This previous post went in-depth into the recent Foreign Corrupt Practices Act enforcement action against JP Morgan based on its alleged improper hiring and internship practices that the U.S. government labeled bribery and corruption
This post continues the analysis by highlighting several additional issues to consider.
Other Internship / Hiring Enforcement Actions
While the JPMorgan hiring and internship enforcement action was the most high-profile based on the settlement amount, it certainly was not the first FCPA enforcement action based on alleged improper internship and hiring practices.
- Prior posts here and here highlighted the August 2015 FCPA enforcement action against BNY Mellon Corp. (settlement amount $14.8 million).
- Prior posts here and here highlighted the March 2016 FCPA enforcement action against Qualcomm (settlement amount $7.5 million).
While the above three enforcement actions were exclusively or principally based on alleged improper internship or hiring practices, as this post published at the beginning of JPMorgan’s FCPA scrutiny highlighted, several FCPA enforcement actions have contained allegations about alleged improper hiring. In addition, several DOJ FCPA Opinion Procedure Releases have also touched upon the topic. (See here).
Little Consistency, Part I
One aspect of FCPA enforcement that drives the corporate community crazy (with good reason) is the lack of consistency. For instance, the prior BNY Mellon Corp. was based on the same alleged type of conduct, yet did not involve FCPA books and record violations. There was a legitimate reason for this just as there was a legitimate reason why JP Morgan should not have been charged with books and records violations. This issue will be covered in a future post.
Little Consistency, Part II
The enforcement action against JP Morgan involved parallel actions by the DOJ and SEC based on the same core alleged conduct. Yet, a close read of the resolution documents reveals several interesting inconsistencies.
For instance, the DOJ stated:
“the Company did not receive voluntary disclosure credit because neither it nor JPMC voluntarily and timely disclosed to the Offices the conduct described in the Statement of Facts.”
Yet, the SEC stated that JP Morgan “self-reported much of the conduct.”
It is difficult to reconcile these two statements.
It is also difficult to reconcile the vast difference in the DOJ’s and SEC’s improper gain amount given that the enforcement actions were based on the same alleged core conduct with seemingly minor differences. For instance, the DOJ stated:
“As a result of the scheme to corruptly influence senior officials at clients and potential clients through the Client Referral Program, the Company received investment banking mandates from Chinese SOEs whose executives referred candidates to the Company. The Company earned at least $35 million in profits from those mandates.”
Yet the SEC stated:
“The referring SOEs entered into transactions totaling more than $100,000,000 in revenue for JPMorgan APAC or its affiliates during [the relevant] period.”
Little Transparency
Another aspect of FCPA enforcement that drives people crazy (with good reason) is the frequent lack of transparency.
While the enforcement action related to JPMorgan’s alleged internship and hiring practices, the government’s inquiry related to other issues as well. For instance, JPMorgan’s disclosure the day of the enforcement action stated:
“the DOJ has also separately advised that, based upon the information known at this time, it has closed its inquiry regarding [JPMorgan Securities (Asia Pacific) Limited] use of consultants in the Asia Pacific region.”
In addition, pg. 5 of the DOJ’s NPA states that the DOJ will not bring any criminal or civil case relating to “the payment of speaking fees to individuals and entities in China as described to the Offices prior to the signing of this Agreement.”
Just goes to show once again that the DOJ can talk all it wants about transparency in FCPA enforcement, but FCPA inquiries are seldom transparent.
Timeline
JP Morgan disclosed its FCPA scrutiny in an August 2013 SEC filing. Thus, from start to finish, the company’s scrutiny lasted approximatley 3.5 years.
While “quicker” than other recent instances of FCPA scrutiny, 3.5 years is still too long for the DOJ/SEC to resolve FCPA scrutiny against a cooperating company. For instance, here is what the DOJ stated:
“[T]he Company received full credit for its and JPMC’s cooperation with the Offices’ investigation including conducting a thorough internal investigation, making regular factual presentations to the Offices, voluntarily making foreign-based employees available for interviews in the United States, producing documents to the Offices from foreign countries in ways that did not implicate foreign data privacy laws, and collecting, analyzing, and organizing voluminous evidence and information for the Offices.”
Likewise, the SEC stated:
“In determining to accept the Offer, the Commission considered cooperation JPMorgan afforded to the Commission staff. Through its counsel, JPMorgan provided thorough, complete, and timely cooperation throughout the investigation. JPMorgan responded promptly to Commission requests for information, retained outside counsel to investigate the conduct, and self-reported much of the conduct described herein. JPMorgan made timely and thorough document productions and provided frequent updates on the status of the company’s internal investigation and the evidence. JPMorgan also made its employees available for interviews upon request, and facilitated the interviews of former employees, including facilitating certain interviewees traveling to the United States from overseas for interviews with the Commission. JPMorgan provided key document binders and factual chronologies to the Commission staff. JPMorgan responded to all requests for information and documents in a timely and efficient manner.”
In short, if the DOJ/SEC want the public to view its FCPA enforcement program as legitimate, credible, and effective, it must resolve instances of FCPA scrutiny of cooperating companies much quicker than 3.5 years.
Triple Dipping
FCPA enforcement actions against issuers often result in double-dipping. The SEC typically extracts a disgorgement amount based on the alleged improper financial gain and then the DOJ extracts a criminal penalty based, in large part, on the alleged improper financial gain.
As highlighted in this prior post, double-dipping was a concern expressed by certain members of Congress in connection with FCPA reform hearings and Philip Urofosky (former DOJ Assistant Chief of the Fraud Section) in this article called for “eliminat[ing] overlapping enforcement jurisdiction” – in other words Urofosky writes, “the SEC should get out of the anti-bribery business.”
Urofosky stated:
“The SEC’s enforcement of the anti-bribery provisions raises a fundamental matter of fairness. Take two companies, one public and one private, and assume that both violate the FCPA and realize the same illicit gain from the violation. The private company will be subject only to DOJ’s jurisdiction and will therefore be exposed to a criminal fine of up to twice its gain. The public company, on the other hand, will be subject both to that criminal fine and to a civil fine and disgorgement of the illicit proceeds, thus potentially paying a third more in fines than the private company for the same conduct.”
The JPMorgan enforcement action was not merely a double dip, but included a triple dip as well as the Federal Reserve Board also announced that JP Morgan agreed to “pay a $61.9 million civil money penalty for unsafe and unsound practices related to the firm’s practice of hiring individuals referred by foreign officials and other clients in order to obtain improper business advantages for the firm.”
Lost in the Headlines
Lost in most of the headlines about the enforcement action is that- as first described in this FCPA Professor post – a meaningful component of the DOJ’s enforcement action involved hiring and internship practices involving family members of private individuals. Specifically, the DOJ’s non-prosecution agreement highlights 5 examples of “Quid Pro Quo Hiring” and 2 examples (40%) concern private companies: “a private Chinese manufacturing company” and a “Taiwanese private financial holding company.”
This Wall Street Journal article highlights how Taikang Life Insurance Co., a private company, “pressured JP Morgan.”
More broadly, and according to “bank records seen by the Wall Street Journal,” approximately 44% of the 222 people hired by JP Morgan were “nongovernmental referrals” and in approximately 12% of hires it was uncertain who referred the individuals.
The “Architect” As Defense Counsel
JP Morgan was represented by Mark Mendelsohn, the former DOJ FCPA Unit Chief and self-described “architect” of the DOJ’s “modern FCPA enforcement program.” As highlighted in this prior post, according to reports, during the settlement negotiation process Mendelsohn reportedly authored a white paper submitted to the DOJ and SEC setting out the bank’s concern about the enforcement approach.
