The Situation: The U.S. Department of Justice ("DOJ") has issued guidance revising its 2016 voluntary disclosure policy to provide companies stronger incentives to voluntarily self-report apparent potentially willful trade violations by granting a presumptive safe haven from criminal liability in many circumstances.
The Result: Absent certain "aggravating factors," companies that voluntarily disclose potentially willful apparent trade violations, fully cooperate with any subsequent DOJ investigation, and institute timely and appropriate remedial measures may secure the presumption of a nonprosecution agreement and the avoidance of civil penalties imposed by the DOJ.
Looking Ahead: While companies will likely continue to look to the Departments of Commerce, State, and the Treasury first in considering disclosure options, they should also consider whether circumstances warrant disclosure to the DOJ.
In December 2019, the DOJ issued a revised policy for business organizations regarding voluntary disclosures of "potentially willful" export control and sanctions violations ("Revised Policy"). The Revised Policy, which was effective upon issuance, more closely resembles existing and analogous guidance from other DOJ components, particularly the DOJ's Foreign Corrupt Practices Act ("FCPA") Corporate Enforcement Policy, and will be formally incorporated into the Justice Manual. The policy serves the twin purposes of providing greater clarity to companies facing the decision on whether to voluntarily disclose and encouraging more companies to disclose to the DOJ.
While the previous DOJ policy concerning voluntary self-disclosures of export control and sanctions encouraged companies to self-report violations as a best practice, the policy only considered such self-reporting as one of many mitigating factors to weigh against other potential aggravating factors. Similarly, the previous policy only considered a company's compliance with any resulting investigation or implementation of appropriate remedial measures as mitigating factors and did not create a presumption in favor of nonprosecution or leniency in penalties.
Noting the role that private companies and their employees play as "gatekeepers," the Revised Policy offers greater incentives for private companies to disclose potential violations. To that end, the Revised Policy provides benefits for a company that (i) voluntarily discloses apparent potentially willful trade violations (i.e., ones done with the knowledge that they are illegal) to the DOJ's National Security Division ("NSD"); (ii) fully cooperates with any related investigation; and (iii) implements appropriate remedial measures in a timely manner.
The Revised Policy provides details regarding what must be shown to meet each of the above conditions. If the DOJ concludes that these requirements have been met and that there are no aggravating factors, the Revised Policy affords the self-reporting company the presumption of a nonprosecution agreement and that the company will not be assessed a fine by the DOJ. The company would still be required, however, to pay all disgorgement, forfeiture, and/or restitution resulting from the self-reported violations. Unlike that with respect to the FCPA, the policy does not offer declination of prosecution as a presumptive outcome, highlighting the increased significance of national security violations to the DOJ's enforcement priorities. Further, while the Revised Policy notes that NSD lawyers will "endeavor to coordinate" with counterparts at relevant agencies, it notes that these agencies impose their own penalties for export controls and sanctions violations.
When aggravating factors are present, the DOJ may consider whether an enforcement action beyond a nonprosecution agreement, such as a deferred prosecution agreement or guilty plea, is warranted. If the DOJ considers such an action warranted, the Revised Policy provides that the DOJ will accord or recommend a fine that is limited to an amount equal to the gross gain or gross loss and will not require the imposition of a monitor if the self-reporting company has implemented an effective compliance program. Examples of aggravating factors—of which the Revised Policy includes a nonexhaustive list—include exports of sensitive items, exports to end users of heightened concern, repeated violations (including similar past administrative or criminal violations), involvement or knowledge of senior management, and significant profit.
Importantly, the Revised Policy clarifies that only disclosures made to the NSD may qualify for the incentives provided in the Revised Policy. Disclosures made to civil regulatory agencies, such as the Departments of Commerce, State, and the Treasury—a practice that the Revised Policy is avowedly not intended to alter—will not qualify for presumptive treatment under the DOJ's Revised Policy. Companies assessing apparent trade violations should evaluate whether the underlying conduct should be reported to the NSD and, if so, consider coordinating parallel disclosures to ensure receipt of the new benefits of voluntary disclosure treatment. Internal investigations that reveal potential willful conduct are the most likely candidates for such parallel disclosures.