E7-24069. Voluntary Disclosures

AGENCY:

Department of State.

ACTION:

Final rule.

SUMMARY:

The Department of State is amending the Voluntary Disclosure provisions of the International Traffic in Arms Regulations (ITAR) by imposing a 60-calendar day deadline after the initial notification to submit a full disclosure, in order to ensure timely submissions; and by clarifying what identifying information should be provided, as well as who should sign the voluntary disclosure in cases of a major violation, a systemic pattern of violations, or in the absence of an effective compliance program, in order to improve the government's ability to assess and respond to the national security and foreign policy consequences of any export violation. These amendments will provide integrity to the voluntary disclosure process, but involve only minor changes to the current voluntary disclosure process.

EFFECTIVE DATE:

This rule is effective December 13, 2007.

ADDRESSES:

Interested parties may submit comments at any time by any of the following methods:

• E-mail: [e-mail] with an appropriate subject line.
• Mail: Department of State, Directorate of Defense Trade Controls, Office of Defense Trade Controls Compliance, ATTN: Regulatory Change, 12th Floor, SA-1, Washington, DC 20522-0112.
• Fax: [phone].
• Hand Delivery or Courier (regular work hours only:) Department of State, Directorate of Defense Trade Controls, Office of Defense Trade Controls Compliance, ATTENTION: Regulatory Change, SA-1, 12th Floor, 2401 E Street, NW., Washington, DC 20037.

Persons with access to the Internet may also view this notice by going to the regulations.gov Web site at: http://www.regulations.gov/​index.cfm.

FOR FURTHER INFORMATION CONTACT:

Glenn Smith, Office of Defense Trade Controls Compliance, Department of State, 12th Floor, SA-1, Washington DC 20522-0112; Telephone [phone] or FAX [phone]; e-mail: [e-mail]. ATTN: Regulatory Change.

SUPPLEMENTARY INFORMATION:

Section 127.12(c)(1)(i) imposes a 60-calendar day deadline after the initial notification to submit a full disclosure. A party may request an extension to the 60-calendar day deadline, and, in certain cases, the Department may require the requester to provide a written certification that the full disclosure in accordance with § 127.12(c)(2) will be submitted within a specified time period. Failure to submit a full disclosure may result in a decision by the Directorate of Defense Trade Controls not to consider the initial notification as a mitigating factor in determining the appropriate disposition of the violation.

Section 127.12(c)(2)(iii) is amended to provide additional details and examples of identifying information to be included in a voluntary disclosure.

Section 127.12(c)(2)(vi) is amended to clarify that corrective actions and compliance initiatives implemented must be directly in response to the violation in the voluntary disclosure, and designed to deter that particular violation from occurring again.

Further, Section 127.12(e) is amended to provide that, in cases of a major violation, a systemic pattern of violations, or the absence of an effective compliance program, DDTC may require that the written certification be signed by a senior officer.

The Directorate of Defense Trade Controls' website at § 127.12(g) is updated.

Regulatory Analysis and Notices

Administrative Procedure Act

This amendment involves a foreign affairs function of the United States and, therefore, is not subject to the procedures contained in 5 U.S.C. 553 and 554.

Regulatory Flexibility Act

Since this rule involves a foreign affairs function of the United States, it does not require analysis under the Regulatory Flexibility Act.

Unfunded Mandates Act of 1995

This rule will not have an effect on State, local, or tribal governments that would require analysis under the Unfunded Mandates Reform Act.

Small Business Regulatory Enforcement Fairness Act of 1996

This amendment has been found not to be a major rule within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996. It will not have substantial direct effects on the States, the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

Executive Orders 12372 and 13132

It is determined that this rule does not have sufficient federalism implications to warrant application of the consultation provisions of Executive Orders 12372 and 13132.

Executive Order 12866

This amendment is exempt from review under Executive Order 12866, but has been reviewed internally by the Department of State to ensure consistency with the purposes thereof.

