US Enforcement Agencies Increasingly Expecting Voluntary Disclosures, Lawyers Say

Companies are continuing to see heavy U.S. enforcement surrounding Chinese attempts to steal U.S. trade secrets, and the government is increasingly expecting U.S. companies to voluntarily disclose violations surrounding those and other cases, lawyers said. The U.S. is hoping to increase enforcement by incentivizing companies to self-disclose sanctions and export control compliance mistakes, especially through the Department of Justice's revised disclosure policy guidelines (see 1912130047), the lawyers said.

Jessica Nall, a corporate investigations lawyer with Baker McKenzie, said “many” clients have reported FBI agents “dropping by for educational meetings and to request documents, sometimes without a subpoena.” Nall, speaking during a July 15 conference hosted by the law firm, said the agents are mainly looking for Chinese attempts to steal U.S. intellectual property, but are also investigating sanctions and export control violations.

“We see the FBI coming by and asking for information on a voluntary basis and the DOJ expecting a very, very high bar of voluntary cooperation,” Nall said. “We can expect to see more of this kind of wide-ranging, investigatory fact-gathering and data-gathering by the U.S. government,” she said.

Terence Gilroy, a Baker McKenzie compliance lawyer, said he has noticed a “huge focus” on China by the government during the last several years, even though “actual enforcement” announcements haven’t necessarily reflected that focus. He said companies are likely working harder to comply with U.S. regulations and restrictions on China, which is leading to fewer violations. “I think it's an indication of the focus of companies, from a compliance perspective, on the changes in the law with respect to China,” Gilroy said. “Certainly the additions to the Entity List, and certainly changes to the [Export Administration Regulations] itself” have had an impact.

Although voluntary disclosures can often help mitigate potential penalties, Gilroy stressed that there is “no requirement under the law” to disclose violations. He said it’s “perfectly reasonable” for a company to self-impose remedial measures after identifying a gap in its compliance. If the company eventually finds itself before the Treasury’s Office of Foreign Assets Control, it can then “present very effectively an excellent record of this remediation of their compliance program,” Gilroy said, which can lead to smaller future penalties.

“Oftentimes companies are very effective in moving that penalty way down because of mitigating factors,” he said, “which include enhanced compliance, great cooperation during the investigation, that sort of thing.”

The Justice Department has pointed to its recent settlement agreement with the German software company SAP SE as an example of the substantial mitigation it can offer companies that voluntarily disclose violations (see 2105240046). Although the fine imposed on SAP SE was relatively low, Nall noted that the company had to extensively cooperate with the U.S. government, which included producing thousands of documents, granting interviews with its employees and remediating all violations that were uncovered.

Nall also pointed to the fact that SAP SE initially disclosed the violations in 2017, several years before the Justice Department crafted its new voluntary disclosure policy. “It is worth asking whether or not this is a poster child case that the government's been working on for a while now,” she said. “It certainly does provide additional context into the voluntary self-disclosure regime and what’s going to be involved."