The Securities Exchange Commission (“SEC”) announced yesterday its first FCPA settlement with a financial institution related to the hiring of interns and signaled its intention to pursue similar cases related to hiring practices under the FCPA. Without admitting or denying the charges, a major U.S. financial institution agreed to pay $14.8 million in a settlement with the SEC arising out of its hiring of three interns who were the family members of two foreign officials who worked at a Middle East sovereign wealth fund. This settlement highlights the necessity of ensuring that your company’s anti-corruption policies and procedures cover the hiring of family members of foreign officials. As noted in the SEC’s Settlement Order, the retention of family members can be a thing of value bestowed on the foreign official and can lead to potential violations of the FCPA.

Background

In this case, the financial institution already had a significant relationship with a Middle East sovereign wealth fund. Two of the funds’ officials asked employees of the financial institution to give internships to their family members. One official asked that his son and nephew, both college graduates, be given internships. The other asked that his son, an undergraduate, be hired as an intern. The Order makes clear that (i) both fund officials were key decision makers as to the bank’s business with the sovereign wealth fund, (ii) the officials were persistent in their hiring requests, and (iii) the bank’s employees believed that giving the internships was essential to retaining and growing the bank’s business.

The Order cites contemporaneous evidence and emails suggesting that the bank granted the internships even though the individuals would not have qualified under the bank’s existing hiring criteria for its internship programs. In addition, the Bank spent significant resources in administering these approximately six-month internships. Finally, the Order notes that the interns “were less than exemplary employees.”

Although the bank had an FCPA policy, the Order cited the following deficiencies:

  • Few controls directed to the hiring of customers and relatives of customers (including foreign officials);
  • Sales staff had wide discretion making initial hiring decisions and HR was not trained to flag potentially problematic hires; and
  • Senior managers could approve hires requested by foreign officials without review by the bank’s legal or compliance departments.

As a result, without admitting or denying the allegations, the bank settled both an anti-bribery charge as well as a failure to devise and maintain an adequate system of internal accounting controls charge.

Key Takeaways

First, the Order credits the bank with cooperation and took into consideration the remedial steps that the bank implemented. Those steps include:

  • Strengthening the anti-corruption policy by specifically addressing the hiring of government officials’ relatives;
  • Centralizing all applications for full-time and internship positions;
  • Enhancing the code of conduct to require yearly certifications that the person has not hired anyone through a non-centralized channel; and
  • Requiring each employment applicant to indicate whether she or a close personal associate is or has recently been a government official, and requiring increased scrutiny of those who are.

It is clear that the SEC considers these steps to be best practice for any anti-corruption program. Notably, the SEC suggests that human resources departments should play a greater role in ensuring the company’s commitment to FCPA compliance.

Second, this settlement must be viewed in the larger context of the government’s on-going investigation into financial institution hiring practices. It was reported that the SEC contacted other large financial institutions last year related to hiring practices in Asia. While the hiring of a family member of a government official does not by itself constitute a violation of the FCPA, enforcement officials will look to pursue those cases where there appears to be explicit intent that a hiring decision was intended to obtain or retain business.