Lessons to be learnt from FCPA investigations into hiring practices

There have been a number of Foreign Corrupt Practices Act (FCPA) enforcement actions and investigations arising out of companies hiring family members of Chinese government officials. Such hires can fall foul of the FCPA, if made to obtain or retain business. Although the cases involve violations of the U.S. FCPA, the valuable lessons to be learnt from them apply equally to Hong Kong entities, where a hire made in order to obtain or retain business (whether from a government official or anyone else) would violate the Prevention of Bribery Ordinance (Cap 201).

Qualcomm

According to the U.S. Securities and Exchange Commission (SEC), Qualcomm Incorporated, a U.S. wireless and telecommunications multi-national corporation, violated the FCPA by hiring relatives of Chinese government officials deciding whether to select the company’s mobile technology products. According to the SEC, Qualcomm had (amongst other things):-

• Offered and provided full time employment and paid internships to family members of officials, referred to internally as “must place” or “special hire”, despite concern in some cases that the individuals in question were not qualified or suitable for the positions.
• Provided a US$75,000 research grant to a U.S. university on behalf of the son of a foreign official so that he could retain his position in its PhD program and renew his student visa.  

On March 1, 2016, the SEC announced that Qualcomm had agreed (without admitting or denying the charges) to pay US$7.5 million to settle the matter and report its FCPA compliance measures to the SEC for two years.

BNY Mellon

In August 2015, The Bank of New York Mellon (BNY Mellon) agreed to pay US$14.8 million to settle charges made against it by the SEC that it had violated the FCPA by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund. The SEC found that BNY Mellon had not evaluated or hired the family members through its existing, highly competitive internship programs that had stringent hiring standards and requirements. Despite the family members not meeting the rigorous criteria, they were still hired, with the knowledge and approval of senior BNY Mellon employees, in order to corruptly influence foreign officials and win or retain contracts to manage and service the assets of the sovereign wealth fund. 

The SEC found that BNY Mellon lacked sufficient internal controls to prevent and detect the improper hiring practices. Although they had a FCPA compliance policy, the SEC found that it maintained few specific controls around the hiring of customers and relatives of customers, including foreign government officials, with sales staff and client relationship managers having a wide discretion in their initial hiring decisions. Further HR personnel were not trained to flag potentially problematic hires. Senior managers were able to approve hires requested by foreign officials with no mechanism for review by legal or compliance staff. BNY Mellon’s system of internal accounting controls was found to be insufficiently tailored to the corruption risks inherent in the hiring of client referrals, and therefore inadequate to fully effectuate BNY Mellon’s stated policy against bribery of foreign officials.

JP Morgan

Closer to home, JP Morgan is currently the subject of federal bribery investigations for possible violations of the FCPA in relation to its hiring of friends and family of Chinese companies that it took public in Hong Kong during the period 2004 to 2013. It has been reported that under the program, known internally as the “Sons and Daughters Program”, 222 candidates were hired following referrals, nearly half of which came from the Chinese government, including banking, insurance and securities regulators, senior executives of major state-owned companies and government officials. Hong Kong’s banking regulator, the HKMA, is apparently assisting U.S. authorities with their investigations into J.P. Morgan and is also looking into the hiring practices of other banks in Hong Kong. Reports also say that the HKMA has banned its own staff from referring job candidates to the institutions it regulates. According to recent reports, JP Morgan is nearing settlement with prosecutors and regulators and is expected to pay around US$200 million to settle the criminal and civil probes into its Asian hiring practices and as part of the settlement is likely to admit that its hiring practices violated US law.

HSBC

In its “Annual Results 2015 Media Release” dated 22 February 2016, HSBC Holdings Ltd reported that the SEC is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in Asia-Pacific and that it had received various requests for information and is cooperating with the SEC’s investigation.

Hong Kong Prevention of Bribery Ordinance (Cap. 201)

The Prevention of Bribery Ordinance (POBO) prevents the offer of any advantage to any agent as an inducement to or reward for or on account of the agent’s doing any act in relation to his principal’s affairs or business.

“Advantage” is defined broadly under s.2(1) of the POBO: (b) any office, employment or contract; … (d) any other service or favour … ; (f) any offer, undertaking or promise … of any advantage within the mean of paragraphs (a) to (e) above. An offer of employment can be an “advantage” for the purpose of POBO.

Bribery can be committed indirectly through another person. Section 2(2) of the POBO provides that for the purpose of the POBO, a person offers an advantage if he directly or indirectly gives any advantage to any other person; and a person accepts an advantage if he, or any other person acting on his behalf directly or indirectly receives any advantage for any other person.

In short, an offer of employment to the sons and daughters may be considered as an offer of an advantage to their parents.

Lessons to be learnt

The above cases provide valuable lessons and reminders for Hong Kong businesses and banks, namely:-

• It is important to not only have anti-bribery policies in place, but also sufficient internal controls, specifically tailored to detect and prevent improper hiring practices.
• It is important to have stringent HR policies in place. In particular, strict screening of candidates to ensure that those hired are suitably qualified for the position and have not been hired in order to obtain or retain business.
• Hirers should have specific HR policies and processes in place in respect of the hiring of family members of government officials/customers, spelling out clearly what is and is not permitted and assigning a compliance officer of sufficient seniority to make the final decision.
    
• Requests from government officials/customers for a job or internship for his/her family member should raise an immediate red flag. The person approached should respond by saying that the application must go through the company’s usual recruiting channels.
• Hirers should have in place suitable processes to enable them identify a family member of a government official/customer who applies for a job or internship through the normal channels and ensure that such candidates are not given any preferential treatment.
• Hirers should ensure that all candidates are treated equally and that they do not lower, modify or waive any hiring requirements or standards for family members of government officials/customers.
• Hirers should ensure that HR personnel are adequately trained to spot any red flags and potentially problematic hires and to refer the matter to the relevant senior person in the organisation to oversee.   
• Hirers should have a dedicated compliance officer, of sufficient seniority, to sign off on hires after being satisfied that there is no danger of falling foul of anti-bribery legislation.

Key Contacts

Peter So

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9247