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Further To JPMorgan Representing A Trifecta Of Off-The-Rails FCPA Enforcement

Offtherails

This prior post highlighted the recent article “JPMorgan – A Trifecta of Off-The-Rails FCPA Enforcement” (the article can be downloaded here).

A recent Federal Reserve Board enforcement action against Fang Fang (the former Managing Director and head of China Investment Banking at J.P. Morgan Securities (Asia Pacific) Limited (JPMSAP)) and Timothy Fletcher (the former Managing Director and Head of the Junior Resources Management Group at JPMSAP – the group responsible for recruiting, hiring, staffing, and compensation and reviews for junior employees) further highlights how the JPMorgan Foreign Corrupt Practices Act enforcement (see prior posts here and here) represents a trifecta of off-the-rails enforcement and why anyone who values the rule of law should be alarmed.

In addition, this post highlights how the recent Federal Reserve action against Fang and Fletcher was not the first Federal Reserve action against an individual in the FCPA context.

As highlighted in the above-linked article, the SEC found that JPMorgan violated the FCPA’s anti-bribery provisions, books and records provisions, and internal controls provisions in connection with a client referral hiring program run by JPMSAP.

This recent Federal Reserve Board enforcement action against Fang and Fletcher further demonstrates how the JPMorgan enforcement action represented off-the-rails FCPA enforcement particularly as to the SEC’s finding that JPMorgan violated the FCPA’s internal controls provisions which requires issuers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” various statutory financial objectives are met.

As to Fang, the Federal Reserve alleges in pertinent part:

“From at least September 2007 to the present, JPMC incorporated the FCPA’s antibribery provisions into a firm-wide Anti-Corruption Policy which prohibited offers of anything of value to public officials to secure improper business advantages. The Anti-Corruption Policy identified the offering of internships and training to the relatives of public officials as a potential bribery risk pursuant to federal law and other anti-corruption statutes.

From at least June 2011 to the present, JPMC’s firm-wide Anti-Corruption Policy prohibited offers of anything of value to existing or prospective commercial clients to secure improper business advantages. JPMC identified the offering of internships and training to the relatives of existing or prospective commercial clients as a potential bribery risk pursuant to applicable anti-corruption statutes.

Fang knew that Offering Internships in Exchange for Business Violated Applicable Anti-Bribery Laws and JPMC Policies

In March 2006, the Head of the Junior Resources Management Group emailed all APAC bankers, including Fang, stating that “the firm does not condone the hiring of the children or other relatives of clients or potential clients of the Firm . . . for the purpose of securing or potentially securing business for the Firm. In fact, the firm’s policies expressly forbid this. There are no exceptions.”

In September 2007, Fang participated in a training course on the Firm’s Anti-Corruption Policy. The training stated that:

It is improper and illegal to make an offer to secure an advantage by causing a non-U.S. public official to misuse his or her position as result of the offer. * * * The [prohibited] expenditure is not limited to gifts and entertainment. It also includes items of ‘value’ like an offer of an internship or training for relatives of a non-U.S. public official.

To ensure adherence to the Firm’s policies regarding anti-bribery, bankers were required to complete a questionnaire for each referral hire that was designed to identify potential anti-bribery and corruption-related issues. During this process, Fang was instructed that referred candidates could not be hired as part of an agreement to secure business for the Firm.

In October 2009, Fang participated in a training course on the Firm’s Anti-Corruption Policy. The training explained that employees were prohibited from offering things of value to public officials to secure improper business advantages. The training stated, “[p]lease note that ‘value’ does not just include gifts and entertainment; it can also include such things as the offer of internships or training for relatives of a public official.”

In November 2009, Fang distributed to the China Investment Bank an article about a banker at a competitor who was prosecuted for violations of the FCPA. Fang noted, “China anti-bribery laws as well as FCPA may apply in the following situations . . . any proposed hiring of close relatives of Public Officials or candidates (including interns) recommended by any Public official.” Subsequently, an APAC banker emailed Fang highlighting a section in the article “about the hiring of the daughter and how chinese and US investigators and seeking to find whether it was for a quid pro quo,” and suggesting that the case “may have broader implications for our relationship hires.”

In June 2010, the head of the APAC investment banking group emailed APAC bankers advising them of the restrictions under the FCPA. The guidelines stated that expenses such as “internships and training for family members” would need to be pre-cleared by compliance.

In September 2011, Fang participated in a training course on the Firm’s Anti-Corruption Policy. The training explained that JPMC employees must pre-clear “[a]ny offer of JPMorgan Chase employment or internship (whether paid or unpaid) to any person upon the recommendation of friends, relatives or associates of a non-U.S. government official.”

In March 2012, the Firm distributed an Asia Compliance Reminder regarding anti-corruption policies. Fang’s secretary forwarded an excerpt to him, “What needs to be precleared? Expenses valued at over US$ 100 (e.g., meals, entertainment, gifts), offers of employment for family or associates of the official, or charitable contributions requested by the official.”

