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What Should Happen When Compliance Is Ignored?

The recent Barclays Foreign Corrupt Practices Act enforcement action was based on alleged improper internship and hiring practices (see here [1] and here [2] for prior posts).

In the enforcement action, the SEC acknowledged that the company had several compliance policies and procedures to mitigate risk in this area.

For instance, the SEC stated: “Barclays promulgated anti-bribery and corruption policies that included prohibitions on providing employment in exchange for business.”

Elsewhere, the SEC acknowledged that Barclay’s policy expressly addressed anti-corruption risks related to hiring decisions and that the policy specifically required “compliance monitoring” in the hiring process.

Later on during the relevant time period, the SEC stated that the company’s Asia Pacific Region adopted the “work experience program which set forth certain procedures in an attempt to manage relationship hires.” As stated by the SEC:

“The program set limits on the number of candidates for each jurisdiction, and it later evolved to require compliance approval for any candidates referred by a government official or non-government client. The business unit seeking authority to offer employment through the work experience program was required to disclose on a candidate application form whether the candidate had been referred for hiring by a client and to explain the business rationale for the hire.”

Later on during the relevant time period, the SEC found:

“Barclays revised its internal policies regarding referral hires to require an attestation that the hire was not being made for the purpose of obtaining or retaining business, and APAC integrated the attestations into its procedures for work experience hires.”

Later on during the relevant time period, the SEC found:

“Barclays updated its policy guidance to reiterate a “zero tolerance” policy regarding bribery and reaffirming that the policy applied to all business dealings with state-owned entities as well as private clients. The policy emphasized that the prohibition on offering anything of value to a public official in order to obtain business included offers of employment to family members or associates.”

Later on during the relevant time period, the SEC found:

“Barclays global compliance department increased its scrutiny of relationship hiring. Barclays issued a global compliance alert entitled “Guidance on Employee Referrals” that applied to all recruiting programs, including full or part-time work, internships, work shadowing and other work experience programs. Consistent with the existing policy, the guidance reaffirmed that employees were prohibited from hiring client relationship candidates in connection with obtaining or retaining business from anyone, whether the client was a private client or government entity. The policy also emphasized that all candidates must follow the “standard and independent merit based recruitment process.

The … guidance directed that employees should not request that a candidate be interviewed or hired because of an expectation that doing so might contribute to obtaining, maintaining, or facilitating business with a client. The guidance also prohibited offering or promising employment to a family member or person connected with a public official unless approved by the bank’s Financial Crime Compliance team.”

You can bet the farm that if Barclays did none of the above, that the SEC would have found the company in violation of the FCPA’s internal controls provisions.

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However, as acknowledged by the SEC, Barclays did all of things referenced above but the compliance policies and procedures were ignored or circumvented by certain APAC employees.

As stated by the SEC, during the relevant time period:

An APAC senior executive “approved [a] hire without the review and preapproval by compliance that was required under Barclays’ policy.”

“Relationship hires in the region were, at times, made without consulting the compliance department. In some instances, when compliance was consulted, employees withheld information or falsified documents to conceal the identity of the person or entity requesting the hire.”

“Despite implementation of the work experience program’s additional controls and procedures, APAC personnel continued to make relationship hires in violation of Barclays’ antibribery and corruption policies. The work experience program did not address all relationship hires.”

“Even when the work experience program procedures did apply, they were sometimes ignored.”

“A senior banker in Korea … falsified the daughter’s candidate approval application, concealing the connection between the hire and the senior executive by falsely identifying the candidate as an acquaintance of a banker at Barclay’s rather than as the daughter of a client.”

“Bankers sometimes provided inaccurate attestations, and even where a disclosure was accurate, [APAC] compliance approved the hires despite pending or potential business.”

“There is no evidence that the senior bankers sought compliance review, despite the … issuance of guidance that prohibited offering employment to a family member or person connected to a government official unless approved by Barclays Financial Crime Compliance.”

Because of these things (despite the existence of Barclays compliance policies and procedures), the SEC still found Barclays to be in violation of the FCPA’s internal controls provisions. As stated by the SEC:

“Barclays failed to devise and maintain a system of internal accounting controls around its hiring practices sufficient to provide reasonable assurances that its employees were not using employment as an improper inducement in violation of company policy and the FCPA.”

Is that really a credible (or honest) assessment of the situation?

Against the backdrop highlighted above, has the statutory standard even been violated given that the FCPA defines “reasonable assurances” and “reasonable detail” to mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs?

What should happen when compliance is ignored?

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