While the United States Trade Representative is currently inundated with Section 301 exclusion requests, the Department of Justice’s (DOJ) National Security Division’s (NSD) recent update could be encouraging an influx of voluntary self-disclosures (VSDs) to the U.S. export agencies and the DOJ in the near future. NSD has recently released a revised policy for companies regarding voluntary disclosures of willful and/or criminal export control and sanctions violations. The updated VSD policy became effective on December 13, 2019. The main purpose of the revised VSD policies is to encourage businesses (and now financial institutions) to voluntarily self-disclosure “all potentially willful violations of the statutes implementing the U.S. government’s primary export control and sanctions regime.” In an effort to promote self-disclosing upon discovering the egregious violation, the updated regulations indicate that a company who files a VSD, fully cooperates with NSD, and timely and appropriately remediates the violation, will be afforded a presumption of a non-prosecution agreement (NPA) and will not be assessed a fine. The overall goal of the updated policy is to encourage companies to come forward regarding export violations, by incentivizing the self-report process. The new policy also emphasizes the overall government attitude of increased enforcement in the export control arena.
The updated VSD policies provide detailed information as to what is meant by “VSD, via the terms “fully cooperates”, and “timely and appropriately remediates the violation.” First, in order for a company’s disclosure to be voluntary, it must be submitted “prior to an imminent threat of disclosure or government investigation . . . as well within a reasonably prompt time after becoming aware of the offense.” Second, full cooperation is defined as disclosing all relevant facts, proactively cooperating with NSD, and making witnesses readily available for interviews. Lastly, timely and appropriate remediation is defined as a demonstration of thorough analysis of causes of underlying conduct, and remediation to address the root issues. Moreover, if a company wants to receive credit for showing an appropriate remediation, implementation of an effective compliance program is required. In addition to filing the voluntary disclosure to the NSD, the violator company will also be expected to submit disclosures before the involved export agencies, depending on which export control laws were violated. The NSD will coordinate with the involved export agency in assessing the remediation and evaluating the violating company’s strengthened compliance plan to assess the level of cooperation credit to be provided.
Notwithstanding the above criteria, if there are aggravating circumstances, the benefits of the VSD policy may not apply. The updated VSD policies define potential aggravating factors (in a non-exhaustive list), some of which include: (1) exports of military items to a hostile foreign power, (2) repeated violations, and (3) knowing involvement of upper management in the criminal conduct. If NSD determines that aggravating factors are present while reviewing a VSD, it “will accord, or recommend to a sentencing court, a fine that is, at least, 50% less than the amount that otherwise would be available under the alternative fine provision (18 U.S.C. § 3571(d)) . . . and will not require appointment of a monitor if a company has, at the time of resolution, implemented an effective compliance program.”
When deciding whether to file a VSD, businesses should carefully consider the interplay between DOJ and other agencies. For instance, a VSD can be submitted through multiple agencies, depending on the act and which agency export control laws are implicated. The various agencies include the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the U.S Department of Commerce’s Bureau of Industry and Security (BIS), and the Directorate of Defense Trade Controls (DDTC). If a company is considering submitting a VSD to OFAC or BIS, it should carefully evaluate the violation and consult with outside counsel on whether the situation also merits a disclosure to the DOJ. If the violations rise to the level of willful and/or criminal misconduct, the company should also consider submitting one to DOJ in order to satisfy the “timely and appropriate remediation” prong. Meaning, based on the updated time requirement, it may not be advisable for businesses to wait and see how a different agency rules on a VSD. It is equally important to note that the updated VSD policies only apply to VSDs submitted to DOJ and not other agencies. Therefore, a company should consider its options when deciding whether submitting a VSD is appropriate, and to which governing agencies it should submit to.