DOJ, OFAC, and BIS Issue “Tri-Seal Compliance Note” Focusing on Voluntary Self-Disclosures

On July 26, 2023, the U.S. Department of Justice (“DOJ”), the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued a Tri-Seal Compliance Note outlining their respective voluntary self-disclosure (“VSD”) procedures for potential violations of U.S. export controls and sanctions.  This announcement highlights the agencies’ focus on compliance with export controls, sanctions, and other U.S. national security laws, and reminds industry of the incentives for voluntarily disclosing potential violations, including mitigation of civil and criminal penalties. 

This issuance marks the second joint statement of the three agencies, and comes on the heels of the agencies’ March 2, 2023, Tri-Seal Compliance Note regarding the risk of third-party intermediaries’ involvement in Russia-related sanctions and export controls evasion, which we previously discussed here.  

DOJ’s National Security Division VSD Policy

The DOJ’s National Security Division (“NSD”), which enforces national security laws, including willful sanctions and export controls violations, recently updated its VSD policy (“NSD Policy”) on March 1, 2023, as part of the Department’s broader push for its components to review, draft, and publish VSD policies.  Under NSD’s Policy, when a company voluntarily self-discloses potential criminal sanctions or export control violations, fully cooperates, and timely and appropriately remediates, NSD generally will not seek a guilty plea from the company, and there is a presumption that the company will receive a non-prosecution agreement and no criminal fine.  The presumption surrounding non-prosecution agreements does not apply, however, if there are aggravating factors, including:

• Egregious or pervasive criminal conduct within the company;
• Concealment or involvement by upper management;
• Repeated administrative or criminal violations of national security laws;
• The export of items that are particularly sensitive or that are going to end users of heightened concern; and
• A significant profit to the company from the misconduct.

If some or all of the listed aggravating factors are present, NSD may seek a different resolution, including a deferred prosecution agreement or guilty plea.  If a company qualifies for a non-prosecution agreement or a declination, it must still disgorge or forfeit all ill-gotten gains arising from the misconduct in question.  The NSD Policy also places significant emphasis on the timing and recipient of the disclosure, noting that a company’s disclosure must be made in a “reasonably prompt time after becoming aware of the potential violation,” and before any imminent threat of disclosure or government investigation, and must be specifically made to NSD in order to qualify for VSD credit.  An untimely disclosure, or a disclosure to another agency alone, such as only OFAC or BIS, will not qualify as a VSD under the NSD Policy.  Nevertheless, NSD will consider good faith disclosures to other DOJ components as a VSD under the NSD Policy, provided the matter is resolved with NSD.

While the agencies’ joint press release states that, “[i]f a company discovers a potential violation, whether it is an administrative or criminal violation, that company must promptly disclose and remediate,” the NSD Policy speaks only to VSDs for “potentially criminal,” that is, willful violations, of U.S. export controls and sanctions.  Furthermore, despite the use of the phrase “must promptly disclose and remediate” in the announcement, the announcement does not create a new requirement for disclosure, but rather explains the incentives that each agency applies to encourage voluntary disclosures.

BIS’s VSD Policy

On April 18, 2023, BIS released a memorandum entitled, “Clarifying Our Policy Regarding Voluntary Self-Disclosures and Disclosures Concerning Others” (the “April Memo”).  The April Memo highlights additional penalties and incentives to encourage exporters – and whistleblowers – to disclose potential violations of the Export Administration Regulations (“EAR”).  In a change of policy, BIS announced it would consistently treat a decision not to voluntary self-disclose significant violations of the EAR as an aggravating factor in the calculation of penalties.   For additional details, see our analysis of the April Memo.

OFAC’s VSD Policy

Finally, OFAC, which administers U.S. sanctions, sets forth its own VSD policy in its Economic Sanctions Enforcement Guidelines, which are set forth in Appendix A to Title 31, Part 501, of the Code of Federal Regulations.  OFAC’s VSD policy provides for a reduction of 50% of the base amount of the proposed penalty when a company has filed a VSD with OFAC.  However, for a VSD to OFAC to qualify for this credit, the VSD must be made prior to, or concurrent with, the discovery by OFAC or another government agency of the apparent violation or a substantially similar apparent violation.  Whether a notification of an apparent violation through a VSD to another agency will qualify as a VSD to OFAC is determined on a case-by-case basis. Importantly, there remain several scenarios where OFAC will not view a disclosure as “voluntary,” such as when a third party is required to notify OFAC of the apparent violation by filing a report of a blocked or rejected transaction, or if the disclosure is not self-initiated (such as in response to an OFAC subpoena), or if the disclosure contains false or misleading information.

FinCEN’s Whistleblower Program

The Tri-Seal Compliance Note also highlights the relatively new whistleblower program administered by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network’s (“FinCEN”).  The program was created under the Anti-Money Laundering Act of 2020 and recently expanded under the Anti-Money Laundering Whistleblower Improvement Act.  The agencies note that FinCEN is authorized to provide awards of between 10% to 30% of monetary penalties collected in an enforcement action, if the information provided by the whistleblower to FinCEN or DOJ results in an enforcement action relating to the Bank Secrecy Act or U.S. sanctions. The agencies also note that FinCEN may be able to pay awards to whistleblowers where the information provided leads to a successful “related action,” such as an export controls enforcement action. 

Takeaways

With DOJ’s proclamation that “sanctions are the new FCPA,” U.S. and multinational companies should assess their programs for complying with sanctions and export controls, and for addressing other national security risks.  If and when companies discover potential violations, they should retain counsel with expertise in export controls and sanctions to conduct an internal investigation, identify underlying causes or vulnerabilities that may have contributed to the violation, help determine whether to self-disclose (and to whom), and assist with remediation of compliance programs.  In such scenarios, internal investigations are critical, and the failure to initiate one within a reasonable timeframe of discovering the potential violation may be used to demonstrate a compliance gap.  

Crowell & Moring LLP will continue to monitor developments regarding export controls and sanctions regulations and enforcement, and will provide updates as appropriate.  Please reach out to your Crowell & Moring contact, or any of the authors below, for additional information on these matters.