DOJ Trade Controls Declination May Signal More Lenient Stance

DOJ Trade Controls Declination May Signal More Lenient Stance

June 13, 2024, Bloomberg Law

• Covington attorneys examine DOJ’s declination to prosecute trade controls case
• Unique mitigating facts make it difficult to know whether case is exception

The National Security Division at the Department of Justice announced last month that it declined to prosecute the biochemical company Sigma-Aldrich Inc.—doing business as MilliporeSigma—which had voluntarily disclosed trade controls crimes pursuant to the NSD Enforcement Policy for Business Organizations.

The declination was the first of its kind under the policy and is particularly notable compared with the first resolution the NSD announced under the policy in 2021, where the software company SAP SE obtained a less favorable non-prosecution agreement imposing burdensome compliance, reporting, and cooperation obligations.

However, the facts at issue in the declination were atypical, so the case provides little insight on a key question: Will the NSD now seriously consider declinations even in cases involving more serious trade controls crimes and national security harm, if the company made a voluntary disclosure, fully cooperated, and timely and appropriately remediated?

Although the MilliporeSigma case may influence more companies to consider voluntary disclosures, the DOJ’s leniency on criminal trade controls can’t be confirmed until more cases are resolved.

NSD’s May 22 announcement explains that the DOJ declined to prosecute MilliporeSigma for export control and smuggling crimes that MilliporeSigma discovered and voluntarily disclosed to the NSD. The DOJ also announced guilty pleas by a MilliporeSigma salesperson and another individual who together defrauded the company and committed the US export controls violations at issue as they carried out the fraud.

The scheme involved obtaining price discounts and favorable shipping terms for company products by persuading the company that a university in Florida purchased the products. The conspirators then diverted the products to purchasers in China, committing export controls violations along the way.

In the NSD’s 2021 non-prosecution agreement with SAP, the company admitted to willfully violating US sanctions and export controls by making unlicensed exports of US-origin software to Iran and providing US-based cloud services to users in Iran.

The original 2016 version of the policy and the then-operative 2019 revision established a “presumption that the [disclosing] company will receive a non-prosecution agreement and will not pay a fine” if the NSD concluded the company voluntarily disclosed, fully cooperated, and timely and appropriately remediated, and if the NSD found no aggravating factors warranting a harsher disposition. The 2016 and 2019 versions of the policy didn’t mention the possibility of a declination. Thus, SAP obtained the most lenient possible resolution offered by the NSD policy at the time.

By contrast, revised 2023 and 2024 versions of the policy noted that “NSD has the discretion to issue a declination,” and NSD exercised that discretion by resolving MilliporeSigma’s voluntary disclosure with a declination. This comes amid a broader push from Deputy Attorney General Lisa Monaco for DOJ prosecutors to offer more lenient dispositions to companies that voluntarily disclose criminal wrongdoing, fully cooperate in the ensuing investigation, and timely and appropriately remediate the misconduct outside the Foreign Corrupt Practices Act context, where declinations in voluntary disclosure cases have been offered for several years now in appropriate cases.

Looking ahead, companies that are considering a voluntary disclosure to the NSD will wonder if the MilliporeSigma declination indicates that the NSD will more routinely entertain declinations, whether on the kind of facts presented in the SAP case or even in more serious cases.

The answer may lie in a comparison of the SAP and MilliporeSigma facts. Both companies met the requirements of NSD policy for lenient treatment. However, MilliporeSigma benefited from at least three unusual and highly mitigating facts absent in the SAP case.

First, the NSD found that MilliporeSigma made no unlawful profit from the violations. The salesperson and his conspirators outside the company committed crimes not for MilliporeSigma’s benefit, but rather to defraud and victimize the company. The NSD evaluated SAP differently, finding that SAP profited unlawfully from its violations by serving customers located or operating in Iran that the company otherwise would have had to cut off.

Second, the NSD found that the MilliporeSigma violations didn’t pose a “significant threat to national security” because only limited quantities were shipped and most of the products shipped didn’t require licensing for export to China. By contrast, the NSD and SAP agreed that “SAP committed serious offenses that affect the national security of the United States,” even if “the national security ramifications were tempered by the SAP’s voluntary self-disclosure, remediation, and cooperation.”

Third, the NSD found that MilliporeSigma’s violations were the work of “a rogue company insider,” whereas the SAP case involved conduct by a range of employees, entities, and business partners, including senior leaders at an SAP affiliate who knew SAP software was being purchased with the intent to use it in violation of US law.

The NSD made clear that these unique factors impacted the DOJ’s decision to decline prosecution of MilliporeSigma, so the case may have limited predictive value for future cases. There also may be few cases in the future with facts resembling those in the MilliporeSigma matter. The risks companies seek to mitigate through a voluntary disclosure to criminal prosecutors usually arise in cases involving substantial national security harm, unlawful profit, and conduct by more than a single, low-level employee.

Companies will have to wait for future resolutions in corporate voluntary disclosure cases before they know whether MilliporeSigma reflects a paradigm shift on leniency in criminal trade controls cases.

On the one hand, the facts on which MilliporeSigma obtained a declination limit the case’s usefulness as a guidepost. On the other hand, the NSD has now moved beyond a policy revision merely describing a declination as a possibility, at a time when the DOJ and NSD are clearly working to incentivize voluntary disclosures.

Either way, MilliporeSigma is an encouraging data point for companies that may be considering a voluntary disclosure. Ultimately, if the number of voluntary disclosures increases, the NSD may feel increasingly motivated to offer declinations, creating a virtuous cycle of sorts from the perspective of enforcers—and at least some in industry. This really would make export controls and sanctions, as the Deputy Attorney General has said, “the new FCPA.”

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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