Paperwork Reduction Act

This rule does not impose any new reporting or recordkeeping requirements subject to the Paperwork Reduction Act, 44 U.S.C. Chapter 35.

List of Subjects in 22 CFR Part 127

• Arms and munitions
• Crime
• Exports
• Penalties
• Seizures and forfeitures

Accordingly, for the reasons set forth above, Title 22, Chapter I, Subchapter M, part 127 is amended as follows:

PART 127—VIOLATIONS AND PENALTIES

1. The authority citation for part 127 continues to read as follows:

Authority: Secs. 2, 38, and 42, Pub. L. 90-629, 90 Stat. 744 (22 U.S.C. 2752, 2778, 2791); E.O. 11958, 42 FR 4311; 3 CFR, 1977 Comp., p. 79; 22 U.S.C. 401; 22 U.S.C. 2651a; 22 U.S.C. 2779a; 22 U.S.C. 2780.

2. Section 127.12 is amended by revising paragraphs (a), (b)(1), (b)(2), (b)(3) introductory text, (b)(3)(i), (b)(3)(ii), (b)(3)(iv), (b)(3)(v), (b)(4), (c), (d)(1) introductory text, (d)(1)(i), (e), (f), and (g) to read as follows:

§ 127.12

Voluntary disclosures.

(a) General policy. The Department strongly encourages the disclosure of information to the Directorate of Defense Trade Controls by persons (see § 120.14 of this subchapter) that believe they may have violated any export control provision of the Arms Export Control Act, or any regulation, order, license, or other authorization issued under the authority of the Arms Export Control Act. The Department may consider a voluntary disclosure as a mitigating factor in determining the administrative penalties, if any, that should be imposed. Failure to report a violation may result in circumstances detrimental to U.S. national security and foreign policy interests, and will be an adverse factor in determining the appropriate disposition of such violations.

(b) Limitations. (1) The provisions of this section apply only when information is provided to the Directorate of Defense Trade Controls for its review in determining whether to take administrative action under part 128 of this subchapter concerning a violation of the export control provisions of the Arms Export Control Act and these regulations.

(2) The provisions of this section apply only when information is received by the Directorate of Defense Trade Controls for review prior to such time that either the Department of State or any other agency, bureau, or department of the United States Government obtains knowledge of either the same or substantially similar information from another source and commences an investigation or inquiry that involves that information, and that is intended to determine whether the Arms Export Control Act or these regulations, or any other license, order, or other authorization issued under the Arms Export Control Act has been violated.

(3) The violation(s) in question, despite the voluntary nature of the disclosure, may merit penalties, administrative actions, sanctions, or referrals to the Department of Justice to consider criminal prosecution. In the latter case, the Directorate of Defense Trade Controls will notify the Department of Justice of the voluntary nature of the disclosure, although the Department of Justice is not required to give that fact any weight. The Directorate of Defense Trade Controls has the sole discretion to consider whether “voluntary disclosure,” in context with other relevant information in a particular case, should be a mitigating factor in determining what, if any, administrative action will be imposed. Some of the mitigating factors the Directorate of Defense Trade Controls may consider are:

(i) Whether the transaction would have been authorized, and under what conditions, had a proper license request been made;

(ii) Why the violation occurred;

* * * * *

(iv) Whether the person has instituted or improved an internal compliance program to reduce the likelihood of future violation;

(v) Whether the person making the disclosure did so with the full knowledge and authorization of the person's senior management. (If not, then the Directorate will not deem the disclosure voluntary as covered in this section.)

(4) The provisions of this section do not, nor should they be relied on to, create, confer, or grant any rights, benefits, privileges, or protection enforceable at law or in equity by any person in any civil, criminal, administrative, or other matter.

(c) Notification. (1) Any person wanting to disclose information that constitutes a voluntary disclosure should, in the manner outlined below, initially notify the Directorate of Defense Trade Controls immediately after a violation is discovered and then conduct a thorough review of all defense trade transactions where a violation is suspected.

