On December 13, the U.S. Department of Justice (“DOJ”) released a revised policy that expands and clarifies certain incentives for voluntary self-disclosure of potential criminal sanctions and export control violations. The new policy (the “VSD Policy”), which is effective immediately, has important ramifications for companies and their interactions with DOJ regarding potentially willful violations of US sanctions and export control laws. Notably, the DOJ’s policy now extends to financial institutions and establishes disclosure benefits in mergers and acquisitions for acquiring companies who discover misconduct through “thorough and timely due diligence.” The policy also establishes a presumption of a non-prosecution agreement for companies that meet certain criteria in the absence of aggravating circumstances, as well as substantial mitigation credit where a penalty is warranted.
Components of the VSD Policy
Most notably, the VSD Policy specifies that, subject to certain conditions and absent aggravating factors, there will be a presumption that a company will receive a non-prosecution agreement and will not pay a fine for self-disclosed sanctions and export control violations. In order to be subject to such a presumption, the company must (1) voluntarily self-disclose violations, (2) fully cooperate with DOJ and (3) timely and appropriately remediate any violations.1
The VSD Policy also sets out specific definitions for these criteria. For instance, in order to “voluntarily self-disclose” pursuant to the VSD policy, a disclosure must be:
- Prior to an imminent threat of disclosure or government investigation;
- Within a reasonably prompt time after a company becomes aware of the offense; and
- Include all relevant facts known to the company at the time of disclosure, including with respect to individuals substantially involved or responsible for the disclosed violations.2
Importantly, voluntary self-disclosures must be made to DOJ in order for the VSD Policy to apply. In other words, companies that make self-disclosures to regulatory agencies but not to DOJ will not be able to receive the benefits of the VSD Policy. Equally of note is that any company receiving the benefits of the VSD Policy, including one that receives a non-prosecution agreement, will not be permitted to retain any gains from the unlawful conduct and will be required to pay all disgorgement, forfeiture, and/or restitution stemming from the disclosed violations.
The VSD Policy sets forth a number of specific requirements that companies must meet in order to “fully cooperate.” In order to “fully cooperate” under the VSD Policy, a company must:
- Disclose all facts relevant to the wrongdoing on a timely basis. This includes, inter alia, relevant facts from an internal investigation and updates to those facts (as well as updates on an internal investigation), attributed to specific sources. Such facts must include those related to involvement in criminal activity by officers, employees, or agents and facts about potential criminal conduct by third parties.
- Proactively, rather than reactively, cooperate. This proactive cooperation must include the timely disclosure of relevant facts, even if the company is not asked to do so.
- Preserve, collect, and disclose relevant documents and information in a timely manner. These actions include the disclosure of overseas documents (as well as where they are located and who found them), the facilitation of third-party production of documents, and document translations where appropriate.
- De-conflict witness interviews in order to align a company’s internal investigation with an investigation by DOJ when requested and appropriate (although, the VSD Policy notes, DOJ will not affirmatively direct a company’s internal investigation); and
- Make company officers and employees possessing relevant information available for interviews by DOJ when requested, including former employees and those located overseas, and facilitate interviews of third-party witnesses when possible.3
Finally, in order to “timely and appropriately remediate” pursuant to the VSD Policy, there are several actions that a company must undertake:
- A “root cause” analysis that analyzes underlying conduct and remediates those root causes where appropriate;
- The implementation of a compliance program, which would be updated periodically. The VSD Policy acknowledges that such a program will vary depending on the organization’s size and resources, but notes that it may include information on:
- A company’s culture of compliance, including that criminal conduct will not be tolerated by the company;
- Company resources dedicated to compliance, as well as the compensation and promotion of compliance personnel and their quality and experience;
- The independence of a company’s compliance function, the auditing of the compliance program, the access of the board of directors to compliance expertise, and the reporting structure of compliance personnel; and
- Details about a company’s risk assessment, its effectiveness, and how a compliance program has been tailored based on that risk assessment;
- Discipline of employees, including those responsible for misconduct and those with oversight and supervisory authority;
- Retention of business records and the prohibition on the improper destruction of such records, including guidance and controls on personal communications; and
- Any additional steps necessary to demonstrate recognition of misconduct, the acceptance of responsibility, and measures to reduce the risk of future misconduct.4
As noted, the presumption of a non-prosecution agreement and the absence of a fine will only be available under the VSD Policy in cases of voluntary self-disclosures where there are no aggravating factors. The VSD Policy includes a non-exhaustive list of such aggravating factors, and specifies that if such factors are substantially present, a “more stringent” resolution may result:
- Exports of items controlled for nuclear nonproliferation or missile technology reasons to a proliferator country;
- Exports of items known to be used in the construction of weapons of mass destruction;
- Exports to a Foreign Terrorist Organization or Specially Designated Global Terrorist;
- Exports of military items to a hostile foreign power;
- Repeated violations, including similar administrative or criminal violations in the past; and
- Knowing involvement of upper management in the criminal conduct.5
Even if such aggravating factors are present, the VSD Policy provides incentives for companies to voluntarily self-disclose violations, cooperate with DOJ, and timely and appropriately remediate, consistent with the definitions in the VSD Policy. In such instances, DOJ will recommend a fine that is capped at 50 percent of the amount otherwise available. In addition, if the company has implemented an effective compliance program, DOJ will not require the appointment of a monitor for the company.
Takeaways for Companies
DOJ’s new VSD Policy is a clear effort by the agency to encourage and reward timely voluntary self-disclosure by companies that identify potential willful violations of export control and sanctions laws. The VSD Policy brings DOJ’s practices closer in line with those of the Office of Foreign Assets Control and the Bureau of Industry and Security, both of which also incentivize self-disclosure by limiting penalties. DOJ’s incentives aim to encourage the private sector to implement effective compliance programs to prevent and detect violations in the first place and report them to DOJ in a timely manner if they occur. A clear goal of the VSD Policy is also to provide DOJ with the information and resources to prosecute individuals responsible for wrongdoing.
Notably, unlike previous guidance issued by DOJ, the VSD Policy does not include a carve-out for financial institutions. As a result, these entities will be able to take advantage of the VSD Policy going forward. Additionally, the VSD Policy provides incentives for self-disclosure in mergers and acquisitions. Specifically, the VSD Policy specifies that a successor entity that makes a timely voluntary self-disclosure (even as a result of post-acquisition due diligence) will be able to take advantage of the incentives set forth in the VSD Policy. Companies wishing to review or strengthen their compliance programs should consult sanctions and export control counsel in order to ensure that such programs are tailored to the criteria set forth by DOJ and reflective of the risk involved in the company’s activities.
Also worth noting is that while the VSD Policy aims to incentivize self-disclosure to the DOJ by providing certain defined benefits, those benefits are not without cost or risk. Companies with a potential sanctions or export control violation should consult experienced sanctions and export control counsel to provide guidance on the decision of whether to self-disclose, which involves a complicated balance of numerous factors.
1 U.S. Department of Justice, Export Control and Sanctions Enforcement Policy for Business Organizations, 2, Dec. 13, 2019 (hereafter “VSD Policy”).