Following a three-year investigation, federal prosecutors and regulators announced November 17 that they reached an FCPA settlement with a major U.S. financial institution regarding charges that the company’s Asian operations hired friends and family of foreign officials and the Chinese ruling class in order to win business. The company will avoid criminal prosecution, but will pay a total of $264 million to settle the issue—a dramatically larger number than the $14.8 million paid by another financial institution last year for similar conduct in the Middle East.
The case is part of an SEC crackdown on the hiring of so-called “princelings,” a term used in Asia to refer to the young relatives of key executives or political figures.
According to the SEC investigation, the financial institution ran a referral program from 2006 to 2013 that placed well-connected individuals in both internships and full-time positions. The applicants were permitted to bypass the established hiring process, and therefore did not compete against potentially more qualified applicants in a typical, merit-based selection process. Further, candidates were often given the same titles and paid the same amount as investment bankers. The SEC stated that despite their titles and salaries, one hire was described in documents as performing at a “photocopier” level, while another was engaged in “proofreading.” The child of a powerful executive was hired despite being “not very impressive” with a “poor G.P.A.,” while exhibiting an “attitude issue” and a “napping problem.” Another hire interviewed “very, very poorly” and was characterized as “immature, irresponsible and unreliable.” Nevertheless, the employee’s ties to an important foreign official prevented his termination, even after the Human Resources department inadvertently received an email from him containing “inappropriate sexual remarks.”
The SEC stated that the company openly required only that the referred individual have a “directly attributable linkage to business opportunity.” The SEC noted that the company maintained spreadsheets that tracked the revenue derived from each referral hire—an amount regulators have estimated at over $100 million—and hires that generated a certain amount of revenue were offered longer-term jobs. According to the SEC, the company knew it “was potentially violating the FCPA yet persisted with the improper hiring program because the business rewards and new deals were deemed to lucrative.”
The SEC has previously encouraged human resources departments to play a greater role in ensuring company commitment to FCPA compliance, to include:
- Strengthening anti-corruption policies by specifically addressing the hiring of government officials’ relatives;
- Centralizing 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 applicant to indicate whether s/he or a close personal associate is or has recently been an government official, and requiring increased scrutiny of those who are.
As a result of its admittedly quid pro quo hiring program, the financial institution will pay $130 million to the SEC, $72 million to the Justice Department and $62 million to the Federal Reserve. The SEC’s Director of Enforcement, Andrew Ceresney, remarked that the hiring of princelings may be “an industry-wide problem,” promising, “we do not expect this to be the last action related to this sweep.” Although this settlement is based on the FCPA violations, the facts include alleged improper conduct with relatives of executives who were not “foreign officials’ under the FCPA.