Regulatory intelligence for US exporters

DOJ Looking to 'Make Examples' of Export Control Violators, Former Official Says

U.S. in-house attorneys need to be more vigilant than ever when investigating possible export control violations, lawyers said this week, adding that the risks of a possible civil or criminal penalty for a subpar internal investigation, or for not disclosing a violation quickly enough, are rising.

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David Burns, a former senior prosecutor with DOJ’s Criminal Division, said DOJ is “highly focused” on finding corporate export control breaches. He pointed to the fact that the agency recently hired 25 new prosecutors to investigate and prosecute sanctions and export control violations (see 2303070023) and in September announced its first chief counsel for corporate enforcement (see 2309120017).

“It is a high priority for the department,” said Burns, a Gibson Dunn lawyer, speaking during a June 4 webinar hosted by the law firm. “They are looking to make examples, both positive and negative, of those who disclosed and don't disclose.”

Other lawyers during the webinar said government penalties are rising to a level that may warrant spending more money on compliance. “Even outside of criminal matters, the civil penalties are high enough now to justify the allocation of resources within companies to ensure you have the right people to help with your export control investigations,” said Christopher Timura, a member of Gibson Dunn’s international trade and white collar defense and investigations practices.

The lawyers touched on DOJ’s May decision to decline to prosecute a Massachusetts biochemical company that was part of an illegal export scheme involving China, which was the first time the agency’s National Security Division offered a corporate declination under its recently updated voluntary self-disclosure policies (see 2405220037).

The company, MilliporeSigma, was offered a declination partly because it disclosed the violations to DOJ just one week after it hired an outside lawyer to investigate the issue. Burns said that turnaround was “fairly quick,” and DOJ probably isn’t requiring every company to disclose an issue that quickly in order to benefit from the agency's updated disclosure policies.

​​“There's no set time period. It's simply that the disclosure must be made promptly,” he said, although “waiting months may be too long.” He said DOJ knows some companies need time to “get a full understanding of the potential criminal conduct,” but the agency is still trying to create incentives for faster disclosures.

“With all of the potential new policies around the advantages to whistleblowers and reporters getting access potentially to information,” Burns said, “there is a little bit of a race to get in if you want to get the full benefit of the policy.”

Melissa Farrar, a white collar and corporate compliance lawyer with Gibson Dunn, agreed, saying the beginning stages of an investigation are “critical” in deciding whether to disclose. “The [Bureau of Industry and Security] and NSD disclosure timelines are aggressive,” she said, “and if you want to take advantage of them, it requires very swift action within the company to lay down that early marker.”

But deciding whether to voluntarily disclose a possible violation to DOJ or another agency can be challenging, especially because U.S. export regulations are “complex,” Timura said. He said regulations surrounding emerging technologies are “particularly” complicated. Lawyers and companies have said the recent BIS rules restricting exports of certain advanced semiconductors and chip equipment are the most complex ever issued by the agency (see 2211010042 and 2302020034).

“I've seen multiple occasions where, frankly, in-house counsel or outside counsel just get it wrong,” Timura said, speaking broadly about export control regulations.

Farrar said companies that disclose to DOJ but that don’t complete a thorough investigation of their possible violations -- or uncover all the facts -- may risk inviting more government scrutiny.

“A sloppy investigation is a very fast way, if you're before DOJ, to lose their confidence in your credibility and your ability to conduct a thorough internal investigation yourself,” she said. “And if you do come forward, and you don't have your act together, and you can't credibly explain the steps that you've taken to address a particular issue, then DOJ is going to be a lot more likely to try to take control and take the reins of your investigation.”