On May 22, 2024, the Department of Justice’s National Security Division (“NSD”) announced its first declination of prosecution for a company under the voluntary self-disclosure program established by the National Security Division Enforcement Policy for Business Organizations (“NSD Enforcement Policy”). An individual who worked for a United States-based biochemical company, along with his co-conspirator, each pleaded guilty to one count of wire fraud conspiracy for their roles in a scheme to fraudulently obtain deeply discounted products from the company to then export those products to China using falsified export documents. The company promptly disclosed the suspicious activity and complied with the NSD Enforcement Policy, which creates a presumption for companies to receive non-prosecution agreements when they (1) voluntarily disclose to NSD potentially criminal violations arising out of or relating to the enforcement of export control or sanctions laws; (2) fully cooperate; and (3) timely and appropriately remediate.
For nearly seven years, the company employee conspired to fraudulently provide more than $4.9 million in product discounts to an individual they falsely represented was affiliated with an academic research lab. The scheme was uncovered when company compliance personnel identified several suspicious orders and, within a week, disclosed that information to the Department through outside counsel. After disclosure, the company fully cooperated with the Department’s investigation, supplying additional documents as needed. These efforts resulted in the convictions of both the employee and the unauthorized purchaser. The Department of Justice highlighted that the company’s prompt disclosure of suspicious activity as what helped uncover the multimillion-dollar criminal enterprise. The company’s “timely disclosure and exceptional cooperation” allowed NSD to uncover the scheme in which a rogue company insider fraudulently diverted millions of dollars’ worth of biochemicals to China.
Among others, Deputy Attorney General Lisa Monaco, Assistant Attorney General Matthew Olsen, and the Commerce Department’s Assistant Secretary for Export Enforcement Matthew Axelrod praised the company’s cooperation and warned that the scheme’s pattern—misusing academic institutions to obscure the actual customers of controlled items and making false statements about shipments—was something companies and universities should be aware of.
This declination is the latest development in the Disruptive Technology Strike Force’s efforts to target illicit actors, strengthen supply chains, and protect critical technology assets from theft by nation-state adversaries. As previewed by Assistant Secretary Axelrod at the Strike Force’s one-year anniversary summit, the declination highlights the Strike Force’s focus on “bigger corporate cases” and the need for robust internal procedures for protecting trade secrets and compliance with export controls, especially given BIS and the Justice Department’s recent focus on voluntary disclosures.
Bioscience technology companies—as well as those working on other advanced technologies, such as supercomputing and exascale computing, artificial intelligence, advanced manufacturing equipment and materials, and quantum computing—are facing increased scrutiny and should be particularly vigilant with export compliance protocols and monitoring employee actions in this heightened enforcement and global threat environment. Companies involved in the development and export of sophisticated technologies should assess the likelihood that their technologies may interest foreign nations who could be adversaries—such as China, Iran, Russia and North Korea, which were specifically named as examples by the strike force—as well as traditional commercial competitors. They should also update their internal procedures to ensure that trade secrets are provided only to employees who truly must know about them, implementing appropriate monitoring measures, marking documents as trade secrets, conducting exit interviews for departing employees, and requiring third parties to sign nondisclosure agreements.
Companies involved in advanced technologies should be particularly aggressive in engaging with counsel to conduct internal investigations and assess the merits of early disclosure to authorities. As this recent declination demonstrates, NSD chose to not prosecute the company here because of its prompt disclosure soon after it detected suspicious activity. Companies that wait too long to disclose or affirmatively choose not to file voluntary self-disclosures are at greater risk of being prosecuted or forfeiting valuable cooperation credit.
Please contact the authors if you have any questions about trade secret theft or export control compliance protocols.