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The U.S. Department of Justice (“DOJ”) has significantly increased its focus on the investigation and enforcement of national security-related corporate crime over the last several months, while cautioning companies that this trend will only continue. This focus was first announced by high-level DOJ officials at an American Bar Association conference in early March, where Deputy Attorney General Lisa Monaco, Assistant Attorney General Kenneth Polite, and Principal Associate Deputy Attorney General Marshall Miller all stressed that the DOJ’s renewed emphasis on combating corporate crime will include a substantial surge of attention to national security matters. This was followed by several agency initiatives and enforcement actions, and emphasized again recently by Miller, who stated that malign actors’ increasingly novel ways of operating under the radar has put private sector companies “on the front lines” of national security and geopolitical challenges.
As part of its attention to these matters, DOJ plans to significantly surge resources to and restructure the DOJ’s National Security Division (“NSD”). Primary among the changes directed at NSD are the addition of more than two dozen new prosecutors and the first-ever Chief Counsel for National Security Corporate Enforcement (the search for whom is underway).
Officials have also said that NSD will be drawing on the full range of DOJ resources, including those of the DOJ’s Criminal Division, and will attempt to replicate the “very successful” programs previously implemented for enforcement of the Foreign Corrupt Practices Act. The DOJ will similarly make substantial staff investments into the Bank Integrity Unit in the Money Laundering and Asset Recovery Section.
The DOJ has also put in place initiatives to enhance cooperation with the U.S. Department of Commerce's Bureau of Industry and Security (“BIS”) and the U.S. Department of the Treasury’s Office of Foreign Assets Control. The three agencies recently announced that they will issue joint advisories on an ongoing basis to provide guidance on enforcement priorities and compliance with sanctions and export controls. The first of these, a Joint Compliance Note on Cracking Down on Third Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls, was issued in early March.
The joint compliance note focuses on alerting the private sector to the use of corporate vehicles and trans-shipment points to evade Russia and Belarus sanctions and export controls. It discusses common “red flags” that may indicate a third-party intermediary is attempting to evade sanctions or expert controls. Of the numerous red flags mentioned, international companies should be particularly wary of the use of corporate legal entities to obscure (i) ownership, (ii) source of funds, or (iii) countries involved; the use of shell companies to conduct international wire transfers that involve financial institutions in jurisdictions distinct from company registration; and payments coming from a third-party country or business not listed as the end user. The compliance note also advises against the routing of purchases through certain trans-shipment points often utilized to circumvent restricted items to Russia or Belarus, including locations in Hong Kong, Macau, Armenia, Turkey, and Uzbekistan.
The DOJ also announced in February the creation of the Disruptive Technology Strike Force, a joint initiative between DOJ and BIS aimed at preventing the transfer of critical technology assets to countries of national security concern. Since the recent inception of the multi-agency initiative, the Disruptive Technology Strike Force has announced charges against multiple defendants for crimes involving export violations, smuggling, and theft of trade secrets.
Principal Associate Deputy Attorney General Miller has emphasized that the “trend is real,” noting that approximately two-thirds of the DOJ’s corporate criminal resolutions over the past seven months have implicated national security concerns. In his recent remarks, delivered at an ethics and compliance-focused conference, Miller discussed major enforcement actions that have spanned a variety of industries, including manufacturing, construction, agriculture, and IT services, and a variety of charges, including support for terrorism, sanctions violations, cybercrime, and money laundering. He noted that, whereas such actions were previously concentrated in defense-related industries, this scope is expanding because U.S. adversaries are increasingly “engaging in novel ways to raise money and sow discord.” This means that many more companies in a larger number of industries must be alert for a wider variety of potential crimes.
DOJ officials have explicitly called for expanded risk monitoring, compliance, and diligence within the private sector. In Miller’s words, “today a new level of diligence and attention is required.” That includes for companies with business lines traditionally unconnected to the defense-related industries and operations outside of jurisdictions typically subject to sanctions and export controls.
The DOJ’s reallocation of resources and heightened focus on national security-related enforcement actions signifies a new era and new area of focus for corporate compliance. Companies should reassess their existing compliance framework to create robust programs tailored to the complexities of national security concerns in order to navigate the uncertainty generated by expanding enforcement priorities, evolving regulatory regimes, and a rapidly shifting global landscape.
5 June 2023
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