Justice, Commerce, and Treasury Emphasize Relevance of Voluntary Disclosures of Violations

On July 26, 2023, the departments of Justice, Commerce and Treasury jointly issued a compliance note urging the voluntary disclosure of violations of national security laws, including sanctions and export controls. Although the note summarizes pre-existing policies of those agencies (including recent changes to those policies), the fact that all three departments continue to message collectively on export control and sanctions authorities reflects an explicit desire by the federal government to increase compliance, including through enforcement actions.

To summarize the policies highlighted in the joint note:

• The National Security Division at the Justice Department issued a revised enforcement policy for business organizations on March 1, 2023,¹ which reformulated a “presumption” that, in the absence of aggravating factors, a company will receive a non-prosecution agreement and will not pay a fine, where it (1) voluntarily self-discloses potentially criminal violations, (2) fully cooperates, and (3) timely and appropriately remediates. And even where aggravating factors (such as pervasive criminal misconduct, involvement by upper management, or prior violations) are present, such voluntary self-disclosure (“VSD”), cooperation, and remediation may allow the company to avoid a guilty plea or the appointment of a monitor, and earn a sentencing recommendation that caps any fine at an amount equal to the gross gain or loss related to the offense (half the otherwise applicable Sentencing Guidelines range).
• On April 18, 2023, the Assistant Secretary for Export Enforcement clarified the Department of Commerce’s existing VSD policy (last revised in June 2022) in two respects:² first, if an entity identifies a significant possible violation—but chooses not to submit a VSD—that decision not to self-report will be an aggravating factor in any future enforcement action (even if it concerns unrelated conduct). On the other hand, where a party becomes aware of another party’s conduct that may have violated the Export Administration Regulations, discloses such conduct, and that tip results in an enforcement action, that will be considered a mitigating factor if a future enforcement action is ever brought against the disclosing party. The policy explicitly encourages companies to report violations by their competitors, rather than “suffer[ing] in silence while they’re foregoing sales.”
• Likewise, under its existing Enforcement Guidelines,³ the Office of Foreign Asset Control at the Treasury considers VSDs to be a mitigating factor when determining appropriate enforcement action to take in response to a particular case, and in cases where a civil monetary penalty is warranted, a qualifying VSD can result in a 50 percent reduction in the base amount of a proposed civil penalty. The note also highlights a whistleblower policy by the Financial Crimes Enforcement Network, which may entitle reporting individuals to awards totaling between 10 to 30 percent of the monetary sanctions collected in an enforcement action, if their information ultimately leads to a successful enforcement action. Such awards are available to those who report violations of US trade and economic sanctions, the Bank Secrecy Act, or those whose information leads to successful enforcement of a “related action,” “meaning that the agency could pay awards on enforcement actions taken under authorities such as the Export Control Reform Act.”

The compliance note repeats the “paramount” importance that the departments are placing on compliance with national security laws, such as sanctions and export controls, and the “critical role” that the departments see businesses playing in protecting national security.

It is the second jointly issued compliance note issued this year, in a new, ongoing practice by the departments announced in March.⁴ That practice is one of a series of signs that the three departments with jurisdiction over export controls and sanctions are working more closely together to encourage greater export control compliance, including through enforcement actions. In February, the Commerce and Justice departments announced the creation of a Disruptive Technology Strike Force,⁵ which it credited in May with accelerating the investigation of five criminal cases charged under its auspices.⁶ In March, the Justice Department also announced the creation of a position in the National Security Division, dedicated entirely to corporate enforcement, as well as the future addition of 25 prosecutors to investigate sanctions evasion, export control violations, and similar economic crimes.⁷

Similarly, for FY 2023, both Treasury and Commerce received 20 to 25 percent increases for sanctions and export controls spending, respectively, including “surges” in staffing in light of new priorities. On July 26, the Assistant Secretary of Commerce for Export Enforcement announced that BIS and OFAC had just signed an agreement “formalizing [their] close coordination and partnership.” Both agencies have a history of coordination and overlapping enforcement authorities, but the announcement signals more formalized and coordinated efforts in matters of common interest, including information sharing and joint resolution of investigations and enforcement matters that fall within the common jurisdiction of both agencies.⁸

Taken together, these developments reflect a concerted “carrot and stick” approach that all three agencies have amplified in recent months on the national security priority of compliance in these areas. If the messaging on the surge in resources and coordination reflects an emphasis on the “stick,” the joint Compliance Notes also amplifies the government’s focus on the national security implications of violations in these areas of law, and its emphasis on incentivizing disclosure through that lens.

We expect to see increased investigations and enforcement actions in this area. Companies with exposure to export control, sanctions, and related national security regimes (such as the Foreign Agents Registration Act) are encouraged to ensure their compliance frameworks are adequate to meet the increased scrutiny that this coordination and resources are likely to bring and may wish to re-evaluate any prior decisions not to self-report, in light of the policy revisions discussed above.

 

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¹ https://www.justice.gov/media/1285121/dl?inline= This policy superseded a prior version of the policy, issued in December 2019, available at https://www.justice.gov/media/1037906/dl?inline=.

² https://www.bis.doc.gov/index.php/documents/enforcement/3262-vsd-policy-memo-04-18-2023/file

³ 31 CFR, part 501, Appendix A, available at https://www.ecfr.gov/current/title-31/subtitle-B/chapter-V/part-501/appendix-Appendix A to Part 501.

⁴ See Departments of Justice, Commerce and Treasury Issue Joint Compliance Note on Russia-Related Sanctions Evasion and Export Controls (Mar. 2, 2023), https://www.justice.gov/opa/pr/departments-justice-commerce-and-treasury-issue-joint-compliance-note-russia-related.

⁵ https://www.justice.gov/opa/pr/justice-and-commerce-departments-announce-creation-disruptive-technology-strike-force.

⁶ https://www.justice.gov/opa/pr/justice-department-announces-five-cases-part-recently-launched-disruptive-technology-strike.

⁷ https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national.

⁸ https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/3304-axelrod-sia-keynote-final/file