Voluntary Self Disclosure (VSD) Guidelines

Voluntary Self Disclosure (VSD)
Photo by Pavel Danilyuk

A Voluntary Self-Disclosure (VSD) is conducted when an organization recognizes that violations or suspected violations of export regulations of the United States have occurred.  The three major sets of U.S. Regulations are the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), and the Office of Foreign Assets Control (OFAC).  

International Traffic in Arms Regulations

The ITAR is regulated by the Directorate of Defense Trade Controls or DDTC under the authority of the Department of State.  ITAR controlled items are defense products and defense services enumerated in the United States Munitions List (USML).  The DDTC strongly encourages submitting a voluntary self-disclosure of any potential violations of the Arms Export Control Act.  Voluntary Disclosures may be viewed as a mitigating factor when determining administrative penalties, if any, that should be imposed.

Export Administration Regulations

The EAR is administered by the Bureau of Industry and Security (BIS) under the direction of the Department of Commerce.  Items controlled under the EAR are enumerated in the Commerce Control List (CCL). 

The BIS considers VSDs as an indicator of an organization’s intent to comply with U.S. export law.  The BIS carefully reviews VSDs to determine if violations have occurred.  They then determine the appropriate corrective action when violations of the export regulations have taken place.

Office of Foreign Assets Control

The OFAC is administered by the Department of Treasury.  Its responsibilities include administering and enforcing economic and trade sanctions to further U.S. security and foreign policy objectives.  It is the responsibility of all organizations to screen any party involved with items to be exported.  As with the other two agencies Voluntary Self Disclosure is a factor in the consideration of mitigated penalties.

Recent Guidelines from Export Enforcement

In a recent memorandum from Matthew Axelrod, Assistant Secretary for Export Enforcement, the importance of proper handling of VSDs was stressed to export enforcement agents.  The Assistant Secretary heads enforcement activities for the BIS and OFAC.

Mr. Axelrod stressed the importance of effective Export Compliance Programs for organizations involved in export activities.  These programs must have processes in place to identify, prevent, and mitigate export regulation violations.  These programs should include mechanisms for conducting voluntary disclosures of an organization’s own potential violations and the potential violations of other organizations.

To speed up the handling of VSDs, involved governmental agencies have incorporated a dual-track system to handle EAR infractions.  The majority of cases reported involve minor and technical infractions and these are now fast-tracked to be resolved within sixty days of final submission.  For minor infractions, organizations can now combine multiple incidents into a single submission.

The memorandum went on to stress that both organizations and enforcement agencies should understand that timely VSDs that include full cooperation with export enforcement should result in mitigation of penalties for non-egregious cases.  Conversely, when VSDs are not filed, while this does not necessarily constitute concealment, increased penalties may result.  Factors for consideration of penalties include, adequacy of the export compliance program, proposed steps to prevent reoccurrence.

The memorandum stressed the importance of incentivizing disclosures of other organizations stating that it should not be expected that exporters suffer in silence in forgoing sales while competitors may be taking advantage by conducting business in violation of regulations.  To simplify this reporting the agency now offers a Confidential Reporting Form.  If the disclosed violations include both export and sanctions violations the Financial Crimes Enforcement Network (FinCEN) is authorized to provide whistleblowers with substantial financial awards.

CVG Strategy Export Compliance Expertise

The DDTC, the BIS, and the OFAC, along with international partners have greatly increased their activities in the generation and enforcement of regulations.  This increases the likelihood of a non-egregious violation occurring even in a company with a well-run export compliance program.  Understanding and documenting how to execute a Voluntary Self Disclosure (VSD) is therefore essential.

If you are part of a large corporation or a small company with a part-time compliance person, CVG Strategy has the compliance and training programs to help you meet International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) rules and requirements.  As the BIS place controls on a growing number of technologies it becomes increasing difficult for smaller businesses to stay abreast of regulatory developments.  Because of this, we provide Export Compliance Management Programs (ECMP) for businesses of all sizes.  

CVG Strategy, LLC is recognized the world over as the premier provider of Export Compliance Consulting and Export Compliance Programs for businesses involved in export in the U.S. and Canada.  We also provide the essential training that ensures that your team is up to date on governmental regulations, including the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Canadian Controlled Goods Program, and Office of Foreign Asset Controls (OFAC) and other regulatory agencies and more.

Kevin Gholston

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