DDTC Settlement May Make Companies Think Twice About Voluntary Disclosures, Law Firm Says

The State Department appears to have inadvertently removed an incentive for companies to voluntarily disclose export control violations, according to a Sept. 25 post by Winston & Strawn, pointing to a recent settlement between the Directorate of Defense Trade Controls and L3 Harris Technologies.

In the settlement agreement, released by DDTC on Sept. 25 (see 1909240046), the DDTC said it did not consider voluntary disclosures of violations made by L3 Harris Technologies to be mitigating factors. The DDTC argued that the disclosures were related to a “directed disclosure” it had made after discovering the violations from a referral from the Defense Technology Security Administration, the post said. After receiving the referral, DDTC “directed a disclosure,” the post said, which led to L3 Harris “supplementing that disclosure with several voluntary disclosures to DDTC.” The DDTC said the violations in L3 Harris's disclosure “are directly related to the directed disclosure matter” and do not warrant mitigating factors.

The State Department is sending mixed messages by admitting the disclosures were “voluntary” but not including them as mitigating factors, which is the usual practice, Winston & Strawn said. “If the Department of State had simply determined that the three disclosures were not actually voluntary because they arose from the directed disclosure, then this would likely go unnoticed,” the post said. “However, by explicitly finding them to have been voluntary and then denying any mitigation credit, the Department of State is effectively removing the incentive to make voluntary disclosures.”

This settlement agreement “further complicates” the decision companies make when deciding whether to voluntarily disclose violations, the post said. “If the Department of State begins a practice of not providing credit for voluntary disclosure,” the law firm said, “then such a practice will likely have a chilling effect on companies the next time they must make a decision of whether to disclose.”