DOJ’s Sanctions, Export Controls Warrant Companies’ Attention

When US Deputy Attorney General Lisa Monaco in June 2022 called sanctions “the new FCPA” (Foreign Corrupt Practices Act), the practicing bar braced for impact.

In the months that followed the declaration, US authorities have issued a stream of new export controls and sanctions (together “export”) measures to address evolving geopolitical situations and have announced record-setting penalty settlements.

We highlight key trends and look ahead to how companies can manage evolving export enforcement risks.

Enforcement Trends

Export cases often are settled without penalties or public notice. There are signs that the rhetoric of senior officials around export enforcement is beginning to match reality.

Several records were set last year in export enforcement matters. The Department of Justice reached its largest-ever settlement of criminal sanctions violations with a guilty plea, and the Treasury Department’s Office of Foreign Assets Control and Commerce Department’s Bureau of Industry and Security imposed its largest-ever penalties.

From the export enforcement actions that have been announced, several key trends have emerged.

First, there’s a focus on cases that involve China and Russia in particular. The Seagate Technology Holdings Plc case focused on alleged violations of export controls relating to China and resulted in BIS’ largest-ever standalone administrative penalty at $300 million.

Seagate announced that it would continue to do business with certain Chinese customers in violation of export controls, even though its two primary competitors had ceased similar exports and reexports. In the current political climate, Seagate’s unorthodox approach to national security considerations likely contributed to the size of the penalty.

BIS and DOJ have pursued multiple enforcement actions involving improper exports to Russia, particularly where they may pertain to Russia’s activities in Ukraine. Recent cases include actions brought against groups of individuals alleged to have participated in schemes to send dual-use technologies to Russia—including electronic components and integrated circuits that were the same make, model, and part number as those found in seized Russian equipment in Ukraine.

Second, there’s a focus on cases in which enforcement authorities have found evasion. The Russian export control violation schemes involved classic evasion tactics, using front companies and shipping the items to intermediary corporations in third-country locations including Turkey, India, China, and the United Arab Emirates, after which the items were rerouted to Russia.

In the Binance Holdings Ltd. case, executives at the global cryptocurrency exchange allegedly tried to conceal millions of potential sanctions violations, among other things, behind the appearance of an effective compliance program.

The company pleaded guilty to apparent sanctions and violations and agreed to pay more than $4.3 billion in penalties to DOJ, the Office of Foreign Assets Control, and other enforcement agencies, in the largest enforcement action of 2023—and the DOJ’s largest-ever settlement involving a guilty plea. Founder and CEO Changpeng Zhao pleaded guilty to failing to maintain an effective anti-money laundering program and resigned from his position.

The sheer scale of the penalties reflects the enforcement agencies’ perspective on sophisticated companies whose compliance practices leave much to be desired.

Third, enforcement authorities are emphasizing the importance of cooperation. Notwithstanding the record setting settlement with Binance, the company received significant cooperation credit. For example, the maximum statutory penalty with OFAC was $600 billion, while Binance ultimately paid OFAC a penalty of just under $1 billion. OFAC identified Binance’s cooperation as a major factor.

This was in contrast to the OFAC and DOJ actions taken against British American Tobacco, which engaged in a conspiracy to export tobacco and related products to North Korea, funneling proceeds through a complex payment process designed to evade US sanctions, which caused US financial institutions to process payments in violation of their own sanctions obligations.

OFAC imposed the civil statutory maximum monetary penalty—$508 million, which reflected BAT’s apparent lack of cooperation, among other aggravating factors.

Fourth, we’re seeing many US government agencies working together to bring actions. As is evident from the cases discussed here, DOJ, BIS, OFAC, and other agencies are working together to enforce export controls and sanctions regulations. Export enforcement is clearly a priority for the Biden administration as a whole.

Outlook

Enforcement of national security laws and regulations, including sanctions and export controls, remains a top priority for the US government and its allies.

Given the aggressive enforcement climate, companies would be well advised to conduct risk assessments regarding export compliance, address areas where improvements are necessary, and work with trusted advisers to assess whether to make disclosures to enforcement authorities.

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

Author Information

Jeremy B. Zucker is partner and chair of Dechert’s national security practice, advising clients on international trade regulatory compliance matters.

Hrishikesh N. Hari is partner at Dechert and assists clients in national security and white collar matters.

Betsy Feuerstein is an associate at Dechert and focuses her practice on national security, regulatory compliance, and international trade matters.

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