US Emphasis on VSDs Making Nondisclosures 'Even More Risky,' Law Firms Say
The most recent tri-seal compliance note from the Commerce, Treasury and Justice departments is another sign that the U.S. is increasing its focus on export and sanctions enforcement and of the government’s effort to push companies to voluntarily disclose potential violations, law firms said last week. The firms urged businesses to review each agency's disclosure policy, saying the note could mean increased risks for companies that choose not to disclose.
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The note, issued last month, outlined recent changes to voluntary self-disclosure policies for sanctions and export control violations, urged companies to disclose offenses and stressed the importance of “robust” compliance programs (see 2307260022). Fried Frank said the new guidance provides a “helpful overview of each agency’s treatment” of voluntary self disclosures and “makes clear” the government’s positions that “companies should, upon becoming aware of a potential violation, timely file a VSD with the appropriate agency.”
Torres Trade Law specifically pointed to recent updates to the Bureau of Industry and Security's disclosure policies -- including plans to increase penalties on companies that fail to disclose a “significant” potential violation (see 2304180071) and reward companies that tip off BIS about their competitors’ wrongdoings (see 2304180071) -- which make “non-disclosure of potential violations even more risky.” The firm said “third parties are now incentivized to blow the whistle on other companies engaged in violations.”
Torres Trade Law also pointed to the new whistleblower program operated by Treasury’s Financial Crimes Enforcement Network, which the guidance said can be used to give monetary rewards to companies whose tips lead to export control enforcement actions. “These increases in whistleblower-related incentives should prompt companies to seriously consider submitting VSDs to the relevant agencies when potential violations are discovered,” the firm said.
Fenwick said technology companies in particular should closely review the disclosure policies, which describe updated policies from both the BIS and DOJ’s National Security Division that are meant to incentivize disclosures. The firm specifically said companies with ties to the U.S. economy should “expect to see increasing outreach and interest from U.S. trade control regulators” along with “stronger and more frequent penalties for export control and sanctions violations.”
The guidance also said DOJ recently finished adding 25 new prosecutors to its National Security Division (see 2303070023), Akerman noted, another sign the agency has “strengthened its focus upon corporate compliance.” DOJ and Commerce are increasingly looking to impose large penalties for significant export control and sanctions violations (see 2305190030), and trade lawyers have noticed a recent uptick in outreaches from both enforcement agencies (see 2306130037 and 2303240060).
Fenwick said the most “appropriate response to government outreach” or an internal discovery of a potential violation “can vary depending on the facts and circumstances of the situation.” Companies that “become aware of potential violations” should consider conducting an internal review of their conduct, remediate any potential wrongdoing and possibly disclose them to the “relevant authorities.”
Akerman noted that disclosures can “provide significant mitigation” of penalties, including non-prosecution agreements, for sanctions and export control offenses that could result in fines that exceed $1 million and include “lengthy” prison sentences. But the firm also stressed that DOJ, BIS and others may choose not to offer mitigation for certain voluntary disclosures, including if the disclosure is “materially incomplete,” includes “false or misleading information” or is made “without authorization of an entity’s senior management." Akerman said “coming clean is not always a straightforward process.”