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Presenting a live 90-minute webinar with interactive Q&AFCPA Compliance in HiringPractices in Foreign MarketsMinimizing FCPA Enforcement Risks, Strengthening ComplianceProcedures for Pre- and Post-Hiring, and Navigating Conflicts of InterestWEDNESDAY, FEBRUARY 10, 20161pm Eastern 12pm Central 11am Mountain 10am PacificToday’s faculty features:Edward J. Fishman, Partner, K&L Gates, Washington, D.C.James G. Tillen, Member, Miller & Chevalier, Washington, D.C.The audio portion of the conference may be accessed via the telephone or by using your computer'sspeakers. Please refer to the instructions emailed to registrants for additional information. If youhave any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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FCPA Compliance in Hiring Practices inForeign MarketsFebruary 10, 2016James G. TillenMiller & Chevalier
The FCPA prohibits All covered persons from offering, promising, giving, or authorizing money or anything of value directly or indirectly to a foreign official to induce the official to act or refrain from acting, toinfluence acts of other foreign officials, or to provide animproper advantage to obtain or retain business6
“Anything of Value” Hiring relatives and close associates of officials asemployees, interns, agents, partners, or consultantsmay be perceived as giving “anything of value” to theofficial under the FCPA Direct economic benefit if relative is a dependent Risk of a pass-through by relative to official Intangible benefit to official even if no direct economicbenefit Assuming that the other statutory elements are met, thereis a risk of prosecution7
“Princelings” Investigations Federal authorities have opened a series of briberyinvestigations into financial institutions which hired therelatives of officials The inquiry centers on whether banks who gave jobsand internships to relatives of managers of state-ownedcompanies, including children of Chinese officials knownas “princelings,” violated the FCPA Some banks have pushed back on the investigationsthrough meetings, calls, and letters to regulators alleginggovernment overreach8
Bank of New York Mellon (“BNY Mellon”) SEC alleged that BNY Mellon provided three summer internshipsto family members of two government officials in order to retainand obtain business related to a Middle Eastern sovereignwealth fund (“SWF”) SWF officials requested the internships and made numerous follow-upinquiries Some BNY Mellon employees viewed the internships as a way to influencethe officials’ decisions and maintain business The interns were not hired through BNY Mellon’s existing internshipprogram and would not have met the program’s hiring criteria According to the SEC, the internships were “valuable work experience, andthe requesting official derived significant personal value in being able toconfer this benefit on their family members.” BNY Mellon had few internal controls relating to the hiring of customers andrelatives of customers9
Bank of New York Mellon (“BNY Mellon”) August 18, 2015: SEC and BNY Mellon settled antibribery and internal accounting provisions violationsstemming from BNY Mellon’s hiring of relatives ofgovernment of officials for its summer internshipprogram Without admitting or denying the findings laid out in theSEC’s order, BNY Mellon agreed to pay 8.3 million indisgorgement, 1.5 million in prejudgment interest, and 5 million civil penalty Itis unclear how the disgorgement amount was calculated10
Other Illustrative Cases: BellSouth BellSouth’s subsidiary in Nicaragua employed the wifeof a Nicaraguan legislator as a lobbyist During the wife’s period of employment, the legislatorwas involved in enactments favorable to BellSouth’sinterests BellSouth paid the wife 60,000 BellSouth settled FCPA charges with SEC in 2002 andpaid a 150,000 penalty11
Other Illustrative Cases: UTStarcom Inc. (“UTSI”) UTSI provided or offered full time salary andemployment benefits within the United States toforeign government customers or their familymembers. Three of these individuals received such salaries andbenefits without ever working for UTSI UTSI Company drafted false performance reviews forthese three individuals, and even sponsoredpermanent residency applications UTSI settled FCPA charges with SEC in 2009 and paid 1.5 million in fines12
Other Illustrative Cases: Paradigm and Tyson Paradigm B.V.: In 2007, Paradigm entered into a nonprosecution agreement with the DOJ regardingallegations that, inter alia, Paradigm hired the brotherof a government decision maker as a driver. To resolve this and other allegations, Paradigm paid a 1million fine Tyson Foods Inc.: Improper payments included sham jobsto the spouses of Mexican veterinarians in charge ofcertifying products for export To resolve these and other allegations, Tyson paid a 4 million fineom 201113
