1. Stop the Suspect Activity
Until your company is able to determine the lawfulness of the activity, you should act to minimize any further risk by ceasing whatever triggered the suspected violation.
If it was a single transaction, it would be comparatively easy to take the necessary steps to resolve and avoid repeating it. On the other hand, a reoccurring, ongoing violation will become worse by the day. Most trade law penalties are issued per violation. The sooner your company stops, the less accumulated risk there will be.
When in doubt, err on the side of caution–cease the activity while you choose how best to proceed with the situation.
2. Collect the Facts & Documentation
Understanding the nature of the violation is critical. This requires identifying all individuals involved and collecting physical and digital documentation.
A thorough interview process will likely be required, during which time you should:
Preserve related documents. Advise all persons related to the incident via email not to destroy or tamper with any documentation. Doing so will carry far worse consequences than any that result from the initial violation.
For example, under 18 USC §541, a violation can result in a fine and two years imprisonment. However, obstructing an investigation involving those violations can lead to twenty years imprisonment.
Maintain attorney-client privilege. This legal right is a protection for your company. Don’t take any action that might bypass it, such as improperly disclosing privileged information or by using an in-house attorney that may in some way be connected to the incident. In the case of the latter, consider an outside attorney.
Keep Interviews Above Board. Consider having a third party present during interviews which can provide future witness testimony to what was discussed. When advantageous, also consider giving your employees an Upjohn warning, which informs the employee that your attorney is representing the company and not any individual.
3. Diagnose The Suspected Violation
Was it a Compliance Violation?
After gathering the necessary evidence together, your company must now determine if the incident was unlawful or not. The most blatant examples may involve exporting without a license or failing to pay the proper taxes and fees, but compliance violations take many less obvious forms.
The US Bureau of Industry and Security provides examples of violations by means of the Export Administration Regulations, such as:
Engaging in prohibited conduct
Causing, aiding, or abetting a violation
Solicitation and attempt
Conspiracy
Acting with knowledge of a violation
Misrepresentation and concealment of facts
Evasion
Failure to comply with reporting & recordkeeping requirements
License alteration
Acting contrary to the terms of a denial order
Was the Violation Criminal or Civil?
If your investigation reveals that your company did participate in a compliance violation, the next consideration is determining if it constitutes a civil or criminal violation.
The deciding factor is usually if the violation was done willfully or unwittingly. How to define willful varies based on the crime and the federal circuit involved, but using United States v. Bishop can give a baseline.
In that case, the Fourth Circuit ruled that the “general knowledge” that the action was illegal was enough to consider the violation willful, even if the specific details weren’t known.
Meanwhile, civil violations don’t consider if an action was willful. A civil violation can be issued based on actions such as fraud, gross negligence, or negligence.
4. Weigh Voluntary Self-Disclosure
DDTC (Directorate of Defense Trade Controls), BIS (Bureau of Industry and Security), OFAC (Office of Foreign Assets Control), and Customs all have procedures to voluntarily report violations.
Officials from these departments say that doing so will result in minimized or no penalties. However, there are cases where voluntary self-disclosure has resulted in major cases against the company. Weighing the pros and cons of self-disclosure can determine what the best action would be in your situation.
Benefits of Self-Disclosure
Extra consideration from government agencies
Reduced chance of criminal prosecution
Opportunity to present a favorable case for your company, such as mitigating factors and procedures taken to correct the violation.
Drawbacks of Self-Disclosure
Wavier of attorney-client privilege protecting certain information.
Loss of information confidentiality.
Lack of any guarantee that the government will respond favorably.
To fully benefit from self-disclosure, government agencies must be informed of the violation before they are aware of it.
5. Correctly Respond To Information Requests
If you have voluntarily self-disclosed a violation, the relevant government agencies will perform their investigation. In the event that your company has not self-disclosed a violation, the information requests will be the first sign that your company may be under scrutiny.
These requests can take many forms ranging from a subpoena or an administrative inquiry. No matter how the request presents, it should be taken seriously and complied with properly.
Your response to these requests is mandatory and must be complete, accurate, and truthful, but keep in mind:
Your responses can be used as proof of wrongdoing. This is true regardless of how routine the request may be or whether or not your company is under direct investigation.
You can petition for the scope of the request to be narrowed.
Your company maintains the right not to disclose privileged information.
You must not destroy or tamper with any documentation.
Your response must be prompt. If your company delays for too long, it could suffer additional penalties.
Proactive Protection
The above steps will allow your company to handle a global trade compliance incident in the best way possible, but the ideal situation will always be a proactive approach. Instead of reacting after an incident, instituting a strong trade compliance program beforehand will help keep any possible infractions to a minimum.
The best trade compliance programs will also handle all the documentation needed to defend your company in the rare event of an incident.
