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12.30.2019 Justice Department Adopts Significant Revisions to Voluntary Disclosure Program for Criminal Export Violations By: Thomas B. McVey

On December 13, 2019 the Department of Justice (“DOJ”) announced a major revision of its voluntary disclosure program for criminal violations of U.S. export and sanctions laws.  Under the new policy (the “Policy”),[1] if a company submits a voluntary self-disclosure and meets the conditions of the Policy there will be a presumption that the company will receive a non-prosecution agreement and will not be assessed a fine, absent aggravating factors.  The Policy provides a significant opportunity for companies to reduce potential liabilities arising from criminal export violations.     

The U.S. export laws are administered by the Bureau of Industry and Security (“BIS”),[2] Directorate of Defense Trade Controls (“DDTC”)[3] and the Office of Foreign Assets Controls (“OFAC”).[4]  In addition DOJ, through its National Security Division, is also involved through the prosecution of criminal violations of these laws, in partnership with the U.S. Attorneys’ Offices.  Criminal penalties under the export laws include fines of up to $1 million and twenty years’ imprisonment per violation.  Reviewing for criminal liability is an important step in assessing any export violation.  (For a detailed discussion of the steps for dealing with an export or sanctions violation see: Dealing With Violations In Export Transactions.)

DOJ had previously issued guidance for the submission of voluntary self-disclosures for export violations in October 2016.  However the new Policy goes beyond the 2016 guidance by clarifying the benefits of submitting a disclosure and providing a specific policy for non-prosecution and avoidance of penalties.  This is quite beneficial for companies submitting disclosures and is similar to DOJ’s Corporate Enforcement Policy for the Foreign Corrupt Practices Act.  

Assistant Attorney General For National Security John C. Demers described DOJ’s rationale for adopting the new policy in a recent DOJ release:

“Protecting our nation’s sensitive technologies and preventing transactions with sanctioned entities are DOJ priorities, but we cannot succeed alone …We need the private sector to come forward and work with DOJ.  The revised VSD Policy should reassure companies that, when they do report violations directly to DOJ, the benefits of their cooperation will be concrete and significant.”[5]


Under the Policy, if a company (1) voluntarily self-discloses export control or sanctions violations to DOJ’s Counterintelligence and Export Control Section (“CECS”), (2) cooperates with CECS in resolving the violation, and (3) remediates in accordance with the provisions in the Policy, there is a presumption that the company will receive a non-prosecution agreement and will not pay a fine, absent aggravating factors. DOJ defines “aggravating factors” to include exports of items that are particularly sensitive, exports to end users of heightened concern, repeated violations, the involvement of senior management in the violations and significant profit being derived by the company in question.[6]

If aggravating factors are present when a company self-discloses, cooperates and remediates, DOJ will support reduced penalties which may include a 50% reduction in the applicable penalty and the elimination of the requirement for a monitor if the company has an effective compliance program. 

However the company will not be permitted to retain the profits from the criminal activity – under the Policy parties submitting disclosures will be required to pay disgorgement, forfeiture, and/or restitution resulting from the activity in question.

The timing of the submission of a disclosure is extremely important.  If at the time of the disclosure DOJ is already aware of the violation and there is an imminent threat of government investigation, the company will not obtain the benefits of the disclosure.  This is important if there are other parties involved in the violation, such as employees, partners, distributors or customers of the company making the disclosure.  If one of these other parties discloses the violation to CECS first, the company may find itself in the midst of a criminal investigation and unable to take advantage of the benefits of a voluntary disclosure.  Consequently it is often advisable for companies to move quickly if they determine that they wish to take advantage of the voluntary disclosure process.

The Policy also addresses export violations arising in the context of merger and acquisition transactions.  The Policy states:

“When a company undertakes a merger or acquisition, uncovers misconduct by the merged or acquired entity through thorough and timely due diligence or, in appropriate instances, through post-acquisition audits or compliance integration efforts, and voluntarily self-discloses the misconduct and otherwise takes action consistent with this Policy (including, among other requirements, the timely implementation of an effective compliance program at the merged or acquired entity), there will be a presumption of a non-prosecution agreement in accordance with and subject to the other requirements of this Policy.”[7]        


The Policy provides a number of additional conditions that must be met in order to receive the benefits of making voluntary self-disclosures, including:

  • Timely and Complete Disclosure – The company submitting the disclosure must disclose all relevant facts related to the event in question, within a reasonably prompt time after becoming aware of the offense and submit the disclosure “prior to an imminent threat of disclosure or government investigation.”
  • Full Cooperation – The company must fully cooperate with DOJ in the investigation in the manner outlined in the Policy.  Companies that cooperate only later in an investigation or fail to meet all of the criteria in the Policy may receive partial cooperation credit.
  • Timely and Appropriate Remediation – The Policy identifies the criteria required to be met for timely and appropriate remediation, which include: (i) a thorough analysis of the causes of the underlying conduct; (ii) implementation of a compliance program; (iii) appropriate discipline of employees responsible for the violation; and (iv) no deletion of business records.


Under the Policy, consistent with Justice Manual 9-28.720, eligibility for cooperation credit is not predicated on the waiver of the attorney-client privilege or work product protection.

The Policy was issued by CECS within the DOJ’s National Security Division and applies only to export control and sanctions matters handled by CECS.  Disclosures must be submitted directly to CECS - if the company submits the disclosure to DDTC, BIS or OFAC and not CECS it will not obtain the benefits related to criminal prosecution available under the Policy.  Parties may, however, deem it advisable to also submit voluntary disclosures to BIS, DDTC and/or OFAC, depending upon the facts of their cases, if they wish to obtain mitigation of both criminal and civil penalties.  The coordination and timing of disclosures to multiple agencies must be considered carefully based upon the facts of each case.

The Policy became effective on December 13, 2019 and will be inserted in the Justice Manual.

As discussed in previous Client Alerts, export violations can create serious potential liability for companies and must be dealt with quickly and correctly.  In many cases a voluntary self-disclosure can be an effective method for resolving violations, reducing legal risk and cleaning up past problems.  However, the decision regarding whether and how to self-disclose should be made carefully, based upon the advice of experienced legal counsel addressing the pros and cons in the context of the facts of your particular case.  If executed properly, a self-disclosure can be an effective tool in your export compliance tool kit.

Note:  This article contains general, condensed summaries of actual legal matters, statutes and opinions for information and education purposes.  It is not intended and should not be construed as legal advice.

To be placed on our list to receive additional articles on export and import law please contact Thomas McVey at: tmcvey@williamsmullen.com or 202.293.8118.  Additional articles on ITAR, EAR and US sanctions programs are available at: “Export Articles.”
 

[1] See Export Control and Sanctions Enforcement Policy For Business Organizations, U.S. Department of Justice, December 13, 2019.
[2] BIS administers the Export Administration Regulations.
[3] DDTC administers the International Traffic In Arms Regulations.
[4] OFAC administers the U.S. trade and economic sanctions laws.
[5] See DOJ News Release, December 13, 2019.
[6] See Policy at p. 2.  A more detailed listing of potential aggravating factors identified in the policy includes: exports of items controlled for nuclear nonproliferation or missile technology reasons to a proliferator country; exports of items known to be used in the construction of weapons of mass destruction; exports to a Foreign Terrorist Organization or Specially Designated Global Terrorist; exports of military items to a hostile foreign power; repeated violations, including similar administrative or criminal violations in the past; and knowing involvement of upper management in the criminal conduct.  See Policy p. 6.
[7] See Policy p. 3 footnote 7.