On 2 October 2016, the U.S. Department of Justice released new guidance regarding voluntary self-disclosure, cooperation and remediation in export controls and sanctions investigations. The purpose of the guidance is to encourage companies to self-report potential violations by the company or its employees, to cooperate in subsequent investigations and to implement remediation measures in return for favourable treatment. The DOJ also wants to use the guidance to increase its ability and that of other authorities to prosecute individual wrongdoers for their role in the unlawful conduct. Yet, the guidance may have some unintended effects. Voluntary self-disclosure to the DOJ may be interpreted as an admission that the misconduct was wilful, and this may have severe consequences for both the company and individuals involved. In addition, the guidance's requirement to hand over information about culpable individuals may diminish the level of cooperation of individuals in corporate internal investigations. This, in turn, may reduce a company's ability to live up to the agency's requirements and to benefit from any purported cooperation credit. Although the guidance sheds new light on aspects of US enforcement policy of sanctions and export controls violations, the question "to self-report or not to self-report" still requires careful consideration and a weighing of all pros and cons.
The new guidance from the DOJ's National Security Division (NSD) states that "when a company voluntarily self-discloses criminal violations of export controls and sanctions, fully cooperates and appropriately remediates in accordance with the standards set out in the guidance, the company may be eligible for a significantly reduced penalty, to include the possibility of a non-prosecution agreement, a reduced period of supervised compliance, a reduced fine and forfeiture, and no requirement for a monitor". In some cases, when aggravating circumstances are present, the resolution may still be stringent. Nevertheless, the guidance intends to reassure companies that they would still find themselves in a better position than if they had not chosen to self-disclose, cooperate and remediate.
Voluntary self-disclosure is defined as the disclosure of conduct prior to an imminent threat of disclosure or government investigation, within a reasonably prompt time after becoming aware of the offence. The disclosure must further consist of all relevant facts known to the company, including about the individuals involved in any export control or sanctions violation.
Full cooperation requires a set of actions to be taken, including:
- cooperating proactively rather than reactively;
- disclosing relevant documents, providing all facts relevant to potential criminal conduct by third party companies and third party individuals;
- making available for interviews those company officers and employees who possess relevant information; and
- disclosing all relevant facts gathered during the company's independent investigation where this does not violate the attorney-client privilege.
Timely and appropriate remediation generally requires companies to implement an effective compliance programme, to take appropriate disciplinary measures against employees responsible for the criminal conduct and to take any additional steps that demonstrate recognition of wrongdoing and that attempt to prevent any recurrence.
Strikingly, the NSD guidance also names several potentially aggravating circumstances that could result in harsher penalties against companies, rather than more lenient treatment. Examples include exporting products to "hostile" foreign powers or terrorist organisations, or exporting items which are subject to restrictive measures to prevent nuclear proliferation.
The guidance seems to borrow from the previously launched FCPA Pilot Programme (See In context May 2016) and is in line with the Yates Memo of September 2015 (See In Context October 2015). Similarly to the Pilot Programme and the enforcement strategies unfolded in the Yates Memo, there is an increased focus on the role of individuals and special emphasis is put on the importance of companies to self-report potentially non-compliant behaviour of employees. The Yates memo indicates that if companies want to receive credit for cooperating with the authorities, they need to hand over all relevant facts on individuals involved in the misconduct, regardless of their position at the company. This information should be provided before a settlement is reached. In addition, corporate settlements may no longer include individuals, unless extraordinary circumstances justify it.
There are, however, some noteworthy differences between the newly released guidance by the NSD and the FCPA Pilot Programme. Whereas the FCPA Pilot Programme specifically mentions that discounts on the fines can amount up to 50%, the guidance released by the NSD makes no particular mention of potential discount levels. In addition, although the NSD guidance mentions that self-reporting companies are eligible for settlement agreements such as deferred and non-prosecution agreements, it does not discuss the option of a declination, which is the most attractive reward.
We cannot yet determine the effects of the guidance. One thing that companies might be induced to change is how they self-report export controls and sanctions violations. Where they would previously report first to authorities such as the Office of Foreign Assets Control (OFAC) or to other, non-criminal regulatory authorities, companies may now feel pressure to disclose to the DOJ simultaneously, fearing that not doing so would deprive them of favourable treatment by the DOJ.
Yet it remains to be seen if companies will actually start self-reporting potential violations to the DOJ. The DOJ only investigates criminal export controls and sanctions violations. An export controls or sanctions violation is criminal under US law if the violation is wilful. It is usually practically and legally difficult to establish if a violation was wilfully committed. But if a company follows the new guidance and voluntarily self-discloses to the DOJ, the mere act of disclosing certain facts to the DOJ may be interpreted as a company admitting willfulness in respect of those facts. This may have negative effects on the willingness of companies to voluntarily self-disclose.
Companies have many factors and risks to take into consideration when weighing the decision about whether to voluntarily disclose to the DOJ. In principle, the guidance aims to encourage companies to decide that the potential benefits outweigh the risks. Yet, although the new NSD guidance intends to stress the potential benefits of self-disclosing, cooperating and remediating, assessing if this will truly be in the company's best interest still requires careful consideration of all relevant circumstances, in order to make an informed decision.
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.