United States: DOJ Involvement In The Enforcement Of Trade And National Security Laws

The U.S. agencies most well-known for their enforcement of U.S. trade and national security laws are the Bureau of Industry and Security ("BIS"), the Directorate of Defense Trade Controls ("DDTC"), the Office of Foreign Assets Control ("OFAC"), and U.S. Customs and Border Protection ("CBP" or "Customs"). However, the Department of Justice ("DOJ") can often play a critical role in these types of matters. In recent years, the DOJ has increasingly been more involved in trade-related enforcement through collaboration with the above-mentioned regulatory agencies including participation on inter-agency task forces and issuance of joint compliance notes and other trade-related publications. DOJ involvement can result in a more extensive investigation, higher risk of reputational harm for a company, and more significant penalties compared to what a company may face when investigated solely by the regulatory agencies. This article will provide an overview of how the DOJ assists in the enforcement of U.S. trade and national security laws and examine certain federal laws, DOJ divisions, and voluntary self-disclosure ("VSD") policies relevant in the trade enforcement context.

DOJ Involvement in Export Control and Economic Sanctions Cases

In the export control and economic sanctions context, the DOJ's National Security Division ("NSD") is the primary DOJ division for enforcement. The NSD focuses on the investigation and prosecution of matters implicating U.S. national security, including U.S. export controls and economic sanctions. The NSD often collaborates with other DOJ components on trade-related matters such as regional U.S. Attorneys' Offices ("USAO") and certain task forces like the Disruptive Technology Strike Force and Task Force KleptoCapture.

Attorneys from both the NSD and two USAOs were involved in a prosecution announced on April 4, 2024, against two Florida residents who conspired to send sensitive aircraft technology to Russia in violation of U.S. export controls. The enforcement action was "coordinated" through both the Disruptive Technology Strike Force and Task Force KleptoCapture. In addition, the announcement credits several BIS, FBI, CBP, and Homeland Security Investigations ("HSI") field offices for their work in the joint investigation of the matter. The two defendants ultimately pleaded guilty to conspiracy to export items in violation of the Export Control Reform Act ("ECRA"), with one of the individuals also pleading guilty to conspiracy to commit international money laundering.¹

The case described above provides insight into the highly collaborative approach the DOJ is and will continue to take in the enforcement of U.S. export controls and economic sanctions. As stated by one of the U.S. Attorneys involved in the case, "[d]isrupting the illegal export of sensitive American goods and technologies to sanctioned foreign actors is a critical priority requiring a whole-of-government approach." As such, it is not uncommon for DOJ resolutions of export control and sanctions cases to be accompanied by parallel administrative settlements of the violations through BIS, DDTC, and OFAC.

For example, in 2021 SAP SE, a software company, settled export control and sanctions violations with the DOJ and entered into concurrent administrative agreements with BIS and OFAC, paying $8 million in combined penalties assessed by the three agencies. SAP was involved in the release of U.S.-origin software and cloud services to Iranian parties in violation of the Export Administration Regulations ("EAR") and the Iranian Transactions and Sanctions Regulations. Despite SAP executives' knowledge that internal controls to ensure trade compliance were lacking, the company continued operations that resulted in unlicensed transfers of software and services to Iranian parties for several years. Notably, SAP was able to obtain a non-prosecution agreement with the DOJ, settlements with BIS and OFAC, and mitigated penalties due to its extensive remediation measures, cooperation with the agencies in the investigation of its conduct, and submission of VSDs not only to BIS and OFAC, but to the DOJ's NSD as well.²

The submission of a VSD for export controls and economic sanctions violations to the DOJ is a relatively new concept. In fact, the SAP case constitutes the first time a VSD for export violations was submitted to the DOJ. However, the NSD has since issued several forms of guidance encouraging companies to voluntarily disclose export control and sanctions violations as part of the division's efforts to uphold and enforce U.S. trade and national security laws.

Currently, the NSD maintains an Enforcement Policy for Business Organizations which includes the division's VSD policy encouraging the voluntarily disclosure of potential criminal violations of the Arms Export Control Act ("AECA"), the ECRA, and the International Emergency Economic Powers Act ("IEEPA"), as well as violations of other adjacent laws that relate to export controls and economic sanctions. Under this policy, absent aggravating factors, there is a presumption of non-prosecution and no fine for companies that submit a VSD to the NSD, fully cooperate with an investigation, and timely and appropriately remediate the violations. The policy also provides that even where aggravating factors are present, a company that submits a VSD, fully cooperates, and takes remedial measures will receive a fine reduction of at least 50%. Importantly, the NSD notes that a company must submit its VSD to the NSD (or another DOJ office) to receive credit. A VSD submitted to a different government agency such as BIS, OFAC, or DDTC will not be credited under the NSD's policy.³

DOJ Involvement in Import-Related Cases

Unlike in the context of export controls and economic sanctions, there is not a specific division within the DOJ exclusively focused on enforcement of U.S. import regulations. However, recent actions clearly demonstrate that the DOJ is and will continue to be frequently involved in the investigation and prosecution of cases involving import violations.