(i) If the notification does not contain all the information required by 127.12(c)(2) of this section, a full disclosure must be submitted within 60 calendar days of the notification, or the Directorate of Defense Trade Controls will not deem the notification to qualify as a voluntary disclosure.

(ii) If the person is unable to provide a full disclosure within the 60 calendar day deadline, an empowered official (see § 120.25 of this subchapter) or a senior officer may request an extension of time in writing. A request for an extension must specify what information required by § 127.12(c)(2) of this section could not be immediately provided and the reasons why.

(iii) Before approving an extension of time to provide the full disclosure, the Directorate of Defense Trade Controls may require the requester to certify in writing that they will provide the full disclosure within a specific time period.

(iv) Failure to provide a full disclosure within a reasonable time may result in a decision by the Directorate of Defense Trade Controls not to consider the notification as a mitigating factor in determining the appropriate disposition of the violation. In addition, the Directorate of Defense Trade Controls may direct the requester to furnish all relevant information surrounding the violation.

(2) Notification of a violation must be in writing and should include the following information:

(i) A precise description of the nature and extent of the violation (e.g., an unauthorized shipment, doing business with a party denied U.S. export privileges, etc.);

(ii) The exact circumstances surrounding the violation (a thorough explanation of why, when, where, and how the violation occurred);

(iii) The complete identities and addresses of all persons known or suspected to be involved in the activities giving rise to the violation (including mailing, shipping, and e-mail addresses; telephone and fax/facsimile numbers; and any other known identifying information);

(iv) Department of State license numbers, exemption citation, or description of any other authorization, if applicable;

(v) U.S. Munitions List category and subcategory, product description, quantity, and characteristics or technological capability of the hardware, technical data or defense service involved;

(vi) A description of corrective actions already undertaken that clearly identifies the new compliance initiatives implemented to address the causes of the violations set forth in the voluntary disclosure and any internal disciplinary action taken; and how these corrective actions are designed to deter those particular violations from occurring again;

(vii) The name and address of the person making the disclosure and a point of contact, if different, should further information be needed.

(3) Factors to be addressed in the voluntary disclosure include, for example, whether the violation was intentional or inadvertent; the degree to which the person responsible for the violation was familiar with the laws and regulations, and whether the person was the subject of prior administrative or criminal action under the AECA; whether the violations are systemic; and the details of compliance measures, processes and programs, including training, that were in place to prevent such violations, if any. In addition to immediately providing written notification, persons are strongly urged to conduct a thorough review of all export-related transactions where a possible violation is suspected.

(d) Documentation. (1) The written disclosure should be accompanied by copies of substantiating documents. Where appropriate, the documentation should include, but not be limited to:

(i) Licensing documents (e.g., license applications, export licenses and end-user statements), exemption citation, or other authorization description, if any;

* * * * *

(e) Certification. A certification must be submitted stating that all of the representations made in connection with the voluntary disclosure are true and correct to the best of that person's knowledge and belief. Certifications should be executed by an empowered official (See § 120.25 of this subchapter), or by a senior officer (e.g. chief executive officer, president, vice-president, comptroller, treasurer, general counsel, or member of the board of directors). If the violation is a major violation, reveals a systemic pattern of violations, or reflects the absence of an effective compliance program, the Directorate of Defense Trade Controls may require that such certification be made by a senior officer of the company.

(f) Oral presentations. Oral presentation is generally not necessary to augment the written presentation. However, if the person making the disclosure believes a meeting is desirable, a request should be included with the written presentation.

(g) Send voluntary disclosures to the Office of Defense Trade Controls Compliance, Directorate of Defense Trade Controls. Consult the Directorate of Defense Trade Controls Web site at http://www.pmddtc.state.gov for the appropriate street address.

Dated: November 30, 2007.

John C. Rood,

Acting Under Secretary for Arms Control and International Security, Department of State.