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| Lamine Hardaway |
Recent pronouncements from, and actions taken by, the U.S. Department of Justice crystallize the message to industry at large that the department intends to prioritize and expand its prosecution of U.S. sanctions violation and evasion, particularly with regard to sanctions against Russia since its invasion of Ukraine.
These new sanctions provide an increased appetite and fertile ground for targeting of sanctions violators and evaders, which has historically focused on banks and other financial institutions.
In response to these pronouncements, banks and other companies can take a number of preemptive actions to reduce their risk exposure, including updating compliance policies and procedures and engaging in proactive compliance systems reviews.
DOJ Jurisdiction to Enforce Sanctions
The DOJ's National Security Division is authorized by statute[1] to pursue criminal penalties against any person who willfully commits, willfully attempts to commit, willfully conspires to commit, or aids or abets in the commission of a violation of sanctions laws.
The NSD treats an act as willful "if done with the knowledge that it is illegal."[2] This does not, however, require the DOJ to prove knowledge of the exact provision of law that is violated.
In Bryan v. U.S., the U.S. Supreme Court held in 1998 that "'a person acts willfully if he acts ... with the bad purpose to disobey or disregard the law,'" but that he "'need not be aware of the specific law ... that his conduct may be violating.'"
Meanwhile, the executive branch, through the U.S. Department of the Treasury's Office of Foreign Assets Control may also impose penalties as a civil matter without demonstrating any criminal intent.
Where there are signs of willful, criminal conduct, OFAC may make a criminal referral to the DOJ for criminal investigation and/or prosecution. The NSD may also initiate its own investigation without OFAC referral.
DOJ Intends to Enforce Russia Sanctions Aggressively
In March, Attorney General Merrick Garland announced the creation of Task Force KleptoCapture — an interagency task force created to prosecute Russia sanctions evasion and related crimes.
Garland asserted that the DOJ would "leave no stone unturned in [its] efforts to investigate, arrest, and prosecute those whose criminal acts enable the Russian government to continue its unjust war against Ukraine."[3]
The DOJ has already begun to prosecute cases that stem from KleptoCapture investigations involving Russia sanctions evasion. For example:
- On Sept. 29, the DOJ charged Russian oligarch Oleg Vladimirovich Deripaska and associates with U.S. sanctions violations for facilitating illicit travel to and real estate transactions in the U.S., for the benefit of Deripaska.[4]
- On Oct. 11, Graham Bonham-Carter, a U.K. national who worked for Deripaska-controlled entities, was arrested for conspiracy to violate U.S. sanctions imposed on Deripaska for his efforts to deal in blocked property in the U.S. belonging to Deripaska, including attempts to finance the upkeep and/or transfer of such property to the U.K.[5]
- On Oct. 19, the DOJ unsealed a 12-count indictment charging five Russian nationals with various charges, including sanctions evasion, involving an elaborate scheme to procure sensitive military and dual-use technologies from U.S. manufacturers, in support of Russia's defense sector.[6]
In a keynote speech on June 16, Deputy Attorney General Lisa Monaco identified "the critical need to enforce these sanctions with unprecedented intensity."[7]
Earlier, at a New York City Bar Association event on April 27, she explained that sanctions evasion and export-control violations became a key priority of the DOJ's white collar enforcement after Russia's invasion of Ukraine.
She went on to describe sanctions enforcement as the new Foreign Corrupt Practices Act — an earlier focal point of federal white collar criminal enforcement. Just like companies under the FCPA, sanctions violators may face criminal penalties in the hundreds of millions or even billions of dollars, while also risking reputational damage and the appointment of independent compliance monitors.
How to Meet DOJ Sanctions Compliance Expectations
The DOJ has issued public guidance outlining its departmentwide policies for prosecuting corporate crime, including sanctions and export control enforcement.
In September, Monaco issued a memo outlining revisions to the DOJ's corporate criminal enforcement policies, which sets out the department's expectations for companies that are the target of an enforcement.
The memorandum should inform how companies prepare for and respond in the current environment of heightened criminal sanctions enforcement risks.
Meanwhile, the NSD earlier issued its own export control and sanctions enforcement policy for business organizations in 2019 "in an effort to standardize, to the extent possible, DOJ voluntary disclosure policies."[8]
This policy largely tracks the guidance in the memorandum and will probably be updated to the extent that there are any gaps between the two documents.
