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Harry Cassin
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Thomas Fox
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Bill Waite
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Russell A. Stamets
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Joseph Spinelli: FCPA enforcement takes aim at financial services

This summer the SEC charged BNY Mellon with violating the FCPA by providing highly sought-after student internships to family members of foreign government officials who were directly affiliated with a Middle Eastern sovereign wealth fund. The enforcement action is a clear harbinger of what’s to come.

The regulators’ focus is on whether the hiring of relatives of sovereign officials for internships is related to winning or retaining business controlled by these officials. BNY Mellon settled with the SEC by paying nearly $15 million in fines.

The DOJ and the SEC have admonished financial institutions that officials of sovereign wealth funds are “foreign officials” under the FCPA. The SEC has provided the following guidance regarding what financial institutions should incorporate into their FCPA compliance programs in order to abate the risks posed by internship hiring:

  •  Policies, procedures and training programs should concisely articulate what is and is not permitted, when hiring government official’s relatives
  • All employment applications should be evaluated through a human resource application process
  • Candidates for employment must disclose whether they are related or closely associated with current or recent government officials, and where it is determined a relationship with a foreign official exists, additional due diligence and investigation should be conducted, and
  • Determine if the hiring constitutes an exchange of something of value to a foreign official.

Another area of concern for financial institutions is gifts, travel and hospitality.

Sovereign wealth fund officials often expect to be entertained, but those expectations must be carefully monitored. The DOJ has opined on what gift-giving policies should be incorporated in financial services FCPA compliance programs and what those policies should state:

  • Only gifts of nominal value should be permitted
  • Do not give gifts or travel frequently to the same individual
  • Only present gifts for official use, not personal use
  • Establish aggregate gift limits for individuals
  • Never give cash or gift cards to individuals or groups
  • Establish policies regarding recordkeeping as to the amount of money spent for gifts and entertainment for each interaction with sovereign wealth fund officials
  • The presentation of gifts should only be done in front of a group of people
  • Business relationships should be established via recreational activities and not extravagant dinners and trips, and
  • All gifts, travel and entertainment must always be approved by the compliance department and/or general counsel.

Financial Institutions would also be prudent to deploy a technology-based risk scoring methodology for identifying and remediating high risk third party relationships around the world, and automating their FCPA/anti-corruption policies and procedures.

This can best be accomplished by utilizing a compliance portal that provides a holistic approach to the compliance process and assists organizations by focusing due diligence resources on existing and prospective third parties that present an elevated level of risk. (As a matter of full transparency, Kroll recently launched the newest version of its Kroll Compliance Portal to accomplish exactly these objectives.)

Enhanced due diligence for high-risk third parties should be conducted by experienced investigators who reside in that party’s location, are familiar with local laws and customs, and are fluent in the local language.

Since the inception of the FCPA in 1977, certain industries have periodically been the particular focus of DOJ and SEC investigations, e.g., defense, energy, oil and gas, and pharmaceutical, for violations of the FCPA. It is now apparent that 2015 and soon 2016 will be the years that FCPA enforcement scrutinizes financial institutions, especially those financial institutions that interact with sovereign wealth funds.

Financial institutions need to address in their compliance programs the hiring of interns who are related to foreign officials and conduct incisive third party due diligence on all third party intermediaries. This has been underscored by the DOJ’s decision to hire a “compliance counsel” to assist prosecutors in evaluating organizations’ compliance programs.

Having an effective FCPA compliance program is the best insurance policy for financial institutions to mitigate penalties for potential rogue third parties who violate the FCPA by evading risk-based and effective compliance programs.


Joseph Spinelli is a Senior Managing Director at Kroll. He was the first Inspector General for New York State and has enjoyed a career spanning more than 30 years in private and public service across many fields, including in FCPA, monitorships and white-collar investigations. He can be contacted here.

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