By Farhad Alavi (Washington) & Sam Amir Toossi (New York)
The Biden Administration has been steadfast in its imposition of Russian sanctions in response to their invasion of Ukraine. These newly imposed sanctions are merely the latest example of how the U.S. uses its various sanctions programs to carry out its foreign policy objectives. With the recent expansion of the Russian sanctions program, enforcement has become a top priority at the Department of Justice. In fact, at a recent meeting of the White Collar Crime Institute at the New York Bar Association, Deputy Attorney General Lisa Monaco stated, “one way to think about this is sanctions being the new FCPA,” one of the DOJ’s top enforcement priorities in the world of corporate enforcement.[1]
This article summarizes the legal framework surrounding sanctions enforcement and provides an overview of what companies and individuals should do to prevent sanctions violations. This article also outlines various strategies that companies and individuals can employ and implement if they fall under regulatory investigation.
Legal Framework
International Emergency Economic Powers Act (IEEPA) allows agencies to impose a civil penalty equal to the greater of $330,947 or twice the amount of the underlying transaction.[2] IEEPA also provides criminal penalties up to $1,000,000, or in the case of a natural person, imprisonment up to 20 years, or both.[3] Under the Trading with the Enemy Act (TWEA), commonly associated with the Cuba sanctions program, civil penalties administered by OFAC can reach up to $97,529 per violation.[4] The criminal penalties under TWEA can reach up to $1,000,000 for corporations or in the case of a natural person, imprisonment up to 20 years, or both.[5]
According to the annual statistical reports compiled and published by Offices of the U.S. Attorneys (USDAO), in 2020 and 2021 there were 32 cases and 53 defendants accused of customs and duties violations, and 65 cases and 118 defendants related to export enforcement violations.[6]
Sanctions, which are primarily administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), focus on dealings engaged by U.S. persons with certain prohibited parties (e.g., certain banks, companies, charities, political groups, individuals, etc.) and countries (e.g., Iran, Syria, North Korea, and increasingly Russia). By contrast, export controls, which are administered by the U.S. Department of Commerce’s Bureau of Industry & Security (BIS), focuse on the exportation of U.S. origin goods and technologies. The BIS’s enforcement power is construed broadly, where export control authority covers items merely transited through the United States, or certain sensitive items manufactured overseas but including U.S. technology. Both OFAC and the BIS may bring civil enforcement actions and can lead their own parallel civil investigation in support of a DOJ criminal enforcement action.
How do you know if an investigation is underway?
Civil and criminal investigations could be hindered if the public becomes aware of them, which is why they are seldom announced publicly. Usually, the first indication that the DOJ is investigating potential violations comes through an affirmative step, such as:
- An arrest of a company employee, which may or may not be related to the underlying investigation. Notably, employees can be arrested at foreign airports outside of the United States and extradited to the U.S. to face charges.
- A company employee approached by a federal agent who is asking questions related to the business.
- Serving of a grand jury subpoena, a Civil Investigative Demand (“CID”) or administrative subpoena to the company or its employees.
- The search of an individual’s electronic device (e.g., laptops, tablets, mobile devices) upon an individual’s entry into the United States.
- The closure of a bank account for unstated reasons.
- Rejection of a sender or beneficiary’s bank wires by intermediary banks.
Although the consequences in civil and criminal cases are vastly different, it is important to understand that even if a case begins with an “Administrative Subpoena” or a CID, federal agencies often work collaboratively. Thus, even if a case appears, on its face, to be a civil enforcement action, it is possible that the civil regulators are working alongside criminal regulators. Even if such collaboration is not occurring when an Administrative Subpoena or a CID is served, the evidence gathered from the response may be shared with a criminal regulator nonetheless and subsequently trigger a criminal investigation. As a result, it is crucial for companies and individuals to understand that government agencies work with each other and to be mindful of that when devising a defense strategy.
What to do in the event of an investigation
- Stay Calm. Even if a company or individual is under federal investigation, many investigations end without any enforcement action ever being taken.
