Vinson & Elkins Partner Ephraim Wernick on FCPA Enforcement

Ephraim Wernick spent the last five years at the Foreign Corrupt Practices (FCPA) unit of the Department of Justice.

Ephraim Wernick
Vinson & Elkins
Washington DC

He is now a partner at Vinson & Elkins in Washington, D.C.

Has FCPA enforcement changed under the Trump administration?

“The answer is no,” Wernick told Corporate Crime Reporter in an interview last week. “It’s not unusual that things will change at the margins. But there was some discussion with the change of administration – what would happen with the FCPA program? And that was linked to comments that the President made in 2012 about the FCPA. There were questions as to what would happen. Those quickly fell by the wayside as resources continued to be expended, prosecutors were added, and cases continued to be built and enforced with no interference as far as I could ever tell from above. In fact, the opposite was true. Enforcement became more robust.”

“What began in 2016 and 2017 as questions about what the future would hold, turned  into questions about – is the FCPA now a tool of the America First foreign policy? It’s kind of a 180 degree turn from –  would it be eviscerated? – to – is it now fully employed to go after foreign companies? Neither is true.”

“I never saw politics play a hand in the enforcement of FCPA cases in the unit. I can’t speak to what was happening elsewhere in the Department. But this was not an area where I saw the administration take an active role one way or another.”

Is it true that a majority of the big company FCPA cases are driven by self-disclosures?

“That’s not true,” Wernick said. “There is a lot of discussion that’s out there that is historical – it’s dated.  Over the last five to ten years, the self-disclosure cases are fewer and farther between. Anecdotally, I would put the number in between 10 percent and 15 percent of the cases they have right now that are self-disclosures.”

“It is much more being driven by this global awakening. There is much more of an awareness around the world of corruption. It’s the result of Petrobras and the scandal in Brazil. The Panama Papers and the disclosures resulting from those leaks.”

“The 1MDB case involving bribery and embezzlement in Malaysia. These are huge eye opening cases. And they’ve led a number of people rightly or wrongly to think that no matter where the case happens, the Department of Justice can help. And what ultimately winds up happening is you get referrals from foreign prosecutors, you get whistleblowers coming out of the woodwork to the SEC but also to the Department of Justice.”  

“Also I think the world has noticed the dramatic rise in the Department of Justice FCPA enforcement. And many countries are passing corporate criminal laws now trying to also build out their capabilities.”

“The idea of pre-trial or non-trial resolutions with companies which can save time has benefited the Department and the business community in handling these massive cases.  That type of model is being adopted in the UK, France, Netherlands, Australia, Canada, Singapore. Germany just proposed a law.”

“But there’s another piece to this. The Department of Justice and the SEC are very forward leaning in cultivating these relationships with other countries.”

“Last November, 45 countries sent 200 prosecutors to attend training by the Department and the SEC in DC.”

“They did the same training in 2015. Relationships are being cultivated, referral networks are being cultivated. You need that to share the type of evidence and access to witnesses that is needed if you are going to bring a case in courts in the United States. And once you have that information, that strengthens the government’s bargaining position when they’re dealing with companies.”

Could it be that in recent years, companies are less likely to self-disclose?

“Maybe. But the overall numbers are just dramatically higher all around. I mean we are talking about the global nature of these cases now. Since 2016 there have been ten global resolutions with other countries. And by and large these other countries are getting a large take of those settlement fines – many times over 50 percent of the fines goes to foreign countries. That was intentional on the part of the Department to cultivate the relationships. A lot of these cases are referrals. It’s the old-fashioned way of building cases.”

“Back in the day, first of all, there weren’t as many cases. And so maybe the self disclosures made up a larger segment of the overall number of cases. Plus, it is a heavy burden for a company to say we’re going to self disclose to the government. You can expect derivative lawsuits and reputational damage. That’s factored into their equation.”

“The Department is careful in trying to get companies to self-disclose while also understanding they can’t give companies entirely a pass on what sometimes can be fairly substantial criminal conduct.”

It’s clear that in big company cases, the majority of settlements are deferred and non prosecution agreements. You read these documents and it is also clear that there is egregious criminal behavior that is being disclosed. And yet they still get these deferred and non prosecution agreements.

