Voluntary Self-Disclosures – How to prepare an acceptable disclosure – Part I:

Those few words, Voluntary Self-Disclosure, rate very high among the worst words a company’s legal and trade compliance department can hear. Trust me, I know from having worked with major corporations for over 25 years. There was always a bad feeling in my stomach whenever I heard someone say, “We need to file a VSD”, as I knew that: a) we had, or likely had, committed some sort of infraction, and b) the time to prepare and investigate any infraction was going to take resources away from an already strained department, not to mention the impact of outside legal fees.

One of the main things I learned whenever such situations arose, was that when preparing and filing a disclosure, the Federal agencies, whether it be the Directorate of Defense Trade Controls (DDTC), Bureau of Industry and Security (BIS), Customs and Border Protection (CBP) or Bureau of Census (Census), prefer to have such disclosures in a format they recognize. Too many times I have seen disclosures prepared that read more like a short novel, rather than being concise (yet, thorough), when they instead should be written in a format that allows the agencies involved to understand the circumstances that triggered the violation(s), and the subsequent corrective actions taken to mitigate and address potential company errors in the future.

This article is not meant to address every area of a disclosure, but to provide an “outline”, based on my personal experience, when drafting and submitting disclosures one must put an immediate stop to it; doing otherwise, will only compound an already bad situation and lead to possible on-going violations. Once this is done, you need to begin collecting as many facts and as much evidence as you can, not only regarding what led up to the violations, but also, how, when, and what is being done to prevent them from recurring in the future. At this point, you should have enough information to file your “Initial Voluntary Disclosure” for export-related matters or “Initial Prior Disclosure” for a customs matter.

To begin, you should access the specific regulations for the agency involved and study the requirements for submission of an acceptable disclosure. You need to ensure that any specific requirements that are laid out there are addressed. Next, I recommend providing a brief narrative on what your company is; for example, a global manufacturer of electronic components for civil and military industrial generators. This does not have to be too lengthy, but instead sufficient enough to explain the company and any subsidiary that may have been involved in the infraction(s). Also, if the violations occurred via one of your subsidiaries, it is important to state this, as well as if any direct or indirect evidence exists that the parent company was either, a) involved in the infraction(s) and b) aware of the infraction(s). The next step, is to list the “potential violations”. I’ve italicized these 2 words, because, in my professional opinion, you should never state, in an initial voluntary or prior disclosure, a factual finding that violations did occur; this should be left to the Perfected Disclosure, once all evidence has been collected, analyzed, and confirmed. Remember, you are merely filing an initial disclosure, in order to mitigate potential civil penalties, before the government is made aware, or discovers the violations themselves.

Listing these potential violations should be done in a bullet-point format, and should be concise and to the point; for example, the listing of unauthorized exports of defense articles or incorrect Electronic Export Information filings for export shipments. Of course, you need to include the proper legal language outlining that the company is not aware of any investigation by any U.S. federal agency at this time, etc., so that the agency, or agencies, are aware that the company has uncovered these potential violations, and not the U.S. government. You then want to ensure that a clause concerning “Oral Presentation” is reserved, in the event you need to present to the federal government your findings, evidence, and arguments.

Most importantly, you want to be sure to include a paragraph requesting confidentiality and exemption of the disclosure under the Freedom of Information Act. You then, include the name and address of the person making the disclosure, as well as the central point of contact (POC). If there is a law firm involved, I usually recommend they be the primary POC. Finally, you would conclude with a paragraph stating that based on corrective measures in process, the nature of the potential violations (remember, you are still in the initial disclosure, so state “potential”), and the company’s commitment to compliance (if in the case of Census, BIS and DDTC, this would be “export compliance”; in the case of CBP, this would be “import compliance”).

For export disclosures, you should include a “Certification”, in which the person signing the disclosure represents that all information is true and correct, in accordance with the appropriate legal citation. The disclosure should be signed by an executive or officer of the company or the General Counsel.

Thus, in summary, you would have the following key areas in your initial disclosure:

  1. Brief background on your company and summary of the potential violations
  2. Bullet format listing the potential violations (remember, this is an initial disclosure, so you can expand on this section when you perfect the final disclosure)
  3. Reserve your right to an Oral Presentation
  4. Request for Confidentiality
  5. Name/Address/POC of person making disclosure (if a law firm is involved, include them, in addition to the company’s POC information)
  6. Conclusion
  7. Certification if required (i.e. DDTC and BIS require certification)

Watch for our upcoming Part 2 of this article, which will address “Perfecting your disclosure for acceptance by federal agencies.”