For example, on March 11, 2024, the DOJ announced a $365 million settlement with Ford Motor Company ("Ford") to resolve alleged violations of the Tariff Act of 1930 involving the misclassification and undervaluation of imported vehicles.⁴ The DOJ announcement highlights the work of the Trade Fraud Task Force created by the DOJ to "combat trade fraud, including the avoidance of import duties." In addition, the announcement includes statements by DOJ and CBP personnel reflecting that the prosecution of import violations will remain an important focus and point for collaboration between the two agencies.⁵

The DOJ's $798,334 settlement with Homestar North America, LLC ("Homestar") announced on December 13, 2023, is another example of the Department's collaboration with CBP on import enforcement. This case involved alleged violations of the federal False Claims Act ("FCA") by Homestar, which purportedly avoided the payment of customs duties via a double-invoicing scheme. The investigation was led by the USAO for the Eastern District of Texas, which collaborated with CBP to investigate and reach a resolution in the matter. U.S. Attorney Damien Diggs stated that his office "will aggressively pursue" prosecution of companies that engage in similar schemes to fraudulently avoid payment of customs duties.⁶

The two recent settlements illustrate how the DOJ may use different federal laws as vehicles for enforcement of import violations. In addition, these cases are also examples of how various DOJ components may be involved in the investigation and prosecution of Customs-related cases. In the Ford case, the DOJ's Trade Fraud Task Force as well as attorneys within the Civil Division's National Courts Section and International Trade Field Office were credited for their assistance on the matter. Ford ultimately settled civil violations of 19 U.S.C. § 1592, the primary authority under which Customs regulations are enforced.⁷ On the other hand, the Homestar case, handled by a regional USAO, involved alleged violations of the FCA, a law applicable in cases where parties have knowingly avoided payment of import duties owed to the government. We have extensively discussed the applicability of the FCA in Customs and trade matters in a previous article.

The Ford and Homestar cases involve the resolution of civil, as opposed to criminal, violations. Importantly, each of the laws implicated in the Ford and Homestar cases have parallel criminal provisions, namely 18 U.S.C. § 541, which penalizes false classifications for imports and the failure to pay the proper amount in duties, and 18 U.S.C. § 287, which penalizes the submission of false or fraudulent claims to a government officer.⁸

In other cases, parties engaged in illicit import practices have been criminally charged under adjacent federal laws. For example, in 2021, the USAO for the Southern District of New York charged George Iloulian, the CEO of an apparel company, with one count of falsely effecting the entry of goods into the U.S. under 18 U.S.C. § 541 as well as one count of conspiracy to commit wire fraud under 18 U.S.C. § 1343. The charges concerned Mr. Iloulian's involvement in a double-invoicing scheme to avoid payment of customs duties and were accompanied by civil claims brought under the FCA.⁹

In 2023, a Florida couple faced criminal charges for violations of customs laws related to their facilitation of plywood imports and evasion of customs duties, including anti-dumping and countervailing duties, through the use of shell companies, illicit shipping practices, and submission of false classifications and country of origin declarations. The defendants were also charged with smuggling under 18 U.S.C. § 545 and violations of the Lacey Act, a federal environmental conservation law.¹⁰

As the cases above show, there are a variety of avenues for the DOJ to seek criminal charges in a Customs-related case. Executives or those in other internal managerial roles should keep in mind that knowledge of illicit import practices can subject them personally to criminal liability, even if they are not the actual facilitators of the imports. For companies, a criminal prosecution of import violations can mean significantly higher penalties and more reputational harm compared to a civil case.

In most instances, companies can help mitigate the risk of a severe enforcement action by submitting a Prior Disclosure ("PD") of their violations to CBP. However, for more serious violations, there is an increased risk that the DOJ may become involved in the case. Thus, where import violations potentially involve willful conduct or knowledge, parties may consider submission of a parallel disclosure to the DOJ to mitigate risks associated with criminal prosecution, but only after carefully weighing the significance and degree of risks involved.

There is no centralized DOJ VSD policy for import violations similar to the NSD's policy for the disclosure of export control and economic sanctions violations. However, a party that wishes to submit a VSD containing potential criminal violations of import laws is not completely out of luck. Depending on the circumstances and severity of the import violations, submission of a VSD under one of the DOJ divisions' existing policies may be a viable option.

