2019 continues to be an active year for FCPA enforcement. In the period from July to September, the SEC brought corporate enforcement actions addressing hiring practices (Deutsche Bank) and sales of software and network products through third parties (Microsoft and Juniper Networks). The SEC also brought its third case against an individual related to February's enforcement action against Cognizant. Only one of these enforcement actions had a parallel criminal action: DOJ entered into a non-prosecution agreement with Microsoft's Hungarian subsidiary. In addition, DOJ obtained a guilty plea from an individual in a bribery scheme related to adoptions in Africa, and the SEC finally brought its companion case against TechnipFMC plc., based on the same Iraq-related allegations addressed in DOJ's June DPA with the company
As discussed below, these enforcement actions provide additional guidance regarding hiring practices, demonstrate yet again the government's virtual strict liability approach to the FCPA's accounting provisions, stress the importance of individual accountability, and raise questions as to how DOJ treats small bribes or facilitation payments in the FCPA context.
Following the earlier actions against JPMorgan Chase1 and Credit Suisse,2 on August 22, 2019, Deutsche Bank became the third investment bank to settle FCPA allegations related to hiring practices in China. Without admitting or denying the facts of the SEC's cease & desist order, Deutsche Bank settled charges relating to violations of the accounting provisions of the FCPA, and paid approximately $16 million to the SEC, including a $3 million civil penalty.3 Unlike the two prior cases, the Deutsche Bank settlement was much smaller, involved Russia in addition to China, and did not have a companion DOJ settlement.4
The Deutsche Bank Order found that, between 2006 and 2014, Deutsche Bank offered employment to relatives of foreign officials in China and Russia in order to generate business for the bank. The SEC's Order noted that Deutsche Bank's anticorruption policy specifically prohibited providing job offers or employment at the request of a foreign official as early as 2009.5 However, as in the prior cases, bankers in the region allegedly circumvented these controls through a variety of means. The SEC's Order found that senior Deutsche Bank employees in the APAC region used the bank's China-based joint venture to hire candidates who were rejected by the Regional Compliance Head and then seconded or lateraled those candidates to Deutsche Bank's Hong Kong office.6 In addition, certain employees in the APAC region submitted false documentation, including falsely claiming foreign officials were not the source of the referrals.
As with the prior hiring practices cases, internal communications made clear the link between the referral hires and expected business. In one instance, the co-head of investment banking in China emailed other employees asking for "revenue projections" for recent referral hires. Other internal emails referred to such candidates as "VIPs," requested that colleagues "leverage" one candidate's family connections to obtain business (despite the fact that the candidate's interviewers thought he was one of the worst candidates they interviewed), and described another hire as "a classic nepo situation."7 The similarities in requests from Russian and Chinese officials serve as a reminder that such practices are not limited to East Asia. Indeed, one of the faults alleged in the Deutsche Bank Order is that, while Deutsche Bank implemented FCPA guidance with regard to hiring for the Asia Pacific in 2009, it did not do so for the rest of the world until 2015.8
"As with the prior hiring practices cases, internal communications [at Deutsche Bank] made clear the link between the referral hires and expected business."
The SEC's Deutsche Bank Order is the latest settlement focused on hiring practices, but it is likely not the last. As the Deutsche Bank Order demonstrates, such practices are not confined to Asia and companies would be well-advised to implement strict procedures for hiring those related to or referred by foreign officials (especially potential customers and regulators) and to remain alert to potential circumvention schemes. Such schemes might include hiring by an affiliated joint venture, as alleged in the Deutsche Bank Order, or shortened contracts, as alleged in the JPMorgan Order.
Unlike the JP Morgan and Credit Suisse actions, there was no parallel case by DOJ. Whether this is because of the relatively small size of the profits ($11 million, compared to $105 million for JP Morgan and $25 million for Credit Suisse9 ) or fading interest by DOJ in the relationship-hire cases, only time will tell.
1. In the Matter of JPMorgan Chase & Co, Order Instituting Cease-and-Desist Proceedings, Securities & Exchange Act Rel. No 79335, Accounting and Auditing Enforcement Rel. No. 3824, Admin. Proc. File No. 3-17684 (Nov. 17, 2016) (hereinafter "JPMorgan Order").
2. In the Matter of Credit Suisse Group AG, Order Instituting Cease-and-Desist Proceedings, Securities & Exchange Act Rel. No 83593, Accounting and Auditing Enforcement Rel. No. 3948, Admin. Proc. File No. 3-18571 (July 5, 2018) (hereinafter "Credit Suisse Order").
3. In the Matter of Deutsche Bank AG, Order Instituting Cease-and-Desist Proceedings, Securities & Exchange Act Rel. No. 86740, Accounting and Auditing Enforcement Rel. No. 4065, Admin. Proc. File No. 3-19373 (Aug. 22, 2019), www.sec.gov/enforce/34-86740-s (hereinafter "Deutsche Bank Order").
4. In this way, the Deutsche Bank case was more similar to the first hiring practices case brought by the SEC against Bank of New York Mellon than the larger JPMorgan and Credit Suisse cases. See Sec. & Exch. Comm., "SEC Charges BNY Mellon With FCPA Violations," No. 2015-170 (Aug. 18, 2015), www.sec.gov/news/pressrelease/2015-170.html.
5. Deutsche Bank Order ¶ 5 (controls instituted in 2009). This is similar to the facts in the JPMorgan and Credit Suisse cases. See JPMorgan Order ¶¶ 9-11 (controls instituted 2001 through 2011); Credit Suisse Order ¶ 7 (controls instituted 2007-2012).
6. Deutsche Bank Order ¶¶ 12-13.
7. Id. ¶¶ 19, 26, 32, 37.
8. Id. ¶ 15.
9. Deutsche Bank Order ¶ 12; JPMorgan Order ¶ 25; Credit Suisse Order ¶ 15.
To view full article, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.