By: Stephen Wagner
In my article on Personal Liability for Export Violations, originally published in February 2015, I warned that a federal appellate court had recently decided in United States v. Trek Leather, Inc., 767 F.3d at 1288, 96-99 (Fed. Cir. 2014) (en banc), that corporate officers may be held personally liable for civil penalties in cases in which import laws were violated. I speculated that export enforcement agencies may use the ruling in Trek Leather to increase their assessments of civil penalties against the principals of export companies.
That speculation just turned into a virtual certainty.
In a move that will have far-reaching effect on exporters – as well as importers and any company whose activities are regulated by the federal government – the U.S. Department of Justice (DoJ) issued a memorandum dated September 9, 2015, on Individual Accountability for Corporate Wrongdoing.
The new guidelines prioritize the Justice Department’s focus on individual responsibility in cases involving both civil and criminal corporate wrongdoing, and set forth six steps that will strengthen the DoJ’s “pursuit of individual corporate wrongdoing”:
- In order to qualify for any [consideration for cooperation under the DoJ’s Principles of Federal Prosecution of Business Organizations], corporations must provide to the Department all relevant facts relating to the individuals responsible for misconduct.
- Criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
- Absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.
- Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any [decision not to bring civil claims or criminal charges against the individuals who committed the misconduct] in such cases.
- Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
What does all of this mean for executives and employees working in export compliance?
It is important to understand that whenever a U.S. government enforcement agency such as the Office of Export Enforcement (OEE) in the Bureau of Industry and Security or Homeland Security Investigations (HSI) (on behalf of the Directorate of Defense Trade Controls) initiates an investigation, it follows DoJ guidelines with an eye toward bringing civil and/or criminal charges against the violators. While individuals have always been subject to charges for criminal violations of export laws, rarely before have individual executives or compliance professionals in an export company faced civil charges and monetary penalties for export violations.
And then came Trek Leather, which put individuals on notice that they could be held personally liable for export violations and made to pay civil penalties in such cases. (Over $570,000 for the president of Trek Leather.) Now, these DoJ guidelines make clear that compliance professionals at all levels will be in the crosshairs when federal enforcement officials investigate a potential violation.
In fact, the DoJ memo makes it a prosecutorial requirement that formal consideration of potential charges against individuals be part of any process of resolving claims against the company in general. Moreover, in the event that an investigation concludes with criminal or civil charges against a corporation and the investigators do not want to press charges (criminal or civil) “against the individuals who committed the misconduct,” such a decision must be approved in writing by the United States Attorney (the senior lawyer in every judicial district) or an Assistant Attorney General. This high standard will make it incredibly difficult for charges to be brought against an exporter without charges being brought against the individual who is responsible for the violation.
These new Justice Department guidelines also create a two-way incentive for companies to offer up to investigators the individuals responsible for violations and for individuals to spill everything on their superiors who also knew of the behavior. As seen in the first of the “six steps” above, companies cannot obtain leniency under federal charging (and sentencing) guidelines unless they provide “all relevant facts” regarding the individuals involved. Turning to the individuals, the DoJ comments as follows:
“by focusing our investigation on individuals, we can increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.”
This language clearly implies that – going forward – the initial focus of federal investigators will be not only presidents and chief compliance officers of the company, but also those employees who are responsible for day-in day-out export compliance matters and who, most likely, actually committed the violation.
As I and my colleague, Andrew Ittleman, discussed in our March 2015 webinar on personal liability for export violations, there are steps that companies and compliance professionals should take to help mitigate the risk of personal liability for civil penalties. These steps include reviewing and updating company policies, indemnifications, insurance, and governance documents (e.g., bylaws or operating agreements) so as to address the new risks to individual employees presented by these DoJ guidelines. However, as the new DoJ guidelines make clear (and as we discussed in the webinar), the best overall protection for compliance professionals is still to have a robust export compliance program and to faithfully execute that program every day.