Fry Wernick Joins Panel at ACI Mexico Summit on Mitigating New Anti-Money Laundering and Anti-Corruption Enforcement Risk Factors

On March 22, 2022, Ephraim (Fry) Wernick, a partner in Vinson & Elkin’s Government Investigations & White Collar Defense practice group, joined a panel on “The Crossover between AML and Anti-Corruption Investigations and Compliance Risks” at ACI’s Mexico Summit on Anti-Corruption & Compliance Programs. The panel, which also included Marcos Czacki, Global Director Legal, Compliance & Government Affairs of Navistar, Mónica Orozco Guerrero, Head of Anti-Bribery & Corruption LAM & MX / Financial Crime of HSBC México, and Marco A. Rivas, Head of Law, Patents, Compliance & Data Privacy of Bayer de México, discussed the latest takeaways for mitigating new enforcement risk factors by diving into four recent cases. Wernick, a former federal prosecutor and Assistant Chief of the U.S. Department of Justice’s Criminal Fraud Section, has a broad range of white collar enforcement and trial experience, and was able to share key insights into corruption investigations, AML, and anti-corruption.

The panel discussed some of the biggest cases involving cross-border collaboration that the U.S. Department of Justice (“DOJ”) and foreign law enforcement have brought that involved alleged violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) and AML laws, including several major matters where Wernick had first-hand experience from his days supervising major FCPA and AML cases at DOJ.

For example, in one major bank case involving alleged bribery in Mozambique, allegations included claims that compliance personnel knew and ignored significant red flags about a third-party contractor involved in a scheme regarding misrepresentations to investors and failed to follow up on the red flags that were raised in the media about the deals. While there was a lot of cooperation, the panelists noted that the bank did not get full cooperation credit because it failed to disclose numerous significant recordings, ultimately costing the institution tens of millions of dollars. The bank ultimately agreed to pay almost $550 million in fines and penalties to DOJ and the United Kingdom (“UK”) to settle fraud and corruption charges.

Another bank case involving the FCPA and commodities fraud allegations resulting in the bank agreeing to pay $130 million to settle FCPA and “spoofing” cases with DOJ, U.S. Securities and Exchange Commission (“SEC”), and UK authorities after allegations involving the use of third-party business consultants to bribe officials in Saudi Arabia and UAE in order to win lucrative contracts came to light. “Spoofing” is a form of market manipulation where traders will submit, then cancel, an offer or bid on an exchange or trading platform with the intent to cancel that bid or offer before it can be fully executed. This process often exaggerates the appearance of supply or demand, misleading the price point, or “spoofing” other traders, in order to benefit their own position.

In this case, the bank admitted to defrauding markets through spoofing practices on precious metals futures trades. This case shows two important areas of focus for regulatory bodies: spoofing cases and trading to drive up prices. Further, the panelists made a crucial point that the bank’s major failure was twofold: (1) failing to conduct meaningful due diligence on its third parties and (2) failing to implement adequate controls to require sufficient documentation to justify third-party payments.

Finally, the panel discussed a bribery case where a bank’s compliance function largely worked and the company was, therefore, able to avoid punishment from the government. In that case, a former executive at a major financial institution, allegedly paid over $2.5 million in bribes to a Ghanaian official to approve an electrical power plant project. Here, the panelists pointed out that an individual circumvented the controls in the company, but the company itself did try to mitigate these risks and was therefore not charged. SEC FCPA Unit Chief Charles Cain had explained regarding this decision, “The firm’s compliance personnel took appropriate steps to prevent the firm from participating in the transaction and it is not being charged.” The former executive agreed to disgorge $275,000 in ill-gotten gains and $54,000 in prejudgment interest to the SEC to settle the FCPA case.

With respect to this case, Wernick made the point that the case was an important example of the government “using carrots instead of sticks” in order to show that “investing in compliance can pay off.”  Orozco Guerrero made the central point regarding risk sensitivity that, in all of the above cases, the compliance teams or compliance representatives were either not involved or had been overridden by more senior employees. Along the same lines, Rivas explained that companies, “can’t have cosmetic programs that only have things on paper.” Especially with large multinational corporations and financial institutions, compliance programs that are applicable company-wide are extremely important. Conversely, while it can be difficult for a company segment operating in another country to establish a compliance program with the parent company in mind, it is incumbent upon international branches to consider local factors and risks. That is why an expert or team of experts is crucial.

The panel also discussed how the pandemic presented new AML and anti-corruption compliance challenges. Czacki explained that, at the beginning of the pandemic, the situation forced some compliance stances to change. For instance, there were the consequences of reducing salaries, and companies had more interaction with third parties during the pandemic. Crucially, more and more companies began producing and selling products they traditionally hadn’t produced or sold before. As Orozco Guerrero explained, “we had to make sure that they weren’t getting these supplies through corruptive means.” There was a lot of due diligence required because so many companies were working in areas not typical to their business plans. Wernick also explained that while the government was likely to be somewhat forgiving for companies that may have diverted funds away from compliance in the early stages of the pandemic, “that time has long passed and the government again will be keenly focused on ensuring that companies, especially large multinationals, have adequate resourcing” in their compliance programs.