More than a decade after the overseas anti-corruption enforcement boom began, it is clear that the U.S. government is looking to prosecute corruption that takes non-traditional forms. Two such forms that are particular areas of focus are the provision of internships or education at the request of government officials, and excessive gifts, hospitality, and entertainment including when associated with legitimate activities such as training. The recent investigations of BNY Mellon, J.P. Morgan and Qualcomm, discussed in detail in the first article in this series, highlight the government’s pursuit of activities that are more nuanced or ambiguous than the traditional cash-under-the-table payoff.
Against the backdrop of these cautionary tales, we offer some guidance for in-house legal and compliance professionals trying to help ensure that any training program for foreign officials, or any hiring program in which foreign officials become involved, avoids the landmines. The first step in combating the risk of an enforcement action around training is to provide clear, accessible guidelines and policies regarding foreign official training, including provisions that address the contractual requirement or business purpose of the training program. The expectations of those policies – including the notion that the business purpose should be central to any training trip – should be communicated to all relevant employees as well as stakeholders at relevant state-owned entities (SOEs).
Importantly, the substance of what is ultimately contained in the relevant guidelines and policies will vary from company to company. Careful consideration should be given to whether a certain procedure or requirement is appropriate in light of all the surrounding facts including the location and nature of the company’s operations, the training opportunity in question, and specific educational or professional challenges presented by the pool of candidates.
Similar steps will help with hiring programs. Having clear policies that require hiring only qualified applicants for internships or permanent positions, that prohibit nepotism and discrimination, and that make clear thatthe company’s anti-corruptionpolicy applies to hiring will help demonstrate good faith andactually avoid missteps.
Obtain a Variety of Candidates
The threshold compliance questions about a hiring or training program concern who is being selected for the position or the training opportunity and the nature of the selection process. Being proactive and requesting a variety of candidates to consider is an appropriate first step to manage extending a training opportunity. When possible, obtaining a variety of candidates shows that a meritocratic process was employed. It also eliminates the risk of being offered to a single, well connected candidate with questionable qualifications for the training opportunity. The same principles apply to hiring. If a candidate has been referred, establishing that the position was held open to other applicants, that no other more qualified candidates applied or accepted the position and that the candidate went through the same process as any other candidate are essential.
Evaluate the Credentials
Check the educational and professional qualifications of the candidates being consideration for any permanent position, internship, or training program and ensure that they are qualified and appropriate for the position. These qualifications can assume a number of forms: formal education; professional experience; language proficiency; and, in the case of training, the fit between the candidate’s job with the government and the training opportunity. As the BNY Mellon matter instructs, evidence that a foreign official’s relative was hired into a position for which he or she was not qualified can lead to an inference that they were hired for improper purposes.
The same thinking will apply to any training offered to a foreign official, especially where that official has some supervisory or regulatory connection to the project. If he or she is not the right person for the training, enforcement authorities will be skeptical of the company’s motives in providing the training, and may instead infer an attempt to obtain a benefit improperly.
Focus on the Origin of the Position or Program
Relatedly, it is important to confirm with the relevant parties that the position or training program was not created specifically for a foreign official (or their designee). Due consideration should be given to building any training opportunity around an important initiative or project the company wishes to emphasize to the government agency or SOE or helping that government agency or SOE develop a certain field or expertise it is lacking in relation to company operations. Similarly, positions should not be created specifically for referred candidates; rather, candidates should be hired into positions that have developed organically out of the company’s needs and plans. Evidence that a position was created or customized for a specific person outside of established guidelines could suggest that the company’s purpose in hiring the individual was to gain influence with a government official. In the BNY and J.P. Morgan matters, that inference was aided by internal company emails that purportedly directly linked intern hires to “new business” goals.
Where possible, the selection of candidates foremploymentortrainingopportunitiesshould be consistent with documented hiring and training policies vetted by human resources, legal and applicable business units.Of courseno candidate isperfect, and documented consideration of a candidate’s relative strengths and weaknesses through a candidate evaluation process maybe be called for. That evaluation should also be transparent and reference the candidates’ merits relative to the program objectives and/or the company’s needs. Checks on these processes should be established to confirm ongoing compliance with written policies and to avoid “off-the-grid” (i.e., non-transparent) discussion and decision-making by individual business units regarding hiring or training.
Training Curriculum and Related Considerations
In the training sphere, it is important for compliance professionals to understand the nature of the specific training sessions being provided to foreign officials. Ensuring that the sessions conform with the trainee’s job responsibilities with the government/SOE and the company’s operational needs will help achieve both compliance and business objectives.
Consider Employee Training As a Guide
A useful guide for the training is what a company provides to its own employees (or that is required for them to have taken as a prerequisite to occupying their current positions). The necessary mix of the company’s training goals, trainee responsibilities with the government, ends of government to be served and overarching compliance objectives will preclude a carbon copy of training provided to the company’s employees. The same principles will apply, however, so that the curriculum will include a fixed duration, general and specialized courses that are “fit for purpose,” a mix of classroom, on the job, and computer based learning, and identification of any deliverables required of the candidate.
However these elements fit together, the curriculum and supporting materials should be prepared with an agenda that documents the topics and substance of the programs. Ultimately, the training curriculum should be structured with sufficient rigor to ensure that a knowledge transfer will take place.
Track Attendance and Require Commitment
This knowledge transfer will require showing up for training. To that end, while the substance of a curriculum for government officials may not directly track that for company employees, there should be no difference in the expected level of commitment. Attendancemust bemaintained, ideallywith daily sign-in sheets or card swipe required. As with any intern who is treated as a de facto employee, the trainee must work the same hours as other employees at large or within his or her trade. The trainee should also follow the same holiday schedule that applies to the company at large. The curriculum must also be diligently pursued, with progress milestones and expected achievement. These records of attendance, achieved milestones, and other activities up to and including completion of the program must be maintained as they show the program was real and transparent in its requirements.
