Russia Fuels US Prosecutor Hiring for Tough-to-Find Export Cases

The Justice Department’s planned expansion of export control prosecutions is reinforcing efforts by companies to detect suspicious supply chain activity, although their attorneys are skeptical that enough provable criminal cases exist.

At least 25 new prosecutors will be joining the National Security Division along with the unit’s first chief counsel for corporate enforcement, the department recently announced. The build-up responds to what DOJ leaders say are alarming trends at the intersection of corporate crime and national security. These include reports of Russia’s military relying on US-manufactured technology in its war with Ukraine.

By ratcheting up enforcement from civil penalties to possible criminal liability, the department is wading into cross-border investigations in which proving products were intentionally transported to adversary nations is often onerous and requires coordination across agencies. That leaves businesses shoring up compliance protocols despite murkiness about future exposure.

“I do think it is very appropriate to ask—where are they going to find those cases?” said Brandon Van Grack, a former supervisor in the DOJ section slated for overhaul. “What additional investigative tools are they going to use? Who are they going to be targeting? I think these are really difficult issues.”

A DOJ spokesman didn’t respond to multiple requests for comment.

Corporate Disclosure

The Justice Department is prioritizing export control and sanctions evasion investigations following the launch of related initiatives. These include a “strike force” to combat attempted theft of advanced technology, and the KleptoCapture Task Force formed shortly after the war in Ukraine to seize luxury assets of Russian oligarchs.

In announcing the personnel upgrades last month, Deputy Attorney General Lisa Monaco said DOJ was conducting sanctions evasion investigations worldwide in industries like fintech, banking, transportation, and defense. Companies also have faced elevated sanctions and regulatory scrutiny from other US enforcement authorities.

In response, some employers have made greater investments in internal compliance systems. In theory, that could lead them to voluntarily report to prosecutors when they uncover evidence of wrongdoing, such as employees selling to blacklisted parties.

While voluntary disclosures will be critical for building a pipeline of investigations, companies have historically preferred to disclose to regulatory agencies alone, such as offices within the Commerce and Treasury departments, said Soo-Mi Rhee, who leads Arnold & Porter’s anti-corruption practice.

“It will take time for companies to simultaneously disclose to DOJ, in addition to regulatory agencies, and increase the pipeline of matters before DOJ,” she added.

Brian Fleming, who helped launch the National Security Division’s company disclosure program as an Obama-era counsel, also spoke to the difficulty of corporate buy-in.

“How is it that you’re going to incentivize companies to walk in the door and turn their case into a criminal case from day one, perhaps?” Fleming said. “That, I think, is a fundamental tension.”

Open Questions

While some lawyers are advising clients to expect an enforcement uptick, others are taking a wait-and-see approach depending on how DOJ utilizes the additional prosecutors.

They’re also awaiting clarity on what one senior DOJ leader said will be a restructuring designed to replicate some of the Criminal Division’s white-collar successes.

Open questions include whether agencies that coordinate export control and sanctions enforcement with DOJ will receive corresponding personnel boosts. Also undetermined are how often agencies like Treasury and Commerce will refer cases to DOJ prosecutors, and how much jurisdiction will be asserted at Justice Department headquarters compared with US attorneys’ offices.

“There’s no question that the law enforcement agencies that work in this space also have to shift or push more resources to develop and investigate and support these investigations because it’s not just prosecutor-driven work,” said Daniel Grooms, a Cooley partner and former NSD official.

Proving Intent

The department’s criminal track record in export control includes a March 2 indictment of two Kansas men for allegedly conspiring to evade export laws by supplying aviation technology to Russian companies. Previous charges have involved US citizens and foreign nationals who allegedly operated shell companies or used other methods to distribute goods in Iran, North Korea, and China.

Finding meritorious cases will be tough given that common technical violations of export regulations aren’t at issue.

“You can dig and dig for direct evidence of willfulness, like an email, text message, or instant message saying, ‘you know we can’t really do this, right?’” said Alessio Evangelista, a Skadden partner and former export control prosecutor. “But digging for that type of evidence takes a lot of time and resources. That’s part of what those 25 new prosecutors can help with.”

They could also advance cases by working with agents to find circumstantial evidence of willfulness, Evangelista said. That could include searching for exporters who charged more than the fair-market value to compensate for the risk of getting caught; more circuitous shipment routes; or signs of willful blindness when exporters intentionally avoid learning the truth about product end-users.

From the company perspective, more rigorous compliance procedures to spot bad actors and report to DOJ would include tighter monitoring after employee paychecks suffer from new trade restrictions, such as at businesses that used to rely heavily on Russia for revenue.

“That’s where people may be motivated to behave badly and so you need to be paying more attention,” Rhee said.

Regardless of whether criminal intent is present, companies may still encounter aggressive investigations from prosecutors under pressure to justify a high-priority DOJ initiative. That means prosecutors will be more likely to take on cases previously left to Treasury and Commerce.

Criminal penalties won’t be imposed on companies and individuals for truly inadvertent violations, “but that won’t stop DOJ from opening investigations,” said Kerry Contini, an international trade partner at Baker & McKenzie. “I expect there to be a lot more scrutiny around whether companies may have crossed the line into criminal territory by overlooking red flags or putting their heads in the sand.”

‘Low-Hanging Fruit’

Despite a recognition that it may take up to several years to onboard prosecutors and see them routinely in court, they’ll have near-term chances in response to emerging threats.

“There’s some low hanging fruit out there that these 25 prosecutors can start with,” such as targeting companies that export technology to third-party nations which is then re-routed to Russia, said Adam Safwat, a Nelson Mullins partner who works on economic sanctions matters.

The departments of Justice, Commerce, and Treasury on March 2 issued a compliance note alerting companies of their intent to crack down on these re-exports through countries like Turkey and the United Arab Emirates.

“There may be some companies that are ignoring due diligence red flags about their customers’ down-stream buyers, and those might be some of the first companies that get caught up in the crosswinds here,” Safwat said.

Still, other attorneys, including those troubled by the reports of US goods obtained by Russia, are looking to discern what’s real and what’s designed to demonstrate strength.

“Twenty-five new prosecutors—that amount of headcount increase is obviously a drastic staffing up, and sometimes I wonder whether that’s really been thought through,” Fleming said, “or if it’s really just a shock and awe statement.”