Scrutiny updates and alerts, a double standard, upcoming events, and for the reading stack. It’s all here in the Friday roundup.
Scrutiny Updates and Alerts
In this initial post concerning JPMorgan’sFCPA scrutiny in China I noted that hiring the son or daughter of an alleged “foreign official” is not inherently illegal, absent certain red flags.
In this recent article, Bloomberg reports on the existence of a potential red flag. The article states:
“A probe of JPMorgan’s hiring practices in China has uncovered red flags across Asia, including an internal spreadsheet that linked appointments to specific deals pursued by the bank, people with knowledge of the matter said. [...] The bank has opened an internal investigation that has flagged more than 200 hires for review, said two people with knowledge of the examination, results of which JPMorgan is sharing with regulators. The scrutiny began in Hong Kong and has now expanded to countries across Asia, looking at interns as well as full-time workers, two people said. The employees include influential politicians’ family members who worked in JPMorgan’s investment bank, as well as relatives of asset-management clients, the people said. [...] The spreadsheet, which links some hiring decisions to specific transactions pursued by the bank, may be viewed by regulators as evidence that JPMorgan added people in exchange for business, according to one person with knowledge of the review.”
The article also notes that the DOJ has joined the SEC in the probe.
In this article, the New York Times reports:
“The [JPMorgan hiring] program was originally called “Sons and Daughters.” And although it was supposed to protect JPMorgan Chase’s business dealings in China, the program went so off track that it is now the focus of a federal bribery investigation in the United States, interviews and a confidential government document show. JPMorgan started the program in 2006 as the friends and family of China’s ruling elite were clamoring for jobs at the bank, according to the interviews with former bank employees and financial executives in China and the United States. The program’s existence, which has not been previously reported, suggests that the bank’s hiring of such employees was widespread. Saying they wanted to weed out nepotism and avoid bribery charges in the United States, JPMorgan employees in Asia started the program to hire well-connected candidates on a separate track from ordinary applicants, the employees and executives said. Without the program and its heightened scrutiny of the candidates, the employees argued, JPMorgan might improperly hire the children of Chinese officials to win business. But in the months and years that followed, the two-tiered process that could have prevented questionable hiring practices instead fostered them, according to the interviews as well as the confidential government document. Applicants from prominent Chinese families, interviews show, often faced few job interviews and relaxed standards. While many candidates met or exceeded the bank’s requirements, some had subpar academic records and lacked relevant expertise.”
According to this Wall Street Journal article, there is now a full-fledged industry sweep of hiring practices. The article states:
“U.S. authorities are questioning numerous banks and hedge funds on their international hiring practices for interns and other employees, according to people with knowledge of the situation. The Justice Department and Securities and Exchange Commission are seeking information to determine if there have been any violations of the U.S. Foreign Corrupt Practices Act …”.
JPMorgan’s scrutiny is focused on the alleged hiring of relatives of alleged Chinese “foreign officials” into non-executive positions.
That’s one thing.
It is quite another when the CEO of an issuer under the FCPA “is the daughter-in-law of a senior figure in the Chinese Communist Party.”
As detailed in this Wall Street Journal article, this is the situation at Vision-China Media, a company with shares traded on NASDAQ. As noted in the article, “how many Chinese companies listed in the U.S. enjoy political ties is unknown. That makes it all but impossible to quantify whether and how such relationships might dictate a business’s profitability or stock-market performance.”
Various outlets (see here for the Wall Street Journal article) have reported that three senior executives of PetroChina ”are under investigation by authorities for ‘severe disciplinary violations’ and have resigned.” The article notes that “while neither PetroChina nor its parent [company China National Petroleum Corp.] have released specifics of the probes, the phrase ‘severe disciplinary violations’ is typically used by Chinese officials when investigating cases of corruption.”
