The SEC is having a good year in the FCPA enforcement arena. As a former prosecutor, my eyes would sometimes glaze over when discussing civil enforcement actions. The SEC, however, has turned its FCPA enforcement program into a productive and important component of its overall mission.
BNY Mellon agreed to pay $14.8 million for the hiring of three interns in order to curry favor with two government officials from a Middle Eastern sovereign wealth fund.
Interestingly, the SEC did not charge any individuals involved in the case. An earlier SEC disclosure by BNY Mellon stated that several individuals at BNY Mellon had received Wells notices, indicating that they were likely to be charged.
BNY Mellon’s settlement is important for a reason outside the case itself. Six major banks are under investigation right now for the “princelings” case. They have launched an aggressive defense against the SEC’s prosecutions for hiring interns who were relatives of important foreign officials, arguing that such intern programs were “customary” in the industry. At bottom, they are claiming that they did not provide anything of value nor did they act with corrupt intent. The BNY Mellon case reflects the SEC’s rejection of those claims and theory.
The SEC is likely to bring a large number of SEC enforcement actions against these major banks either simultaneously or close together to reinforce its FCPA enforcement program.
The BNY Mellon facts are fairly egregious. All three interns were recent college graduates. The Middle Eastern sovereign wealth fund was an important client, and BNY Mellon was actively seeking to increase its business with the Middle Eastern sovereign wealth fund. Officials X and Y played an important role in approving BNY Mellon’s attempts to increase its business.
Officials X and Y pressed BNY Mellon officials to award their relatives with internships. Certain BNY Mellon officials saw the awarding of the internships as important to securing the additional business from the Middle Eastern sovereign wealth fund. The SEC cited several significant emails that corroborated the importance of the link between the internships and the increased business for BNY Mellon.
BNY Mellon’s internship program for college graduates was very competitive. Importantly, the interns did not meet the hiring standards for the program, and they were excused from the competitive hiring process involved in the program. BNY Mellon officials did not even meet or interview the intern candidates, and in the end they were awarded their own “specialized” intern programs. The programs were expensive and required significant planning and structuring. Two of the interns were paid at higher than normal rates. One of the employee’s responsible for the program wrote in an email that the internships were “expensive favors.”
The SEC cited specific evidence that the internships were awarded with the blessing and support of top BNY Mellon officials. Generally, the interns’ performances were less than exemplary.
The SEC’s settlement action puts all companies on notice as to an important set of controls that need to be implemented. When conducting hiring of employees and interns, companies need to design controls to identify those candidates that are, were or are related to foreign officials. A specific policy and procedure needs to be established to ensure that the hiring of any of these individuals is not being conducted with corrupt intent.
I agree with many commentators who have noted that it is possible, and in fact, legal to hire foreign officials, former foreign officials or relatives of foreign officials. A company has to make sure the person is qualified, has to follow established hiring procedures, and comply with additional due diligence requirements to ensure that no one is pushing the potential candidate as part of a corrupt scheme.
The issue of whether a job or any internship is a “thing of value” is not close: the issue really boils down to “corrupt intent.” The BNY Mellon case is built on a strong showing of corrupt intent. For the SEC it is a strong case that sends a very important message when it comes to hiring or other types of non-obvious benefits – corruption can embrace a variety of areas and techniques, and a company’s controls have to be designed around all reasonable possibilities.