Front and center is the Wal-Mart non prosecution agreement. Has there been a shift in recent years more toward deferred and non prosecution agreements at the FCPA unit?

“The short answer is no – not a discernible shift that I ever saw.”

“I call them pre-trial or non-trial resolutions. The use of those resolutions started about twenty years ago. There has been an increase of enforcement of the FCPA. So, perhaps there is a perception of an increase of the use of the resolutions. I haven’t looked carefully at the numbers to tell you whether there is a higher percentage now than in the past.”

“But overall, look at the growth of FCPA enforcement. Between 1997 and 2006, there were eleven corporate resolutions.”

“Then between 2007 and 2019, there were 107 corporate resolutions. This year alone, you are close to $1.5 billion in fines. I don’t think that looking at the form of the resolution – whether it’s a plea agreement or a deferred prosecution – is actually as telling as to the level of enforcement and the fine amounts and the compliance requirements that are now in place. They are far more stringent and far more developed in terms of what the government expects of companies than they were years ago. FCPA enforcement is on a huge uptick.”

“There were two global cases through 2007. Since 2016 with Vimpelcom, there have been ten global resolutions. In total, those global fines are over $9 billion. It’s hard to suggest in any way that enforcement is down.”

Let’s look at the sliding scale of resolutions from guilty plea to deferred prosecution to non prosecutions, and now declination with disgorgement. Isn’t the FCPA unit moving down the scale away from guilty pleas?

Five years ago, would you have gotten a non prosecution agreement for Wal-Mart?

“It is a sliding scale, from indictment down to declination. But declination is not a new concept. Declinations have been around forever. What is relatively new is that the Department is trying to publicize the declinations and seeking disgorgement, which is a harsher remedy than it was in the past. Traditionally, declination meant the government is not going to take action.”

“Now with the twelve declinations under the corporate enforcement program, previously the FCPA Pilot Program, disgorgement is required as a general matter.”

“Under the FCPA corporate enforcement policy, you only get a declination with disgorgement of profits. There has recently been a hint that the government may be open to more traditional styles of declination in the mergers and acquisitions. That would be to give incentives to companies post-acquisition to self-report. But that hasn’t happened yet. The general rule for the past three years has been – if you are going to get a declination through self-reporting, you have to disgorge your profits, in addition to full remediation and full cooperation in the investigation against individuals.”

“Years ago, when you got a declination, that just meant that case was closed and the public never heard about it. But now, these cases are made public. If the company wants to self-report, it’s not only then that they have to disgorge profits, but there is publicity. You are still going to get the reputational hit.”

“The government wants companies to self-report and fully remediate. So they are trying to sweeten the deal. It remains to be seen whether it is sweet enough from the company’s perspective.”

A couple of years ago, the general rule was that if you self-report you had a shot at a non prosecution agreement. But now, Wal-Mart did not self report and they still got a non prosecution agreement. Now, you get caught and still get a non prosecution agreement.

“If you don’t self-report, are you able to get a non prosecution agreement? The answer is yes. The Department wants to incentivize companies that do get caught to fully cooperate. You can do that in terms of the credit you get off your fine. But you can also do that in terms of the form of the resolution. That seems to be one of the benefits to Wal-Mart’s cooperation here. The government described the cooperation as full cooperation in three of the four countries that were being investigated.”

“If you do self-report an FCPA case absent aggravating circumstances, the current policy at the Department of Justice is you will presumptively get a declination. Not a non prosecution agreement, but a declination. Aggravating circumstances could be high level involvement. Of the twelve declinations issued under the corporate enforcement policy, two of them – Cognizant  and ICBL – had particularly high level employees that were involved, are subjects of current prosecutions, and yet the companies still got a declination.”

“The government is trying to be forward looking in encouraging companies to self-report. There is a lot at stake for a company – in terms of reputational damage, in terms of the amount of disgorgement that will still be required and in terms of the kind of derivative offshoots of the self-reports. That’s why we are seeing periodically now the government trying to sweeten the deal.”

[For the complete q/a format Interview with Ephraim Wernick, see page 33 Corporate Crime Reporter 29(12), Monday July 22, 2019, print edition only.]

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