The NSD's VSD policy is primarily focused on export control and sanctions violations. However, the policy also mentions that it can cover the disclosure of violations of other criminal laws "that affect national security because they arise out of or relate to the enforcement of export control and sanctions laws." This can include certain violations related to the importation of goods into the U.S., such as "smuggling, fraudulent importation, and false statement offenses."¹¹

In addition, it may be possible to submit a VSD for potential criminal violations of import laws to a regional USAO or the DOJ's Criminal Division. The USAO implemented a nation-wide VSD policy on March 3, 2023, that states that the USAO will not seek a guilty plea where there are no aggravating factors present and the disclosing company has met the three VSD standards – submission of a timely VSD, full cooperation with the DOJ's investigation, and appropriate remediation of the criminal conduct.¹² Similarly, the Criminal Division's policy provides that where the three VSD standards are met and no aggravating factors are present, there will be "a presumption that the company will receive a declination," meaning the division will choose not to prosecute the matter.¹³ Under both the USAO and Criminal Division policies disclosing parties can still receive some mitigation credit, including a 50% to 75% reduction in penalties.

Companies that believe they have engaged in potential criminal violations of U.S. import laws should consult legal counsel to help decide if a VSD submission to the DOJ is appropriate in addition to disclosure to CBP. In the absence of DOJ specific guidance on import related VSDs, it could also be possible that a VSD may be considered as a mitigating factor in a civil action, though this has not been explicitly stated in any DOJ publications.

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As the cases discussed above show, there are a variety of avenues for the DOJ to aid in the enforcement of U.S. export controls, economic sanctions, and import regulations. The DOJ's more frequent involvement in the enforcement of U.S. trade and national security laws creates more legal risk for parties involved in international trade, especially those that self-blind to violations or lack effective internal compliance mechanisms. Maintaining compliance measures and procedures for the internal reporting of potential violations can help proactively ensure continuous compliance.

Footnotes

1. Press Release, Dep't Justice, Russian Nationals Admit to Illegally Sending Controlled Aviation Technology to Russia (Apr. 4, 2024), https://www.justice.gov/opa/pr/russian-nationals-admit-illegally-sending-controlled-aviation-technology-russia.

2. Press Release, Dep't Justice, SAP Admits to Thousands of Illegal Exports (Apr. 29, 2021), https://www.justice.gov/opa/pr/sap-admits-thousands-illegal-exports-its-software-products-iran-and-enters-non-prosecution.

3. Dep't Justice, NSD Enforcement Policy for Business Organizations, https://www.justice.gov/nsd/media/1285121/dl?inline= (last updated Mar. 7, 2024).

4. Press Release, Dep't Justice, Ford Motor Company Agrees to Pay $365M to Settle Customs Civil Penalty Claims (Mar. 11, 2024), https://www.justice.gov/opa/pr/ford-motor-company-agrees-pay-365m-settle-customs-civil-penalty-claims-relating.

5. For more details on the Ford case and Trade Fraud Task Force, see our previous article here.

6. Press Release, Dep't Justice, Importer Agrees to Pay $798,334 to Resolve Allegations of Underpayment of Customs Duties (Dec. 13, 2023), https://www.justice.gov/usao-edtx/pr/importer-agrees-pay-798334-resolve-allegations-underpayment-customs-duties.

7. See our previous article on 19 USC § 1592 here.

8. See also 18 U.S.C. § 542 that imposes criminal penalties on those who submit false or fraudulent import documentation to avoid proper payment of duties.

9. Press Release, Dep't Justice, Manhattan U.S. Attorney Announces Criminal & Civil Charges Against CEO Of Apparel Company For Engaging in Customs Fraud (Sep. 24, 2021), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-and-civil-charges-against-ceo-apparel-compan-0.

10. Press Release, Dep't Justice, Florida Couple Pleads Guilty to Scheme to Evade $42 Million in Duties for Illegally Importing and Selling Plywood (Oct. 19, 2023), https://www.justice.gov/opa/pr/florida-couple-pleads-guilty-scheme-evade-42-million-duties-illegally-importing-and-selling.

11. See footnote 3.

12. Dep't Justice, U.S. Attorneys' Offices Voluntary Self-Disclosure Policy, https://www.justice.gov/d9/pages/attachments/2023/02/23/usao_voluntary_self-disclosure_policy.pdf (last updated Mar. 7, 2024).

13. Dep't Justice, Criminal Division Corporate Enforcement & Voluntary Self-Disclosure Policy, https://www.justice.gov/criminal/criminal-fraud/file/1562831/dl?inline (last updated Mar. 2024).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.