In a development that could significantly affect how companies deal with possible export control and sanctions violations, the Department of Justice (“DOJ”) recently revised its policy regarding voluntary disclosure of trade violations. The new policy from DOJ’s National Security Division (“NSD”), entitled “Export Control and Sanctions Enforcement Policy for Business Organizations” (“NSD Policy”), took effect December 13, 2019. The NSD Policy supersedes the Division’s previous “Guidance Regarding Voluntary Self-Disclosures, Cooperation, and Remediation in Export Control and Sanctions Investigations Involving Business Organizations” (“2016 Policy”), implemented October 2, 2016. The NSD Policy contains three major changes to the 2016 Policy.
First, and perhaps most significantly, the NSD Policy provides that when a company (1) voluntarily self-discloses export control or sanctions violations to NSD’s Counterintelligence and Export Control Section (“CES”), (2) fully cooperates, and (3) timely and appropriately remediates, “there is a presumption that the company will receive a non-prosecution agreement and will not pay a fine, absent aggravating factors.” Specifically, the NSD Policy requires the company report:
- prior to an imminent threat of disclosure or government investigation;
- within a reasonably prompt time after the company becomes aware of the offense; and
- include all relevant facts known to the company at the time of the disclosure, including as to any individuals substantially involved in or responsible for the misconduct at issue.
However, if aggravating factors—such as “exports of items known to be used in the construction of weapons of mass destruction,” “repeated violations,” and “knowing involvement of upper management in the criminal conduct”—are present, then the NSD Policy provides that companies may still face enforcement action. If companies otherwise satisfy all of the reporting criteria, however, the DOJ will recommend a fine that is at least 50 percent lower than what would have been available under the alternate fine provision and will not require the appointment of a monitor. The 2016 Policy did not provide a similar guarantee to companies for self-reporting. Rather, it merely offered that “[t]he ultimate resolution will depend on an evaluation of the totality of the circumstances in a particular case.” Irrespective of any benefit the NSD Policy confers to companies, companies will still be required to forfeit any profit resulting from the violation and “pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue.”
Second, the NSD Policy requires companies to directly report any potential violation to CES first—rather than other reporting agencies like the Office of Foreign Assets Control (“OFAC”) or the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”)—in order to get any of the benefits of disclosure. This change presents a potential challenge for companies, which must now decide whether the potential benefit of reporting directly to CES is worth exposing the company or individuals to criminal prosecution by DOJ.
Third, unlike the 2016 Policy, the NSD Policy allows financial institutions to benefit from self-reporting potential violations as well.
The DOJ hopes the NSD Policy will provide “more clarity” on the benefits of self-reporting and the consequences of not reporting a violation. However, while the NSD Policy purports to expand the benefits available to companies that self-report potential export control or sanctions violations and increase access to those benefits, it is important to highlight that self-disclosure to CES is not without risk. Companies should consult counsel concerning the decision to disclose a potential violation.