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Risky Referrals: How to Prevent a Jobs-as-Bribes Scandal

Offering jobs to those referred on by officials, or others in a position to help a company, almost certainly constitutes a bribe; there are four steps compliance teams should take to stop it happening at their firm

For any manager sitting in a multinational’s office and wondering whether giving a job to the relative of a helpful official would constitute a bribe, the answer has been an unequivocal “yes” in three settlements since 2015 of foreign corruption charges brought by the US government – including the $264 million agreement by JPMorgan Chase late last year.

Bankers at JPMorgan’s Asia subsidiary even used a spreadsheet to track the return on their investment: revenue associated with certain hires who were family members of Chinese authorities, according to the Securities and Exchange Commission.

The big amount in that case drew equally big headlines, but it wasn’t the first of its kind. Regulators aren’t limiting their scrutiny to China — BNY Mellon (pdf) agreed to pay $14.8 million to settle charges involving student interns in the Middle East. The US government is also looking beyond the financial services industry: telecommunications firm Qualcomm (pdf) recently settled over the provision of full-time employment or paid internships to relatives of foreign officials; the firm called these “must place” or “special” hires.

Four Ways to Stop this Happening at Your Firm

For other companies to avoid a scandal like it’s of course crucial to follow the 10 hallmarks for effective compliance programs laid out by the US Department of Justice and the Securities and Exchange Commission (SEC) in the FCPA Resource Guide, but compliance and ethics teams should also focus on four specific hiring-related areas.

  1. Update compliance and ethics policies to include hiring: If you haven’t, you should do this now. First, articulate that jobs/internships are potential bribes — even if the job is not for a foreign official, but for a son, a daughter, a spouse, or other favored candidate. Make it clear that a job should never be offered to influence someone’s decision or to secure an improper advantage to get or keep business.

    Next, give examples and show your employees when it is legitimate to hire such candidates. The FCPA Resource Guide makes it clear that things of value given to foreign officials for appropriate business purposes do not count as violations. Deliver that message in your policies as well.

    Here are examples from Coca-Cola’s 2016 Anti-Corruption Policy (pdf). First, in defining misconduct:

    “It is never permissible to hire or engage a government official, or his or her immediate family members, to improperly influence the official, or in exchange for any improper favor or benefit.”

    Next, in spelling out the legitimate situations for hiring these candidates, including when:

    • The person is objectively and unquestionably qualified in terms of education, background, and experience to perform the duties for which he or she is being retained;

    • There is no expectation that the person is being retained by the Company in exchange for any improper action or business advantage from the government (a quid pro quo).

  2. Providing training and guidance: Once the policies are up-to-date, train all directors, officers, and employees in positions that require such training or otherwise pose a corruption risk in both home and overseas subsidiaries.

    The training needs to achieve the following results, according to several lawyers CEB spoke to:

    • HR understands that it must follow the regular hiring process, ensure candidates are qualified, and document the entire hiring process.

    • Non-HR employees (especially in sales or business development roles, and other client-facing functions) understand they should not interfere with hiring decisions.

    • All employees understand it’s their job to report to Compliance when noticing red flags that signal quid pro quo, for example:

      1. Despite no current opening, new positions are created in order to hire a candidate referred by a foreign official.

      2. Referrals are hired when there’s a business decision pending from the foreign official and his government.

      3. Foreign officials made requests and suggested offering you a contract/other benefits if you hire the candidate.

      4. Employees have discussed or suggested that they expect benefits for hiring this candidate.

    It’s the qualifications that count: It’s paramount that employees understand they cannot relax hiring standards to serve business purposes. Unfortunately, “in all of the FCPA hiring cases, we have candidates who are not qualified to be hired,” said Tom Fox, founder of the FCPA Compliance and Ethics Blog.

    In Qualcomm’s case, for example, HR employees accommodated a business executive vice president’s request to employ an official’s son despite their initial “no hire” decision. HR staff had not received FCPA compliance training.

    Why watch quid pro quo signals? It’s impossible for compliance teams to look into every employee email or document. But it is their job to train employees to be aware of and, just as importantly, to report concerns about a possible quid pro quo.

    For example, the compliance team at one biochemicals firm in CEB’s networks provides detailed guidance on how to handle a real-life scenario called “Jobs for the Boys”.

    It discusses a team using a local consultant who proves incredibly helpful in setting-up a high-value investment in a country where the company has never done business before. At the end of the engagement the consultant asks a manager to provide a permanent job for his son who is about to leave university.

    The guidance explains how providing this job would bypass normal processes and violate the firm’s Code of Conduct and Conflict of Interest guidelines. It then says that the manager should refer the consultant to the company’s careers pages on its website.

    This gives managers a method to turn down inappropriate job requests in a diplomatic way.

  3. Monitor and test: Conduct periodic reviews and testing to check that:

    • The compliance team has a thorough understanding of the hiring process, and isn’t overlooking internships.

    • The program is teaching the importance of the anti-corruption policy to filling roles, and how it should be applied. Otherwise, employees may think of compliance as a formality and only half-heartedly follow the rules.

    For instance, JPMorgan’s compliance department did circulate a questionnaire for screening referrals through the so-called “Sons and Daughters” program. However, investment bankers managed to evade scrutiny by filling out incorrect and misleading information for years, according to settlement documents. Over seven years, 100 interns and full-time employees were hired through “Sons and Daughters.” Not a single candidate was rejected because of the legal and compliance assessment.

    “That program was ineffective because … the compliance personnel did not sufficiently understand the program to review it adequately,” former SEC enforcement director Andrew Ceresney commented on JPMorgan’s case in a public speech. “It is not enough for a company to set up rules and controls, and to train its employees, if those controls are not enforced.”

    JPMorgan did not respond to an e-mailed request for comment.

  4. Hold onto your culture: The best way, of course, to inoculate the company against the flouting of policy is to spread a culture of integrity throughout the workforce. Regulators have corporate culture in their crosshairs, which means companies should prioritize it, too. Not least because employees in a positive corporate culture are 89% less likely to observe misconduct, but 87% more likely to report it when they do, according to CEB data.

    When inappropriate hiring takes place, after all, your employees working on the frontline should be the first to notice. With a strong culture of integrity, your employees will feel comfortable raising their concerns before an instance of misconduct metastasizes into a systemic (and disastrous) fraud.

Looking Ahead

Despite the uncertainty on many fronts under the Trump administration, one consensus reached by experts CEB spoke to is that the FCPA will not immediately go away. New Attorney General Jeff Sessions said in his confirmation hearings that he will enforce the FCPA. In addition, SEC officials indicated on several occasions that hiring-related investigations are underway.

There is also a US domestic analog to the FCPA: the US Domestic Bribery Statute (18 USC 201).  This law is not enforced as strictly as the foreign corruption act, according to Mike Koehler, a law professor at Southern Illinois University and founder of the FCPA Professor blog. Koehler, in an article in the Fordham Law Review, points out double standards in bribery enforcement, including hiring practices in the private sector.

“You show me the enforcement actions or companies being prosecuted for hiring the son or daughter of a state senator or a powerful person in Washington,” Koehler told us. “I’d like to see that.”


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