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October 20, 2016

DOJ Issues Guidance Encouraging Business Organizations to Voluntarily Self-Disclose Criminal Export Controls & Sanctions Violations

Practical Insights:

This month, we are proud to bring you the inaugural version of a standing article, Practical Insights. We are constantly considering how to improve our newsletter and how we can bring increased value to you, our clients and contacts. A recurring challenge facing global organizations today is how to implement solutions to address changes or updates to regulations and governmental policies. Practical Insights is geared towards providing our readers with practice tips and guidance they can apply to their daily work in the field of U.S. international trade compliance. Our first topic focuses on an important guidance document published earlier this month by the U.S. Department of Justice’s National Security Division (NSD) and how it could impact your organization.

On October 2, 2016, the NSD published guidance memorializing the pre-existing policy of NSD to encourage business organizations to voluntarily self-disclose criminal violations of U.S. export controls and sanctions laws and setting forth the criteria NSD uses in exercising its prosecutorial discretion in this area. The guidance describes the requirements for companies seeking credit for voluntarily self-disclosing potential criminal conduct, fully cooperating with an investigation, and remediating violations. The guidance provides examples of aggravating factors that, if present to a substantial degree, could limit the credit an organization might otherwise receive. The guidance also explains the possible benefits, including potential penalty mitigation, that may be afforded to an organization that discloses the full facts about the individuals and the wrongdoing and takes appropriate remedial action. Finally, the guidance provides four sample scenarios that demonstrate the application of the policy.

In issuing this guidance, NSD warns that foreign governments and other non-state adversaries of the U.S. are engaged in an aggressive campaign to acquire U.S. technologies and commodities and that such unlawful acquisitions “undermine the comparative and competitive advantages of U.S. industries and warfighters and, consequently, the national and economic security of the United States.” NSD states that thwarting these unlawful efforts is a top priority for the NSD and they are taking an “all-tools” approach to prevent and combat unlawful exports and trade with sanctioned countries, individuals, and entities.

Of particular importance to companies, their counsel, and their compliance personnel, NSD has stated that business organizations and their employees are at the forefront of NSD’s enforcement efforts and that NSD has made it a priority to pursue willful violations by corporate entities and their employees. The guidance provides that, where investigations reveal willful violations of U.S. export controls and sanctions, “NSD and U.S. Attorneys’ Offices seek to hold corporate entities criminally liable and prosecute culpable employees individually.”

NSD notes that when organizations voluntarily self-disclose export controls and sanctions violations, the disclosure is filed with the applicable regulatory agency – the Bureau of Industry and Security (BIS), Office of Foreign Assets Control (OFAC), and/or Directorate of Defense Trade Controls (DDTC). The NSD guidance does not change these individual agency procedures. However, according to the DOJ guidance, “when an organization, including its counsel, becomes aware that the violation may have been willful, it should within a reasonably prompt time also submit a VSD to [the Counterintelligence and Export Control Section (CES), of the U.S. Department of Justice.]”

What does this mean for organizations who have a voluntary self-disclosure pending with BIS, OFAC, or DDTC or who are currently contemplating making such a disclosure? Part of the initial disclosure decision-making calculus needs to include an analysis of the facts known at the time and whether there are currently any indications of willful wrongdoing. To the extent that emails, documents, interviews of relevant employees or other witnesses, or other information currently known to the organization and its counsel indicates a willful disregard for the U.S. export controls or sanctions restrictions at issue, the organization and its counsel need to consider whether to file a simultaneous disclosure with CES. Disclosing organizations and their counsel leading such investigations will need to reconsider whether a disclosure to CES is appropriate as the internal investigation proceeds and as new facts and information emerge. There are many factors to consider and each case involves its own unique set of facts and circumstances. The known facts naturally increase or change as an internal investigation proceeds and any organization making a disclosure of export controls and/or sanctions violations should be guided by counsel throughout the process.

For those organizations that do not have a currently pending voluntary self-disclosure (or the need to consider making one), the NSD guidance provides valuable information regarding the U.S. government’s expectations of what constitutes an effective compliance program that will qualify the organization to receive credit for timely and appropriate remediation. These criteria include (1) dedication of sufficient resources to the compliance function; (2) implementation of a technology control plan and required regular training of employees to ensure export-controlled materials are appropriately handled; and (3) appropriate compensation and promotion of a company’s compliance personnel, compared to other employees. As you can see, this guidance document may very well provide you with your talking points for your next performance evaluation or management briefing on the importance of trade controls and compliance. How’s that for practical?!

Thanks for reading Practical Insights. We hope you will find this and future versions of it helpful to your daily work.