Shawn M. Wright, Mayling C. Blanco, and Richard L.A. Wolf
Investigations of Financial Institutions Operating in Asia
In its earnings statement, the financial institution announced that the DOJ and the SEC are investigating its “hiring practices in the Asia Pacific region and, in particular, whether [it] hired referrals from government agencies and other state-owned entities in exchange for investment banking business and/or regulatory approvals” in violation of the FCPA.1 In November 2016, a similar financial institution and its Hong Kong-based subsidiary agreed to pay the SEC, the DOJ, and the Federal Reserve Board $264 million to settle charges that it violated the FCPA by hiring unqualified employees referred by government officials, particularly those with connections to upcoming transactions.2 Other financial institutions have been investigated for similar practices in the region.3
The DOJ and the SEC apparently have uncovered well-established corrupt patterns and practices in the region and are planning to investigate or are already investigating others for similar misconduct, possibly aided by recently recruited cooperators in the region and the industry. Financial institutions operating abroad, especially in Asia, need to scrutinize their current and past hiring in light of these developments to identify any FCPA exposure, implement corrective measures, and make necessary disclosures.
The FCPA prohibits U.S. financial institutions and those with securities listed on U.S. exchanges from making any corrupt payment or offering anything of value to a foreign official for the purpose of obtaining or retaining business, or gaining any improper advantage. Hiring a friend or family member of a government official as a favor or a form of persuasion to secure a contract, business, permit approvals, or other favorable treatment violates the FCPA. Hiring interns referred by or related to government officials may be common in certain foreign countries and even may be viewed as a “cost of doing business abroad.” However, under the FCPA, these practices are unlawful and can carry hefty fines; cultural norms, also known as “everybody does it,” are no defense.
Financial institutions can protect themselves by developing and enforcing a strong anti-corruption and detection program that includes clear policies and procedures for compliance with the FCPA, comprehensive FCPA training programs for managers and those responsible for hiring, and a process for ensuring that due diligence is performed for new hires.
If a financial institution suspects that its hiring practices (or other conduct) violate the FCPA, then corrective measures must be taken promptly. First, it should investigate to determine if a violation occurred and, if so, its nature and extent. Second, remediation likely will require clearer policies and procedures, stronger internal controls, additional training, and disciplinary action against the employees involved. Finally, the financial institution must consider whether it should voluntarily self-disclose the issue to the DOJ. Self-disclosure of FCPA violations is not mandatory, but given the recent heightened scrutiny and increased prosecutorial activity, the significant benefits of self-disclosure, whether through the traditional route or via the Pilot Program,4 must be given careful consideration.
Understanding the present enforcement landscape and what can be done to avoid as well as remedy common pitfalls is key for companies operating in high-risk regions where these practices may be historically embedded in the industry.
- Friday Roundup, FCPA Professor (Feb. 16, 2018), available at http://fcpaprofessor.com/friday-roundup-239/.
- SEC Enforcement Actions: FCPA Cases, U.S. Securities & Exchange Comm’n, sec.gov/spotlight/fcpa/fcpa-cases.shtml (last accessed Mar. 20, 2018).
- Erika Kelton, US Accelerates Pursuit of Companies for FCPA Violations, Forbes (Dec. 23, 2016), available at https://www.forbes.com/sites/erikakelton/2016/12/23/us-accelerates-pursuit-of-companies-for-fcpa-violations/#9b7bd9050b05.
- Carlos Ortiz, Shawn Wright, Mayling Blanco & Ariel Glasner, “The Benefits of Corporate Anti-Corruption Programs: No Charges,” White Collar Watch (Dec. 2017) at 8-9, available at blankrome.com/sites/default/files/2018-01/WhiteCollarWatch-12-2017.pdf.
This article was originally published in the April 2018 edition of White Collar Watch. Click here to read the article online.