United States: Tri-Seal Compliance Note On Voluntary Self-Disclosure Released By Departments Of Commerce, Justice, And Treasury

On July 26, the Department of Commerce, Department of the Treasury, and Department of Justice released a Tri-Seal Compliance Note (July Note) providing guidance on voluntary self-disclosure of potential violations of U.S. sanctions, export controls, and other national security laws.

This is the second enforcement-related release issued jointly by these three agencies, which, in March 2023, published a Tri-Seal Compliance Note on Cracking Down on Third-Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls.

The July Note calls on private sector businesses to identify threats to national security and encourages prompt disclosure of potential administrative and criminal violations. As highlighted in prior enforcement guidance, self-disclosure can provide "significant mitigation" of enforcement actions and penalties. The July Note summarizes the enforcement policies of the Department of Justice (DOJ) National Security Division (NSD), Department of Commerce Bureau of Industry and Security (BIS), and Department of the Treasury Office of Foreign Assets Control (OFAC) with respect to parties who voluntarily self-disclose potential violations.

Department of Justice National Security Division

DOJ has placed increasing emphasis on enforcement of U.S. export controls, sanctions, and other national security laws. In March 2023, DOJ announced the hiring of the first NSD Chief Counsel for Corporate Enforcement as well as 25 new prosecutors dedicated to export controls, sanctions violations, and similar economic crimes.

The July Note reiterates DOJ's March 2023 "NSD Enforcement Policy for Business Organizations," which encourages prompt disclosure of potential criminal violations of U.S. export controls and sanctions as a means "to reduce – and, in some cases, avoid altogether – the potential for criminal liability." For companies that voluntarily self-disclose potential criminal violations, fully cooperate with NSD, and timely implement appropriate remediation, NSD will not seek a guilty plea. Moreover, in these circumstances, there will be a presumption that the company will receive a non-prosecution agreement and will not be subject to a fine. To take advantage of this policy, a company must disclose to NSD promptly after becoming aware of the potential violation; disclosures to BIS or to OFAC, and disclosures made under certain other circumstances, do not qualify for NSD's policy. Additionally, remediation must include an effective and resourced compliance program, as well as appropriate disciplinary actions for both employees involved in the activity at issue, and those with oversight of those employees. This enforcement policy does not apply where there are "aggravating factors," such as egregious or pervasive criminal misconduct, concealment by upper management, repeated violations, significant profit resulting from the misconduct, or particularly sensitive items or end users.

In addition to U.S. export controls and sanctions, NSD's enforcement policy also applies to other areas over which NSD exercises authority, including the Foreign Agents Registration Act, laws related to the support of terrorism, and criminal violations related to Committee on Foreign Investment in the United States (CFIUS) proceedings.

Department of Commerce Bureau of Industry and Security

The July Note reiterates that BIS "strongly encourages" disclosures of potential violations of the Export Administration Regulations (EAR). Though – importantly – disclosure to BIS is almost never mandatory, a disclosure can nevertheless result in substantially reduced civil penalties when timely and comprehensive, and made in full cooperation with BIS. The July Note also highlights the dual-track voluntary self-disclosure system that was established by the Office of Export Enforcement (OEE) in June 2022. This dual-track system provides expedited warning or no-action letters for minor or technical infractions within 60 days of the submission of a disclosure.

The July Note re-states guidance provided in a memorandum released by the Assistant Secretary for Export Enforcement in April 2023 relating to voluntary self-disclosures and disclosure of third-party activity. Deliberate non-disclosure of significant potential violations of the EAR is considered an aggravating factor. Conversely, a tip that results in an enforcement action of a third party can be a mitigating factor for the disclosing party in a future enforcement action, even if unrelated to the tip.

Finally, similarly to NSD's position, BIS considers the adequacy of a company's compliance program, including its ability to identify and rectify gaps, in evaluating settlement guidelines and warned that companies cannot "self-blind" by avoiding internal investigation of potential violations.

Department of the Treasury Office of Foreign Assets Control

Consistent with NSD and BIS, OFAC encourages voluntary disclosure of potential sanctions violations and considers a voluntary self-disclosure to be a mitigating factor in determining appropriate enforcement actions. Similarly to BIS's approach, in the context of a civil penalty, voluntary self-disclosure to OFAC can result in significantly reduced civil penalties. OFAC also considers the adequacy of a company's compliance program and remediation of potential violations when evaluating enforcement actions, among other factors.

For a voluntary self-disclosure to qualify, it must occur concurrently with, or before, discovery by OFAC or other government agencies of the potential or actual violations at issue. Distinct from NSD's policy, OFAC will consider on a case-by-case basis whether notification to another agency may qualify as a voluntary self-disclosure to OFAC. The July Note lists illustrative circumstances when a disclosure will not qualify as a voluntary self-disclosure, including when a third party notifies OFAC (regardless whether the party at issue was aware of the third-party's disclosure); false, misleading, or incomplete disclosures; disclosures made at the behest of a federal or state agency or official; disclosures made by an individual within an entity without the consent of senior management; and responses to administrative subpoenas or other inquiries or the filing of a license application.

Going Forward

The July Note demonstrates the increasing emphasis on detection and enforcement of violations of U.S. export controls, sanctions, and other national security laws and highlights the multi-agency approach to enforcement. As sanctions and export controls continue to proliferate, companies must thoroughly understand their specific compliance obligations and implement compliance programs that not only mitigate their vulnerabilities, but also uncover and remediate potential violations. The July Note makes clear the importance of promptly disclosing potential violations to the relevant authorities.

The current export compliance landscape is quickly changing, requiring companies to constantly adapt to new requirements. An effective compliance program, consistently updated and specifically tailored to your industry and business, can help defray liability and ensure compliance with relevant laws.

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