Nearly a year ago, the Department of Commerce's Bureau of Industry and Security (BIS) imposed the largest standalone civil penalty in BIS history — US$300 million — against Seagate Technology LLC and its Singapore subsidiary. In the settlement agreement with BIS, Seagate admitted to violating export control laws, a reflection of BIS' policy eliminating "No Admit, No Deny" settlements.
Soon after the public announcement of the settlement, in July 2023, shareholders of Seagate filed a shareholder litigation lawsuit alleging that Seagate made materially false and misleading statements. In their complaint and response to Seagate's motion to dismiss, the plaintiffs relied in part on Seagate's admission in the BIS settlement that it had engaged in illegal exports. For example, the plaintiffs' argued that "[g]iven Seagate's admissions that its conduct was illegal, Defendants cannot meaningfully dispute that many of their statements, including that the Company complied with export laws, were false when made." In a recent March 2024 hearing on Seagate's motion to dismiss, Seagate contended that it made a "reasonable inference that at the time of this interpretation was supported by text of the rule, guidance, and advisory opinions" and that plaintiffs fail to cite any contemporaneous facts that were inconsistent with Seagate's public statements. The court is yet to rule on Seagate's motion to dismiss.
Similarly, in 2021 and 2024, victims of the Sudanese civil war brought suit against BNP Paribas (BNPP) following its guilty plea for violating U.S. sanctions and export controls. As part of its plea, BNPP agreed that it could not "through its attorneys, partners, agents, or employees," contradict "in whole or in part" its guilty pleas and admissions, or raise defenses "in any civil proceedings brought by private parties in the United States that are inconsistent with its guilty pleas and admissions." Plaintiffs' complaints attempt to use BNPP's guilty plea against it stating that "BNPP [ ] admitted a series of facts supporting its guilty plea in the 'Factual Statement' which set forth its criminal conduct."
While the outcomes of the cases remain to be seen, these cases show that a settlement with the U.S. government related to export controls and sanctions violations can have impacts in addition to penalties that flow directly from the export controls and sanctions violations, including on civil litigation. With this in mind, companies should carefully consider the potential secondary and tertiary impacts of voluntary self-disclosures (VSDs).
In recent years, U.S. government agencies — including BIS, the U.S. Department of Justice (DOJ), and the U.S. Department of the Treasury, Office of Foreign Assets Control — have emphasized the importance of VSDs. VSDs may provide important benefits to companies, such as reduced penalties or even declinations from DOJ. At the same time, companies should be aware that there are some possible second and third order effects of the VSDs and settlements when making a decision whether to submit a VSD. This may especially be the case when the relevant government agency requires an admission of wrongdoing.
This is not to say that companies should disregard VSDs. VSDs can provide important benefits to companies and filing such disclosures is a mitigating factor that the U.S. government gives great weight to in making decisions regarding enforcement. Moreover, even in the absence of a VSD, companies may be subject to an enforcement action (without the benefits of the VSD). In many cases, the lack of a VSD may well also be considered an aggravating factor under BIS' new policy. These changes and enforcement actions may impact the risk calculations of companies and result in more complex discussions when considering whether to voluntarily disclose.
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