Summarized below is guidance that can be taken from the memorandum and NSD policy on how to receive mitigated treatment for sanctions violations.
Don't be a repeat offender.
The memorandum directs prosecutors to consider a company's record of past misconduct. Because not all prior misconduct is equally relevant or probative, in evaluating such misconduct, prosecutors are told to consider:
- The form of prior resolution, including associated restrictions and penalties;
- The time elapsed between instances of misconduct; and
- The nature of the underlying misconduct, particularly whether it involves the same personnel or reflects systemic weaknesses in compliance practices.
Similarly, the NSD policy lists a history of misconduct as an aggravating factor in a sanctions enforcement actions. Note that per the NSD policy, in the sanctions context, prior OFAC civil enforcement may be considered evidence of past misconduct in a DOJ action.
Voluntary self-disclosure reduces penalties for violations.
The memorandum states that DOJ will not seek a guilty plea where a company has (1) voluntarily self-disclosed, (2) fully cooperated, and (3) timely and appropriately disclosed.
Moreover, the memorandum provides general guidelines for each DOJ component's voluntary self-disclosure policy to:
- Set forth the expectations of what constitutes a voluntary self-disclosure, including as it relates to the timing of disclosure and the timely preservation, collection and production of relevant information;
- Describe the types of information that should be provided; and
- Describe the benefits granted with a voluntary self-disclosure.
Similarly, the benefits of a voluntary self-disclosure under the NSD policy — absent aggravating factors — include up to a 50% reduction of the fine and not requiring a monitor if the company has implemented an effective compliance program.
Per the NSD policy, in order for a company's disclosure to be voluntary, it must:
- Disclose misconduct "'prior to an imminent threat of disclosure or government investigation";
- Disclose the conduct "'within a reasonably prompt time after becoming aware of the offense'"; and
- Disclose all relevant facts known at the time of disclosure, "including as to any individuals substantially involved in or responsible for the misconduct."[9]
Notably, the NSD policy specifies that disclosures of conduct made to another regulatory agency, such as OFAC, and not to DOJ will not qualify for the benefits provided in the voluntary self-disclosure policy.
This presents a tricky question of whether to voluntarily disclose a sanctions violation to both DOJ and OFAC, because a disclosure to DOJ presupposes that there is evidence of criminal intent.
A determination to disclose to DOJ should therefore be made only based on a careful assessment of the apparent facts against the willfulness standard, and should be made simultaneously with an OFAC disclosure.
Full and effective cooperation reduces penalties.
The NSD policy provides that companies that submit a voluntary self-disclosure to DOJ and meet its requirements are presumed to receive a nonprosecution agreement and not be fined, absent aggravating factors.
Should there be aggravating factors, companies that have otherwise met all disclosure requirements are eligible for at least at 50% penalty reduction.
To credit a company with full and effective cooperation under the NSD policy, the company should provide proactive, rather than reactive, cooperation, and:
- Disclose all relevant facts on a timely basis;
- Attribute facts to specific sources where possible, rather than providing a general narrative of the facts. Consistent with the memorandum's new emphasis on individual accountability, the NSD expects all facts on the involvement of the officers, employees or agents — as well as potential criminal conduct by all third-party companies and relevant individuals;
- Provide timely updates on a company's internal investigation;
- Ensure timely preservation, collection and disclosure of relevant documents and information relating to their provenance, including disclosure of overseas documents;
- Ensure the deconfliction of witness interviews and other investigative steps; and
- Make available for interviews officers and employees who possess relevant information.
Demonstrate the existence of a proactive and risk-responsive sanctions compliance program.
The NSD policy further provides that a company must implement an effective compliance program to receive full credit for timely and appropriate remediation.
Under the NSD policy, a company may receive up to a 50% reduction of the fine and avoid having a monitor imposed if it has implemented an effective compliance program.
In addition to measuring a sanctions compliance program against its own policy, the NSD will expectedly determine how the sanctions compliance program measures up against the Framework for OFAC Compliance Commitments. As such, companies' sanctions compliance programs should contain the following components:
- Management commitment;
- Risk assessment;
- Internal controls;
- Testing and auditing; and
- Training.[10]
The memorandum directs prosecutors to evaluate whether a compliance program is "well designed, adequately resourced, empowered to function effectively, and working in practice."
Act promptly and appropriately to remediate the violation and reduce future compliance risks.
