Earlier this year, we published a post on the first Tri-Seal Compliance Note (“First Note”) issued by the United States Department of Justice’s (“DOJ”) National Security Division (“NSD”), the Department of Commerce’s Bureau of Industry and Security (“BIS”), and the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).[1]  When issuing the First Note, DOJ announced that the U.S. regulatory agencies would continue to release joint advisories on the enforcement of economic sanctions evasion, export control violations, and similar economic crimes.[2] 

On July 26, 2023, NSD, BIS, and OFAC released their second Tri-Seal Compliance Note (“Second Note”) summarizing each department’s approach to their voluntary self-disclosure (“VSD”) policies.[3]  The purpose of the Second Note is to encourage U.S. companies to voluntarily disclose and remediate potential administrative or criminal violations, and emphasize the importance of compliance with U.S sanctions, export controls, and other national security laws.[4]  The departments encourage VSDs by offering relief to companies who voluntarily disclose potential violations, but also, in some instances, tightening the penalties for companies who do not disclose potential violations.[5] 

Below, we set out each department’s approach to VSDs.

Department of Justice

On March 1, 2023, NSD issued an updated voluntary disclosure policy (“VSD Policy”), strongly encouraging parties to voluntarily disclose all potentially criminal violations of sanctions and export control laws.[6]  In its summary of the updated VSD Policy, the Second Note reminds companies that a prompt voluntary disclosure can reduce, and in some cases avoid altogether, criminal liability.[7]  To avoid criminal liability, a company must voluntarily self-disclose potentially criminal (i.e., willful) violations, fully cooperate with the NSD, and remediate the violations in a timely and appropriate manner.[8] 

Under the NSD framework, voluntary disclosure must occur promptly after the company identifies the potential violation and before an imminent threat of disclosure or government investigation.[9]  Notably, voluntary disclosures to regulatory agencies such as OFAC or BIS will not qualify under the VSD Policy unless disclosure is also made to NSD.[10] 

In assessing credit for timely and appropriate remediation, NSD evaluates the effectiveness of the company’s compliance program, its remediation measures, and the disciplinary measures imposed on culpable employees.[11]  Should NSD decide that a company meets its voluntary disclosure criteria, there is a presumption that the company will receive a non-prosecution agreement and evade a monetary penalty.[12]  However, this presumption does not apply if certain aggravating factors are present.[13]  Aggravating factors include pervasive criminal conduct within the company, involvement or concealment by senior management, or repeated violations of national security laws.[14]  Under those circumstances, NSD may seek a deferred prosecution agreement or a guilty plea.[15]

NSD has further strengthened its focus on compliance with national security laws by appointing a Chief Counsel for Corporate Enforcement in addition to 25 prosecutors to investigate and prosecute sanctions evasion, export control violations, and similar economic crimes.[16] 

Department of Commerce’s Bureau of Industry and Security

BIS encourages companies to voluntarily disclose potential violations of the Export Administration Regulations (“EAR”).[17]  Similar to NSD, a VSD must be made to the BIS in a timely and comprehensive manner in order to reduce the applicable civil penalty.[18]

On June 30, 2022, the Office of Export Enforcement (“OEE”) implemented a dual-track system to manage VSDs.[19]  The purpose of this system is to fast-track minor or technical infractions in order to free up resources to focus on violations that are more serious and require a thorough evaluation.[20]  The OEE aims to issue a warning or no action letter within 60 days of the final submission for minor or technical infractions.[21]     

On April 18, 2023, BIS issued a VSD memorandum (“VSD Memorandum”) providing an overview on how BIS will apply its enforcement guidelines on VSDs.[22]  Parties that submit VSDs in a timely and comprehensive manner are eligible for extensive penalty reductions.[23]  On the other hand, parties that deliberately do not disclosure significant EAR violations will face enhanced penalties.[24]  Additionally, the VSD Memorandum explains that BIS will consider disclosure of a third party’s (e.g., a competitor) suspected violations of the EAR to be a mitigating factor if a future enforcement action, even for unrelated conduct, is ever brought against the disclosing party.[25] 

Finally, if BIS decides a violation is “non-egregious,” the base penalty amount is one-half of the transaction value, with a maximum base penalty cap.[26]  In “egregious” cases, the base penalty amount is only reduced to one-half of the statutory maximum penalty.[27]

