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Next Up – Deutsche Bank Hands Over $16.2 Million To Uncle Sam

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First, it was BNY Mellon Corp. in August 2015 for $14.8 million (see here and here for prior posts). Then, it was Qualcomm in March 2016 for $7.5 million (see here and here for prior posts). Then, it was JPMorgan in November 2016 for $202.6 million (see herehere, and here for prior posts). Then, it was Credit Suisse in July 2018 for $77 million (see here and here for prior posts).

Next up in Foreign Corrupt Practices Act enforcement actions (mostly targeting the financial services industry) focusing, in whole or in part, on internship and hiring practices being a form of bribery is Deutsche Bank as the SEC announced yesterday that the German bank with shares traded on the NYSE will pay approximately $16.2 million “to settle changes that it violated the FCPA by hiring relatives of foreign government officials [in both the Asia Pacific Region and Russia] in order to improperly influence them in connection with investment banking business).

In summary fashion, this administrative order finds:

“This matter concerns violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act by Deutsche Bank. Between at least 2006 and 2014, Deutsche Bank provided valuable employment to the relatives of foreign government officials in various parts of the world as a personal benefit to the officials in order to improperly influence them to assist the bank in obtaining or retaining business or other benefits.

Deutsche Bank recognized that hiring relatives of foreign government officials and other clients in exchange for business could violate anti-bribery laws, including the FCPA. In 2010, Deutsche Bank enacted a written hiring policy in the Asia-Pacific region (“APAC”) to detect and prevent its employees from offering temporary employment to candidates referred by current or potential clients to detect and prevent corrupt hiring practices. This hiring policy was not effectively enforced and did not apply to all categories of hires. Additionally, Deutsche Bank, although aware of corruption risks in its referral hiring practices, failed to implement global policies sufficiently to address this risk until 2015.

Deutsche Bank employees created false books and records that concealed corrupt hiring practices and failed to accurately document and record certain related expenses and Deutsche Bank failed to devise and maintain a system of internal accounting controls around its hiring practices sufficient to provide reasonable assurances that its employees did not bribe foreign government officials.”

According to the SEC:

“Since at least 2009, Deutsche Bank’s Global Anti-Corruption Policy prohibited employees from providing “anything of value” to a government official to gain an improper business advantage. Prior to 2009, various policies and procedures addressed anti-bribery and corruption issues at the bank. In 2009, Deutsche Bank specifically defined “anything of value” in the Global Anti-Corruption Policy to include job offers and recognized that providing employment at the request of a client, potential client, or government official could violate Deutsche Bank’s antibribery policies. A regional compliance memo in 2009 explained, “hiring interns with links to State Owned Enterprises and Government Officials,” hiring interns who “did not appear to meet [Deutsche Bank’s] basic criteria . . . with respect to education, qualifications and credentials,” and hiring interns “within a short period of a mandated deal being awarded or completed” posed corruption risks: “Because of this significant value and the benefits received there are regulatory and reputational risks that the offering of these internships to our clients (current or prospective) without going through a fair, formal and documented selection process could be perceived as Deutsche Bank trying to gain an improper advantage.”

Despite these prohibitions, since at least 2006, Deutsche Bank’s APAC operations engaged in a pattern and practice of providing employment to relatives at the request of SOE executives from whom Deutsche Bank sought business. In APAC many of the bank’s clients and prospective clients were State-Owned Entities (“SOEs”) whose employees are deemed “foreign officials” under both the FCPA and Deutsche Bank policies. Client referral hires were primarily known at Deutsche Bank as “Referral Hires” and/or “Relationship Hires.”

From the outset, the primary goal of Referral Hiring was to generate business for Deutsche Bank by extending personal favors to clients, including government officials, through hiring their relatives. For example, during the time Deutsche Bank was working to obtain an IPO from a Chinese client, the client’s Chairman asked Deutsche Bank to hire his son. The banker working to obtain the IPO told Deutsche Bank management that if Deutsche Bank hired the Chairman’s son, he believed they would be awarded the business. In other instances, when bankers submitted a client referral hire request, management in APAC asked what role the parent performed at the SOE to determine if the parent could steer business to the bank and asked the banker to quantify the fees Deutsche Bank could expect to earn from the referring client.

