The National Security Division (NSD) of the U.S. Department of Justice (DOJ) recently issued guidance documenting its policy regarding the voluntary self-disclosure (VSD) of potentially criminal violations of the export controls and economic sanctions laws under the Arms Export Control Act1 and the International Emergency Economic Powers Act.2 The newly published guidance is designed to memorialize the NSD's stated policy of encouraging companies to voluntarily disclose willful violations of the export controls and economic sanctions laws and provide transparency and predictability to companies considering or engaging in the disclosure process. The guidance outlines the following:
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requirements for companies seeking cooperation credit for VSDs, cooperation, and remediation of issues;
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aggravating factors that could limit or affect the cooperation credit received by a reporting company; and
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potential benefits available to companies that comply with the requirements outlined in the guidance.
By encouraging companies to voluntarily disclose potentially willful violations to the DOJ, the NSD seeks to effectuate its goals of deterring individuals and companies from violating these laws, incentivizing companies to develop strong compliance programs, and holding individual wrongdoers accountable for engaging in conduct that would otherwise go undiscovered or unnoticed absent a VSD. It is important to note that this guidance is not intended to alter the standard practice under which companies submit VSDs to the relevant regulatory agencies (Departments of State, Commerce, or Treasury) for export controls and sanctions violations as set forth in the applicable regulations. If, however, a company is aware of potential willful violations, the DOJ recommends that parties also submit a VSD to the NSD.
Requirements to Receive the Full Benefits of Engaging in the VSD Process
Voluntary Self-Disclosure
In order to receive full cooperation credit, a company's disclosure must be voluntary, timely, and complete. In order to be voluntary, the disclosure must not be required by a plea agreement, a non-prosecution agreement (NPA), a deferred prosecution agreement (DPA), or similar agreement. To be timely, the disclosure must be "prior to an imminent threat of disclosure or government investigation" and "within a reasonably prompt time after becoming aware of the offense."3 The disclosure also must include all relevant facts known to the company, including all relevant facts about the individuals involved in any export controls or sanctions violations.
Cooperation
To be eligible for full cooperation credit, a company's cooperation must be "proactive" and include, among other things:
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preserving, collecting, and disclosing relevant facts and documents, including those related to potential criminal conduct by third parties and individuals, as well as identifying opportunities for the government to obtain evidence not in the company's possession;
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providing the DOJ with timely updates on the findings from the company's internal investigation, including the attribution of facts to specific sources rather than a general narrative; and
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making relevant current and former employees and officers—including individuals located overseas—available for interviews by the DOJ.
Importantly, the guidance notes that prosecutors should evaluate a disclosing company's cooperation and internal investigation based on the size and sophistication of the company and the allegations at issue.
Remedial Measures
Companies also must demonstrate their implementation of an effective internal compliance program to enjoy the full benefits of the VSD program. While conceding that an effective compliance program will vary based on the size and resources of the company, the guidance includes criteria for NSD attorneys to consider in their evaluation. Listed criteria include:
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the corporate culture of compliance;
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the level of resources dedicated to and quality of the company's compliance personnel;
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the compensation, promotion, and reporting structure of compliance personnel;
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the independence of the compliance function;
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the auditing and tailoring of the compliance program;
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the implementation of a technology control plan and regular employee training on the handling of export-controlled materials; and
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the discipline enforced against employees who engage in misconduct and those with oversight of such employees.
Potential Aggravating Circumstances That May Affect Benefits Afforded to Companies Submitting VSDs
Even when a company meets the disclosure, cooperation, and remediation requirements, the presence of aggravating circumstances that represent elevated national security threats could still result in "a more stringent resolution" for a company. These circumstances include exports of items controlled for nuclear nonproliferation or exports of certain restricted missile technology to a proliferator country, exports of items known to be used in the construction of weapons of mass destruction, exports to a terrorist organization, or exports of military items to a hostile foreign power. The guidance also explains that repeated violations, the knowing involvement of upper management in the criminal conduct, or significant profits from the criminal conduct can be aggravating circumstances.
Benefits and Takeaways of Engaging in the VSD Process with NSD
The DOJ's new guidance provides companies with insight into the requirements and implications of disclosing export controls and sanctions violations. If a company's disclosure, cooperation, and remediation satisfy the DOJ, the company is eligible, at the DOJ's discretion, for significant benefits, including:
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a significantly reduced penalty, to include the possibility of an NPA;
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a reduced period of supervised compliance;
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a reduced fine and forfeiture; and
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no appointment of a monitor.
Based on our review of the guidance, there are several key takeaways from the NSD's newly stated policy. First, the potential benefits afforded to a company that submits a VSD are dependent on the totality of the circumstance for a particular case, including the presence of any aggravating circumstances. The guidance makes clear that while the presence of aggravating factors may serve to limit the benefits enjoyed by a company that engages in the VSD program, that company "would still find itself in a better position than if it had not submitted a VSD, cooperated, and remediated."
Second, in the event a company does not voluntarily self-disclose, but cooperates fully with the government's investigation and remediates the practices at issue, the company may still receive partial credit from the DOJ, including the possibility of a DPA, a reduced fine and forfeiture, and the appointment of an outside auditor as opposed to a monitor, which may amount to substantial cost-savings to a company. Conversely, through the use of certain hypothetical examples, the guidance describes situations where a company does not submit a VSD or fully cooperate and is likely to be required to enter a guilty plea and assigned a corporate compliance monitor.
Third, unlike other DOJ voluntary disclosure programs such as the DOJ Fraud Section's FCPA Pilot Program,4 this guidance does not provide specific information regarding reductions in the potential penalty or otherwise quantify the "disclosure discount." Rather, the guidance makes it clear that investigators and prosecutors maintain significant discretion in the evaluation of a company's disclosure, cooperation, and remediation; any aggravating circumstances; and the amount or extent of the conferred benefits to the disclosing party.
Lastly, companies should be sure to engage with qualified counsel promptly after discovering potential export controls or sanctions violations to properly assess the benefits of a potential VSD and understand the interplay between the NSD's guidance and other relevant regulatory authorities. In the event that a decision is made to submit a VSD, counsel can assist in ensuring that the submission is timely, complete, and otherwise meets the DOJ's and other regulatory agencies' expectations.