Department of the Treasury’s Office of Foreign Assets Control

OFAC’s Economic Sanctions Enforcement Guidelines (“Enforcement Guidelines”) consider VSDs a mitigating factor when determining appropriate enforcement action to take in response to a particular sanctions violations.[28]  Additionally, in cases where a monetary penalty is warranted, OFAC can reduce the civil penalties by up to 50% for a qualifying VSD.[29]  However, the Second Note lists the following circumstances which may prevent OFAC from reducing the civil penalties:[30]

• When a third party notifies OFAC of the apparent violation because the transaction was blocked or rejected by that third party.[31]
• When the VSD includes false or misleading information.[32]
• When the VSD is not self-initiated.[33]
• When the VSD, when considered alongside supplemental information, is materially incomplete.[34]

Finally, OFAC requires companies to submit a sufficiently detailed report of their understanding of the apparent violation within a reasonable time period.[35]  Parties must be fully cooperative and responsive to any follow-up inquires by OFAC.[36]    

FinCEN’s Whistleblower Incentives and Protections

Finally, after concluding its summaries of the three VSD policies, the Second Note briefly references FinCEN’s whistleblower program (“Whistleblower Program”), which creates strong incentives for whistleblowers to report violations of U.S. anti-money laundering and sanctions laws to FinCEN or the DOJ.[37]  We previously wrote about the recent expansion to the Bank Secrecy Act Whistleblower Program here.

Conclusion

Overall, the Second Note makes clear that the three departments are taking compliance with U.S sanctions, export controls, and other national security laws, very seriously.  All three departments are offering significant incentives and relief to companies that properly disclose potential or actual violations that pose a threat to national security.  Further, the three departments are strongly encouraging companies to implement robust compliance programs to prevent, identify, and sufficiently remediate potential violations. 

[1] See our March 6, 2023 post “Department of Justice Initiatives Prioritize Economic Sanctions Enforcement” for an overview of the First Note.

[2] U.S. Department of Justice, “Departments of Justice, Commerce and Treasury Issue Joint Compliance Note on Russia-Related Sanctions Evasion and Export Controls” (March 2, 2023), https://www.justice.gov/opa/pr/departments-justice-commerce-and-treasury-issue-joint-compliance-note-russia-related.

[3] U.S. Department of Treasury, Office of Foreign Assets Control, “Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations” (July 26, 2023), https://ofac.treasury.gov/media/932036/download?inline.

[4] Id.  

[5] Id. 

[6] U.S. Department of Justice, “NSD Enforcement Policy for Business Organizations” (March 1, 2023), https://www.justice.gov/media/1285121/dl?inline=.

[7] U.S. Department of Treasury, Office of Foreign Assets Control, “Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations” (July 26, 2023), https://ofac.treasury.gov/media/932036/download?inline.

[8] U.S. Department of Justice, “NSD Enforcement Policy for Business Organizations” (March 1, 2023), https://www.justice.gov/media/1285121/dl?inline=.

[9] Id. 

[10] Id. 

[11] Id. 

[12] Id. 

[13] Id. 

[14] Id. 

[15] Id. 

[16] U.S. Department of Justice, “Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime” (March 2, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national.  

[17] U.S. Department of Treasury, Office of Foreign Assets Control, “Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations” (July 26, 2023), https://ofac.treasury.gov/media/932036/download?inline.

[18] Id. 

[19] The United States Department of Commerce, “Further Strengthening Out Administrative Enforcement Program” (June 30, 2022), https://www.bis.doc.gov/index.php/documents/enforcement/3062-administrative-enforcement-memo/file.

[20] Id. 

[21] Id. 

[22] The United States Department of Commerce, “Clarifying Our Policy Regarding Voluntary Self-Disclosures and Disclosures Concerning Others” (April 18, 2023), https://www.bis.doc.gov/index.php/documents/enforcement/3262-vsd-policy-memo-04-18-2023/file.   

[23] Id.  

[24] Id. 

[25] Id. 

[26] Id. 

[27] Id. 

[28] U.S. Department of Treasury, Office of Foreign Assets Control, “Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations” (July 26, 2023), https://ofac.treasury.gov/media/932036/download?inline

[29] Id. 

[30] Id. 

[31] Id. 

[32] Id. 

[33] Id. 

[34] Id. 

[35] Id. 

[36] Id. 

[37] Id.