JPMorgan Chase agreed to settle civil charges brought by the Securities and Exchange Commission and the Board of Governors of the Federal Reserve System that, between 2006 and 2013, it provided jobs and internships to relatives and friends of Asia-based government officials, including China government officials, to retain or obtain investment banking business. The SEC said this conduct violated a federal law known as the Foreign Corrupt Practices Act. (Generally, the FCPA prohibits the payment or offer of payment of anything of value to a foreign official to influence any act or decision of such person in his or her official capacity or to secure any other improper advantage to obtain or retain business. Click here to access the FCPA.) According, to the SEC, during this time, JPMorgan Securities (Asia Pacific) Limited, an affiliate, established and maintained a referral hiring program, informally referenced at the firm as the “Sons & Daughters Program.” Within this program, said the SEC, JPMorgan APAC processed the referral of relatives and friends of senior executives of clients and prospective clients, and senior government officials, including senior officers at many state-owned enterprises in China. Candidates in this program were not subject to JPMorgan’s ordinary rigorous competitive vetting process, but an alternative noncompetitive hiring scheme. This was despite the firm having a toughly worded anticorruption policy that prohibited the hiring of individuals to win business. To resolve these charges, JPMorgan agreed to pay more than US $130 million in disgorgement to the SEC and US $61.9 million as a fine to the Federal Reserve. In a related matter, JPMorgan APAC agreed to pay a penalty of US $72 million to the US Department of Justice and to enter into a non-prosecution agreement in connection the same essential activity. The SEC noted that it did not impose a fine on JPMorgan because of JPMorgan APAC’s agreement to pay a fine to the DOJ. JPMorgan also agreed to various reporting obligations to the SEC and Fed regarding its progress in implementing enhanced compliance procedures to comply with US law regarding hiring practices.
Compliance Weeds: Firms conducting business abroad often struggle with how to adhere to local custom that incorporates gift giving as a means to demonstrate respect and collegiality while at the same time complying with the strict prohibitions imposed by the FCPA. Unfortunately, under the FCPA, there is not a threshold that provides a safe harbor for gift giving or any other payment (whether in cash or in kind) if the intent is to improperly influence a government official. However, in A Resource Guide to the U.S. Foreign Corrupt Practices Act, a very helpful guide to the FCPA (click here to access), DOJ and SEC staff note that “[i]tems of nominal value, such as cab fare, reasonable meals and entertainment expenses, or company promotional items, are unlikely to improperly influence an official, and, as a result, are not, without more, items that have resulted in enforcement action by DOJ or SEC.” It’s not a bright line test, but it’s something. Also keep in mind, the FCPA applies to all US “domestic concerns” (e.g., all US citizens, nationals, residents and incorporated entities); issuers: and their officers, directors, employees, agents; and shareholders; and certain foreign nationals or entities too while acting in the US.