U.S. Enforcement Agencies Emphasize Importance of Voluntary Self-Disclosures in Recent Guidance and Policy Updates
On July 26, 2023, the U.S. Department of Justice (“DOJ”), the U.S. Department of Commerce, and the U.S. Department of the Treasury issued their second Tri-Seal Compliance Note (the “Tri-Seal Compliance Note” or “Note”). The Note describes each agency’s voluntary self-disclosure (“VSD”) policies with respect to potential violations of national security laws, details recent changes in those policies, and strongly encourages self-disclosure.1 The Note arrives against the backdrop of DOJ’s recent issuance or update of VSD policies in all DOJ components that prosecute corporate crime.
Together, these initiatives send a strong message regarding the emphasis and expectations that U.S. enforcement agencies are placing on incentivizing voluntary self-disclosure for corporate misconduct.
Tri-Seal Compliance Note
The Tri-Seal Compliance Note summarizes VSD policies applicable to sanctions, export controls, and other national security laws enforced by the DOJ’s National Security Division (“NSD”), 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 (“OFAC”), as well as recent changes to those policies.
DOJ’s National Security Division Policy
NSD issued an updated VSD policy on March 1, 2023. Like other DOJ policies, it provides companies the opportunity to avoid a guilty plea for criminal violations if they voluntarily self-disclose, cooperate, and remediate the misconduct. It also lays out standards for those requirements, including that disclosures must be prompt, relate all known relevant non-privileged facts, and be made directly to the DOJ (not only to agencies such as BIS or OFAC). Notably, the policy applies not only to potential violations of export controls and sanctions, but other matters handled by NSD, such as those arising under the material support statutes and Foreign Agents Registration Act.
The Note emphasizes existing policies pursuant to the Export Administration Regulations and recaps recent updates by the Office of Export Enforcement to BIS policy on VSDs, including:
- The dual-track system adopted in June 2022, with a 60-day fast-track review for minor or technical infractions; and
- The April 18, 2023 memorandum clarifying that deliberate non-disclosures will be considered an aggravating factor and that disclosures regarding potential violations by other parties will be considered a mitigating factor if the disclosing party faces a future enforcement action (even if unrelated to the disclosure).
OFAC’s policy encourages VSDs as a significant mitigating factor in enforcement actions, as laid out in the Economic Sanctions Enforcement Guidelines. Most notably, qualifying VSDs can result in a 50-percent reduction in the base amount of a proposed civil monetary penalty. The Note describes OFAC’s requirements for VSDs and lists circumstances in which disclosures will not qualify as voluntary, such as when they are the result of a blocked transaction notification or are initiated by a government agency.
DOJ Voluntary Self-Disclosure Policies
The Tri-Seal Compliance Note was issued in the wake of DOJ’s issuance or update of VSD policies in all DOJ components that prosecute corporate crime. This effort was announced as part of Deputy Attorney General Lisa Monaco’s September 15, 2022 memorandum on revisions to DOJ’s corporate criminal enforcement policies, which required each VSD policy to meet certain core principles and minimum standards.
The first core principle is that, absent aggravating factors, the DOJ will not pursue a guilty plea from companies that voluntarily self-disclose, fully cooperate with a DOJ investigation, and timely and appropriately remediate the misconduct. Each VSD Policy must also set out the requirements for its voluntary self-disclosure process and the benefits that companies should expect in return.
The Criminal Division was the first to issue its revised Corporate Enforcement and Voluntary Self-Disclosure Policy (the “Criminal Division Policy”) in January of this year (discussed here). Other DOJ components followed, with the United States Attorney’s Offices (“USAO”), the Consumer Protection Branch, the Tax Division, the Environment and Natural Resources Division, and the National Security Division (as discussed above) all releasing policies in February and March.
The USAO policy has particularly broad reach given that it applies to all U.S. Attorney’s Offices nationwide. According to the U.S. Attorneys for the Southern and Eastern Districts of New York, its goal is “to standardize how VSDs are defined and credited” by the USAOs throughout the United States. It lays out standards similar to the other VSD policies with respect to timeliness, disclosure of relevant facts, and substantial fine reductions. However, it differs in some respects from the Criminal Division Policy in particular, including in that it does not provide for benefits to companies that have not self-disclosed and does not make distinctions based on recidivism.
How should companies adapt to VSD policies?
These initiatives illustrate the strong emphasis that is being placed on voluntary self-disclosure across U.S. enforcement agencies. The DOJ, BIS, and OFAC VSD policies substantially incentivize companies not only to self-disclose, but to cultivate the capacity to detect misconduct, promptly investigate when it arises, and cooperate with government authorities when warranted.