United States: US Agencies Release Compliance Note On Voluntary Self-Disclosures Of Potential Violations Of US Sanctions And Export Controls Laws

On July 26, 2023, the U.S. Department of Commerce, Department of the Treasury and Department of Justice (DOJ) released a Tri-Seal Compliance Note outlining each agencies' policy on voluntary self-disclosures (VSDs) as they relate to potential violations of U.S. sanctions, export control laws and other national security regimes.

This Note follows related Tri-Seal Compliance guidance from March 2, 2023, which aimed to shed light on the evasion tactics used by third-party intermediaries to evade U.S. sanctions and to assist the private sector in identifying warning signs and implementing compliance measures in light of the imposition of sanctions and export controls of unprecedented scope and scale to degrade Russia's ability to wage war in Ukraine.

This month's Note includes updated guidance from the DOJ's National Security Division (NSD), the Department of Treasury's Office of Foreign Assets Control (OFAC) and the Department of Commerce's Bureau of Industry and Security (BIS).

DOJ: National Security Division Guidelines on VSDs

On March 1, 2023, the NSD issued an updated VSD policy addressing potential criminal violations of national security regimes, including export control and sanctions laws. This updated policy makes clear that when a company voluntarily self-discloses potentially criminal violations, NSD generally will not seek a guilty plea and will operate under a presumption that the company will receive a non-prosecution agreement and will not pay a fine. However, in order for these benefits to accrue, the company must: (1) voluntarily self-disclose the potential criminal violations, (2) fully cooperate in NSDs investigation and (3) timely and appropriately remediate the violations. A non-prosecution agreement may not be available when certain aggravating factors are present, such as egregious or pervasive criminal misconduct, concealment or involvement by upper management and repeated violations of national security laws.

To avail itself of NSD's policy, a company must also fully cooperate with any other corporate criminal matters under NSD's jurisdiction, including those arising under the Foreign Agents Registration Act (FARA) and in connection with the Committee on Foreign Investment in the United States (CFIUS). Importantly, disclosures made only to regulatory agencies such as OFAC and BIS do not qualify for NSD's policy.

To learn more about the DOJ's updated policy guidance, please view our in-depth analysis here.

BIS: Office of Export Enforcement Guidelines on VSDs

BIS also encourages VSDs for entities that believe they may have violated the Export Administration Regulations (EAR) or any EAR order, license or authorization issued thereunder. To that end, on April 18, 2023, Assistance Secretary for Export Enforcement, Matthew S. Axelrod, issued a Clarifying Policy Regarding Self-Disclosures and Disclosure Concerning Others, which clarifies that: (1) a deliberate non-disclosure of a significant potential violation of the EAR will be considered an aggravating factor under BIS's penalty analysis and (2) submission of information by an entity regarding potential violations of the EAR by another party will be considered a mitigating factor if the disclosing party faces a future enforcement action, even if unrelated.

As it relates to the timing for resolution of VSDs, last June, the BIS Office of Export Enforcement (OEE) implemented a "dual-track" system to appropriately address VSDs, depending on the severity of the violation/infraction at issue. Comprehensive disclosures can mitigate applicable civil penalties and, for minor infractions, can be resolved within 60 days of submission. For more serious violations, companies will get significant credit for coming forward voluntarily.

Department of Treasury: OFAC Guidelines on VSDs

• Similar to BIS's approach to export control compliance, OFAC encourages VSDs of potential sanctions violations and considers disclosure to be a mitigating factor when determining appropriate enforcement action(s). Specifically, where a civil monetary penalty is warranted (according to OFAC), a qualifying VSD can result in a 50% reduction in the base amount of the proposed civil penalty.
• In order to be considered a "qualifying VSD," the disclosure must occur prior to or simultaneously with the discovery by OFAC of the potential violation or a substantially similar violation. VSDs will not qualify as a mitigating factor during the penalty stage if, for example, the disclosure contains false or misleading information, the disclosure was made as a result of a legal obligation and/or the disclosure is materially incomplete.

Conclusion: Compliance Lessons from the Tri-Seal Note

Read together, these VSD policies make clear that U.S. federal regulators are focused on and prioritizing enforcement of national security regimes, including export control and sanctions laws and regulations. As such, U.S. and multinational companies must be vigilant in their compliance efforts and employ a risk-based approach to sanctions and export compliance by developing, implementing and updating compliance policies and procedures based on their individual risk profile. Where a company, in coordination with counsel, determines a VSD is or may be required, it should consider the following factors before making the same:

• Timing: VSDs must be made promptly following the discovery of the alleged or potential violation. While no definitive timelines are provided, companies should work closely with counsel to determine the appropriate timing of any VSD, considering the need for a fulsome understanding of the scope of the potential violations at issue.
• Cooperation: To achieve full cooperation credit under certain of the VSD policies, companies must ensure they are taking certain actions, including timely preserving relevant documents and information, deconflicting and conducting witness interviews, conducting a fulsome internal investigation and sharing all relevant, non-privileged information learned with the relevant regulator.
• Remediation: Disclosing parties must implement appropriate remediation measures, including disciplinary measures for employees involved in the conduct and compensation clawbacks, as appropriate.

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