The sanctions enforcement storm is underway. As we highlighted in the introduction to this blog series, the quickly evolving sanctions landscape of recent years has increased the complexity of compliance. Keeping up with ever-changing multi-jurisdictional sanctions and adapting compliance practices has proven challenging for companies with complex operations and supply chains. Instances of non-compliance can be inevitable.
A company’s investigation triage plan should evaluate mandatory disclosure obligations and, if there are none, the availability and attractiveness of voluntary-self disclosure (“VSD”) regimes. (See our previous blog post here with thoughts on how to approach first steps in an investigation.) Where available, VSDs can reduce the risk of monetary penalties and criminal prosecution but also pose significant risks.
In this post, the Global Sanctions Investigation Group provides three case studies of VSD regimes (in the United States, Germany, and Australia) and summarizes trends we are seeing as we work with companies on these issues. Of course, VSD options have to be considered wherever a company may find trade compliance lapses, and the Global Sanctions Investigation Group stands ready to work through these issues in the countries discussed below as well as others around the world.
Multiple VSD Options: United States
The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the US Department of Commerce’s Bureau of Industry and Security (“BIS”), and the US Department of Justice’s National Security Division (“NSD”) each have well-established VSD regimes that entail specific potential benefits (e.g., reduction of baseline penalty amount, avoidance of criminal prosecution).
Although all three agencies have long encouraged VSD submissions, the July 2023 Tri-Seal Compliance Note on VSDs and January 2024 updated guidance on VSDs from BIS make clear the premium that these agencies place on VSD submission. (Our previous blog posts on the updated guidance documents can be found here and here.) In fact, there is a trend towards harsher treatment where companies opt not to submit VSDs related to “significant” possible violations, which is another incentive for VSD submission.
Another factor that will influence the risk calculus of submitting VSDs is the recent doubling of the statute of limitations for US sanctions violations (from five to ten years) and the possibility that the statute of limitations for export controls violations may also be increased. Our previous blog post on the statute of limitations increase can be found here. Put simply, it can be a lot harder for companies choosing not to submit a VSD to OFAC, BIS, or NSD to “live with” potential enforcement risk for ten years versus five years.
Given these developments, the Global Sanctions Investigation Group has seen this lead to companies giving much more serious consideration to and, ultimately deciding to submit, VSDs. However, one potential pitfall to avoid is submitting a VSD too early.Ā This can happen where a company has not developed a sufficient understanding of the facts to determine whether violations have occurred or whether there are potential criminal implications. In addition, the trend in the United States is that the agencies submit very detailed requests for information during the course of reviewing VSDs. Accordingly, companies need to consider if they are ready for such further examination and the best approach to responding to requests in a thoughtful way.
Limited VSD Options: Germany
German law only provides for VSDs in limited circumstances. Regulatory authorities have the power to investigate violations of EU or German sanctions and bring criminal charges or levy administrative fines. This authority is limited by law if a company submits a VSD and remediates.
However, our experience is that companies often do not pursue the VSD option under German law because it is reserved for a small set of violations and does not apply to breaches of licensing requirements under sanctions or export controls or breaches related to the provision of funds or economic resources to EU designated persons. In other words, VSDs only result in potential immunity in cases of more technical violations involving documentation and information obligations. Companies may find that the effort to complete an VSD is not worthwhile to address technical violations.
Given the more limited scope of VSD benefits in Germany, one common pitfall the Global Sanctions Investigations Group has been seeing is submission of VSDs in circumstances where there are limited or no benefits in the form of potential reduction of penalties or non-enforcement. As a result, companies should give careful consideration of the local VSD regime and its potential benefits before proceeding.
No (Formalized) VSD Options: Australia
Australia does not currently have a formal VSD regime to disclose breaches of sanctions law. Government enforcement guidance for sanctions offenses reflects that the circumstances of the breach will be taken into account as part of the regulator’s risk-based enforcement action approach. Accordingly, while there is no formal regime, submitting a VSD will likely be a relevant factor weighed up by the regulator in determining the nature of any enforcement action to be taken.
Enforcement treatment varies between individuals and companies. A company is subject to strict liability but can potentially rely on a due diligence defenses for engaging in sanctioned conduct without a permit. A VSD can assist to prove the efficiency of the due diligence framework in place, e.g., that screening was in place to detect non-compliance inadvertently overlooked by earlier screening. For an individual, a VSD can support a showing that there was no intention to breach sanctions laws.
Given the absence of a formal VSD regime in Australia, there is no guarantee that regulators or law enforcement will refrain from taking enforcement action. The overall trend in Australia as experienced by the Global Sanctions Investigations Group is that submission of VSDs is much more limited and reserved to cases where companies have assessed that, given the nature of the violations, it is more likely that a VSD will be weighed heavily as a factor in non-enforcement.
View all posts in the āNavigating the Impending Global Sanctions Enforcement Stormā series.
