This third post in our parallel proceedings series discusses how to reconcile the conflicting requirements of making voluntary self-disclosures (VSDs) to multiple agencies. We listed the relevant agencies in our first post, all of whom may be interested in a VSD, depending on the potential violations. In our second post, we discussed how to structure an investigation that involves those agencies. While none of these agencies imposes an absolute requirement to voluntarily disclose a violation (with limited exceptions where disclosure is required), they all offer significant benefits for doing so.
Where more than one agency is involved, disclosure of violations to each of the relevant agencies should be done simultaneously, including the Department of Justice (DOJ) if there is or appears to be potential willfulness or intent. When making the decision to disclose, the company should also consider any potential violations in related subject areas (i.e., anti-money laundering, customs, or anti-bribery and corruption laws).
Each of the relevant enforcement agencies generally gives maximum mitigation credit for timely, voluntary, and fulsome self-disclosure (which can be as high as 100% of the maximum penalty in certain cases). A company can jeopardize that credit with a particular agency, however, if the VSD does not conform to specific regulatory requirements; is deemed to be late; is found to be involuntary because an investigation is already open or could have been opened, even by another agency; or is not complete. Moreover, just because one agency grants VSD credit does not mean that the other agencies will extend credit as each agency evaluates the VSD report independently in accordance with its own regulations.
For example, the Office of Foreign Assets Control’s (OFAC) general framework for enforcement will not consider as voluntary any information that would otherwise be available to OFAC or is contained in a report that is required of another participant in a transaction (such as an intermediary bank in a funds transfer), regardless of whether or when the report is ultimately filed.
In contrast, the Department of Commerce Bureau of Industry & Security (BIS) will not consider a disclosure to be voluntary if any other government agency obtains knowledge of the “same or substantially similar information from another source and has commenced an investigation or inquiry in connection with that information.” Similarly, the Directorate of Defense Trade Controls (DDTC) will not allow credit unless the disclosure is made before any government agency obtains knowledge of the “same or substantially similar information from another source and commences an investigation or inquiry that involves that information.” Unlike OFAC and BIS, however, DDTC will consider the failure to submit a VSD to be an aggravating factor when determining the disposition of a proceeding.
DOJ issued updated guidance on VSDs in 2019, which required that to be considered voluntary, the disclosure must be made “[p]rior to imminent threat of disclosure or government investigation,” “[w]ithin a reasonably prompt time after becoming aware of the offense,” and include “all relevant facts known to it at the time of the disclosure, including as to any individuals substantially involved in or responsible for the misconduct at issue.”
Fokker Services B.V. voluntarily self-disclosed its sales of aircraft parts to customers in Iran, Sudan, and Burma (Myanmar) to OFAC and BIS. At the time, the agencies’ practice was not to refer voluntarily disclosed violations for criminal prosecution due to the potential chilling effect on self-disclosures. However, BIS denied that the case qualified for VSD credit, stating that it had opened an investigation of Fokker, “formally or informally,” (an assertion that DOJ found to be unsupported), and referred the case to DOJ. Both DOJ and OFAC disagreed with BIS’ position regarding VSD credit, awarding full VSD mitigation credit following a four-year investigation in which Fokker cooperated fully with the US agencies. Ultimately, the global settlement entailed a $10.5 million joint civil penalty to OFAC and BIS, and a $10.5 million criminal forfeiture.
To VSD or Not to VSD: Usually the Choice is Yours, But Not Always
Under some regulatory regimes, self-disclosure of potential economic sanctions or export controls violations may be required, including, but not limited to: (i) responding to government subpoenas or information requests, where a full response would require disclosing the violation; (ii) applying for licenses and permits, where approval requires commitments to compliance; (iii) the terms of a prior consent agreement or monitorship; or (iv) specific regulations, for example, the International Traffic in Arms Regulations (ITAR) require immediate notification to DDTC where the underlying conduct involves a potential violation of the ITAR and a proscribed country is involved.
Whether the disclosure is required or voluntary, timing and coordination among the relevant agencies is crucial. Because one cannot assume that the agencies are communicating with one another, serving as the conduit between the agencies can, to a certain degree, guide the discussion and internal investigation, provide valuable insights, and facilitate resolution. Interagency communication is the topic of our next post, Part 4 of this series.