US Voluntary Self-Disclosure Is Changing: What It Means
The timeline of voluntary self-disclosure updates in the US reads more like a social media feed: Highly active. And the changes in 2023 implemented by US federal agencies are significant - that's why experts are already saying that we are now living in a new era of sanctions enforcement and trade compliance. If your organization operates within the US (or has legal entities), now is a good time to get on top of the changes.
Voluntary Self-Disclosure (VSD): What Is it?
Before we dive into what the changes mean for sanctions compliance, let's quickly remind ourselves what voluntary self-disclosure (VSD) is. All jurisdictions have VSD programs where individuals and organizations can voluntarily disclose to governmental authorities that a potential violation of the law has occurred.
And why do these programs exist?
Society has decided it's positive to allow those who have broken laws to come forward proactively, admit their mistakes, and take steps to rectify their actions. After all, it's something that promotes ethical behavior.
But governments also know that voluntarily disclosing wrongdoing to an authoritative power is not a natural instinct for humans (nor for organizations and businesses).
That's why at the core of all VSD programs are incentives.
And to put this in the context of a corporate crime - such as a sanctions breach - the approach is simple. If a company comes forward proactively with a voluntary self-disclosure, the penalty imposed by regulatory authorities will likely be less severe.
Voluntary self-disclosure is a theme repeatedly appearing in the US Office of Foreign Assets Control's (OFAC) settlement agreements with respondents who breached US sanctions laws. In these agreements, OFAC almost always states how the level of voluntary self-disclosure impacted the penalty (VSDs are a mitigating factor for OFAC).
2023 Shake-Up: The US Is Changing Its Approach to Voluntary Self-Disclosure for Companies
The critical thing you need to know is this: In 2023, all US Federal agencies are hammering home the importance of voluntary self-disclosure for companies.
But why so?
In September 2022, Deputy Attorney General Lisa Monaco issued a memorandum that US government agencies that prosecute corporate crimes should review their policies on corporate voluntary self-disclosure.
"Our goal is simple: to reward those companies whose historical investments in compliance enable voluntary self-disclosure and to incentivize other companies to make the same investments going forward," remarked Monaco.
She also said deterrence (i.e., stronger punishments) should also hold companies to account.
Monaco added, "With a combination of carrots and sticks - with a mix of incentives and deterrence - we’re giving general counsels and chief compliance officers the tools they need to make a business case for responsible corporate behavior."
But how has this change in approach trickled down to sanctions compliance?
In 2023, federal agencies are responding, including those responsible for administering and enforcing sanctions and export control laws.
Only last month (July 2023), a six-page Tri-Seal Compliance Note was jointly issued by the following agencies:
- US Department of Justice (DOJ)
- US Department of Commerce's Bureau of Industry and Security (BIS)
- US Department of the Treasury's Office of Foreign Assets Control (OFAC)
The note states that "compliance with sanctions, export controls, and other national security laws is paramount" and emphasized increased enforcement efforts and incentives companies may receive for submitting voluntary disclosures.
And what does this mean? It means if you work in sanctions compliance - changes are coming your way. Here are the most salient developments.
Larger Incentives to Voluntary Self-Disclose Sanctions Violations
As stated earlier in the article, the US government is doubling down on the "carrot and the stick" approach to voluntary self-enforcement. And the carrot for sanctions compliance is this:
Greater incentives for organizations to submit a voluntary self-disclosure to OFAC.
Now, it's important to note that although OFAC has not yet announced any fresh updates regarding its voluntary self-disclosure policy as stated in its Enforcement Guidelines, it did reiterate the following in the July 2023 Tri-Seal Compliance Note:
- Encourages voluntary disclosures of apparent sanctions violations
- Considers VSDs to be a mitigating factor when determining appropriate enforcement action
- A qualifying VSD can result in a 50 percent reduction in the base amount of a proposed civil penalty
The main takeaway is that organizations who voluntarily self-disclose sanctions breaches can expect lower financial penalties.
In 2023, Microsoft received a reduced penalty for voluntarily self-disclosing apparent sanctions violations in Crimea. You can read a sanctions.io analysis of the case here.
Prosecutions and Penalties for Sanctions Compliance Violations Will Increase
We just reviewed the carrot side of the US government's approach to voluntary self-disclosure.
But what about the stick?
The stick is a firm one. Just as the incentives are increasing to voluntarily self-disclose - so are the punishments for failing to do so. In the 2022 memorandum, Deputy Attorney General Lisa Monaco said: "We won't accept business as usual." And that US prosecutors are being empowered to go after violators.
Once again, OFAC has yet to state the changes for its remit publicly. But you can bet the last dollar in your pocket that respondents in egregious sanctions violations cases who don't voluntarily self-disclose will receive more severe penalties. Because the fact is - we are not in an era of leniency.
Interesting information that has also come to light is how federal agencies are increasingly collaborating.
At the 2023 Global Ethics Summit, Matthew Axelrod, the Assistant Secretary for Export Enforcement at the US Bureau of Industry and Security (BIS), made comments that the DOJ, Department of Commerce (DOC), OFAC, and BIS are working together to ensure proper disclosures are made to all agencies.
He also referred to the carrot and stick analogy and stated that it will be a stick for the Department of Commerce if it discovers violations disclosed to OFAC but not to BIS (when it should have been disclosed to both).
And the bottom line is this: 2023 is seeing a shift toward stricter sanctions enforcement and bigger penalties - making effective compliance processes increasingly crucial.
Why the Business Case for Robust Sanctions Compliance Is Growing
To conclude the article, let's return to where these changes started: the Deputy Attorney General's memorandum.
You see, at the very crux of the policy shift set in motion in the memorandum is the desire by the US government to make it easier for companies to act ethically and behave responsibly. Why? Because that will ultimately strengthen US interests.
The approach is simple. Do the right thing, and your company will be rewarded more than before. But if you don't, expect more stringent consequences. And it's news that compliance professionals are welcoming, including those working in sanctions.
After all, the business case for investing in robust compliance processes just got stronger.
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