On July 26, 2023, the Department of Justice ("DOJ"),
the Department of Commerce's Bureau of Industry and Security
("BIS"), and the Department of the Treasury's Office
of Foreign Assets Control ("OFAC") published their second Tri-Seal Compliance Note of the year.
The first compliance note was issued on March 2 and focused on the importance of
proactive trade compliance by companies and efforts to combat
evasion of Russia-related sanctions and export controls. This time,
the three departments have provided guidance pertaining to the
other side of the compliance coin - what a company should do when
it discovers it has been involved in potential violations of U.S.
sanctions or export controls.
More specifically, the Compliance Note emphasizes that
companies that discover potential violations of U.S. sanctions or
export controls should "promptly disclose" these
violations to the government by submitting a Voluntary
Self-Disclosure ("VSD"). The Compliance Note describes
the VSD policies of the DOJ, BIS, and OFAC.
DOJ - National Security Division ("NSD") Updated VSD Policy
First, the Compliance Note provides that the NSD has issued an
updated VSD policy as of March 1st that incentivizes companies to
disclose potential criminal violations of U.S. sanctions and export
control laws. Notably, a company that voluntarily discloses
potential criminal violations, fully cooperates, and implements
remedial measures in a timely manner can qualify for a
non-prosecution agreement and may not even have to pay a fine.
However, when aggravating factors are present, such as facts
demonstrating "pervasive criminal misconduct within the
company" or an attempt to conceal violations by upper
management, the NSD will have the discretion to instead seek a
deferred prosecution agreement or guilty plea from the disclosing
party. In addition, the principles of NSD's updated policy also
apply to other matters handled by the NSD, including cases
involving violations of Foreign Agents Registration Act and
violations related to the Committee on Foreign Investment in the
United States ("CFIUS").
BIS Updated VSD Guidance
The BIS Office of Export Enforcement ("OEE")
implemented a "dual-track system" for VSDs in June 2022,
creating a "fast-track" for VSDs involving minor or
technical violations of the Export Administration Regulations
("EAR"). In addition, on April 18, 2023, Assistant
Secretary for Export Enforcement, Matthew Axelrod, issued a
memorandum on BIS's VSD policy. As discussed in our previous article, this memorandum clarified
that a deliberate non-disclosure of a serious violation of the EAR
will be considered as an aggravating factor by BIS when assessing
penalties. Furthermore, the memorandum stated that, where an entity
submits a tip to OEE regarding another entity's violation, OEE
will consider such whistleblowing a mitigating factor in any future
enforcement action against the whistleblowing entity if the tip
leads to an enforcement action by BIS.
OFAC VSD Policy
OFAC handles and encourages companies to submit VSDs of
sanctions violations in a similar manner to the NSD and BIS. OFAC
will consider the submission of a VSD a mitigating factor when
assessing what type of enforcement action should be taken in a
case. In some cases, a VSD can result in as much as a 50% reduction
in the base amount of a proposed monetary penalty. The Compliance
Note also lists situations where a disclosure will not qualify as a
VSD, including situations where a disclosure is not
"self-initiated" or is a result of a suggestion made by
another agency or official. In addition, VSDs cannot be materially
incomplete or contain false or misleading information.
Takeaways
The issuance of this Compliance Note and the recent updates to
VSD policies are reflective of the fact that private companies play
a significant role in effectuating U.S. trade policy and combatting
evasion of U.S. sanctions and export controls. The BIS updates in
particular make non-disclosure of potential violations even more
risky as third parties are now incentivized to blow the whistle on
other companies engaged in violations. The end of the Compliance
note also highlights the Financial Crimes Enforcement Network's
("FinCEN") new whistleblower program that can provide
monetary awards to individuals that report sanctions violations to
FinCEN or the DOJ (see our article on this topic here). These increases in
whistleblower-related incentives should prompt companies to
seriously consider submitting VSDs to the relevant agencies when
potential violations are discovered. As the VSD policies described
above show, the submission of a VSD will in most cases lower the
risk of a company being subject to significant enforcement actions
and harsh penalties.
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You can find more information on VSDs in our VSD Handbook
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.