What should an organization do when it discovers an export violation?
Best practice suggests quick self-disclosure to the Government and a plan for corrective action.
The reason is that when assessing penalties for such infractions, regulating bodies such as the United States Treasury’s Office for Foreign Assets Control (OFAC), Directorate of Defense Trade Controls (DDTC), the Bureau of Industry and Security (BIS), and others, consider many extenuating factors, one of which is voluntary self-disclosure.
A self disclosure is an acknowledgement that something is in need of attention. And, in identifying the compliance gaps, there is also an intention to resolve the issues in the long haul.
This point was underlined by the recent self-disclosure by Swedbank that almost 600 transactions potentially violated OFAC sanctions. Most of the violations occurred between 2015 and 2016 related to the operation of a vessel whose owner and operator were located in Crimea, a region currently under U.S. economic sanctions.
The Swedish institution’s Chief Executive Officer said in a statement that this case demonstrated a previous lack of internal controls and governance.
He added that work is underway to rectify the situation: “Extensive work has been ongoing to remedy shortcomings in the bank’s work against money laundering and other financial crimes. At the end of January this year, the bank’s action program included 152 initiatives. Further measures to prevent sanction breaches are implemented as part of the program.”
While the extent of the potential penalties levied against Swedbank by OFAC remains to be seen, there are enough precedents that reinforce the importance of how self-disclosing can be a mitigating factor when regulatory bodies such as OFAC calculate an organization’s liability in the case of apparent violations:
- A shipping company recently saw its settlement amount with OFAC reduced by a significant degree, with their voluntary self-disclosure being cited as one of the reasons;
- An aviation company ended up paying less than 10% of what it otherwise would have had to, thanks to its voluntary self-disclosure of its violations;
- A travel company’s self-disclosure led to it paying almost half the statutory settlement amount for its violations;
- A cement company ended up paying only $560,000 for violating Iranian sanctions, with its voluntary self-disclosure of said violations being cited as a mitigating factor;
- A Californian cosmetics company saw its penalties significantly reduced by OFAC, in view of its voluntary self-disclosure.
And there are many more such examples. Neither is the emphasis on voluntary self disclosure limited to just OFAC – for instance, the BIS website emphatically encourages anyone who may have violated the EAR to self disclose, noting that it treats voluntary self disclosures as indicative of an organization’s intent to comply with regulations.
The key takeaway is that, while organizations strive to do their best with their export compliance efforts, there is a potential to miss things, and for cracks in the armor to reveal themselves. Under these circumstances, the old adage of honesty is the best policy fits perfectly. Trying to conceal issues by sweeping them under the rug can cause bigger problems in the long run.
The other important elements to also always consider is that effective export compliance requires robust software solutions, proper procedures and policies, trained personnel, a compliance champion, among others.