The interesting thing about this of course is that PetroChina executives are – in the eyes of the enforcement agencies – “foreign officials” under the FCPA while at the same time being executives of an issuer subject to the FCPA given that PetroChina’s ADRs trade on the New York Stock Exchange.
EADS / ThyssenKrupp
Reuters reports here:
“A joint venture of EADS and ThyssenKrupp and offices of Rheinmetall were raided this week in Germany on suspicion of paying bribes related to an order of submarine equipment from Greece, a spokesman for the state prosecutor in Bremen said on Saturday. The Atlas Elektronik joint venture and Rheinmetall Defence Electronics were searched as they are suspected of paying 18 million euros ($24 million) in bribes and of avoiding taxes, the prosecutor’s spokesman said. [...] EADS and ThyssenKrupp both confirmed the raid on their unit, which they bought from BAE Systems. [...] ThyssenKrupp said it had discovered the matter itself “as part of a compliance investigation” and notified the authorities in 2010 about it.”
Although neither EADS or ThyssenKrupp have shares traded on a U.S. exchange, the shares of both companies trade “over-the-counter” in the U.S. In the FCPA Guidance, the DOJ and SEC state – “any company with a class of securities quoted in the over-the-counter market in the United States and required to file periodic reports with SEC, is an issuer.” A certain other FCPA enforcement action (see here) began with a raid on offices by German law enforcement authorities.
In other raid news.
Reuters reports (here):
“Swiss police on Thursday searched the Geneva offices of Onyx Financial Advisors, a company providing management services for BSGR, the mining arm of Israeli billionaire Beny Steinmetz’s business empire.”
As highlighted in this previous post, French citizen Frederic Cillins was criminally charged by the DOJ for allegedly attempting to obstruct an ongoing FCPA investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. Cillins has been linked to BSGR.
A back to school edition of the double standard?
FCPA enforcement actions have included allegations of the following things of value being given to alleged foreign officials: a bottle of wine (see here), a watch (see here), a camera (see here), kitchen appliances and business suits (see here), television sets, laptops and appliances (see here), and tea sets and office furniture (see here). Likewise, the December 2012 enforcement action (see here for the prior post) against Eli Lilly included allegations (no joke) that meals, visits to bath houses, spa treatments, and cigarettes were provided to Chinese physicians.
Given these enforcement agency allegations, my radar went off when reading this recent Wall Street Journal article about U.S. school supplies. According to the article, a popular website “that posts more than 300,000 back-to-school lists from around the country and is sponsored” by major corporate brands offers teachers (the vast majority of which in this country are public employees) and schools freebies and other goodies if the teachers put company product on the list. As the article notes “getting on teacher lists is crucial, because parents tend to buy the suggested brands even though they aren’t mandatory.”
The ABA’s Sixth Annual National Institute on the Foreign Corrupt Practices Act will take place in Washington, D.C. on Sept. 18-20th (see here for program details). I am pleased to be participating. The following panel is particularly delicious.
Existing Limitations on the Scope of the FCPA: Is Anyone Paying Attention?
Most reform arguments have focused on narrowing the scope of the statute or providing new defenses. A better question, however, might be whether the statute’s existing limitations and defenses are being properly articulated and applied in enforcement actions. It is arguable that in several recent enforcement actions, the government’s factual allegations do not satisfy the FCPA’s elements or hide the ball on critical elements, deliberately blur different provisions of the statute, or seek remedies inconsistent with the letter and goals of the statute. Given that only two corporations have taken the government to trial on FCPA cases and individual cases do not always create opportunities to resolve these issues, the question is posed: Who is policing the police in FCPA matters?
In sum, that is the thesis of my 2010 article “The Facade of FCPA Enforcement.”
Securities Docket will be hosting Securities Enforcement Forum 2013 in Washington, D.C. on October 9th (see here for program details).
The latest volume of the FCPA Update from Debevoise & Plimpton.
The latest Anti-Corruption Digest from Dorsey & Whitney.
A good long weekend to all.