DOJ Opinion No. 84-01 American company sought to engage as aMarketing Representative a foreign firm whoseprincipals were related to head of state. Safeguards: Marketing Rep promised not to give anything ofvalue to influence any official acts in favor of thefirm. The firm was highly qualified and had asuccessful record as a Marketing Rep. DOJ decided to take no enforcement action.14
DOJ Opinion No. 95-03 A proposed JV partner of a U.S. Company wascontrolled by a relative of the leader of theforeign country. The relative himself was a government official inthat country. The relative's duties were not related tocompany's or JV's interests in the country. The DOJ decided to take no enforcementaction.15
Factors considered in assessing a violation Relationship between the relative/associate and the official Dependent? Spouse? Close relative/friend? Distant relative? Official requests company hire relative/associate or providebenefit to relative/associate Official’s ability to benefit the Company Offer is made while business decision is pending before theOfficial Offer is made in secret Act is intended to influence official Business need, commercial reasonableness, and consistencywith the normal hiring process of the offer How the official or relative/associate is paid16
Thank YouJames G. TillenMiller & Chevalier655 Fifteenth Street, NWSuite 900Washington, DC 20005202-626-5800jtillen@milchev.com17
February 10, 2016FCPA Compliance in HiringPractices in Foreign MarketsStrafford Webinar Presented byEd FishmanK&L Gates LLPWashington, D.C. Copyright 2014 by K&L Gates LLP. All rights reserved.
STRATEGIES FOR MANAGING HIRING RISK Recruiting and Hiring Controls Due Diligence on Candidates Training of Involved Personnel Oversight During Employment Periodic Testing of Controlsklgates.com19
RECRUITING AND HIRING CONTROLS Establish a formal written process for hiring internsand employees Consistently follow the established process withoutmaking exceptions Document recruiting and hiring decisions to supportlegitimate offers and maintain supportingdocumentation (application, resume, interviewsummary, justification report) Ensure that “relationship” candidates meet baselinequalifications and don’t receive special treatmentklgates.com20
BNY MELLON HIRING CONTROL FAILURES BNY did not evaluate or hire the SWF Interns through itsestablished internship program SWF Interns did not meet stringent academic andprofessional experience qualifications BNY hired the SWF Interns before meeting orinterviewing them (contrary to standard procedure) BNY had no intention of hiring the SWF Interns as fulltime employees (contrary to standard procedure)klgates.com21
IDENTIFYING RELATIONSHIP HIRE RISKS There needs to be a rigorous due diligence process inplace for identifying “relationship hire” risks or relatedconflicts of interest through the following mechanisms: Internship/employment application needs to have sufficientmechanism for identifying each candidate’s relationship tocustomers, government officials or other relevant stakeholders HR department/compliance team needs to conduct independentdue diligence on potential connections between candidate andcustomers/other stakeholders Sales/business team/management employees that lobby for anyinternship/employment candidate need to be questioned aboutbusiness implications of the hiring opportunity and anyassociated risks and necessary controlsklgates.com22
IMPORTANCE OF TRAINING PERSONNELINVOLVED IN REVIEWING AND MAKINGHIRING DECISIONS Business and HR staff need to be sensitized tocompliance risks associated with relationship hires HR staff needs to be vigilant about potential red flagsand empowered to object when necessary Relationship hires should be reviewed and cleared bylegal/compliance staff sufficiently removed from thebusiness interests The final decision on a relationship hire should bemade at a senior level by a manager sufficientlyremoved from the business interestsklgates.com23
BNY MELLON HIRING PERSONNEL IGNORED THEFOLLOWING RED FLAGS SWF officials “persistently” inquired about status ofinternships and became “angry” about delays SWF officials claimed that BNY competitors werewilling to provide the internship “opportunity” BNY sales employee notified HR that SWF officialsdidn’t want the SWF itself to know about theinternship request or arrangement BNY sales employee described the arrangement to acolleague as an “expensive favor” that BNY could notreject “from a commercial point of view”klgates.com24
