Overview
On May 22, 2024, the US Department of Justice’s National Security Division (“NSD”) announced its first-ever corporate declination under the NSD’s Export Control and Sanctions Enforcement Policy for Business Organizations (the “Policy”) in connection with a voluntary self-disclosure by Massachusetts biochemical company Sigma-Aldrich, Inc., doing business as MilliporeSigma. The declination related to allegations of US export control violations that occurred when a former employee and his co-conspirators submitted falsified export documentation for hundreds of shipments of MilliporeSigma products to China. The former MilliporeSigma employee and one coconspirator pleaded guilty to wire fraud conspiracy for their roles in the scheme.
The NSD’s Export Control and Sanctions Enforcement Policy creates a presumption that a company will receive a non-prosecution agreement (“NPA”), or, where appropriate under the provisions of the Justice Manual, a full declination of any action, including through an NPA, and no fine when it voluntarily self-discloses potentially criminal violations of US export controls and sanctions laws to the NSD’s Counterintelligence and Export Control Section (“CES”), fully cooperates, and timely and appropriately remediates. The presumption of an NPA or declination does not apply where aggravating factors are present. “Potentially” aggravating factors include egregious or pervasive criminal misconduct within the company, concealment or involvement by upper management, repeated administrative and/or criminal violations of national security laws, the export of items that are particularly sensitive or to end users of heightened concern, and a significant profit to the company from the misconduct. Where such aggravating factors are present, NSD has the discretion to seek a different resolution, such as a deferred prosecution agreement or guilty plea.
While NSD has touted the MilliporeSigma declination as an example of the clear benefits companies may receive under the Policy when they commit fully to voluntary self-disclosure of export controls and sanctions violations at the earliest sign of potential criminal wrongdoing, the facts and circumstances of the case, as set forth by the Justice Department, raise significant questions for companies who may uncover similar or more serious conduct within their own operations. Such questions, and the specific facts at issue here, should prompt companies to carefully assess whether the MilliporeSigma declination is a seminal moment representing the new normal under NSD’s VSD Policy or a potential outlier with somewhat limited precedential value.
MilliporeSigma’s Voluntary Self-Disclosure and NSD’s Declination
From approximately 2016 through 2023, a former MilliporeSigma employee fraudulently processed orders on behalf of his conspirators, who had not been approved to purchase MilliporeSigma products, by falsely representing that the orders were being placed by individuals affiliated with a US university research program, thereby obtaining significant benefits and discounts that the company provided to the university. When the products arrived at the university’s stockroom, a conspirator employed by the university diverted the products to other conspirators, who repackaged them and shipped them to China using export documents that included false statements about the value and contents of the shipments. The shipments included chemical compounds that MilliporeSigma had determined were subject to US export controls. This scheme continued until MilliporeSigma compliance personnel identified certain orders as suspicious, prompting the company to retain outside counsel who voluntarily disclosed the misconduct to NSD.
As explained in the declination letter, NSD declined to prosecute MilliporeSigma for violations of the Arms Export Control Act and the Export Control Reform Act based on NSD’s assessment of the factors set forth in the Export Control and Sanctions Enforcement Policy, including the fact that the company:
- timely and voluntarily self-disclosed the misconduct “just a week after retaining outside counsel” and “before obtaining a complete understanding of the nature and full extent of the misconduct;”
- provided exceptional and proactive cooperation;
- timely and appropriately remediated by terminating the salesperson and improving its internal controls and compliance program; and
- was the victim of the conspirators’ scheme even though the company obtained some revenue from sales to the conspirators.
Significantly, NSD determined that the violations of US export controls did not present a significant threat to national security based on the quantities and concentrations of the chemical compounds exported to China and because, in most instances, they did not require an export license.
Lessons Learned
Perhaps the most remarkable aspect of this declination is that the public knows about it. Unlike non-prosecution agreements, deferred prosecution agreements, or resolutions that proceed by way of civil forfeiture actions, nothing about a declination inherently or historically requires publicity. Indeed, among the more attractive aspects of a standard declination is the discretion typically offered by the government when it decides to forego any criminal enforcement activity.
Not so here. In announcing the corporate declination and criminal prosecutions, Assistant Attorney General Matthew G. Olsen said, “Today’s announcement reflects the value for companies like MilliporeSigma to quickly self-disclose potential criminal activity and reaffirms our commitment to work in partnership with the private sector to root out conduct that violates the law and jeopardizes our national security.” That value, however, may drop substantially for companies if, in weighing the possibility of a declination against the possibility of an NPA or deferred prosecution, the Department’s discretion cannot be assumed in the case of a declination.
The MilliporeSigma matter also raises the question of whether the facts of the case present a floor, an average, or the ceiling of the Department’s willingness to extend a declination. In the course of its description of the events at MilliporeSigma, the Department’s letter seems to describe a situation in which no actual criminal liability could have accrued to the company – a seemingly low- to mid-level employee, acting fraudulently and thus, per se not as an agent of the corporation, engaged in activity that the Department characterized as victimizing MilliporeSigma. A declination would seem to be the only just outcome in such a case, irrespective of the Department’s discretion under the Policy.
By contrast, companies can take some instruction from the benefit that DOJ extended to a company whose own compliance systems detected an ongoing violation. The importance to the Department of a company’s ex ante establishment and maintenance of an effective and independent compliance function has been a theme of the Department’s policy revisions in this and similar contexts (including in the context of FCPA voluntary self-disclosures). The Department’s highlighting of the self-correcting nature of MilleporeSigma’s compliance and business operations is at least one indication of the Department’s baseline requirements for a full declination or NPA.
Whether companies faced with more ambiguous facts or a higher risk of actual corporate liability can take comfort from the Department’s declination on facts such as these is an open question. The Department’s determination that MilliporeSigma had timely and voluntarily self-disclosed the misconduct by acting “just a week after retaining outside counsel” and before completely understanding the “nature and full extent of the misconduct,” if taken as a firm prerequisite for similar treatment, sets a high bar for companies to meet, particularly where the company suspects that more serious or extensive violations of US export controls and sanctions laws may have been committed. In such situations, the company will need time to conduct a thorough internal investigation to better understand the facts and root causes of the violations and to carefully weigh the potential benefits and costs of voluntary self-disclosure.
Conclusion
The MilliporeSigma declination illustrates DOJ’s increased focus on corporate enforcement, particularly of US export controls and sanctions, which remains a top NSD priority. Although the declination shows that NSD will use its discretion to issue NPAs or declinations for companies that voluntarily self-disclose certain violations of US export controls and sanctions laws, it remains to be seen how frequently NSD will extend this practice or whether the presence of actual criminal exposure for a corporate actor will change DOJ’s calculus. For cases involving more significant misconduct or where the suspected violations would be more likely to be interpreted by the US government as causing significant harm to US national security and foreign policy interests, companies will need to carefully weigh the costs and benefits of voluntary self-disclosure.
For additional information about the Export Control and Sanctions Enforcement Policy, please contact a member of Steptoe’s export controls and economic sanctions practice.
