DOJ’s National Security Division breathes life into updated voluntary disclosure policy with first declination

On May 22, 2024, the US Department of Justice’s (“DOJ”) National Security Division (“NSD”) announced its very first declination to prosecute under NSD’s Enforcement Policy for Business Organizations (the “NSD Enforcement Policy”). The case involved MilliporeSigma, a subsidiary of multinational science and technology company Merck KGaA, and a MilliporeSigma salesperson, for allegedly conspiring with others to divert products to China using falsified export documents.

DOJ’s declination underscores the importance of voluntary self-disclosure in the export controls context, where the Bureau of Industry and Security (“BIS”) has shown particular interest in the diversion of restricted technology to Russia and China.

The NSD Enforcement Policy

The NSD Enforcement Policy, recently updated in March 2024, provides that when a company (1) voluntarily self-discloses potential criminal violations of U.S. export controls or sanctions, (2) fully cooperates with DOJ, and (3) timely and appropriately remediates, NSD will generally not seek a guilty plea from that company in the absence of aggravating factors. In such circumstances, there is a presumption that the company will receive a non-prosecution agreement (“NPA”) and pay no fine.

Of note, the Enforcement Policy also provides that “where the principles of federal prosecution so warrant, NSD has the discretion to issue a declination.” Factors considered when evaluating whether a declination is warranted under the principles of federal prosecution include “the nature and seriousness of the offense, law enforcement priorities, and the criminal history of the offender.”

What was the violating conduct?

Between July 2016 and May 2023, Gregory Muñoz, a MilliporeSigma salesperson, processed orders totalling over $13 million in value from Ben Yu.  Yu purported to be affiliated with a research lab at a Florida university, and Muñoz falsely represented to his employer that the orders were placed by university researchers while knowing that Yu was behind the orders. Yu therefore fraudulently obtained discounts (ranging between 31.0% to 55.3%) and other benefits such as free overnight shipping reserved for clients at the university.  The discounts and free shipping were worth about $5.8 million in total.  Meanwhile, Muñoz received gift cards from Yu and compensation bonuses from MilliporeSigma exceeding $100,000 in total.

A co-conspirator of Yu’s at the university received these products and diverted them to Yu, who shipped them onwards to China after repackaging them, including with false statements in corresponding export documents. In particular, Yu and the co-conspirators undervalued their exports and falsely represented that the packages sent to China contained “diluting agents,” when in fact they contained a wide variety of products, including List I chemicals^[1], analytical samples of controlled substances, and purified noncontagious proteins of contagious diseases. Upon arrival in China, Yu’s co-conspirators resold the chemicals to Chinese laboratories for a profit. 

What did MilliporeSigma do right?

DOJ’s press release applauds MilliporeSigma for “not sweep[ing] the misconduct under the rug” and making an “early decision” to notify and cooperate with DOJ.  The Declination Letter makes the following observations:

• MilliporeSigma self-reported merely one week after retaining outside counsel to conduct an internal investigation and before fully understanding the misconduct;
•  MilliporeSigma provided “exceptional and proactive” cooperation by disclosing all known relevant facts, identifying evidence establishing probable cause to search for evidence of the crimes in locations not under MilliporeSigma’s control, and agreeing to cooperate during the investigations and prosecutions;
• The exported chemicals did not present a significant threat to national security and in most cases did not require an export license;
• MilliporeSigma conducted “timely and appropriate remediation,” including terminating Muñoz and improving its internal controls and compliance program;
• MilliporeSigma did not unlawfully obtain any gains; and
• MilliporeSigma had in fact been fraudulently led into providing significantly discounted products and free overnight shipping, which provided the DOJ with “the most serious readily provable offense.”

In addition to declining to prosecute, DOJ did not require MilliporeSigma to pay any disgorgement, forfeiture, or restitution.

Implications

This declination is on the heels of a push by U.S. law enforcement agencies to incentivize companies and individuals to come forward on their own accord to disclose criminal conduct in exchange for NPAs. For example, on April 15, 2024, DOJ announced a new Pilot Program on Voluntary Disclosures for Individuals, which grants fully-cooperating individuals who self-disclose “original information about criminal misconduct” the prospect of an NPA. This pilot program filled a gap left by the agency’s recently announced whistleblower rewards pilot program, which applies to non-participating informants. Please refer to our previous client alerts on these developments here and here for additional information.

In the words of Deputy Attorney General Lisa Monaco, “[w]hen a business uncovers criminal wrongdoing within its ranks, the company is far better off reporting the violation than waiting for the Justice Department to discover it.”

If you have any further questions, please reach out to one of the Key Contacts listed here or your usual Linklaters contact.