New Jersey Law Journal: Discovery Strategy in Sanctions Enforcement Cases

Since Russia invaded Ukraine in late-February 2022, the U.S. and its allies have responded with far-reaching economic sanctions, export controls, and other actions. In March, government officials described a coordinated effort to enforce these measures through cross-border investigations followed by criminal and regulatory penalties. Without disputing the validity of those objectives, companies and individuals in New Jersey and elsewhere face complex questions regarding the quickly evolving sanctions environment and business exposure to the Russian economy. In anticipation of the need to advise clients on sanctions compliance, the possibility of enforcement actions, and during criminal investigations, this article discusses strategies for discovery litigation in the types of cases the Department of Justice (DOJ) has forecast.

Background

On March 2, 2022, DOJ announced Task Force KleptoCapture, an interagency task force focused on enforcing sanctions and other measures imposed in response to the Russian invasion. According to the announcement, Task Force personnel are experienced with “national security investigations,” using “foreign intelligence sources,” and “foreign evidence collection.” On March 16, DOJ and the Treasury Department described a multilateral task force comprised of eight countries and the European Commission that will coordinate international enforcement efforts. On March 17, the New Jersey Department of Banking and Insurance warned that it would pursue administrative actions against New Jersey financial institutions and other regulated entities to ensure compliance with the federal sanctions.

National Security Investigations

Task Force KleptoCapture matters may be structured differently than other federal investigations, but U.S. Attorneys’ Offices in and around New Jersey have a history of national security cases that suggests they will be significant players in the Task Force’s efforts.

The Task Force is run out of the Office of the Deputy Attorney General and consists of attorneys from U.S. Attorneys’ Offices across the country as well as several DOJ components, including the National Security Division (NSD). NSD’s participation in the Task Force is consistent with the fact that U.S. Attorneys’ Offices are required to obtain NSD approval before pursuing charges relating to statutes that will be central to the Task Force’s work, such as the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act (ECRA).

U.S. Attorneys’ Offices in this region have previously pursued these types of cases with NSD. For example, in 2018, the New Jersey U.S. Attorney’s Office charged Alexander Brazhnikov Sr. with violating the IEEPA and other statutes based on efforts to smuggle over $65 million worth of electronics from the U.S. to Russia. In 2020, the Manhattan U.S. Attorney’s Office charged New Jersey resident Yunseo Lee and others with violating the ECRA based on efforts to illegally export to China electronic components subject to Commerce Department national security and anti-terrorism regulations.

Discoverable Classified Information

Investigations with these types of national security themes often require prosecutors to balance criminal justice objectives and other agencies’ counterintelligence goals, which can involve using classified information. The Executive Branch has discretion to declassify evidence so that it can be used in criminal prosecutions. But classified information can be discoverable in a criminal case even when prosecutors do not intend to use it in their case-in-chief.

Electronic surveillance and searches pursuant to the Foreign Intelligence Surveillance Act (FISA) can result in members of the U.S. intelligence community (USIC) collecting discoverable statements of a defendant. See United States v. Muhtorov, 20 F.4th 558, 590 (10th Cir. 2021). USIC interviews of a defendant, which can be classified based on the nature of the interview, can be subject to Rule 16(a)(1)(B). Evidence that a defendant was in contact with the USIC or another agency can be subject to Rule 16(a)(1)I(i) because it supports a public authority defense or serves as a mitigating consideration at sentencing under 18 U.S.C. §3553(a). See United States v. Giffen, 379 F. Supp. 2d 337, 343 (S.D.N.Y. 2004). The USIC sometimes collects information that could be used to impeach government witnesses, or issues assessments that government witnesses are not credible, both of which can be discoverable under Giglio v. United StatesSee United States v. Bagcho, 151 F. Supp. 3d 60, 71-73 (D.D.C. 2015). Finally, material from the “foreign intelligence sources” referenced in DOJ’s Task Force KleptoCapture announcement can include discoverable statements of the defendant, exculpatory information, or impeachment material, particularly when the foreign materials are transferred to the USIC or U.S. law enforcement during an investigation.

These examples illustrate ways in which representing clients in sanctions enforcement investigations can require careful consideration of where within the government discoverable defense evidence could be located, and an active dialog with prosecutors about collecting that evidence.

Prudential Searches

One of those collection efforts is referred to as a prudential search, which entails DOJ seeking to review materials possessed by the USIC. Prosecutors sometimes undertake prudential searches on their own initiative. Where there is disagreement between the parties regarding whether and to what extent a search is necessary, however, some defendants have been successful with motions to compel.

Virgil Griffith, a defendant charged with violating the IEEPA by providing cryptocurrency services to North Korea, filed a motion to compel prosecutors to search USIC files for information relating to North Korea’s blockchain and cryptocurrency capabilities. See Dkt. 63, United States v. Griffith, No. 20 Cr. 15 (S.D.N.Y. Oct. 2020). The court denied the motion, but only after the government agreed to a stipulation that precluded certain of its arguments at trial. See id. Dkts. 96, 99. More recently, Thomas Barrack and Matthew Grimes, both alleged to have illegally acted as agents of the UAE without notifying the Attorney General in violation of 18 U.S.C. §951, filed a motion to compel prosecutors to complete prudential searches of files at the White House, the USIC, and other agencies. See Dkt. 89-1, United States v. Alshahhi, et al., No. 21 Cr. 371 (E.D.N.Y. Mar. 2022). Public filings in support of the motion reveal the type of detailed discovery inquiries that can support defense requests that prosecutors review sensitive documents and grapple with challenging issues regarding their discovery obligations with respect to the USIC and other Executive Branch actors. See id. Dkt. 89-2.

