DOJ plans to make US sanctions enforcement “the new FCPA": watch these key areas

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White Collar Alert

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At a New York City Bar Association event in the spring, Deputy Attorney General Lisa O. Monaco described sanctions enforcement as becoming “the new FCPA” setting off a wave of speculation about what she meant.   

 

On June 16, 2022, during her keynote address at the Global Investigations Review Live program “Women in Investigations,” Deputy Attorney General Monaco elaborated on her earlier reference.

 

Scope of sanctions enforcement

  

There is a “new level of intensity and commitment to sanctions enforcement” at the Department of Justice (DOJ).  In her keynote address, Deputy Attorney General Monaco emphasized that sanctions enforcement is no longer just a concern for banks and financial institutions.   Rather, “any business with an international supply chain” should place sanctions at the “forefront” of its compliance efforts, including pressure-testing its sanctions compliance program.  The DOJ “expect[s] to see a new level of sophistication and resource commitment to sanctions compliance at companies across the globe.”

 

Building on the FCPA’s enforcement foundation

 

In elevating the importance of sanctions enforcement, Deputy Attorney General Monaco identified four areas where sanctions enforcement will build upon the DOJ’s Foreign Corrupt Practices Act (FCPA) enforcement history.


Sanctions enforcement actions will grow dramatically

In drawing comparisons to the FCPA, Ms. Monaco alluded to the meteoric rises of FCPA enforcement actions in the late 2000s. As Ms. Monaco explained, “The growth of sanctions enforcement follows the path that the FCPA traveled before it.”  We are starting to see the DOJ’s expanded resources at work, particularly in enforcing sanctions against Russia, including the creation of the Task Force KleptoCapture targeting the use of cryptocurrency to evade sanctions.  Similarly, federal regulators, most notably the Office of Foreign Assets Control (OFAC), have broadened their scope beyond the financial sector, bringing sanctions enforcement actions against companies in the international freight, mining, and offshore trading industries.

If, as Deputy Attorney General Monaco implies, FCPA enforcement history is the model for sanctions enforcement growth, we could see the DOJ initiating more sanction enforcement actions annually.  Although passed in 1977, federal enforcement of the FCPA remained largely dormant until 2007.  According to Stanford Law School FCPA Statistics, from 1977-2007 annual FCPA enforcement actions rarely exceeded single digits.  In 2007, FCPA enforcement actions skyrocketed, with the yearly average for FCPA enforcement actions since 2007 increasing to thirty-eight.

Whether we will see a similar escalation in sanctions enforcement from the DOJ remains to be seen. In the past, the DOJ’s role in sanctions enforcement has focused on scenarios involving other criminal violations or where OFAC refers an enforcement action to the DOJ for criminal prosecution.  Now that, as Ms. Monaco claims, the DOJ has made “sanctions evasion and export-control violations a central focus of its white-collar enforcement,” we could see a similar increase in criminal prosecutions.

Sanctions enforcement will be a global effort

One advantage the DOJ’s current sanction enforcement efforts has over historic FCPA enforcement is global support.  As Deputy Attorney General Monaco observed, while the United States efforts to combat global corruption was initially a “unilateral effort,” the DOJ has increasingly found new anti-bribery & anti-corruption (ABAC) regulatory partners over the last decade. Comparatively, Deputy Attorney General Monaco believes that sanctions enforcement is becoming “more and more a multinational team sport,” particularly in response to Russia’s war in the Ukraine, highlighting the recently formed ten-country Russian Elites, Proxies, and Oligarchs Task Force.

As international regulators increased their enforcement of ABAC regulations, cross-border collaboration grew, resulting in more comprehensive investigations and higher awards.  For example, international cooperation was the driving catalyst for the historic 2020 ABAC enforcement year, with seven of the top ten ABAC enforcement awards involving international cooperation and foreign governments accounting for over two-thirds of the $9 billion in global ABAC recoveries.  If international cooperation in sanctions enforcement increases as Ms. Monaco suggests, we could see similar growth in global sanctions recoveries.

