Key Points:
- On May 21, 2024, the DOJ announced its first ever declination under the NSD's updated Enforcement Policy, declining to prosecute Sigma-Aldrich Inc., d/b/a MilliporeSigma (a subsidiary of Merck KGaA, Darmstadt, Germany), for criminal violations of U.S. export controls committed by a MilliporeSigma employee.
- Central to its decision to decline prosecution was MilliporeSigma's timely voluntary self-disclosure, exceptional and proactive cooperation, and timely and appropriate remediation. DOJ also considered that the violations did not present a significant threat to national security, and that MilliporeSigma was itself victimized by the employee's fraudulent scheme. DOJ did not require MilliporeSigma to pay any disgorgement, forfeiture, or restitution, having not unlawfully obtained any gains from the offenses.
- DOJ's declination to prosecute MilliporeSigma may further incentivize companies to voluntarily self-disclose potentially criminal violations of U.S. export controls or sanctions to DOJ, as disclosures to DOJ without aggravating factors are presumed to be resolved with a non-prosecution agreement or declination, whereas disclosures to agencies such as BIS, OFAC or DDTC alone will not be afforded such a presumption.
Background
According to court documents, between July 2016 and at least May 2023, a MilliporeSigma employee shipped biochemical products from MilliporeSigma to a Chinese national customer. The customer, with the MilliporeSigma employee's knowledge and participation, falsely represented that he was affiliated with a U.S. university's research lab to obtain significant discounts and other benefits on MilliporeSigma's biochemical products. The customer then repackaged and shipped the biochemical products—some of which were controlled under the International Traffic in Arms Regulations (ITAR) and/or Export Administration Regulations (EAR)—to China, falsely representing the value and contents of the shipments in export documents. In total, the scheme allowed the customer to access $4.9 million worth of discounts and other benefits. In return, over the course of the seven-year scheme, the former employee allegedly received thousands of dollars in gift cards from the customer for his part in facilitating the fraudulent orders.
Once MilliporeSigma compliance personnel identified certain orders as suspicious, the company retained outside counsel to conduct an internal investigation and then voluntarily self-disclosed the misconduct to the National Security Division (NSD) only one week later. The former employee and the customer have both pled guilty to conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349.
NSD's Declination
This is the first time that the Department of Justice (DOJ) has declined the prosecution of a company under the NSD Enforcement Policy for Business Organizations (NSD Enforcement Policy), which was issued in March 2023 and updated in March 2024. The NSD Enforcement Policy creates a presumption that companies that (1) voluntarily self-disclose to NSD potentially criminal violations arising out of or relating to the enforcement of export control or sanctions laws, (2) fully cooperate with DOJ and (3) timely and appropriately remediate will generally receive a non-prosecution agreement, unless aggravating factors exist. Further requirements include not having preexisting disclosure obligations and disclosing "prior to an imminent threat of disclosure or government investigation."
In its announcement, DOJ noted MilliporeSigma's "early decision to cooperate with the Justice Department" enabled law enforcement to disrupt the scheme and stop further illegal exports to China. DOJ also cited to MilliporeSigma's "timely self-disclosure and extraordinary cooperation" as contributing to NSD's decision to decline prosecution. NSD's declination letter emphasizes certain key elements of MilliporeSigma's response to the violations that NSD viewed favorably and that may be relevant to companies' future determinations as to whether to disclose potentially criminal violations of U.S. export controls or sanctions to DOJ. Specifically, DOJ emphasized MilliporeSigma's:
- Timely disclosure prior to the completion of an internal investigation: MilliporeSigma made a timely disclosure, just a week after retaining outside counsel to conduct an internal investigation, and "well before" obtaining a complete understanding of the nature and full extent of the misconduct. This was consistent with the NSD Enforcement Policy, which encourages self-disclosure of potential wrongdoing at the "earliest possible time, even when a company has not yet completed an internal investigation."
- Exceptional and proactive cooperation: MilliporeSigma disclosed all known relevant facts about the misconduct and the individuals involved. Additionally, the company agreed to continue to fully cooperate with the ongoing investigation and any resulting prosecutions, proactively identifying and producing documents sufficient to establish probable cause for searches. This transparent and fulsome production of documents allowed investigators to quickly identify the individuals involved in the scheme. U.S. Attorney for the Middle District of Florida Roger B. Handberg noted that the company's "prompt and full cooperation" was "essential" in uncovering the scheme and obtaining successful convictions.
- Nature and seriousness of the offense: The chemical compounds exported to China through the scheme "did not present a significant threat to national security" in terms of the quantities and concentrations sold, and "in most instances, did not require a license for export."
- Timely and appropriate remediation: MilliporeSigma terminated the salesperson involved in the misconduct and improved its internal controls and compliance program.
- Status as a victim: While NSD noted that MilliporeSigma obtained some revenue from sales in the scheme, NSD found that the company was "victimized by the conspirators' scheme" to obtain discounted products and other benefits.
Conclusion
DOJ's decision to decline prosecution of MilliporeSigma, the first declination under NSD's new Enforcement Policy, demonstrates the significant incentives available to companies under the NSD Enforcement Policy. This declination also illustrates the increasing alignment of NSD's approach to voluntary self-disclosures of violations of U.S. export controls and sanctions with that of other units of DOJ, including, for example, the Fraud Section of the Criminal Division, which deals with violations of the Foreign Corrupt Practices Act (FCPA). Where, as here, "knowledge" was undeniable, companies are likely to see little downside in disclosing violations to DOJ. This is particularly true where actions were undertaken by a "rogue" employee in which similar declinations have been offered with frequency in the FCPA context. DOJ's Justice Manual, Principles of Federal Prosecution Of Business Organizations, notes that "[p]rosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or outside the corporation."
In instances where it is unclear if the conduct at issue satisfied the "willful" intent standard—necessary for criminal cases—the NSD Enforcement Policy may still incentivize disclosure to DOJ, given that timely voluntary self-disclosure of violations of U.S. export controls and sanctions carries a presumption of non-prosecution under the new policy, in the absence of other aggravating factors. Assessing criminal intent in these circumstances is often more challenging than it is in other contexts such as the FCPA; however, as the NSD Enforcement Policy offers the presumption of non-prosecution for the disclosure of all "potentially criminal" violations of U.S. export control and sanctions regimes, companies may wish to consider disclosure of individual wrongdoing to the DOJ even when criminal intent is unclear. This is especially true given that the presumption of non-enforcement is not offered for voluntary self-disclosures to the Bureau of Industry and Security (BIS), Office of Foreign Assets Control (OFAC) or Directorate of Defense Trade Controls (DDTC) in instances where such matters are ultimately referred to DOJ by the respective agencies.
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