export;
degree of willfulness involved in violation(s); number of violations; and whether criminal charges are in
order. Some factors are given “great weight” and are treated as considerably more significant than
factors that are not so designated.
Mitigating factors include:
– Voluntary Self-Disclosure of violations (great weight);
– Effective export compliance program (great weight);
– Cooperation with BIS investigation;
– Assistance to other BIS investigations;
– No previous record of violations.
Aggravating factors include:
– Deliberate effort to hide or conceal violations (great weight);
– Serious disregard for export compliance responsibilities (great weight);
– Items is significant due to its sensitivity or reason for control (great weight);
– History of violations;
– High quantity or value of export.
To Disclose or Not: While BIS heartily encourages VSD and most VSDs result in no penalty, caution
should be exercised in deciding whether to submit a VSD. Not only the facts you are disclosing, but your
whole operation will be subject to scrutiny. If you discover violations, you should consult with counsel
before making the final decision to file a VSD. Make sure you are clear whether an inadvertent mistake
was made or the violations were willful and knowing. Other factors to consider in determining whether to
file a VDS are: whether you have adequate internal controls such that your standard operating
procedures sufficient; how you discovered the violation; what you did once you discovered the violations,
including any remedial action that would prevent the same lapse from occurring; and what was done to
the personnel who caused the violation.
Conclusion: The far reaching nature of the EAR can be overwhelming. However, an effective export
compliance program can help the exporter avoid violations. In the event an exporter discovers a potential
violation, it should fully investigate the circumstances, not only of that violation, but of the company’s
overall export activity, in deciding whether to file a VSD. The decision whether to self disclose and the
VSD, itself, should be discussed with legal counsel.