When Hiring: Document, Document, Document
The parallel considerations in the hiring sphere are that where any question arises, compliance professionals should understand the specific nature of the job responsibilities and how the candidate’s qualifications and experience align with those responsibilities. If a candidate with a foreign official connection is hired, documentation should be maintained to reflect that the individual actually performed satisfactorily. Performance evaluations may be useful in this regard, but even simple records reflecting that an employee regularly shows up to work on time could be useful laterin defeating any suggestion that a position was a bogus one, created and filled out of cronyism.Absenteeism,forexample,wasnodoubt an aggravating factorin the BNY Mellon facts. These records could also mitigate the impact ofinternal communicationsthat could be taken out of context byenforcementagencies,suchasthe“irresponsible and unreliable”intern noted inJ.P.Morgan investigation emails.
Travel and Hospitality
It goes without saying that new hires referred by foreign officials should be treated like any other employee, subject to the company’s travel and expense policies. However, in the context of training SOE employees, travel, hospitality, and entertainment are almost certain to present challenges.
Treat the Trainee No Better Than an Employee
For example, a component of the curriculum may be for the candidate to visit another company or parent location for purposes of understanding related products or processes. The trainee may also enjoy certain benefits offered to employees at large – think of a holiday celebration. While that travel, hospitality, and entertainment has to be legitimate and bona fide, it must also be reasonable. Whatever is extended to the trainee must be commensurate with his or her position within the company and should be in line with how regular employees are treated.
To be clear, treatment of similarly-situated employees should be regarded as a ceiling, and not a floor. Depending on how generous certain company benefits are, what is extended to the trainee must not be extravagant when compared to the various standards that may apply – consider how it may be viewed from either a U.S. or an in-country perspective. Moreover, these benefits must be controlled not just in cost, but also in in frequency. As a result, any time dedicated to activities not directly related to the training must be reasonably proportional to the time spent on training.
Require a Clear Business Purpose for Travel
Travel is, of course, a challenge with respect to these compliance issues. FCPA settlements are replete with accusations of companies giving vacations masquerading as business trips.Any travel must serve a clear business purpose.Even with that legitimate purpose,the travel must be legitimate in frequency (considering it in proportion to the time spent on training) and reasonable in the class of travel. No travel should be objectively extravagant. Concededly, “reasonableness” is subjective so trainee travel should at all times be consistent with travel policies applicable to the company’s employees.
Do Not Allow Spousal, Family or Guest Travel
Another hallmark of a vacation or excess is spousal travel. Spouses, family members, and other guests should not participate in any travel unless they pay their own way entirely, nor should they be included in trainings or offered secondments or internships unless they happen to be hired as part of a legitimate process to fill an authentic business need.
Most companies permit their employees to incur additional or incidental expenses, be they classified as meals or entertainment or otherwise, for which the employees are reimbursed. That practice may even extend to allow their employees to shop for and pay for their own travel arrangements. For those trainees who are government officials, however, those expenses are best controlled by the company. To the extent possible, therefore, it is always preferable to pay for any additional or incidental expenses directly to those service providers. Such vendors must be vetted consistent with company policies, and the expenses approved consistent with the company’s financial controls. The use of per diems should be minimized, as should the use of gift cards or any other cash equivalents.
Documentation and Other Compliance Program Integration Issues
It is a truismthatdocumentation andtransparency provide the foundation of any compliance programin general and any government officialtraining program inparticular.Integrating issues aroundforeignofficial training into a company’s compliance programshould not be especially difficult and has a considerable upside. Any written policy, however, must be followed. The only thing worse than no policy is a robust policy that is not followed.
Vendor Payments and Books and Records
The requisite policy will necessarily address how to pay vendors that may be needed in connection with the program (such as for travel and lodging), employee interaction with the trainee, and incidental expenses. Those expenses must then be properly and consistently recorded in the event they are needed at a later date. All accounts related to costs incurred to train government officials as well as incidental gifts, hospitality, and entertainment, should be maintained and subject not only to audit by the company’sfinancial auditors, but also to review by counsel as part of compliance programtesting.The same principles apply to the hiring scenario.Hiring policies andother aspects of the recruiting and retention process should be documented so as to demonstrate later the bona fide nature of any hire.
Use a Multi-Disciplinary Approach
It would be a gravemistake for compliance counseltomaintain itself in a silo throughout the training programcreation, asitmust be a multi-disciplinary effort. As indicated above, employees in the department where the trainee will reside must be involved in the curriculum. Throughout, the company’s human resources assets should be considered the front line for purposes of risk assessments, program resource allocation, and program testing. Although there has been a traditional, and justifiable, focus on the retention and activities of third-party agents, first-party agents are just as capable of creating liability for a company.
The allegations against BNY Mellon, example, targeted conduct ofthe banks’own employees and noted the inadequate training of the company’s human resources departmentto deal with high-risk candidates. For that reason,while education and communication on any government training is necessary for relevant departments and levels within a company, human resources professionals need to be front and center. The group’s presence and input is required throughout program creation, education, and implementation. Compliance training should emphasize hiring and training as potential risk areas – this will not only address an important new issue but also keep trainings fresh. The concept of intangible benefits should be emphasized as well.
While they are by no means exclusive or perfect, these strategies should reduce exposure to the sort of non-traditional corruption associated with hiring and training overseas, a challenge that will face many companies embarking on international projects.