Corporate sanction compliance programs will be a focus of the DOJ

As the DOJ increases its efforts to strengthen sanctions enforcement, the DOJ expects companies to put sanctions at “the forefront” of the company’s “approach to compliance.”   Deputy Attorney General Monaco advised that companies need to take a close look at their compliance programs with a specific eye towards how the company identifies sanctions-related risks.  Moreover, companies must “pressure-test[] its sanctions compliance program . . . through risk assessments, technology upgrades and industry benchmarking” to ensure its program is working effectively.

The DOJ’s prior guidance on corporate compliance programs and OFAC’s compliance framework provides helpful guidance.  When the DOJ initiates a white-collar enforcement action, we can expect the DOJ to closely examine the company’s compliance controls.  In sanctions enforcement actions, this could include how the company’s compliance program identifies sanctions risks, how the company implemented sanctions controls, and whether sanctions controls are effective at identifying and combatting misconduct.  Companies could significantly mitigate potential penalties if it can demonstrate that it had strong sanctions controls in place at the time of the violation.

Self-disclosure and cooperation remain key

At the close of her keynote address, Deputy Attorney General Monaco sent a clear message to companies.  If you think you have a sanctions problem, “call us. Do not wait for us to call you.” In recent years, the DOJ has made self-disclosure a priority.  For example, the DOJ’s updated FCPA Resource Guide specifically highlights the benefits of self-disclosure and cooperation.  Notably, “where a company voluntarily self-discloses misconduct, fully cooperates, and timely and appropriately remediates,” the DOJ presumes that it will decline prosecution absent aggravating circumstances.  Moreover, companies that self-report and cooperate with the DOJ in the FCPA context may see their penalties cut in half.

 

The DOJ’s sanctions self-disclosure policies, modelled after the FCPA guidelines, contain similar incentives, which are likewise similar to OFAC’s adjustment of penalties in response to voluntary self-disclosures.  As Deputy Attorney General Monaco highlighted, the first resolution under the DOJ’s voluntary self-disclosure program resulted in no civil penalties other than the disgorgement of earned revenue.  Comparatively, the last “four recent corporate guilty pleas over the last month or so . . . carried collective criminal penalties of nearly $7 billion.” 

 

Key takeaways

 

Companies across all industries should pay heed to the DOJ’s warnings and take action to establish appropriate compliance programs to address potential sanctions issues. 

 

As Deputy Attorney General Monaco indicated, such programs should include:

 

  • Regular risk assessments that identify the company’s current sanctions risk profile
  • Designate resources to identify sanctioned entities during the due diligence process
  • Upgrade technology including investments in analytic data on company payments
  • Industry benchmarking on strengthening sanctions compliance and identifying sanctions trends and emerging risks in the company’s industry sector and market
  • Sufficient knowledgeable personnel and counsel on sanctions risks and
  • Effective tone at the top to promote sanctions compliance.

Corporate boards should evaluate whether they are effectively overseeing the company’s sanctions controls.

In addition, as the DOJ’s Evaluation of Corporate Compliance Programs instructs, an effective compliance program should include:

  • Development and training on sanctions compliance policies and procedures
  • Employee surveys to measure the company’s compliance culture and strength of internal controls
  • Implementation of sanctions controls designed to address risks specific to the business
  • Conduct periodic audits to ensure that sanctions controls are functioning properly and
  • Investments in data resources that allow compliance personnel and audits to effectively test sanction controls.

Finally, if a company suspects it has a “sanctions problem,” it should fully evaluate whether self-disclosure is appropriate, including the possible benefits of self-disclosure.

 

As the DOJ’s commitment to sanctions enforcement grows, the stakes are potentially very high.  As Deputy Attorney General Monaco explained, the old ways of managing sanction risks may no longer be sufficient to address the sanctions risks of today. Companies should act to assess their current sanctions compliance programs and risk profile to reduce the risk of potential violations and DOJ enforcement.

To learn more about the implications of Deputy Attorney General Monaco’s remarks, please contact any of the authors or your usual DLA Piper contact.