Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Who says a voluntary self-disclosure is enough protection?

David W. Mills, Assistant Secretary for Export Enforcement, Bureau of Industry and Security (BIS), Department of Commerce, and his Special Advisor, Robert Rarog, spoke to the Export Controls and Economic Sanctions Committee, International Law Section, American Bar Association, on April 14, 2011. Secretary Mills identified the focus of BIS as being efficiency, education and enforcement.

As we are hearing from so many other government officials, the focus regarding efficiency is to speed up case processing. When it comes to education, BIS is seeking outreach to exporters (which meshes nicely with the President’s National Export Initiative). It was his comments about enforcement which caused the most reaction. According to Mr. Mills, BIS will be seeking the $250,000 maximum penalty or twice the value of the transaction, whichever is greater, whenever possible. Perhaps of more concern to some were Mr. Mills’ comments that BIS agents have been directed to focus on the criminal prosecution of individuals. To experienced exporters, this should not come as a surprise. BIS’ Office of Export Enforcement (OEE) has always been a law enforcement agency and unlike the import laws which tend to focus first on the civil penalty and only on criminal consequences as a secondary concern, except in notable situations, enforcement of export laws has always been criminal first and civil second.

When you consider the Obama Administration has severe limitations on what it can do to influence Iran, which remains a major concern, it is not surprising that stopping illegal exports to that country is a major priority. As such, if there are both OFAC and BIS violations, a voluntary self-disclosure needs to be filed with both agencies simultaneously. Given the limited resources of OFAC, it is to be expected OEE will conduct the investigation, but both agencies may take enforcement action, albeit under different statutes, depending on the findings. However, OEE is not alone. It can and has called on FBI, Justice, ICE, OFAC, State and Defense, along with its BIS colleagues, depending on what the case warrants. Given existing U.S. policy, it is not surprising to read about criminal cases brought involving Iran, China and even Cuba, whether involving weapons of mass destruction or military goods and related technical data. However, just because the government is focused on countries that give it the greatest challenge does not mean violations related to some of our closest neighbors have gone unchecked, e.g., Mexico, Canada and Israel.

So, if you discover violations, you should consult with counsel before making the final decision to file voluntary self-disclosures, but make sure you are clear whether an inadvertent mistake was made or the violations were willful and knowing. Bear in mind the U.S. Sentencing Guidelines consider a number of factors which it comes to indicting companies, the relevant one here is do you have adequate internal controls? In other words, are your standard operating procedures sufficient, how did you discover the violation, what did you do once violations were discovered, what remedial action was taken so the same lapses do happen again, and how were the personnel treated who caused the violation. In just the right case, i.e., if the willful and knowing behavior was sufficiently serious, it may be necessary to fire the individuals involved, even if they are the owners of the company!

It has become a common philosophy of enforcement agencies to refuse to allow guilty individuals to hide behind the shell of the company for which they are working. So in the end, the surprise of Mr. Mills’ comment was that he was making clear even these basic enforcement tools are now being brought to export enforcement.

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