In recent years, the Department of Justice has written policies that encourage companies to come forward with statutory violations, from overseas bribery to antitrust. Last month, the DOJ officially expanded its cooperation policy to international trade.
On Dec. 13, the DOJ announced an official policy to offer leniency to companies that self-disclose export control and sanctions violations in their midst. With new revisions in the Justice Manual, the DOJ will reward companies with sizable penalty reductions, and even non-prosecution, when they cooperate with federal investigations into those violations. While companies have previously been able to seek cooperation credit from the DOJ for export violations, they now have a clearer picture as to what the department will require and what benefits they might receive.
The DOJ’s National Security Division, which investigates export control and sanctions violations, is focused on prosecuting trade activity that promotes terrorism or supports an adversarial group or nation. But the DOJ isn’t the only agency companies must answer to when it comes to international trade compliance. Depending on what types of goods they’re exporting, companies are subject to a range of regulators, from the Department of State to U.S. Customs and Border Protection. The Department of Commerce’s Bureau of Industry and Security, for example, oversees regulations regarding certain commercial exports, technology and military equipment components.
Under the new guidance, if the company makes a complete disclosure to the DOJ and there are no “aggravating factors” in their case — which the guidance also lists — companies might see no prosecution or fines for the violations. They must also cooperate with the investigation and remediate related issues with measures such as a sanctions compliance program.
“Protecting our nation’s sensitive technologies and preventing transactions with sanctioned entities are DOJ priorities, but we cannot succeed alone,” said John Demers, assistant Attorney general for national security, in a press release. “We need the private sector to come forward and work with DOJ.” Demers added that the new voluntary self-disclosure policy should “reassure companies” that the benefits “will be concrete and significant” when they report directly to the DOJ.
If the DOJ sees enough aggravating factors despite the company’s voluntary self-disclosure, it might still pursue a criminal case. In that instance, the company’s disclosure and cooperation will still get them at least a 50% cut in fines, according to the new policy. Aggravating factors include sensitive exports like missile technology, any activity to support terrorist groups and if the company has a past history of export violations.
Companies have previously benefited from voluntarily disclosing export violations to the DOJ, but that policy was always informal, said David Glynn, of counsel with Holland & Hart in Denver whose federal regulatory practice focuses on export controls. By defining the benefits and aggravating factors the DOJ weighs in offering leniency, “this [guidance] makes it really clear,” Glynn said.
Under the new guidance, companies must disclose willful export violations to the DOJ first, or simultaneously with the other federal regulators who require those reports, in order to get the most cooperation credit. Glynn said that’s one of the more interesting aspects of the DOJ’s new policy.
“Now they’re saying, if you think there’s anything willful in the conduct, you need to first go to DOJ,” Glynn said. He added that his advice to companies in that situation, if they’re going to come forward, has traditionally been that they ought to make their disclosures to multiple agencies simultaneously. Otherwise, companies risk having one regulator finding out about the potential violations from the DOJ or another regulator, which might preclude them from disclosure benefits from those agencies, Glynn said.
When it comes to reporting a potential export violation, the willfulness factor is a key distinction, Glynn said.
“[As] defense attorneys we’re always looking to see, we have a disclosure situation, but was the conduct willful?” Glynn said. “That’s where I think this [DOJ] policy is saying, ‘You’d better let us know right away.’”
The timing of the disclosure might vary depending on the situation. Glynn said he and his firm often go the “initial notification” route — the company tells the government it thinks there might be a violation, but they’re still looking into it. Alternatively, the company might wait until it’s completed its own internal investigation into the matter so it can report its full evidence to the government. “We don’t typically take that route because of the concern with the agency discovering it,” Glynn said.
As with the DOJ’s self-disclosure programs dealing with other areas, such as the False Claims Act or the Foreign Corrupt Practices Act, companies might still find it a complicated decision whether they should come forward. “It’s not always a forgone conclusion that you’d want to do a disclosure,” Glynn said. Proving that a criminal export violation was intentional is a high bar for the government to clear, he noted.
Faced with whether to voluntarily disclose, companies often consider what the potential penalty would be if the conduct is discovered, and if there’s a possibility a whistleblower might alert regulators anyway. Companies are also concerned about how the investigation might hurt its reputation; agencies typically publish the names of investigated companies even when they settle.
“They’re considering those factors, and usually it’s [concerned with] what’s going to show up in the Wall Street Journal, what’s going to be the headline,” Glynn said.
— Doug Chartier