Written by Ellen Hunt, Principal Consultant and Advisor at Spark Compliance
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As we all know, “sanctions is the new FCPA,” and there has been lots of action when it comes to both sanctions and export violation enforcement.
Two recent cases highlight what we need to do to lessen the sting of U.S. sanctions and export violations, so let’s dive in.
Case Number 1: The First-Ever Declination By the National Security Division
A twist on the Varsity Blues scandal, the MilliporeSigma "fake varsity" fraud scheme resulted in the first declination under the U.S. Department of Justice (DOJ) National Security Division's (NSD) voluntary disclosure program.
The recently updated NSD Enforcement Policy, like the DOJ’s Principles of Federal Prosecution of Business Organizations, emphasizes the importance of voluntary self-disclosure, cooperation, and remediation.
Other factors considered when evaluating to issue a declination are the nature and seriousness of the offense, law enforcement priorities, and the criminal history of the offender. Since 2016, the DOJ has listed only 20 declinations on its website, a number dwarfed by the 31 corporate enforcement actions in 2023 alone.
The Fake Varsity Scheme
From July 2016 to May 2023, a customer with the assistance of a MilliporeSignma salesperson, faked an affiliation with a large Florida university to obtain controlled biochemical materials, that were then repackaged and sent to China with false export documents.
The fake varsity affiliation led MilliporeSigma to provide over $4.9 million worth of discounts and other benefits, such as free overnight shipping, not available to the general public.
When the products arrived at the university stockroom, a stockroom employee diverted the products to the customer, who repackaged them and shipped them to China with export documents that contained false statements about the value and content.
How the Company “Stepped Up and Owned Up”
· Voluntary Self-Disclosure Within a Week
MilliporeSigma Compliance personnel became aware that certain shipments were suspicious. Voluntary self-disclosure was made within a week of the company hiring outside counsel and without the company completing its investigation and knowing the full extent of the misconduct.
· Exceptional and Proactive Cooperation
MilliporeSigma proactively identified and produced documents to the DOJ that established probable cause to search residences and electronic devices of culpable individuals including the criminal wrongdoing committed by its own salesperson. This cooperation allowed the DOJ to quickly identify the individuals responsible for the scheme and secure their felony guilty pleas.
· Remediation
In addition to the termination of the salesperson, the company agreed to improve internal controls and its compliance program.
· No Profit and Other Factors
The DOJ noted that, in most instances, the chemical compounds did not require an export license and they did not present a significant threat to national security in the quantities and concentrations sold.
Even though MilliporeSigma obtained some revenue from sales, the DOJ concluded that the company was victimized by the conspirators' scheme to fraudulently obtain significantly discounted products and free overnight shipping, and therefore was not required to disgorge profits or pay any forfeiture or restitution.
Case Number 2: What Not to Do
Contrary to MilliporeSignma is the rare three-year export ban of USGoBuy, the first such action since 2018. In 2021, the Bureau of Industry and Security found that the company had shipped riflescopes to China and the United Arab Emirates. Per the settlement agreement, the company conducted an audit of its compliance program which found 176 instances where UsGoBuy failed to make the required export filings or maintain adequate export records, some of which occurred after the settlement. From the audit, USGoBuy was to develop a detailed plan of corrective actions.
Despite these violations and the significant and continued compliance failures identified through the audit, USGoBuy did not implement corrective actions to address these issues. It appears to not have taken any steps at all to improve its compliance with export control laws.
In 2022, Homeland Security Investigators (HSI) intercepted a shipment of an export-controlled item being sent to USGoBuy’s Oregon warehouse for a customer located in China. HSI added conspicuous labels to the shipping box stating that an export license was required and replaced the item with one that did not require authorization. Despite the export control markings, USGoBuy exported the package to China on the very same day that it was received.
USGoBuy’s failure to adhere to its settlement agreement, implement corrective actions, and continued violations of export control laws resulted in the three-year ban which essentially will put the company out of business.
Lessons Learned
These activities show that BSI and the DOJ are serious about the enforcement of export control laws. In July, BSI issued a publication called “Don’t Let This Happen to You,” which details its numerous recent enforcement activities.
The lessons learned from these two cases are that to be considered for a declination, a robust compliance program will have to be in place to quickly self-disclose potential violations, as well as provide full cooperation and remediation. Being aware that violations have and are occurring, and doing nothing, can result in a bet the farm roll of the dice which could result in a full export ban.
