On June 8, I posted an article related to the Fokker Services (“Fokker”) criminal case pending in the United States District Court for the District of Columbia. In that article, I detailed the factual basis underlying Fokker’s criminal conduct, and touched upon the fact that Fokker self-disclosed their violations of various U.S. sanctions programs and export controls to the U.S. government. Since the time of that posting some major drama has unfolded in the Fokker case. First, Judge Richard Leon, the U.S. District Court Judge presiding over the matter, expressed concerns over the adequacy of the Deferred Prosecution Agreement (“DPA”) arising from his reading of a newspaper article which indicated that Fokker’s voluntary self-disclosure may not have been quite so voluntary after all. As a result, Judge Leon requested the parties submit to the Court ordered the parties in the matter to brief the Court on two issues: 1) whether Fokker’s disclosure was indeed voluntary; and 2) the standard of review followed by the Court in reviewing a DPA. On July 18, 2014, the parties submitted their briefs to the Court, and that’s when it got really interesting.

In the U.S. Attorney’s Office for the District of Columbia (“USAO”) July 18 brief, they confirmed with the Court that after a searching inquiry under the Department of Justice’s Principles of Federal Prosecution of Business Organizations, that Fokker’s disclosures were objectively voluntary. However, four short days later on July 22, an affidavit from David Poole, the former case agent on the Fokker investigation who has since retired, was filed with the Court. The affidavit dated May 3, 2014, was signed and sworn to at the direction of the United States Department of Commerce’s Office of Export Enforcement (“OEE”) and stated that Agent Poole never told Fokker’s legal counsel, Clifford Chance, that their disclosure was voluntary. This prompted a Bloomberg article to be written on the matter on July 24, 2014.

I’ve decided to divide this post up into two parts: 1) a discussion of the Poole Affidavit; and 2) a discussion on what the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) enforcement guidelines say about voluntary self-disclosures.

I. Poole Affidavit

In sum, the Poole Affidavit, much like the USAO’s own brief on the matter, indicates that there was some information on Fokker which arose out of the investigation of Aviation Services International (“ASI”) and the Kraaipol’s, all of whom were defendant’s in a separate matter concerning violations of Iran sanctions for export of U.S. aviation parts to Iran. The Kraaipol’s cooperated in that investigation, and as such, the information they provided led to the investigation of a number of other entities potentially engaged in Iran sanctions violations, which Agent Poole has indicated included Fokker.

So this Poole Affidavit just blew the lid off the whole case, right? Not really. To be honest, I think its much ado about nothing. Although the Bloomberg article accurately cites the affidavit stating that Agent Poole indicated Fokker was under investigation “either formally or informally” before its disclosure in the Summer of 2010, the Poole Affidavit also concedes, “The determination whether a submitted self-disclosure is voluntary is made by BIS [U.S. Department of Commerce’s Bureau of Industry and Security] senior management in Washington, DC such as the Director of Investigations or the Deputy Assistant Secretary not solely by an investigator.” BIS clearly indicated as part of the DPA process that the self-disclosure was voluntary.

Agent Poole does go on to say that he believes the self-disclosure was not self-initiated or truthful, but his admission that its not with in the investigator’s purview to determine whether a self-disclosure is voluntary or not, seems to suggest that his affidavit might not mean that much in the big scheme of things. This becomes even more true, whether considering the legal authority presented by both parties in this matter concerning the Court’s ability to approve or deny the DPA.

II. OFAC Enforcement Guidelines and the Definition of a Voluntary Self-Disclosure

In its July 18 Brief, the USAO included a factual proffer concerning some of the information that was provided by the Kraaipol’s during their cooperation. This included information they provided on Fokker’s apparent violations. The Brief indicates that the Kraaipol’s mentioned Fokker’s activity as early as 2007, but did not have any direct evidence of their involvement in Iran sanctions violations. During their cooperation, the Kraaipol’s proffered that they only had heard rumors from their Iranian customers that Fokker was selling U.S.-origin aviation parts to Iran. Further, the Brief highlights that OFAC looked at the same facts as the Department of Justice and made a determination that Fokker’s disclosures in 2010 were voluntary.

By way of background, the OFAC Enforcement Guidelines provide that an apparent violation involving a voluntary self-disclosure will result in a base penalty amount of at least 50 percent less than the base penalty in similar cases that do not involve a voluntary self-disclosure. A voluntary self-disclosure is defined as a self-initiated notification to OFAC of an apparent violation. OFAC does not consider a self-disclosure to be voluntary, when they receive information of the apparent violation from a third-party source who is required to report the apparent violation from OFAC, and does report such violation. The Enforcement Guidelines offer the example of when such third party notification is received from financial institutions submitting blocking or reject reports. A self-initiated notification to OFAC that is made at the same time that another government agency learns of the apparent violation (through the Subject Person’s disclosure to that other agency or otherwise) does qualify as a voluntary self-disclosure so long as the other parts of the definition are met. A self-disclosure is not voluntarily made if it includes information which is misleading or not truthful.

So since the question is likely to come up at the next cocktail party you attend, let’s consider whether or not Fokker’s self-disclosure was truly voluntary from an OFAC perspective. First, there is the consideration of whether or not it was voluntary from the perspective of a third party having an obligation to report the apparent violations. There is no information to suggest that some financial institution was aware of and obligated to report Fokker’s activity to OFAC, nor was there any information that any other party was required to. The only third party we know of that was a aware of the violations was BIS, which is fine since an OFAC self-disclosure can still be voluntary if the disclosure was first made to a different government agency. Part of this analysis, however, also requires us to consider whether the Kraaipol’s proffer concerning Fokker’s activity was enough to preclude the self-disclosure from being voluntary. While it has been undisputed that no investigation was opened on the books of BIS/OEE at the time of that suggestion, Agent Poole’s affidavit does seem to indicate that they were at least partially aware of Fokker’s activities as early as 2007, and that there was at least an informal investigation of Fokker taking place. At the end of the day, it’s probably safe to say that the USAO, and OFAC, can rest their findings on the fact that BIS has made a declaration that there was no open investigation at that time. I think legally that will be enough for them.

The second issue to be considered is whether Fokker’s self-disclosure was misleading or not truthful. According to Agent Poole, they were not truthful. The USAO stays away from that subject in their Brief, only electing to say that the various law enforcement agencies engaged in the investigation (including OFAC, which considers itself a law enforcement agency) found that the disclosure was voluntary. Again, I think the law is on the agencies’ side here, as they are the investigators in this matter and their findings–which are arrived to through the administration of regulations they wrote–are given great deference. As such, I don’t believe that legally there is any way to find that OFAC cannot legally make the determination regarding the voluntary nature of Fokker’s determination that they did.

By now the ears of all OFAC lawyers, and defense counsel in general, should have perked up. Essentially what this all amounts to is OFAC saying that despite an entity or individual having information concerning their potentially sanctions-violating conduct provided to another federal law enforcement that does not mean they cannot still get credit for a “voluntary” self-disclosure. In other words, if you are in the unenviable position of having committed a sanctions violation, and you know that someone out there is, or may be, talking to federal agents, it’s still an option to file a self-disclosure with OFAC, because the fact that some information concerning your apparent violations has made its way into the hands of another federal law enforcement agency does not necessarily preclude you from obtaining credit for voluntarily self-disclosing.