OVERSIGHT OF ACTIVITY OF EMPLOYEESAND INTERNS DURING EMPLOYMENT Active monitoring is necessary to ensure that“relationship hires” do not receive special treatment Controls must be implemented to ensure theemployment arrangement is not a “sham” Controls must be implemented to ensure that theCompany does not engage in business or regulatoryinteractions with an affiliated entity (if possible) Periodic review and monitoring of the “relationship hire”arrangements is necessary to ensure the originalparameters remain in placeklgates.com25
BNY INTERNAL CONTROL FAILURES RELATING TOSPECIAL TREATMENT OF INTERNS SWF Interns benefitted from customized trainingprogram with rotational opportunities SWF Interns had longer internship period thanstandard arrangement SWF Interns were paid above the normal salary scale BNY arranged and paid all costs for their work visas SWF Interns were “less than exemplary employees”and had “repeated absences from work” yet wereallowed to continue their lengthy internships withoutany reprimand or other consequencesklgates.com26
SEC DESCRIPTION OF BNY CONTROL FAILURES BNY had few specific controls relation to the hiring ofcustomers and relatives of customers, including relativesof government officials Sales staff and client relationship managers were givenwide discretion in making initial hiring decisions HR staff was not trained to flag problematic hires Senior managers were able to approve hires requested bySWF officials without any mechanism to ensure review byanyone with a legal/compliance background Conclusion: BNY controls were “insufficiently tailored tothe corruption risks inherent in the hiring of client referrals”klgates.com27
BNY MELLON REMEDIAL ACTIONS BNY changed anti-corruption policy to explicitly addressthe hiring of relatives of government officials BNY requires that every application for a full-time hire orinternship is routed through a centralized HR applicationprocess BNY requires each employee to certify annually that he orshe is not responsible for hiring through a non-centralizedchannel BNY’s anti-corruption office reviews those applicants whoindicate that they or a close personal associate is or hasrecently been a government officialklgates.com28
MORE DIFFICULT HIRING-RELATED RISKS Evaluating “relationship hires” in the absence of aformal, rigorous hiring program Evaluating “relationship hires” where there is a less directbusiness connection Managing the appearance of impropriety throughout thecourse of a “relationship hire” arrangement Managing risk if the business relationship with the affiliatedgovernment official changes over timeklgates.com29
SIMILAR COMPLIANCE STRATEGIES FOR ENGAGINGTHIRD-PARTY CONSULTANTS WITH RELATIONSHIPS Similar control mechanisms should be implemented forthird-party consultants that may have sensitiverelationships with government officials or entities Due diligence questionnaire should be used to identifyrelationship risks and need to independently verify whetherany such risks may exist (e.g. politically-exposed persons) Consulting arrangement must be validated as legitimateand necessary by independent compliance staff Oversight and monitoring of the consulting arrangementshould be performed on a periodic basis Consider seeking DOJ Opinion Procedure Release in verysensitive situationsklgates.com30
UNIQUE CHALLENGES IN CERTAIN MARKETS Asia – cultural norms around “relationship hires” Europe – protection of personal information underdata protection laws and possible implications for duediligence investigations on candidates Middle East – broad definition of “immediate family”members and frequency of dealings with royal familymembers Africa and Latin America – local shareholder and localcontent requirements often may necessitatepartnering with politically-connected individualsklgates.com31
CONCLUDING OBSERVATIONS You should develop specific, written policies andprocedures for identifying potential “relationship hires” You must review and evaluate potential “relationship hires”and the proposed terms and conditions of employmentbased on formal, objective criteria in a consistent mannerand through a transparent, independent and robustdecision-making process You must continue to monitor and review any “relationshiphire” arrangements on a periodic basis to ensure there isno special treatment, no “sham” employment and that anypotential changes to the underlying parameters of approval(such as an effort to seek business with the connectedgovernment entity) are thoroughly evaluatedklgates.com32
THANK YOU AND QUESTIONS?Ed FishmanK&L Gates LLP1601 K Street NWWashington, DC202-778-9456ed.fishman@klgates.comklgates.com33
FCPA Compliance in Hiring Practices in Foreign Markets . PDF of the slides for today's program. Double click on the PDF and a separate page will open. . Training of Involved Personnel Oversight During Employment Periodic Testing of Controls klgates.com 19 .
