The U.S. Securities and Exchange Commission recently announced that the Bank of New York Mellon agreed to pay $14.8 million to settle allegations that the Bank had violated the Foreign Corrupt Practices Act by hiring family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund as student interns for the Bank. Notably, the conclusion of this investigation for the SEC marked the first FCPA action filed against a financial services institution and the first FCPA case involving hiring practices and internships.
The Bank provided three highly competitive internships to family members of well-connected foreign officials, even though those family members failed to meet the rigorous hiring standards for the positions, including a minimum grade point average and the completion of a series of interviews. Although companies often have innocent motives for assisting a client's family member, U.S. prosecutors take a skeptical view of such hiring assistance when that assistance involves the family member of a foreign government official. Here, the SEC asserted that the interns were hired to corruptly influence foreign officials in order to secure additional business from the unnamed sovereign wealth funds, citing to several significant emails that corroborated the importance of the link between the internships and the increased business for the Bank.
In the aftermath of this FCPA settlement, all companies should update their internal controls and procedures related to hiring; particularly, if the policy permits hiring relatives of foreign government officials. Human resources and the legal department should be consulted whenever a family member of a foreign government official is considered to ensure that employees are following internal hiring practices, and that there are no other "red flags" or circumstances that would create FCPA exposure for the company.
Though the Bank had rules related to its internship program, in the face of pressure from foreign officials, the Bank acquiesced to their requests and provided the valuable internships, circumventing compliance rules in place in the hiring department. Importantly, the SEC found that the Bank's system of internal accounting controls was "insufficiently tailored to the corruption risks inherent in the hiring of client referrals, and therefore was inadequate to fully effectuate [the Bank's] stated policy against bribery of foreign officials." While human resource departments are not ordinarily thought to interact with government officials or those from whom the company can get business, it is important they are as vigilant about FCPA compliance as other departments within a company.
It will not be surprising if U.S. prosecutors take a tougher stance in the future in relation to the hiring of a family member of a foreign government official for a corrupt business purpose by imposing higher penalties on the hiring company, and naming the foreign country, as well as the foreign government official's identity, position and ministry in its public announcement of the FCPA enforcement settlement. The cost to the hiring company could then be considerably greater (with respect to its foreign client relationships) than the fines and penalties imposed by the prosecutors.
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