In another significant step notifying global businesses of the new realities – companies are about to face aggressive coordinated criminal and civil prosecutions for sanctions and export control violations.  The last piece in launching this new effort was the announcement of a joint voluntary disclosure program to ensure alignment among the agencies for civil and criminal enforcement of such violations.

The Joint Compliance Note (“JCN”) urges companies to disclose potential offenses and emphasized the importance of companies implementing “robust” compliance programs.  The JCN outlines in one document all of the various changes instituted by DOJ, Commerce’s Bureau of Industry and Security (“BIS”) and Treasury’s Office of Foreign Asset Control (“OFAC”) in voluntary disclosure and enforcement policies and procedures.

The JCN mandates that companies “promptly disclose and remediate” after discovery of potential violations.  The JCN emphasized the importance of prompt disclosure in situations that may implicate national security issues. 

As to DOJ, the JCN noted that DOJ generally will not seek prosecution and a fine in cases where a company discloses a violation, cooperates with the government and remediates, unless there are other “aggravating factors,” such as “pervasive criminal misconduct within the company,” efforts by upper management to hide the violations, a pattern of repeated violations, illegally exported items that “are particularly sensitive or to end users of heightened concern,” and if the company earned “significant profit” from the violations.

DOJ noted that  a prompt voluntary self-disclosure provides a means for a company to reduce—and, in some cases, avoid altogether—the potential for criminal liability. 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.

DOJ explained that its voluntary disclosure policy does not apply to corporate disclosures limited to just the regulatory agencies.  To qualify, companies have to include DOJ in its disclosure. 

The JCN noted that self-disclosing potential violations can provide significant mitigation of civil or criminal liability, the extent of which depends on the agency, but may extend so far as a non- prosecution agreement or a reduction of 50 percent in the base penalty amount for civil or criminal penalties.

Pursuant to the updated policy, full cooperation means, among other things, timely preservation and collection of relevant documents and information, including concurrent authentication of records under Federal Rule of Evidence 902 and/or 803; deconfliction of witness interviews and other  investigative steps that a company intends to take as part of its own internal investigation; and timely identification of opportunities for further investigation by DOJ.

To receive the benefits from disclosure, Companies must timely and appropriately remediate any violations. As part of its analysis, DOJ will consider whether a company has implemented an effective and sufficiently resourced compliance and ethics program. NSD also now examines whether a disclosing company has imposed appropriate disciplinary measures, including compensation clawbacks, for employees who directly participated in or had oversight and/or supervisory authority over the area where the criminal conduct occurred.

The JCN also pointed to recent BIS updates to its disclosure and enforcement policies, including plans to increase penalties on companies that fail to disclose a “significant” potential violation.  Also, the JCN noted that BIS will consider “the existence, nature, and adequacy of a company’s compliance program, including its success at self-identifying and rectifying compliance gaps,” when resolving cases after a voluntary disclosure. 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.⁹

Last June, the Office of Export Enforcement (OEE) implemented a dual-track system to handle voluntary self-disclosures involving minor or technical infractions, which are now resolved on a fast-track basis, with the issuance of a warning or no-action letter within 60 days of final submission. For those voluntary self-disclosures that indicate potentially more serious violations, OEE will do a deeper dive to determine whether enforcement action may be warranted, while at the same time adhering to the principle that companies deserve, and will get, significant credit for coming forward voluntarily.

On April 18, 2023, the Assistant Secretary for Export Enforcement issued a memorandum regarding the BIS policy on voluntary self-disclosures and disclosures concerning others.The memorandum clarifies the risk calculus on disclosures  — first, a deliberate non- disclosure of a significant possible violation of the EAR will be considered an aggravating factor under BIS penalty guidelines; and 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.

Additionally, the JCN noted that as to BIS disclosures, companies cannot sidestep the “should we voluntarily self-disclose or not” decision by self-blinding and choosing not to do an internal investigation in the first place. The existence, nature, and adequacy of a company’s compliance program, including its success at self-identifying and rectifying compliance gaps, is itself considered a factor under the settlement guidelines.

OFAC similarly encourages voluntary disclosures of apparent sanctions violations. As set forth in its Enforcement Guidelines, OFAC considers voluntary self-disclosure 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 disclosure can result in a 50 percent reduction in the base amount of a proposed civil penalty.

Disclosures to OFAC will not qualify as a voluntary self-disclosure when:

• a third party (such as a financial institution) is required to and does notify OFAC of the apparent violation because the transaction was blocked or rejected by that third party;
• the disclosure includes false or misleading information;
• the disclosure is not self-initiated; or
• the disclosure (when considered alongside supplemental information) is materially incomplete.