Similarly, as to Fletcher the Federal Reserve alleges in pertinent part:

“From at least September 2007 to the present, JPMC incorporated the FCPA’s antibribery provisions into a firm-wide Anti-Corruption Policy which prohibited offers of anything of value to public officials to secure improper business advantages. The Anti-Corruption Policy identified the offering of internships and training to the relatives of public officials as a potential bribery risk pursuant to federal law and other anti-corruption statutes.

From at least June 2011 to the present, JPMC’s firm-wide Anti-Corruption Policy prohibited offers of anything of value to existing or prospective commercial clients to secure improper business advantages. JPMC identified the offering of internships and training to the relatives of existing or prospective commercial clients as a potential bribery risk pursuant to applicable anti-corruption statutes.

Fletcher knew that Offering Internships in Exchange for Business Violated Applicable Anti-Bribery Laws and JPMC Policies

In March 2006, Fletcher’s predecessor, the Head of JRM, emailed all APAC bankers, including Fletcher, stating that “the firm does not condone the hiring of the children or other relatives of clients or potential clients of the Firm . . . for the purpose of securing or potentially securing business for the Firm. In fact, the firm’s policies expressly forbid this. There are no exceptions.”

In October 2007, Fletcher participated in a training course on the Firm’s Anti-Corruption Policy. The training stated that:

It is improper and illegal to make an offer to secure an advantage by causing a non-U.S. public official to misuse his or her position as result of the offer. * * * The [prohibited] expenditure is not limited to gifts and entertainment. It also includes items of ‘value’ like an offer of an internship or training for relatives of a non-U.S. public official.

To ensure adherence to the Firm’s policies regarding anti-bribery, bankers were required to complete a questionnaire for each referral hire that was designed to identify potential anti-bribery and corruption-related issues. During this process, Fletcher was instructed that referred candidates could not be hired as part of an agreement to secure business for the Firm.

In October 2009, Fletcher participated in a training course on the Firm’s Anti-Corruption Policy. The training explained that employees were prohibited from offering things of value to public officials to secure improper business advantages. The training stated, “[p]lease note that ‘value’ does not just include gifts and entertainment; it can also include such things as the offer of internships or training for relatives of a public official.”

In November 2009, the Head of China Investment Banking distributed an article about a banker at a competitor who was prosecuted for violations of the FCPA. He noted, “China anti-bribery laws as well as FCPA may apply in the following situations . . . any proposed hiring of close relatives of Public Officials or candidates (including interns) recommended by any Public official.” Subsequently, an APAC banker forwarded that article to Fletcher and the JRM staffer highlighting a section in the article “about the hiring of the daughter and how chinese and US investigators and seeking to find whether it was for a quid pro quo,” and suggesting that the case “may have broader implications for our relationship hires.” The JRM staffer re-forwarded the article to Fletcher in June 2010.

In June 2010, the head of the APAC investment banking group emailed APAC bankers advising them of the restrictions under the FCPA. The guidelines stated that expenses such as “internships and training for family members” would need to be pre-cleared by compliance.

In September 2011, Fletcher participated in a training course on the Firm’s Anti-Corruption Policy. The training explained that JPMC employees must pre-clear “[a]ny offer of JPMorgan Chase employment or internship (whether paid or unpaid) to any person upon the recommendation of friends, relatives or associates of a non-U.S. government official.”

In March 2012, the Firm distributed an Asia Compliance Reminder regarding anti-corruption policies. The reminder highlighted offers of employment for family or associates of the official as potential bribery risks.”

Numerous times, the Federal Reserve states that Fang and Fletcher:

engaged in conduct “involving personal dishonesty or a willful or continuing disregard for the safety and soundness of [JPMorgan]”;

“violated [JPMorgan’s] internal policies” by running the referral hiring program;

“engaged in unsafe and unsound practicing by failing to follow policies and procedures aimed at preventing violations of applicable anti-bribery law;” and

“breached their fiduciary duties” to their employer.

According to the Federal Reserve, because of Fang and Fletcher’s conduct, JPMorgan:

“suffered financial loss or other damage;”

“suffered reputational losses in the form of negative news stories regarding [JPMSAP’s] referral hiring program;” and

“suffer[ed] financial loss and posed legal and reputational risks to the firm.”

*****

The Federal Reserve of course does not have authority to enforce the FCPA, but like in the Fang and Fletcher action, can use underlying conduct which may implicate the FCPA to pursue its own remedies.

Historically, there have not been many FCPA enforcement actions against the financial services industry, however the Fang and Fletcher action was not the first Federal Reserve action against an individual in the FCPA context.

In the aftermath of the 2012 FCPA enforcement action against Garth Peterson (a former managing director for Morgan Stanley’s real estate business in China) (see here for the prior post), the Federal Reserve issued this 2013 letter prohibiting Peterson from having various roles in the banking industry.

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