Classified Suppression Litigation and CIPA

The Classified Information Procedures Act (CIPA), 18 U.S.C. app. III, provides a mechanism for addressing classified information throughout a criminal prosecution, including during discovery. See United States v. Scarfo, 180 F. Supp. 2d 572, 579-80 (D.N.J. 2001). FISA also contains provisions governing suppression litigation. See 50 U.S.C. §§1806I-(g), 1825(f)-(h). CIPA and FISA establish procedures that depart from typical federal criminal discovery practice, such as government motions to withhold discoverable material based on national security concerns pursuant to CIPA §4 and resolving ex parte motions to suppress FISA evidence without granting defense counsel access to the underlying application materials. See United States v. Al-Farekh, 956 F.3d 99, 107 (2d Cir. 2020) (CIPA §4); United States v. Aziz, 228 F. Supp. 3d 363, 369-70 (E.D. Pa. 2017) (FISA).

Although CIPA and FISA contemplate ex parte submissions by prosecutors, defense counsel can pursue parallel ex parte proceedings to provide the court with as much information as possible regarding defense strategy and arguments, so that the court is aware of those positions when resolving motions without the benefit of adversarial proceedings. Public developments in classified litigation may also support defense efforts to limit classified ex parte proceedings altogether. The government consistently opposes the disclosure of FISA applications in criminal discovery—even to cleared defense counsel—based on national security concerns. See, e.g., United States v. Aziz, 228 F. Supp. 3d 363, 368 (E.D. Pa. 2017).

In 2018, however, the FBI declassified and released to the public a redacted version of a FISA application targeting Carter Page as an alleged agent of Russia in connection with an investigation known as “Crossfire Hurricane.” Subsequent DOJ-OIG reports in December 2019 and September 2021 identified issues with the FISA process, and the Foreign Intelligence Surveillance Court issued an order in December 2019 describing what it viewed as “misconduct” that was “antithetical to the heightened duty of candor” associated with FISA applications. In re Accuracy Concerns Regarding FBI Matters Submitted to the FISC, 411 F. Supp. 3d 333, 335, 337 (F.I.S.C. 2019). Outside the FISA context, at least one court has questioned the propriety of an ex parte CIPA motion by DOJ where not even the local U.S. Attorney’s Office was notified of the application. See United States v. Stillwell, 986 F.3d 196, 198 & n.3 (2d Cir. 2021). Resisting ex parte proceedings under CIPA and FISA based on these developments can assist courts by limiting the need for educated guesses about defense positions and support a broader strategy of active engagement with the government and the court to identify and obtain sensitive discovery materials.

Suppression of Foreign Evidence

DOJ has suggested that Task Force KelptoCapture will rely in part on arguably sensitive evidence from other countries. Prosecutors frequently obtain evidence collected by foreign authorities through informal law enforcement channels or pursuant to mutual legal assistance treaties (MLATs). Although the exclusionary rule generally does not apply to conduct outside the U.S., courts in New Jersey and elsewhere apply an exception to this general rule, known as the joint venture doctrine, where U.S. and foreign law enforcement coordinate to such an extent that U.S. constitutional standards should have some bearing on their conduct. E.g., United States v. Escalante-Melgar, 2020 WL 968091, at *3 (D.N.J. Feb. 28, 2020). The joint venture doctrine can apply where international investigative efforts go beyond information sharing and rise to the level of one nation’s investigators guiding efforts in another country. Where that occurs, courts conduct a reasonableness analysis, including by looking to whether the investigative technique in question was lawful where it occurred. See id. At *4.

The joint venture doctrine is more likely to apply where, as in the case of Task Force KleptoCapture, DOJ announces in advance a coordinated investigative endeavor with foreign countries. During discovery, documents and communications relating to such coordination can be discoverable under Rule 16(a)(1)I(i) because they are relevant to a potential motion to suppress. Cf. United States v. Mitrovich, 458 F. Supp. 3d 961, 965-66 (N.D. Ill. 2020). The structure of any coordination may further support suppression litigation. Rather than relying on iterative MLAT requests, E.U. countries sometimes cooperate with each other and, somewhat less frequently, the U.S., as part of “joint investigative teams” (JITs), which can look like joint ventures as a practical matter. For example, British and French authorities coordinated pursuant to a JIT agreement in connection with the bribery and corruption investigation that led to February 2020 parallel settlements by Airbus S.E. in the U.K., France, and the U.S. Strategic thinking relating to joint-venture discovery and motion practice, like discovery planning relating to potential sources of sensitive or classified evidence, are steps that are likely to take on greater significance as Task Force KleptoCapture pursues cases.


Reprinted with permission from the April 6, 2022 issue of the New Jersey Law Journal. © 2022. ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.