Don’t Operate Under a Mandatory Disclosure Policy, Trade Lawyers Say

Companies should avoid internal policies that require them to disclose all potential sanctions and export control violations to the government, lawyers with Foley Hoag said this week. Although it may seem like a sound compliance policy, the lawyers said that language can backfire, including in cases where a voluntary disclosure may not be the best option.

Shrutih Tewarie, a trade lawyer with the firm, said she “regularly” sees companies with mandatory disclosure language in their rulebooks, but she usually advises them to remove that policy. “The reality is that in any given situation, if you do detect a violation, you want to make sure that you have the option, frankly, to disclose or not disclose,” she said during a Jan. 25 virtual conference hosted by the Massachusetts Export Center. “One thing we sort of advise companies” is “to frankly not have that language in there.”

That's because if the company ever decides to not submit a voluntary disclosure for a potential violation, and the government later discovers the violation and that the company disregarded its own mandatory disclosure policy, the government may treat that as an aggravating factor in its investigation, said trade lawyer Luciano Racco. He said that could lead to a higher penalty.

“If you have such a policy, and you don't disclose,” Racco said, “that will be viewed very unfavorably by the government.”

Tewarie's and Racco's comments came as the Bureau of Industry and Security continues to revamp its administrative enforcement policies to encourage more voluntary disclosures, including changes announced earlier this month that it hopes will allow compliance professionals to spend more time and money preventing serious export violations and less resources on reporting minor ones (see 2401170059). BIS said it received a jump in disclosures of serious violations last year.

But Racco said voluntary disclosures are much more common in the U.S. than in other countries, where companies aren’t always incentivized to disclose. For some American compliance officials, “it's hard to hear that maybe you shouldn't disclose something or might not want to disclose something,” Racco said. “But I think it's a view that's really very common for other countries.”

He said many foreign governments don’t even have a mechanism to receive voluntary disclosures.

“If you go to other countries, and you suggest to someone that they voluntarily disclose a violation of law,” Racco said, ‘they will look at you like you're crazy.”

He stressed that the law firm advises companies to fix any potential compliance issue internally, regardless of whether they choose to disclose. “You need to look into problems and fix them,” Racco said. “We're not suggesting that you should ignore problems.”

But not every compliance failure warrants a disclosure, the lawyers said. Racco said companies may choose not to disclose a violation that the government is very unlikely to discover. But if the company believes that the violation will lead to no penalty or a very minor one, he said, disclosing may be the best option.

“It could cut either way depending on what is the conduct at issue,” Racco said.