Criminal Defense Lawyers

Self-Disclosing OFAC Sanctions Violations

When a company discovers it may have violated U.S. sanctions laws, it can be a scary situation. The penalties for sanctions violations can be severe, including huge fines or even criminal charges. Many companies’ first instinct is to try to hide the violation. However, self-disclosing sanctions violations to the U.S. government can actually be the best course of action in many cases.

Self-disclosure involves voluntarily reporting your own potential sanctions violations to the U.S. government before they detect it themselves. The main agency that handles civil sanctions violations is the Office of Foreign Assets Control (OFAC), which is part of the U.S. Treasury Department. For criminal violations, you would disclose to the U.S. Department of Justice (DOJ).

There are several benefits to self-disclosing sanctions or export control violations to OFAC or DOJ:

• Mitigation of penalties – Voluntary self-disclosure can result in substantially reduced civil penalties, or in some cases no penalty at all. For criminal violations, self-disclosure can mean the difference between criminal charges or a deferred prosecution agreement.
• Certainty and control – Self-disclosing puts you in control of the process and leads to more certainty of outcome compared to waiting for the authorities to detect the violation on their own.
• Lower reputational damage – Being seen as transparent and cooperative with authorities can reduce reputational harm compared to trying to hide violations.

Requirements for Voluntary Self-Disclosure

For a voluntary self-disclosure to OFAC or DOJ to be accepted, it must meet certain requirements:

• Timeliness – You must disclose “as soon as practicable” after discovering the potential violation.
• Completeness – The disclosure must contain all relevant information about the violation.
• Preservation of confidentiality – You can’t disclose the violation to third parties without authorization.
• Cooperation – You must provide ongoing cooperation with the investigation, including making current and former employees available for interviews.

The disclosure process begins with an initial notification letter or phone call. OFAC or DOJ will likely follow up with requests for more information. The agencies will then determine if it meets the requirements to be considered a valid voluntary disclosure.

Mitigation of Penalties

The main advantage of voluntary self-disclosure is the potential for reduced penalties. However, the mitigation is not guaranteed and depends on the circumstances:

• For civil OFAC cases, penalties may be reduced by 50% or more, and in some cases may be waived entirely.
• For criminal cases, self-disclosure can lead to a deferred prosecution agreement instead of criminal conviction.
• Egregious or repeat violations are less likely to receive full mitigation.
• Strong compliance programs and prompt remediation also help reduce penalties.

It’s important to involve an experienced sanctions lawyer to assess the likelihood of penalty mitigation before deciding whether to disclose.

When Not to Self-Disclose

Self-disclosure is not always the best option. Reasons a company may choose not to voluntarily disclose potential sanctions violations include:

• The violation is relatively minor or technical in nature.
• There is uncertainty whether a violation actually occurred.
• The disclosure is unlikely to meet OFAC’s requirements for timeliness, completeness, etc.
• The disclosure may reveal violations by third parties that could lead to lawsuits.
• The potential for reputational harm outweighs benefits of reduced penalties.

Companies should carefully weigh the risks and benefits of disclosure with experienced counsel before making a decision.

Recent Cases of Voluntary Self-Disclosure

Here are some recent examples of companies that self-disclosed sanctions or export control violations:

• ZF Friedrichshafen AG, a German auto parts maker, voluntarily disclosed thousands of apparent export control violations related to shipments to Iran. OFAC imposed a reduced civil penalty of $13.9 million.
• Stanley Black & Decker self-disclosed hundreds of export control violations. DOJ agreed to a deferred prosecution agreement and $1.9 million penalty.
• Amazon disclosed over 4000 apparent sanctions violations by third-party sellers on its site. OFAC determined a non-public administrative response was appropriate.

As these cases show, voluntary disclosure does not eliminate penalties entirely, but can provide substantial mitigation, especially for large-scale violations.

Self-Disclosure Procedures

If your company determines that self-disclosure is appropriate, follow these steps:

1. Conduct an internal investigation – Thoroughly investigate the nature and extent of the potential violations.
2. Assemble a disclosure team – Identify key personnel who will interface with OFAC or DOJ.
3. Draft an initial notification – Provide high-level information about the violations.
4. Make the disclosure – Call or email OFAC or DOJ, then follow up with a formal letter.
5. Cooperate fully – Respond to all requests for documents and interviews in a timely manner.
6. Respond thoroughly to any requests for documents – Gather all relevant emails, records, and other documents related to the potential violations. Be comprehensive in collecting materials from multiple custodians. Carefully review documents for privilege and responsiveness before production.
7. Make current and former employees available for interviews – Facilitate interviews with any employees who may have knowledge of the violations. Do not interfere with their cooperation. Ensure they are prepared with legal counsel.
8. Provide periodic verification of compliance – If required, submit regular written updates to OFAC or DOJ demonstrating your company’s ongoing compliance with the terms of any settlement agreement[1].
9. Respond to additional information requests – Cooperate fully with any supplemental requests for documents, interviews, or other information needed to complete the investigation[2][3].
10. Do not destroy relevant materials – Implement a litigation hold to preserve documents and prevent any improper destruction of relevant records[4][5].
11. Stay in regular communication – Maintain an open dialogue with investigators to facilitate information sharing and demonstrate cooperation[6].

Full cooperation, transparency and timely responses throughout the process can help demonstrate your company’s good faith and commitment to resolving the issues responsibly.