On Wednesday, July 26, 2023, the United States Department of Justice, Department of Commerce's Bureau of Industry and Security ("BIS"), and Department of the Treasury's Office of Foreign Assets Control ("OFAC") issued a tri-seal compliance note (the "Note") focusing on the voluntary self-disclosure policies that apply to U.S. sanctions, export controls, and other national security laws. The Note states that compliance with sanctions, export controls, and other national security laws is paramount, and that a company which discovers a potential violation, whether it is an administrative or criminal violation, should promptly disclose and remediate. The Note describes the voluntary self-disclosure policies that apply to U.S. sanctions, export controls, and other national security laws as well as recent updates that have been made to certain of those policies. The Note also highlights the Financial Crime Enforcement Network ("FinCEN")'s Anti-Money Laundering and Sanctions Whistleblower Program, which incentivizes individual in the United States and abroad to provide information to the government about violations of U.S. trade and economic sanctions, in additions to violations of the Bank Secrecy Act.
Department of the Treasury's Office of Foreign Assets Control's Voluntary Self-Disclosure Policy
OFAC similarly encourages voluntary disclosures of apparent sanctions violations, and considers voluntary self-disclosures to be a mitigating factor when determining appropriate enforcement action to take in response to a particular case. Additionally, in cases where a civil monetary penalty is warranted, a qualifying voluntary self-disclosure can result in a 50 percent reduction in the base amount of a proposed civil penalty. In reviewing the underlying conduct in a voluntary self-disclosure OFAC considers the totality of the circumstances surrounding the apparent violation, including, among other factors, the existence, nature, and adequacy of the subject's compliance program at the time of the apparent violation and the corrective actions taken in response to an apparent violation. OFAC requires voluntary self-disclosures to include, or to be followed within a reasonable period of time by, a sufficiently detailed report that provides a complete understanding of the circumstances of the apparent violation(s).
The Note also lists certain circumstances in which a disclosure will not constitute a voluntary self-disclosure. These circumstances include:
- when a third party is required to and does notify OFAC of the apparent violation because the transaction was blocked or rejected by that third party (regardless of when OFAC receives such notice or whether the subject person was aware of the third party's disclosure);
- when the disclosure includes false or misleading information;
- when the disclosure is not self-initiated (including when the disclosure results from a suggestion or order of a federal or state agency or official, or when the subject person is an entity, the disclosure is made by an individual in a subject person entity without the authorization of the entity's senior management;
- when the disclosure is a response to an administrative subpoena or other inquiry from, or is a license application rather than a self-disclosure; or
- when the disclosure (when considered alongside supplemental information) is materially
incomplete.
Department of Justice's National Security Division's Updated Voluntary Self-Disclosure Policy
In an effort to address the various threats posed by the unlawful export of sensitive commodities, technologies, and services, as well as transactions with blocked individuals, the Department of Justice's National Security Division ("NSD") issued an updated voluntary self-disclosure policy covering potential criminal violations of export controls and sanctions laws on March 1, 2023.
Per the Note, moving forward, where a company voluntarily self-discloses potentially criminal violations, fully cooperates, and timely and appropriately remediates the violations, NSD generally will not seek a guilty plea, and there will be a presumption that the company will receive a non-prosecution agreement and will not pay a fine. The presumption in favor of a non-prosecution agreement does not apply, however, where there are aggravating factors, including egregious or pervasive criminal misconduct within the company, or concealment or involvement by upper management. Where such aggravating factors are present, NSD has the discretion to seek a different resolution, such as a deferred prosecution agreement or guilty plea.
NSD has also further strengthened its focus on corporate compliance with national security laws by hiring a Chief Counsel for Corporate Enforcement and by adding twenty-five new prosecutors to help investigate and prosecute sanctions evasion, export control violations, and similar economic crimes.
Department of Commerce's Bureau of Industry and Security's Updated Guidance for Voluntary Self-Disclosures
Likewise, BIS strongly encourages disclosures by companies and other entities who believe that they may have violated the Export Administration Regulations ("EAR"), or any order, license, or authorization issued thereunder. A disclosure that is timely and comprehensive and involves full cooperation of the disclosing party substantially reduces the applicable civil penalty under the BIS settlement guidelines.
In June 2022, the Office of Export Enforcement ("OEE") implemented a dual-track system to handle voluntary self-disclosures which fast-tracks minor or technical infractions while diving deeper into more serious violations. While doing this, OEE adheres to the principle that companies deserve, and will get, significant credit for coming forward voluntarily.
On April 18, 2023, OEE issued a memorandum clarifying the risk calculus on voluntary self-disclosures in two ways: first, a deliberate non-disclosure of a significant possible violation of the EAR will be considered an aggravating factor under BIS penalty guidelines. Second, if an entity becomes aware that another party is potentially violating the EAR and submits a tip to OEE, OEE will consider that a mitigating factor under the penalty guidelines if the information leads to an enforcement action and if the disclosing entity faces an enforcement action (even if unrelated) in the future. Companies also cannot sidestep the question of whether or not to self-disclose by choosing not to perform an internal investigation.
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