On Wednesday, July 26, the Departments of Commerce, Treasury, and Justice issued a Tri Seal Compliance Note detailing the voluntary self-disclosure of potential violations for export controls, sanctions, and other national security laws. The Compliance Note highlights the new changes made to the Department of Justice’s voluntary self-disclosure policy. The Note also provided an overview of recent changes to the Department of Commerce’s voluntary self-disclosure policy and generally highlighted the Department of Treasury’s policy, as well as the potential monetary benefits associated with the FinCen anti-money laundering and sanctions whistleblower program.
Department of Justice Voluntary Self-Disclosure Policy Changes
Back in March 2023, the Department of Justice’s (DOJ) National Security Division (NSD) issued an updated VSD process for export control and economic sanctions potential criminal violations. The new Compliance Note states that “where a company voluntarily self-discloses potentially criminal violations, fully cooperates, and timely and appropriately remediates the violations, NSD generally will not seek a guilty plea, and there will be a presumption that the company will receive a non-prosecution agreement and will not pay a fine.” Such disclosures must be made “within a reasonably prompt time…and prior to an imminent threat of disclosure or government investigation.” Importantly, companies will not receive this favorable treatment if disclosures are only made to OFAC or BIS—the self-disclosure must be made to NSD itself. Companies may need to engage experienced export control and sanctions counsel as well as criminal defense counsel to help assess whether improper conduct could be considered criminal, thereby warranting a self-disclosure to NSD.
Also, the presumption of a non-prosecution agreement will not be afforded to companies where there are aggravating factors such as:
- Egregious or pervasive criminal misconduct
- Concealment or involvement by upper management
- Repeated administrative and/or criminal violations of national security laws
- The company earned a significant profit from the misconduct/criminal conduct
Where the matter involves one or more of the above, the NSD has discretion to seek resolutions such as deferred prosecution agreements or guilty pleas, both of which can have significant impacts on a business’ future. It should be noted, however, that the Compliance Note did clarify that “Companies that qualify for a non-prosecution agreement (or declination, where appropriate) are not permitted to retain any of the unlawfully obtained gain from the underlying misconduct.” As a result, the NSD could still seek disgorgement, forfeiture and/or restitution from offenders who qualify for deferred prosecution agreements or declinations after submitting voluntary self-disclosures.
The Compliance Note further stated that the change in NSD voluntary self-disclosure policy also applies to other corporate criminal matters under NSD’s jurisdiction such as matters involving the Foreign Agents Registration Act, material support to terrorists, and criminal violations involving the Committee on Foreign Investment in the United States, as well as other national security laws.
Recent Changes Made to Department of Commerce’s Voluntary Self-Disclosure Policy
In April 2023, the Assistant Secretary for Export Enforcement at the Bureau of Industry and Security (BIS) issued a memorandum to all export enforcement employees at BIS which stated that choosing not to voluntarily disclose known export control violations will be considered an aggravating factor when calculating penalties. This announcement was a dramatic shift from the BIS’ previous policy, which did not consider a decision not to disclose known export control violations as an aggravating factor.
Department of Treasury’s FinCen Whistleblower Program
The Compliance Note ended by generally discussing the US Treasury Department’s Office of Foreign Assets Control (OFAC) voluntary self-disclosure policy, which remains unchanged. The Compliance Note also highlighted FinCen’s whistleblower program and the potential monetary rewards for individuals who provide information to the government about, among other things, violations of US trade and economic sanctions. In certain cases, individuals who provide information leading to a successful enforcement action could be eligible for an award from 10-30% of the monetary sanctions collected in the enforcement action. Individuals could also be eligible to receive an award to individuals whose information results in a successful enforcement of a “related action” such as “enforcement actions taken under authorities such as the Export Control Reform Act.”
Evaluation of Compliance Programs as a Common Thread
The Compliance Note made it clear that each of the NSD, BIS and OFAC will evaluate the disclosing company’s compliance program (or lack thereof) when determining whether to impose penalties or other enforcement action in response to a voluntary self-disclosure. The NSD will consider “whether a company has implemented an effective and sufficiently resourced compliance and ethics program.” Likewise, BIS will consider the “existence, nature, and adequacy of a company’s compliance program, including its success at self-identifying and rectifying compliance gaps” while OFAC will similarly consider “the existence, nature, and adequacy of the subject’s compliance program at the time of the apparent violation and the corrective actions taken in response to an apparent violation.” As a result, if companies want to put themselves in the best position to receive favorable treatment in connection with any future voluntary self-disclosures, they should be proactively reviewing and updating their export compliance programs.
New Cooperative Agreement Between BIS and OFAC
Separately from the Compliance Note, BIS and OFAC signed an agreement to improve the coordination between the two agencies. According to Matthew Axelrod, the Assistance Secretary for Export Enforcement at BIS, the two agencies will now look to “jointly resolve investigations of common subjects, including matters voluntarily disclosed to both agencies.” Moving forward, companies should “expect to see more coordinated enforcement action” from BIS and OFAC.
Husch Blackwell’s Export Controls and Economic Sanctions Team continues to closely monitor all international trade and export controls developments. Should you have any questions or concerns, please contact Cortney Morgan, Grant Leach, Emily Mikes, or Eric Dama of our Export Controls and Economic Sanctions Team.