- A payment to a government official can take many forms.
- The SEC charges bank for books and records violation even absent a bribery charge.
- Industry-wide enforcement is a continuing tactic for U.S. regulators.
On September 27, 2019, Barclays PLC agreed to pay $6.3 million to the Securities and Exchange Commission (SEC) to settle charges that Barclays violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). The Barclays settlement fits a pattern of recent U.S. government enforcement against companies, particularly in the financial services sector, relating to FCPA violations stemming from hiring or providing internships to relatives and friends of government officials. Penalties have been significant – for example, Credit Suisse Group AG paid a $47 million penalty in 2018 as part of a Justice Department FCPA investigation into their hiring practices in Asia. We previously wrote about this issue in an August 2015 article about a settlement related to the hiring practices of Bank of New York Mellon.
The Barclays matter is a useful reminder of three things:
- What constitutes the giving of a thing of value to a government official is broadly interpreted and goes beyond simply giving money or a gift or other tangible thing directly to an official.
- The SEC can – and will – enforce the FCPA when there are deemed to be violations of the books and records provisions of the law, even if no charge of bribery is brought in the matter.
- The U.S. government continues to pursue industry-wide enforcement under the (apparently accurate) belief that what one company does in a specific industry is likely something that many companies in that industry also do.
Barclays Hired More Than 100 Insiders
The SEC charged that, from 2009 and until August 2013, Barclays hired 117 individuals connected to foreign government officials or business clients to fill positions within its Asia- Pacific operations. The SEC also asserted that Barclays falsified employment records in an effort to conceal the true identity of the individuals and the basis for their hiring.
According to the SEC, many of these individuals were relatives or friends of government officials, and executives of Barclays’ clients and were hired as a personal benefit to those officials and executives. It is alleged that Barclays engaged in this practice with the specific goal of gaining a business advantage within the relevant markets and with the relevant clients.
A Parallel, Unofficial Internship Program Established to Facilitate the Hiring Effort
The SEC indicated that a senior executive within Barclays Asia Pacific Region (APAC) created an unofficial internship program for Barclays South Korea that was parallel to but entirely separate from the official Barclays internship program. Around half the interns in this parallel internship program had a connection to Barclays’ clients.
In fact, the executive responsible for the parallel internship program said, “the key factor behind relationship hiring decisions was what business the client could deliver to the bank.” The executive also intimated that hiring decisions were based, at least in part, on how important the client was, whether the hire would strengthen business relationships, and whether hiring the candidate would foster further business for Barclays APAC. Eventually, these hiring practices were extended beyond South Korea to other APAC countries.
Compliance Personnel Did Not Act to Halt These Employment Practices
In announcing the settlement, the SEC highlighted the fact that an existing Barclays policy explicitly addressed anti-corruption risks related to hiring decisions. Yet the SEC also emphasized that, despite becoming aware of these hiring practices in June 2009, APAC compliance officers took no action to halt the hiring effort. The improper hiring effort continued notwithstanding compliance reviews conducted by Barclays APAC in 2011 and 2012. For example, in 2012, Barclays APAC hired the daughter of a government official at a regulatory agency following a referral by an executive of a state-owned entity. This hire occurred even though compliance officials were aware Barclays was competing for a $2 billion bond issuance with the state-owned entity. Shortly after the hire, Barclays secured the bond deal and made just over $300,000 in fees.
Anything of Value to Recipient Can Trigger Liability under the FCPA
While these internships presumably did not lead to a direct monetary benefit for the government officials whose relatives received internships, the awarding of an internship undoubtedly is something of value. Barclays certainly seems to have considered the internships to be valuable: the executive who ran the internship program apparently viewed them as a direct quid pro quo for winning more business.
Industry-specific Enforcement Remains a Tactic
As noted, Barclays is not the only financial institution that has resolved FCPA violations involving the sort of conduct at issue here. We have now seen the U.S. government’s tactic of pursuing enforcement action against multiple actors in the same industry, for the same or similar conduct, play out in the context of the offshore oil drilling industry, the medical device industry, and the pharmaceutical industry. We expect this sort of industry-wide focus to continue.
Books and Records Violations May Lead to Penalties Even Without a Bribery Charge
A bribery charge may be more eye-catching than a charge based on a violation of the FCPA’s books and records and internal controls provisions. Nevertheless, companies must remember that a lack of controls and inaccurate books and records can also expose them to significant penalties. For example, in 2018 medical device company Stryker Corp. paid a $7.8 million penalty to the SEC for insufficient internal accounting controls and inaccurate books and records. In fact, it is often SEC penalties and/or disgorgement that have the most negative impact on a company’s bottom line.
*Thad and Lindsey would like to thank law clerk Nathan Hamill for his assistance in preparing this article. It quite literally would not have been written without Nathan’s excellent work.