The U.S. Department of State, Directorate of Defense Trade Controls (DDTC), published a final rule on December 13, 2007, in the Federal Register modifying the requirements of its voluntary disclosure regulations at 22 C.F.R. Part 127. See 72 Fed. Reg. 70,777. The changes, effective immediately, largely refl ect a formalization of DDTC’s current practices.
The most important changes are in 22 C.F.R. § 127.12(c)(1). Previously, Section 127.12(c)(1) stated that any person or firm wanting to make a voluntary disclosure should file an initial notification with DDTC advising the agency of the circumstances of a suspected violation “immediately after violation(s) are discovered and then conduct a thorough review of all export-related transactions where violation(s) are suspected.” 22 C.F.R. § 127.12(c)(1). In the fi nal rule, DDTC has added four subsections, stating that (i) if the notification is not complete, a complete disclosure must be filed within 60 calendar days; (ii) if a full disclosure cannot be filed within 60 days, the exporter may fi le a request for an extension specifying the required information that cannot be timely provided and why; (iii) before providing an extension, DDTC may require certification regarding when a full disclosure will be available; and, (iv) a final report not filed within a “reasonable time” may result in DDTC not considering the disclosure as a mitigating factor and possibly directing the exporter to furnish all relevant information surrounding the disclosure, in essence changing a voluntary disclosure to a directed disclosure.
Although DDTC states in its summary of the new rule that these changes “involve only minor changes to the current voluntary disclosure process,” they appear to be part of a pattern of actions by DDTC to pressure companies to disclose violations earlier and more often. The most recent change modified the language of Section 127.12(c)(1) from a requirement that initial notifi cations be fi led “as soon as possible” after a violation is discovered or suspected to a requirement that initial notifications be filed “immediately” after a violation is discovered or suspected.
Other changes under this rule include requiring the identification of parties involved in the violations, clarifi cation that corrective actions and compliance improvements must be directly in response to the violations outlined in the disclosure and a requirment under certain circumstances that the written certifi cation accompaning the disclosure must be signed by a senior officer of the company.
To a large extent, these continuing changes reflect an attempt by DDTC to limit the benefits of filing a voluntary disclosure to those companies that truly make good-faith efforts to identify and disclose violations in a timely manner. Simply put, any company that approaches compliance from a “reactive” stance will be far less likely to be able to comply with the increasingly tightened voluntary disclosure provisions, because it will simply be unable “immediately” to identify real (as opposed to suspected) violations, investigate the underlying issues and come to a final determination within the ever-shorter time frames allowed by DDTC.
Only those companies that maintain robust and effective compliance programs will able to comply with these requirements and obtain the intended benefits of the disclosure program. Ultimately, this should help to accomplish DDTC’s goal of compliance with the regulations.