- Hire Counsel. Hiring counsel is absolutely necessary when dealing with a potential or actual investigation. Not only can counsel provide an assessment of what the government may be investigating, but counsel can also present the government with the company’s perspective on the facts without such information being used against the company in subsequent enforcement actions. Even if a company believes that it has done nothing wrong, it is still advisable to engage counsel. Indeed, some statements to regulators, regardless of how innocuous they may seem, might be detrimental and damaging to the company’s position.
- Preserve and Collect Documents. Whether in the context of a civil or criminal investigation, the first step is to preserve evidence. Sometimes, companies are reluctant to preserve documents out of fear that there is a “smoking gun” within them, even if there is no reason to think that the company has committed any wrongdoing. Frequently, this reluctance to preserve documents can inadvertently cause more harm to the company since those documents may also include evidence that may aid the company in disproving any wrongdoing. Moreover, the government may consider a company’s document preservation policies when determining what (if any) penalties they should impose. It is important to note that in the event documents are destroyed, the government may explore obstruction of justice charges. The best practice is for businesses to have an immediate hold on all documents, and prevent their destruction, even if the initial contact has been with an individual.
- Cooperate with the Government. It may seem counterintuitive to some, but cooperating with a government investigation is always the best option. This is because the DOJ has, over the past decade, instituted policies that are designed to reward cooperation. Self-disclosure of wrongdoings puts a company in the best position to earn leniency from the government. Even where a government investigation is already underway, companies are well-advised to cooperate with the government to obtain any leniency that they can receive. It is critical that this self-disclosure be framed and presented in an appropriate manner.
Preventing Compliance Failures
Naturally, the first step to protect oneself is to know the law and its limits and to refrain from certain risky activity. A strong compliance program is critical, not only to prevent potential violations, but especially because regulators will consider the strength of a compliance program when determining whether to seek enforcement or grant leniency in the case of a violation. Some basic steps companies can take are:
- Implement strong “Know Your Customer” (KYC) policies. It is important that company employees are required to conduct due diligence on counterparties and to have the results reviewed by someone who does not have a financial interest in the transaction (i.e. commissions or bonuses).
- Ensure that all compliance policies are in written form and conduct documented training sessions with employees It is important that a company memorialize the compliance policies that employees must follow. Documenting such policies and maintaining records of employee trainings will be relevant to any government regulator who evaluates such programs.
- Regularly test compliance programs. It is important not only to implement compliance programs but to frequently test them to ensure that they are working as designed and are able to detect and prevent potential violations.
Should the company become aware of a violation, it may consider submitting a Voluntary Self-Disclosure (VSD) to the relevant agency, be it the DOJ, OFAC, or BIS. VSDs allow violating parties the ability to own up to any past violations before they are caught in order to dramatically mitigate any potential penalties. In fact, the DOJ recently stated that it would not bring criminal indictments in cases where companies voluntarily disclosed their wrongdoing, unless there were other aggravating factors. In addition to avoiding criminal indictments, VSDs allow companies to initiate an internal investigation, which can inform the company’s understanding of the facts and ultimately demonstrate good faith to the government.
Conclusion
Sanctions and export regulations are very complicated. Even the most conscientious companies and individuals may run afoul of them and find themselves in violation. As a result, business owners and executives can very easily find themselves having to navigate in the event of a civil or criminal investigation. A well-grounded approach, devised with the assistance of counsel, can have a significant impact on the nature of proceedings and the outcome.
Special thanks to Xander (Xueyang) Peng and Hope Mirski for their assistance in preparing this post.
This post is intended solely for informational purposes
and should in no way be construed as legal advice. If you have
any questions or are unclear on any of the subject matters
addressed or discussed in this Client Alert, please consult a
licensed legal professional.
[1] Lisa Monaco, U.S. Deputy Att’y Gen., Remarks at the Meeting of 2022 White Collar Crime Institute at the New York City Bar Association (Apr. 28, 2022).
[2] CFR § 510.701
[3] CFR § 541.701
[4] CFR § 501.701
[5] CFR § 501.701
[6] U.S. Dept’ of Justice, United States Attorneys’ Annual Statistical Report Fiscal Year 2021 (2021), https://www.justice.gov/usao/page/file/1476856/download. U.S. Dept’ of Justice, United States Attorneys’ Annual Statistical Report Fiscal Year 2020 (2020), https://www.justice.gov/usao/page/file/1390446/download.