U.S. Authorities Release Joint Guidance on Voluntary Self-Disclosure of Potential Sanctions and Export Control Violations
Notice Also Stresses New BSA Whistleblower Provisions
On July 26, the Department of Commerce, the Department of the Treasury, and the Department of Justice released a joint compliance notice (the “Compliance Notice”) updating and summarizing each agency’s position regarding the voluntary self-disclosure by businesses of potential violations of sanctions, export controls, and other national security laws.
Asserting that voluntary self-disclosure can provide many benefits to a reporting business – potentially providing for a non-prosecution agreement or a 50 percent decrease in “base penalties” – the Compliance Notice provides each entity’s current position as to voluntary self-disclosure. The Compliance Notice also references the still-evolving whistleblower program under the Bank Secrecy Act (“BSA”), which now pertains to not only potential BSA violations, but also potential violations of sanctions law.
Department of Justice
On March 1, 2023, the Department of Justice (“DOJ”) updated its voluntary self-disclosure policy covering potential criminal violations of export control and sanctions laws. Under that policy, the DOJ notes that “where a company voluntarily self-discloses potentially criminal violations, fully cooperates, and timely and appropriately remediates the violations, [the DOJ’s National Security Division] 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.”
However, to avail itself of this policy, the reporting company cannot retain any unlawfully obtained gains, and aggravating factors will prevent a company from relying upon the presumption of a non-prosecution agreement. Those factors include “egregious or pervasive criminal misconduct within the company, concealment or involvement by upper management, repeated administrative and/or criminal violations of national security laws, the export of items that are particularly sensitive or to end users of heightened concern, and a significant profit to the company from the misconduct.” In such cases, the DOJ may instead seek a deferred prosecution agreement or guilty plea (or, presumably, an indictment).
Further, to take advantage of the policy’s protections, a company is required to, in part: (1) make their disclosure within a reasonably prompt time after becoming aware of the potential violation, absent any other legal obligation to disclose; (2) make the disclosure prior to an imminent threat of disclosure or government investigation; (3) must timely and appropriately remediate any violations; (4) share all relevant non-privileged facts known at the time; and (5) fully cooperate when making the disclosure. Lastly, disclosures made only to regulatory agencies such as OFAC or the Bureau of Industry and Security (“BIS”) do not qualify for the DOJ’s policy.
The DOJ’s voluntary disclosure policy regarding potential sanctions and export control violations must be read in conjunction with the more general DOJ policy regarding corporate voluntary self-disclosures, announced in early 2023. Although there are many similarities between the two policies, they are not identical, and this can create challenges for a disclosure calculation. Moreover, the DOJ announced on March 3, 2023 that companies seeking advantageous resolutions of potential criminal violations must consider steps against employees involved in the violations, including claw backs, reduction of compensation and incentives, and termination.
Department of Commerce
In June of 2022, BIS’s Office of Export Enforcement (“OEE”) implemented a dual-track system to handle voluntary self-disclosures. Minor infractions are now fast-tracked with a warning or no-action letter, while potentially more serious violations will garner a review to determine if an enforcement action is warranted.
Although the OEE states that a company will receive “significant credit for coming forward voluntarily,” it also will provide additional relief from potential penalties by way of a mitigating factor, if that company previously has submitted a tip to OEE regarding a third-party having potentially violating the Export Administration Regulations. In contrast, a nondisclosure of a significant possible violation of the Export Administration Regulations will be considered by the OEE as an aggravating factor under BIS penalty guidelines.
Interestingly, the Compliance Notice stresses the important of internal investigations:
Additionally, 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.
One of the practical effects of the above language is that companies which do perform an internal investigation then presumably will feel pressured to disclose the results of any investigation which identifies a potential “compliance gap,” thereby creating a potentially circular decision-making process: i.e., an investigation to determine whether to disclose may increase the pressure to disclose, simply because the government will punish the company if it later learns of the non-disclosure. Of course, internal investigations can vary in quality, and “compliance gaps” can be arguable.
OFAC
The Office of Foreign Assets Control (“OFAC”) considers voluntary self-disclosure to be a mitigating factor under its guidelines, resulting in up to a 50 percent reduction in the base amount of a proposed civil penalty. In its review, OFAC will also consider other circumstances surrounding the apparent violation, such as “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.”
However, OFAC lists several items that will prevent a disclosure from being deemed a voluntary self-disclosure, including: (1) Failing to disclose prior to or simultaneous with, the discovery by OFAC or another government agency of the apparent violation; (2) a third party is required to report the violation and/or the disclosure is not self-initiated; (3) the disclosure is false or misleading; and (4) the disclosure is materially incomplete.
BSA Whistleblower Program
The Compliance Notice also referenced the whistleblower program under the BSA, which has been previously covered in this blog (see here, here, here, here, here and here). The Anti-Money Laundering Act of 2020 (“the AMLA”) amended the BSA to expand whistleblower incentives and strengthen whistleblower protections. In part, the AMLA amended 31 U.S.C. § 5323 to provide that if the government recovers more than $1 million through an AML enforcement action, any qualifying whistleblower will receive a mandatory reward of up to 30% of the collected amount. However, there amendment did not provide a guaranteed monetary floor for an award (i.e., it could be zero to 30%), and Congress had not allocated funding for any awards. Congress addressed these perceived deficiencies by passing the “Anti-Money Laundering Whistleblower Improvement Act,” which was signed into law on December 29, 2022, and created both a “Financial Integrity Fund” to pay for whistleblower awards and a 10% floor when monetary sanctions were collection in amounts exceeding $1 million. It also expanded the BSA whistleblower provisions to apply to reports of potential violations of laws upon which U.S. economic sanctions are based, including the International Economic Emergency Powers Act, certain provisions of the Trading With the Enemy Act, and the Foreign Narcotics Kingpin Designation Act.
Under the Compliance Notice, the Financial Crimes Enforcement Network (“FinCEN”) appears to expand the breadth the whistleblower program by stating that it also may pay awards to whistleblowers whose information leads to the successful enforcement of a “related action.” Specifically, the Compliance Notice makes clear this includes the payment of awards stemming from enforcement actions taken under statutory authority such as the Export Control Reform Act. However, FinCEN notes that this will only apply in “certain circumstances,” so it is still unclear how this may apply in practice. FinCEN still needs to issue related proposed regulations.
Courtesy of John Georgievski, Ballard Spahr, MoneyLaunderingNews.com