On December 13, 2019, the Department of Justice (DOJ) updated its enforcement guidelines to include a no-fine, no-prosecution presumption for companies that voluntarily self-disclose potentially willful violations of the major export and sanctions regime (the Arms Export Control Act, the Export Control Reform Act, and the International Emergency Economic Powers Act).^[1] The presumption does not apply where aggravating factors are present. However, as discussed below, the policy affords companies that voluntarily self-discloses benefits even when the presumption does not apply.

This policy supersedes the 2016 DOJ update on the same issue, which only gave disclosing companies a “credit” in the event they self-disclosed.^[2] And the guidance update builds on a September 2015 DOJ policy memo that instructed the department to hold individuals responsible for corporate wrongdoing.^[3]

A. Requirements to Receive the Presumption

In order to receive the presumption, the disclosure must qualify as a “voluntary self-disclosure,” the company must “fully cooperate” with DOJ, and must “timely and appropriately remediate” any violation. In addition, the disclosure must be made to the DOJ’s Counterintelligence and Export Control Section, instead of a regulatory agency or other part of the DOJ.

“Voluntary self-disclosure,” “full cooperation,” and “timely and appropriate remediation” are terms of art used in other DOJ self-disclosure regimes.^[4] The definitions of the requirements, as defined in the 2019 update, are set out below:

• Voluntary Self-Disclosure: There are three requirements for a disclosure to qualify as a “voluntary self-disclosure.” First, the disclosure must be made prior to an imminent threat of disclosure or government investigation. Second, disclosure must be made within a reasonably prompt time after the company becomes aware of the offense. Finally, the disclosure must include all relevant facts, including any individuals substantially involved.
• Full Cooperation: Similarly, in order to “fully cooperate” a company’s disclosure must be timely, continuously updated, include all relevant information, and attribute facts to specific sources. In addition, the disclosing company must preserve all relevant documentation, deconflict witnesses and make employees who possess relevant knowledge available for interviews. The disclosing company need not violate the attorney-client privilege or the work product doctrine to meet this definition.
• Timely and Appropriate Remediation: Finally, to “timely and appropriately remediate” violation, the disclosing company must analyze the root cause of the problem and remediate it where possible, implement a compliance program, discipline employees involved in the violation, retain all appropriate business records and take “additional steps that demonstrate recognition of the seriousness of the company’s misconduct.”

If a company’s disclosures satisfy the above three requirements it will receive the no-prosecution/no-fine presumption absent aggravating factors.

B. Aggravating Factors and Benefits of Disclosure Beyond the Presumption

The 2019 guidance provides a non-exhaustive list of potential aggravating factors. Two factors are most relevant to corporate clients: repeated violations and knowing involvement of upper management in the criminal conduct.^[5] The 2016 guidance, though technically superseded, also identified “significant profits from the criminal conduct” as an aggravating factor.

A company that satisfies the self-disclosure requirements outlined above, however, will receive benefits even if the presumption does not apply due to aggravating factors. In the event a company self-discloses, the DOJ will recommend a fine that is at least 50 percent less than the amount available under the alternative fine provision found in 18 U.S.C. § 3571(d). In addition, the DOJ will not require the appointment of a monitor if the company implements an effective compliance program by the time of resolution.

C. Drawbacks

There are some potential drawbacks to self-disclosure. The DOJ focuses on individual accountability for corporate wrongdoing. Self-disclosing violations directly to the DOJ, therefore, may increase the likelihood of individual criminal prosecution.^[6] Similarly, a company that self discloses violations directly to DOJ, as opposed to a regulatory agency, may expose itself to more liability than it would otherwise face.^[7] (Regulatory agencies being less likely to refer matters to the DOJ). Finally, if a company self-reports a violation, this admission of potential guilt may make it difficult for the company to later claim the action was in fact lawful.^[8]

Notwithstanding these concerns, however, the benefit of a no-prosecution/no-fine presumption or the alternative recommended fine reduction is obvious. Any company that discovers a violation of the major export or sanctions statutes should seriously consider voluntary self-disclosure.

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Note:
[1] Export Control and Sanctions Enforcement Policy for Business Organizations, DEPT. OF JUSTICE (Dec. 13, 2019) available at https://www.justice.gov/nsd/ces_vsd_policy_2019/download.
[2] Guidance Regarding Voluntary Self-Disclosures, Cooperation, and Remediation in Export Control and Sanctions Investigations Involving Business Organizations, DEPT. OF JUSTICE (Oct. 2, 2016) available at http://files.constantcontact.com/4545a8d7301/6536ffe2-60e6-451c-991a-6c6f6c1cdb17.pdf?ver=1476300088000
[3] See Individual Accountability for Corporate Wrongdoing, DEPT. OF JUSTICE MEMORANDUM, Sally Yates (Sept. 9, 2015).
[4] For example, the self-reporting guidelines for violations of the Foreign Corrupt Practices Act contain the same terms. FCPA Corporate Enforcement Policy, available at https://www.justice.gov/criminal-fraud/file/838416/download; see also Department of Justice Revises and Re-Issues Export Control and Sanctions Enforcement Policy for Business Organizations, DEPT. OF JUSTICE (Dec. 13, 2009) (noting that “the VSD Policy was drafted to more closely resemble existing and analogous guidance from other DOJ components in an effort to standardize, to the extent possible, DOJ voluntary disclosure policies.”)
[5] The remaining listed aggravating factors include: exports of items controlled for nuclear nonproliferation or missile technology reasons to a proliferator country; exports of items that can be used in the construction of weapons of mass destruction; exports to a Foreign Terrorist Organization or Specially Designated Global Terrorist; and exports of military items to a hostile foreign power.
[6] DOJ’s Revised Self-Disclosure Policy for US Trade Sanctions and Export Control Violations Offers ‘Concreate and Significant’ Benefits for Corporations, ARNOLD & PORTER (Dec. 19, 2019), available at https://www.arnoldporter.com/en/perspectives/publications/2019/12/dojs-revised-self-disclosure.
[7] Id.
[8] Department of Justice Publishes Guidance on Voluntary Self-Disclosure of Export Controls and Sanctions Violations, SIDLEY AUSTIN (Nov. 10, 2016), available at https://www.sidley.com/en/insights/newsupdates/2016/11/doj-publishes-guidance-on-self-disclosure.