1. BNY Mellon

Up until the summer of 2015, hiring practices under the FCPA were not been given much thought or widely discussed. However that began to change in the summer of 2015 when the SEC announced a resolution with Bank of New York Mellon Corporation (BNY Mellon) for violations of the FCPA. This was the first enforcement action around the now infamous Princess-lings and Princelings investigation where US companies hired the sons and daughters of foreign officials to curry favor and obtain or retain business.

In this matter the BNY agreed to pay $14.8 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by providing valuable student internships to family members of foreign officials affiliated with a Middle Eastern sovereign wealth fund.

The Order also specified how the hiring of the relatives led directly to BNY Mellon obtaining and retaining business. One foreign official, made a personal request that BNY Mellon provide internships to two of his relatives: his son and nephew. As a Middle Eastern Sovereign Wealth Fund department head, he had authority over allocations of new assets to existing managers and was viewed within the bank as a “key decision maker” at the Middle Eastern Sovereign Wealth Fund. The second foreign official, who had authority to make decisions directly impacting BNY Mellon’s business asked that BNY Mellon provide an internship to the official’s son.

Added to all of this was that none of the three individuals met the BNY Mellon requirements for its internship program; they met neither the academic or professional requirement to obtain an internship. BNY Mellon not only waived its own hiring requirements, it did not even go through the pretense of meeting with them or interviewing them. Finally, these three individuals were provided with personalized, rotational internships so they had the opportunity to work in a number of different BNY Mellon business units, enhancing the value of the work experience beyond that normally provided to interns.

Red Flags

  • Each of the candidates were recommended by foreign officials who controlled of business for the bank.
  • The internship requests were specifically quid pro quo for receiving of business.
  • The candidates did not meet the basic entrance standard for a bank internships.
  • The candidates were hired sight unseen before even meeting or interviewing them.
  • The internships themselves were all bespoke, separate and apart from the standard internship program.
  1. Qualcomm

In February 2016, came the Qualcomm enforcement action. In addition to the types of facts presented in BNY, there were additional reasons not to hire the family member of a foreign official. The candidate was rated as a “No Hire” because not only was he not a “skill match” for the company but he did not even “meet the minimum requirements for moving forward with an offer”. Finally, among the Qualcomm team involved in the interview process, “there was an agreement that he would be a drain (not even neutral) on teams he would join.” Yet he was offered a job as a “special favor”. [Emphasis supplied]. If someone is so unqualified that employing them will negatively impact the company, there must be another very good reason to hire them, such as providing a benefit to their father, who is an official under the FCPA.

Lessons Learned Going Forward

The obvious starting point for any hiring of a close family member of a foreign governmental official is whether the candidate is qualified for the position. If they are not qualified it is ‘Full Stop’ at that point. In the case of BNY Mellon there was no evidence any of the candidates had the academic background, the academic credentials, leadership traits or intangible skills to meet the bank’s normal internship hiring criteria. As with any other anomaly granted in a company’s normal process, there must be a documented reason for the exception, review by appropriate authority of the exception and documentation as to why the exception was granted. None of these steps were present in the BNY Mellon matter. Put another way, if you are hiring a family member or close relative of a foreign official for any reason other than merit, it had better be a darn good one and well-documented as to your decision-making calculus with appropriate senior management oversight.

But your risk management does not stop simply with the hiring process. If the foreign governmental official is the person who made the request for the hiring of the family member, this is a Red Flag not to be overlooked. Your analysis needs to be on the role of that foreign governmental official in awarding new business to your company or in retaining old business. If the foreign governmental official has direct or even strong indirect control over such business relation, this may present such a direct conflict of interest, this may be a risk that you cannot manage. A good rule of thumb here is whether there is full transparency in the hiring with the foreign government involved with your company. In the case of BNY Mellon, they did not want anyone in the Sovereign Wealth Fund to know BNY Mellon had hired the son or nephew. That is a clear sign transparency is lacking and someone, somewhere is engaging in unethical conduct, if not breaking the law.

Finally, if you do decide to move forward and hire the close family member, you need to assign that new hire to work not associated with the business relationship between your company and the foreign government involved. Just as in the lifecycle of third party management, managing the relationship after a contract is inked is in many ways the most critical element; the same is true in the employment relationship involving close family members of foreign officials.

Ultimately, you need to have internal controls to ensure effective compliance going forward. You cannot have customer relationship managers making the calls on hiring which over-ride the Human Resources (HR) procedures. There must be not only HR review but also mechanisms to flag for compliance review such hires. Lastly, there needs to be sufficient senior management oversight because this is such a high-risk proposition.

Three Key Takeaways

  1. When considering the son or daughter of a foreign official, if a candidate does not meet your internal hiring criteria, it should be the end of the conversation full stop.
  2. If the candidate is hired but cannot meet the workload requirements, there should be no special circumstances for retention.
  3. The actions of the foreign official must be scrutinized as a part of the hiring process and forward indicia of awarding business going forward.

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.