Referral Hires bypassed Deutsche Bank’s highly competitive and merit-based hiring process where successful applicants were required, among other things, to have a high grade point average, to pass competency based numerical and verbal skills tests, and advance through multiple rounds of interviews. In contrast, Referral Hires did not compete against other candidates based on merit or academic qualification and, in many instances, were less qualified than those employees hired through Deutsche Bank’s formal hiring process. Referral Hires had no formal application process, no defined qualifications such as a minimum grade point average or educational requirement, no competency test requirements, and no specific interview requirements. To help unqualified Referral Hires appear qualified, some APAC-based Deutsche Bank employees even drafted portions of their resumes, provided them with interview questions and answers in advance, and coached them on how to appropriately respond to questions. Some were hired without being interviewed at all. Deutsche Bank provided this preferential treatment to candidates referred by clients and prospective clients, including foreign government officials.

Similar misconduct took place from 2009 to 2012 in Russia, where Deutsche Bank employees hired relatives at the request of foreign officials in Russia to obtain or retain business or other benefits. As was the case in APAC, Russian Referral Hires were sometimes unqualified. In some instances, if requested by the candidate or parent, Deutsche Bank’s London-based global management authorized unqualified Russian Referral Hires to work in London. One Russian Referral Hire performed so poorly in London that he was deemed “a liability to the reputation of the program, if not the firm…” by a London-based human resource employee.”

The administrative order discusses five referral hires:

  • APAC Referral Hire A “whose father was the Chairman of a large Chinese SOE”
  • APAC Referral Hire B whose mother was an SOE executive and whose father was the Chairman of another SOE
  • APAC Referral Hire C “the son of the Chairman of a Chinese SOE”
  • Russian Referral Hire D whose father was a “Deputy Minister at a Russian government entity”
  • Russian Referral Hire E whose father was a “senior executive of a Russian SOE”

The SEC acknowledged in the order that Deutsche Bank employees in APAC “ignored or deliberately bypassed the APAC Hiring Policy” and that “certain Deutsche Bank employees in APAC knowingly submitted false and inaccurate documentation in connection with hires, misrepresented the identity of the referral source, falsely claimed that government officials were not the referral source, and concealed the purpose of the hire.”

As stated by the SEC:

“Deutsche Bank, directly or indirectly, hired numerous Referral Hires at the request of government officials in China and Russia including circumstances in which there was evidence connecting the hire to specific business. Deutsche Bank was unjustly enriched by approximately $10,785,900 from those transactions occurring within the statute of limitations.”

The administrative order does not find any U.S. nexus in connection with the above conduct.

Based on the above, the SEC found that Deutsche Bank violated the FCPA’s books and records and internal controls provisions. Without admitting or denying the SEC’s findings Deutsche Bank agreed to pay disgorgement of approximately $10.8 million, prejudgment interest of approximately $2.4 million; and a civil monetary penalty of $3 million.

Under the heading “Commission Consideration of Deutsche Bank’s Cooperation and Remedial Efforts,” the order states:

“Deutsche Bank shared facts developed in the course of its own internal investigation, including certain of the violative conduct described herein.

Deutsche Bank’s cooperation included: responding promptly to the Commission’s requests for information and documents; identifying issues and facts that would likely be of interest to the Commission’s staff; providing regular updates of factual findings developed during the course of its own internal investigation; and identifying key documents and providing factual chronologies to the Commission’s staff.

Deutsche Bank’s remedial measures included: enhancements to its internal accounting controls; enhancements to its anti-corruption compliance program and hiring practices on a global basis; requiring that Deutsche Bank’s anti-corruption office reviews and approves each hire of a candidate referred by a client, potential client, or government official; instituting procedures and practices to monitor and audit Referral Hires; and increased anti-bribery training that specifically addresses hiring practices. Deutsche Bank also undertook employment actions based upon its findings regarding the underlying conduct, and separated from certain employees and made other personnel changes to remediate in the relevant regions and substantially enhanced compliance staffing. In addition to these completed remedial steps, the company is continuing to develop policies to mitigate corruption risks in lateral hiring, specifically related to its JV, and to ensure that its conflicts of interest policy is enforced.”

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