Texas Firm Notches NPA on Sanctions Woes

A private equity firm in Texas has avoided prosecution for egregious sanctions violations committed by one of its portfolio companies, in a case that offers all sorts of lessons about corporate compliance in the Trump 2.0 Administration. Let’s take a look.

The PE firm in question is White Deer Management, which in 2020 acquired a petrochemicals company called Unicat Catalyst Technologies. Unbeknownst to White Deer, however, Unicat’s senior executives had been selling products to customers in Iran, Venezuela, and Cuba in the 2010s in violation of U.S. sanctions law. 

That misconduct only came to light in 2021, when White Deer began consolidating Unicat with another of its portfolio companies in London. The CEO of that other company finally traveled to Unicat’s offices in Texas in 2021 (remember, this was amid the pandemic and tight restrictions on travel), and soon found evidence of improper sales, falsified business records, and the like. 

So, you’re the parent company of a newly acquired business unit, and you discover that the unit has a long history of misconduct. What do you do? 

The best practices people would say you self-disclose the issue, cooperate with regulators, and remediate the underlying control failures that allowed the misconduct in the first place. That’s been the mantra for years, and the Justice Department has offered ever greater incentives over the years for companies that do so. Just last month, the newest leaders of the department promised that companies meeting the criteria of the Corporate Enforcement Policy are all but guaranteed a declination to prosecute. 

Well, that’s what happened here. White Deer reported the misconduct within several weeks of discovering it; cooperated with the Justice Department to bring charges against Unicat’s former CEO for engaging in misconduct (he pleaded guilty last year); and remediated the misconduct issues less than one year after discovering them. 

Result: Unicat is paying $3.3 million in forfeiture of ill-gotten proceeds, and will be subject to a three-year non-prosecution agreement. Notably, however, Unicat must make annual reports to the Justice Department on its compliance program’s performance, and the CEO and trade compliance officer will need to certify the effectiveness of Unicat’s compliance program at the end of the three-year NPA.

The parent company White Deer received a full declination.

Unicat’s Self-Disclosure

Let’s first consider the timeline of events here to understand how quickly White Deer realized it had a problem in Unicat and then decided to come clean to the feds. 

White Deer first acquired Unicat in 2020, while the covid-19 pandemic raged around the world and left most business travel in the deep freeze. The firm then announced in April 2021 that it would consolidate Unicat with another chemicals company White Deer owned, the Magma Group, based in London. Magma CEO Mark Stuckey was named as chief of the whole business, a role he still holds to this day.  

Because of travel restrictions, however, Stuckey couldn’t arrive in Texas to begin integration work until June 2021. Then, according to the Justice Department’s statement of facts, an employee told Stuckey about a pending transaction with an Iranian customer. “Immediately upon learning of the pending transaction, the new CEO ordered its cancellation and consulted the White Deer board, who retained new outside counsel to investigate,” the Justice Department said.

Within four weeks of discovering the misconduct that June, White Deer and Unicat then disclosed the matter to the Justice Department and the Office of Foreign Assets Control (OFAC) at the Treasury Department.

Some folks might wonder about the pre-acquisition due diligence here, and how White Deer won a declination even though its disclosure came 10 months after the firm acquired Unicat. Doesn’t that exceed the six-month limit on forgiveness in M&A deals that the Justice Department announced a while back? 

No it does not. The department announced that policy in 2023; the troubles with Unicat happened in 2021. The Justice Department’s declination letter also listed numerous other factors that tilted toward White Deer’s favor:

• The Unicat deal (September 2020) was only the first part of a larger two-stage acquisition strategy White Deer was pursuing. The sanctions violations weren’t discovered until White Deer acquired Magma Group and began integrating the two in April 2021 — but White Deer did disclose the matter in June 2021, only three months after the Magma deal “finalized” the M&A project.  
• When Stuckey arrived at Unicat in June 2021 and learned of yet another pending (and illegal) sale to Iran, he canceled that transaction immediately.
• The pandemic made timely due diligence and remediation on M&A deals difficult for everyone.
• White Deer did disclose to regulators within one month of discovering the misconduct, “before obtaining a complete understanding of the nature and full extent of the misconduct.” 

Of those four factors, the last one strikes me as the most telling. White Deer decided to report even though it didn’t know the full depth of the misconduct, and therefore couldn’t be sure of the firm’s potential liability — but it disclosed the matter anyway. 

That’s commitment to doing the right thing. That demonstrates a strong tone at the top and a culture of compliance. More than anything else, that’s what the Justice Department wants to see. 

Compliance Program Remediation

We should talk about the compliance program remediation that Unicat undertook. 

In many ways, the remediation is nothing we haven’t heard before. Unicat did all the usual, such as firing some offending employees, disciplining others, and “designing and implementing a comprehensive and robust internal controls and compliance program that has proven effective in practice at identifying and preventing similar potential misconduct.”

Unicat also promised to implement and maintain an effective compliance program, with all the usual trappings as described by the U.S. Sentencing Guidelines: strong commitment to compliance, risk assessment, policies and procedures, independent oversight of the function, testing and monitoring, and so forth. Nothing new there; it’s a routine part of corporate misconduct settlements. 

Next, Unicat must file annual reports with the Justice Department, at the end of 2025, 2026, and 2027. Each report must describe Unicat’s compliance program remediation efforts to date, as well as any new issues that have arisen and how the company plans to address them. 

Again, this is not news. Once upon a time the Justice Department might have assigned a compliance monitor; but the department has been moving to annual progress reports for several years now, and that move has only accelerated in the Trump 2.0 Administration, which basically doesn’t want to appoint a compliance monitor unless your company was caught collaborating with aliens to exterminate humanity. Plus, White Deer already did the right thing here (see voluntary self-disclosure, above), so a monitor would never have been in the cards no matter who’s in the White House right now.

Perhaps most interesting to me is that we still have a compliance officer certification requirement. The company’s trade compliance officer and CEO must both certify, 30 days before the NPA expires in 2027, that Unicat has implemented an effective compliance program, “and that such compliance program is reasonably designed to detect and prevent violations of export controls and sanctions laws throughout the company’s operations.”

So CCO certifications of the compliance program are still alive and kicking! I totally thought they were going to go the way of DEI programs or cryptocurrency enforcement, never to be seen again. I was wrong.