The Securities and Exchange Commission Tuesday said BNY Mellon agreed to pay $14.8 million to settle charges that it violated the Foreign Corrupt Practices Act by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.
“An SEC investigation found that BNY Mellon did not evaluate or hire the family members through its existing, highly competitive internship programs that have stringent hiring standards and require a minimum grade point average and multiple interviews,” the SEC said.
The agency settled the case through an internal administrative order and didn’t go to court.
In 2010 and 2011, BNY Mellon violated the antibribery and internal controls provisions of the FCPA that are embedded in the Securities Exchange Act of 1934, the SEC said.
Without admitting or denying the findings, the company agreed to pay $8.3 million in disgorgement, $1.5 million in prejudgment interest, and a $5 million penalty.
The SEC said,
The family members did not meet the rigorous criteria yet were hired with the knowledge and approval of senior BNY Mellon employees in order to corruptly influence foreign officials and win or retain contracts to manage and service the assets of the sovereign wealth fund.
BNY and the SEC haven’t identified what sovereign wealth funds are involved.
Hiring a family member or friend of a government official isn’t always a violation of the FCPA. But a hiring decision intended to reward or induce an official to award work can be an offense.
The SEC said Tuesday that “BNY Mellon employees viewed the internships as important to keep the sovereign wealth fund’s business.”
The sovereign wealth fund officials asked BNY Mellon to give their family members internships. The officials made “numerous follow-up requests about the status, timing, and other details of the internships for their relatives.”
Andrew Ceresney, chief the SEC’s enforcement division, said:
The FCPA prohibits companies from improperly influencing foreign officials with “anything of value,” and therefore cash payments, gifts, internships, or anything else used in corrupt attempts to win business can expose companies to an SEC enforcement action.
BNY Mellon lacked sufficient internal controls to prevent and detect the improper hiring practices, the SEC said.
The bank had an FCPA compliance policy “but maintained few specific controls around the hiring of customers and relatives of customers, including foreign government officials.”
Human resources personnel were not trained to flag potentially problematic hires, the SEC said.
According to the SEC’s order, “Senior managers were able to approve hires requested by foreign officials with no mechanism for review by legal or compliance staff.”
BNY Mellon’s system of internal accounting controls was insufficiently tailored to the corruption risks inherent in the hiring of client referrals, and therefore was inadequate to fully effectuate BNY Mellon’s stated policy against bribery of foreign officials.
Kara Brockmeyer, head of the SEC’s FCPA unit, said: “Financial services providers face unique corruption risks when seeking to win business in international markets, and we will continue to scrutinize industries that have not been vigilant about complying with the FCPA.”
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In January, BNY Mellon said the SEC had recommended an enforcement action for possible FCPA violations related to the bank’s dealings with sovereign wealth funds.
BNY received a so-called Wells Notice in the fourth quarter of 2014, and some current and former employees received the same notice in the third quarter.
A Wells Notice advises targets of an investigation that the SEC staff has made a preliminary determination to recommend an enforcement action.
In March last year, the SEC reportedly sent letters to five banks asking for details about their hiring practices in Asia. The banks were Credit Suisse, Goldman Sachs, Morgan Stanley, Citigroup, and UBS.
The SEC and DOJ are also investigating whether hiring decisions at JPMorgan were made to win business from Chinese companies in violation of the FCPA.
The SEC said Tuesday it considered BNY Mellon’s remedial acts and its cooperation with the investigation when determining the settlement.
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The SEC’s Securities Exchange Act of 1934 Release No. 75720, Accounting Release No. 3679, and Administrative Proceeding File No. 3-16762 In the Matter of The Bank of New York Mellon Corporation (dated August 18, 2015) are here (pdf).
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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
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