Last week Credit Suisse Group AG (CSAG) and Credit Suisse (Hong Kong) Limited (CSHK), a subsidiary of CSAFG, settled a Foreign Corrupt Practices Act (FCPA) enforcement action for just over $77 million for the illegal hiring of family members and close personal friends of Chinese government employees and employees in Chinese state-owned enterprises. CSHK obtained a Non-Prosecution Agreement (NPA) from the Department of Justice (DOJ) and CSAG entered into an agreed Cease and Desist Order (Order) with the Securities and Exchange Commission (SEC). Collectively, they paid a criminal fine to the DOJ in the amount of $47 million and disgorgement to the SEC in the amount of $24.9 million with interest of $4.8 million for a total to the SEC of $29.8 million.

The FCPA enforcement matter was concluded with a substantial positive for CSAG given its conduct surrounding the affair. CSHK employees worked actively to circumvent, over-ride and hide their actions; clearly indicating the intent to provide benefits to foreign government officials in return for significant benefits.

Acting Assistant Attorney General John Cronan said in a DOJ Press Release,“The Department of Justice remains steadfast in our commitment to combatting bribery and corruption in all its many forms, including where companies engage in corrupt hiring practices to gain the favor of foreign officials to generate improper business advantages and increase profits.” U.S. Attorney Richard Donoghue said, “Credit Suisse Hong Kong’s practice of employing friends and family members of Chinese government officials as a quid pro quo for lucrative business opportunities was both profitable and corrupt and now the company will pay the price for that corruption.” Assistant Director-in-Charge William F. Sweeney, Jr. was quoted for the following, “In the banking industry, not every undertaking is fair game. Trading employment opportunities for less-than-qualified individuals in exchange for lucrative business deals is an example of nepotism at its finest. The criminal penalty imposed today provides explicit insight into the level of corruption that took place at the hands of Credit Suisse Group AG’s Hong Kong-based subsidiary.”

The Bribery Scheme

The illegal actions were engaged in by CSHK and their business in China. CSAG itself had a policy around not only the hiring of family members of foreign government officials and those of state-owned enterprises but also for training activities and internships which recognized that job offerings were “things of value” under the FCPA, (the “Global Policy). The Global Policy stated, “such referrals could only qualify for positions in existing campus or lateral hiring programs with open application processes and that no special treatment could be provided for those referrals in the recruiting process.” Additionally, any such hire had to go through a rigorous process overseen by CSAG’s Legal and Compliance Department (LCD).

However, CSHK worked throughout the relevant time frame of 2007 to 2015 to evade, over-ride and hide such hires from the LCD and avoid the company’s rigorous internal controls around the hiring of family members of foreign government officials and employees of state-owned enterprises. These hires were a clear quid pro quo for business steered the way of CSHK by corrupt foreign officials and employees of state-owned enterprises (SOEs). The Order stated, “senior Credit Suisse managers repeatedly took steps to onboard Referral Hires from SOEs and government ministries independently from the scrutiny of the company’s established, merit-based campus recruiting program.”

The family members illegally hired were called “Referral Candidates” and they were hired without CSHK conducting such basic Human Resource (HR) controls as employment interviews, screenings or “vetting of any kind”. Following the JPMorgan Sons and Daughters hiring program example, CSHK maintained a written documentation of its own program, with the Order noting, “spreadsheets that listed “referral hires” or “relationship hires.” These spreadsheets included information identifying the referring client or relationship when the relationship was with a government regulator. Some of these spreadsheets identified the “[c]ontribution” of the referral hire, including in at least three instances, deals specifically attributable to the relevant relationship.”

The illegal actions were not limited to only CSHK as the Order related, “certain Credit Suisse managers in the U.S. were aware of CSHK hiring of Referral Candidates. One manager went so far as to call such hires “boondoggles”. Senior Credit Suisse managers in the Asia-Pacific region (APAC) were also aware of these illegal hiring practices, indeed instructing hiring of family members simply “based on the business advantages the government official who referred the candidate could provide.” Some of these same senior officials mandated employees engage in “sham practices” to give the appearance that the hiring practice was being followed, instructing “subordinates to conduct interviews of referral candidates and automatically score the candidate highly, regardless of his/her actual performance.”

The NPA noted that in addition to the hires not going through the regular hiring process, they “often lacked technical skills, were less qualified, and had significantly less banking and other relevant experience than candidates hired through Credit Suisse’s other employment channels.”  But the illegal actions did not simply end with the hiring’s , as “Credit Suisse continued to provide these referral hires with additional benefits and promotions, including at the request of certain SOE or other government officials, even though these referral hires had performed poorly or were not otherwise suited to receive such benefits or promotions.”

In addition to lacking even a modicum of the basic skills to work at CSAG, several of the Referral Hires did not even bother to act as if they cared about their jobs or the work which was provided to them. They did not attend mandatory training sessions and did not bother to stay at the office during business hours. In short, some of these Referral Hires were actually a negative employment relationship for CSHK, destroying morale and actually hurting the paper culture of compliance that CSAG had laid out in its Global Policy. It was clear the only reason such people were hired, maintained their jobs and were even promoted and awarded bonuses were as a result of family members sending business to CSHK.

Tomorrow, I will look at some of the individual hires to see how CSHK over-rode internal controls, hid the hiring process from the home office and violated the FCPA.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

0 comments