Publication of Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations

The Office of Foreign Assets Control (OFAC) has published a press statement to inform that the Department of Commerce, Department of the Treasury, and the Department of Justice have issued a so-called Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations in which they inform of their policies of voluntary self-disclosure (VSD) that pertain to U.S. sanctions, export controls, and other regulations related to national security. Additionally, the three regulators point out recent revisions that have been implemented to specific aspects of these policies.
(1) The Voluntary Self-Disclosure Policy of the National Security Division (NSD) of the Department of Justice:
The NSD acknowledges that unlawful exports of sensitive commodities, technologies, and services, as well as transactions with sanctioned individuals and entities, pose serious threats to national security. Therefore, on March 1, 2023, the NSD issued an updated VSD policy aimed at addressing these threats. The updated policy offers incentives for companies to come forward promptly when they identify potential criminal violations of U.S. sanctions and export control laws by providing reduced liability in cases of voluntary self-disclosure, full cooperation, and prompt remedial action. In such cases, NSD will not seek a guilty plea, and there’s a presumption of receiving a non-prosecution agreement and not paying fines. However, the presumption of a non-prosecution agreement doesn’t apply when there are aggravating factors, including serious criminal misconduct within the company, involvement of upper management, repeated violations of national security laws, sensitive exports, and significant profits from the misconduct.
(2) The Guidance for Voluntary Self-Disclosures by the Bureau of Industry and Security (BIS) of the Department of Commerce:
This guidance encourages companies and entities to disclose potential violations of the Export Administration Regulations (EAR) and offers benefits for those who make such disclosures. In fact, timely and comprehensive self-disclosures, along with full cooperation, can lead to a substantial reduction in applicable civil penalties according to the BIS settlement guidelines. Last year, the Office of Export Enforcement (OEE) implemented a dual-track system for handling VSDs. Minor or technical infractions are resolved through a fast-track process, resulting in a warning or no-action letter within 60 days of submission. More serious violations undergo a deeper review to determine if enforcement action is warranted. The OEE notes that companies cannot avoid the decision of whether to self-disclose by choosing not to conduct internal investigations. The quality of a company’s compliance program, including its ability to identify and rectify compliance gaps, is considered a factor under the settlement guidelines.
(3) The Voluntary Self-Disclosure Policy of the Office Of Foreign Assets Control of the Department of the Treasury:
The purpose of OFAC’s VSD policy is to encourage individuals and entities to voluntarily disclose any apparent violations of sanctions regulations. Such disclosures are considered as a mitigating factor when determining the appropriate enforcement action in response to the violation. In fact, a „qualifying VSD“ could result in a 50 percent reduction in the proposed civil penalty. A „qualifying VSD“ must occur before or simultaneously with the discovery of the violation by OFAC or another government agency. Additionally, OFAC expects that VSDs include a sufficiently detailed report that provides a complete understanding of the circumstances surrounding the apparent violation(s). Persons disclosing violations should be responsive to any follow-up inquiries from OFAC.
There are some non-qualifying situations for VSDs, including
– when a third party notifies OFAC of the violation because the transaction was blocked or rejected,
– if the disclosure includes false information,
– if the disclosure is not self-initiated, or
– if the disclosure is materially incomplete.
Finally, when considering adequate enforcement action, OFAC evaluates the totality of circumstances surrounding the apparent violation, including the nature of the violation, the adequacy of an entity’s compliance program, and corrective actions taken by the firm in response to the violation.