New DOJ Voluntary Disclosure Policies May Create Complications for Industry, Lawyer Says

Burns, speaking during an Aug. 18 webinar hosted by Crowell & Moring, said the Department of the Treasury’s Office of Foreign Assets Control, the State Department’s Directorate of Defense Trade Controls and the Commerce Department’s Bureau of Industry and Security were likely unhappy with the guidance.

The guidance said “if you want any benefit in a criminal case because of your disclosure, you must go to us before you go to [other] agencies,” Burns said. He added that Justice issued the guidance “to the distress of the [other] three agencies.” Burns said OFAC, BIS and DDTC value voluntary disclosures because they help “detect trade trends” that could lead to more enforcement.

The guidance may present a difficult choice for U.S. companies that are unsure where to submit their voluntary disclosure, Burns said. If a company opts to voluntarily disclose a violation to DDTC, for example, but DDTC determines the case should be referred to the Justice Department, Burns said Justice may no longer recognize the fact that it was voluntarily disclosed. Because of this, the Justice Department may impose a harsher penalty then if the voluntary disclosure was submitted directly there.

“You have to really think: What's the possibility of a referral?” Burns said. “Because if I go to DDTC and DDTC refers it to [Justice] ... DOJ is going to come down on me like a ton of bricks.” Burns said companies should seek legal help before deciding where to submit their disclosure. “You just have to try to figure that out,” he said. “It's useful to get outside counsel that has some experience in the sorts of things that are likely to lead to referrals, the sorts of things that agencies see as intent.”

In certain situations, however, the Justice Department will extend credit to companies that voluntarily disclose their violations to other enforcement agencies, a Justice spokesperson said. “If a company made a disclosure to a regulator only because it did not believe the violations were willful, but later uncovered evidence of willfulness and came to us, they will receive credit,” the spokesperson said. The Justice Department works “closely with other export control agencies” on enforcement, the spokesperson added. “The bottom line is simple: if you have evidence of willfulness, come to the Department when you go to your regulator.”

Burns also stressed the importance of submitting an initial notification for a possible violation “as soon as possible.” He said the notification should be short -- no more than two paragraphs -- to minimize the risk of making a claim that an enforcement agency later finds out wasn’t true. “It's not your [responsibility] to try to convince the agency that you're a good company, that you didn't do anything wrong. Because all of that could come back, potentially, and backfire on you,” Burns said, calling that a “rookie mistake.”

Chandler Leonard, a Crowell & Moring lawyer and former compliance officer with DDTC and OFAC, said she often looked at the “timing” of a company’s voluntary disclosure when conducting investigations at DDTC. “Once they found out, how quickly did they react? Did they treat it with urgency?” Leonard said during the webinar. “That was always a very important factor that I looked at.”

She also said DDTC looked for companies that “self-blind”-- when they admitted to a violation but didn’t extend the scope of their investigation to find out if the issue was “systemic.” Some companies may only give one employee more compliance training and before ending their review, Leonard said. “It's usually never that simple,” she said.