By: Margaret Jones Hopson

Partner

Jackson Walker L.L.P.

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(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

EAR.

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

violations.

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;

and

F. A description of any mitigating circumstances.

1 15 C.F.R. §§ 730-774

2 Id. at § 764.5

-2-

8137337v.1 099908/00001

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.