The Securities and Exchange Commission (SEC) recently concluded two Foreign Corrupt Practices Act (FPCA) enforcement actions where the underlying issues were the hiring of family members of foreign government officials.
The first involved the Bank of New York Mellon (BNY) in July 2015, and the second was in February 2016, involving Qualcomm Inc. Taken together, there are several important lessons to be learned for the compliance practitioner.
Nepotism is another form of bribery
In the BNY case, there were several red flags throughout the hiring process. First, the family members hired were sons and a nephew of foreign governmental officials who held control of business relations between Sovereign Wealth Funds and the bank.
The requests that close family relations be hired by BNY Mellon went contrary to the bank’s own process of selecting candidates for its internship program from an exclusive group of universities and colleges in the U.S. and UK.
There was no evidence the candidates met any of BNY Mellon’s own internal criteria for consideration to the internship program.
Indeed, as the SEC Order stated, “as recent graduates not enrolled in any degree program, the interns did not meet the basic entrance standard for a BNY Mellon postgraduate internship.”
Finally, to top it off, all three were hired sight unseen, and “BNY Mellon decided to hire the interns before even meeting or interviewing them.”
Hiring rules exist for a reason: to limit corruption
The Qualcomm case involved hiring the son of a Chinese official who issued a license to Qualcomm with even more flagrant abuse of the company’s hiring policy than in the BNY case.
The official’s son was hired after he had already been rated as a “No Hire” from his initial interview. This rating was assigned not only because he was not a “skill match” for the company, but also because he did not even “meet the minimum requirements for moving forward with an offer”.
Furthermore, among the Qualcomm team involved in the interview process, “there was an agreement that he would be a drain (not even neutral) on teams he would join.” Yet he was offered a job as a “special favor”. [Emphasis supplied].
If someone is so unqualified that employing them will negatively impact the company, there must be another very good reason to hire them, such as providing a benefit to their father who is an official under the FCPA.
Keep a close eye on the rules and use of your hiring process
Both of these instances demonstrate clear violations of internal controls around the company’s hiring process.
If a candidate does not make it out of the initial interview with anything more than a “No Hire” rating, that should be the end of the decision making process around compliance, full stop.
Do not pass Go, do not Collect $200.
While money may not directly pass hands from one party to another in the same way as a direct bribe, nepotism hiring is nonetheless another way of circumventing compliance regulations to accomplish the same objective.
As the Order succinctly noted, “FCPA compliance, however, was not considered in Qualcomm’s hiring process.” A fine and penalty for this transgression was obviously warranted, as it was a clear violation of internal controls around the company’s hiring process.
The BNY and Qualcomm FCPA enforcement actions reinforce the need for robust internal controls around the hiring process.
It should be studied by both the compliance function and your company’s Human Resources (HR) function. The lessons you can learn from this enforcement action can help you to forestall a similar fate for your company.