For a company to receive full 50% reduction of the fine for timely and appropriate remediation under the NSD policy, it must demonstrate that it has engaged in a thorough analysis of causes of underlying conduct — i.e., a root cause analysis — and, when appropriate, remediation to address the root causes.
It is advisable to conduct an internal investigation with a view to identifying the root causes and implementing appropriate remedial measures.
Recommendation for Proactive Compliance
Given the heightened risk of sanctions enforcement, it is important for financial institutions and other companies with multinational operations to act proactively to identify their compliance risks and develop procedures for screening transactions, monitoring and reporting on compliance risks, and responding to identified issues.
The DOJ's guidance makes clear that businesses that do not implement appropriate compliance to address this new sanctions enforcement environment will be penalized harshly.
Monaco has asserted that the DOJ expects "a new level of sophistication and resource commitment to sanctions compliance at companies across the globe."[11]
Accordingly, we can expect even greater DOJ scrutiny of a company's sanctions compliance program as part of upcoming enforcement actions.
Specifically, Monaco has called on companies to:
- Cultivate a culture of sanctions compliance;
- Conduct sanctions risk assessments to identify current sanctions risk exposure;
- Allocate adequate resources to execute due diligence processes;
- Upgrade technology and compliance software; and
- Identify sanctions trends and emerging risks in particular sectors and markets.[12]
By demonstrating a good faith and proactive effort to prevent sanctions violations, companies can reduce their exposure to enforcement risks in this heightened enforcement environment and set themselves up for a more favorable outcome in the event of a civil or criminal sanctions investigation.
Lamine C. Hardaway is a senior attorney at Eversheds Sutherland.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 50 U.S.C. §1705(c).
[2] Bryan v. United States
, 524 U.S. 184 (1998). See also https://www.justice.gov/nsd/ces_vsd_policy_2019/download.[3] Attorney General Merrick B. Garland Delivers Remarks to the ABA Institute on White Collar Crime, March 3, 2022, available at https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-aba-institute-white-collar-crime.
[4] Department of Justice, Russian Oligarch Oleg Vladimirovich Deripaska and Associates Indicted for Sanctions Evasion and Obstruction of Justice, September 29, 2022, available at https://www.justice.gov/opa/pr/russian-oligarch-oleg-vladimirovich-deripaska-and-associates-indicted-sanctions-evasion-and.
[5] Department of Justice, U.K. Businessman Graham Bonham-Carter Indicted for Sanctions Evasion Benefitting Russian Oligarch Oleg Vladimirovich Deripaska, October 11, 2022, available at https://www.justice.gov/opa/pr/uk-businessman-graham-bonham-carter-indicted-sanctions-evasion-benefitting-russian-oligarch.
[6] Department of Justice, Five Russian Nationals and Two Oil Traders Charged in Global Sanctions Evasion and Money Laundering Scheme, October 19, 2022, available at https://www.justice.gov/usao-edny/pr/five-russian-nationals-and-two-oil-traders-charged-global-sanctions-evasion-and-money.
[7] https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-delivers-keynote-remarks-2022-gir-live-women. See also Sanctions Turn Into New Priority for Justice Department, Wall Street Journal, April 27, 2022, available at https://www.wsj.com/articles/sanctions-turn-into-new-priority-for-justice-department-11651097156.
[8] Department of Justice Revises and Re-Issues Export Control and Sanctions Enforcement Policy for Business Organizations, December 13, 2019, available at https://www.justice.gov/opa/pr/department-justice-revises-and-re-issues-export-control-and-sanctions-enforcement-policy.
[9] Department of Justice Revises and Re-Issues Export Control and Sanctions Enforcement Policy for Business Organizations, December 13, 2019, available at https://www.justice.gov/opa/pr/department-justice-revises-and-re-issues-export-control-and-sanctions-enforcement-policy, https://www.justice.gov/nsd/ces_vsd_policy_2019/download.
[10] Department of the Treasury, A Framework for OFAC Compliance Commitments, May 2, 2019, available at https://home.treasury.gov/system/files/126/framework_ofac_cc.pdf.
[11] Deputy Attorney General Lisa O. Monaco Delivers Keynote Remarks at 2022 GIR Live: Women in Investigations, June 16, 2022, available at https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-delivers-keynote-remarks-2022-gir-live-women.
[12] Id.
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