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Issues To Consider From The BNY Mellon Enforcement Action


This recent post highlighted and offered initial commentary on the SEC’s FCPA enforcement action against BNY Mellon.  This post continues the analysis by highlighting other issues to consider.

First Ever

FCPA practitioners would likely be hard pressed to imagine an enforcement action that includes alleged violations of the FCPA’s anti-bribery provisions and internal controls provisions, without alleged violations of the books and records provisions

There would be good reason for the struggle – it has never happened before – until earlier this week.

The BNY Mellon enforcement action is believed to be the first-ever SEC FCPA enforcement action not to include allegations or findings regarding books and records violations.  A future post will explore this issue in more detail.

A Step Further Than Schering-Plough and Eli Lilly

The FCPA’s anti-bribery provisions expressly state, in pertinent part, that money, a gift, or anything of value must be given to, offered to, or promised to: (1) a foreign official; (2) a foreign political party of official or candidate for foreign political office; or (3) any person “while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office …”.

Regardless of the prong, as evident from the statutory text, the thing of value must ultimately be intended for a “foreign official.”

Previously in the Schering-Plough and Eli Lilly enforcement actions the SEC alleged that the companies violated the FCPA by making charitable contributions to a bona fide Polish charity dedicated to restoring historical cases.  However, as alleged by the SEC, the charity was a pet project of an alleged Polish official with discretionary authority over the purchase of pharmaceuticals.

While perhaps a distinction without a difference, the charges/findings in both cases as to the above conduct were limited to the FCPA’s books and records and internal control provisions.

Even so, the enforcement theory was clear: in analyzing “anything of value” the enforcement agencies will put themselves in the shoes of the alleged “foreign official” and ask how the recipient perceived the thing of value and whether the recipient subjectively valued the thing of value.

The BNY Mellon enforcement action goes a step further than Schering-Plough and Eli Lilly by finding violations of the FCPA’s anti-bribery provisions.  The key language from the SEC is the following: “The internships were valuable work experience, and the requesting officials derived significant personal value in being able to confer this benefit on their family members.” (emphasis added).

Notable Findings

Notwithstanding the SEC’s findings that the Interns did not meet BNY’s Mellon’s supposed “rigorous criteria” for hiring and were not evaluated and hired through the company’s “established internship programs,” the following SEC findings are notable.

One of the Interns (Intern C) was not paid.

As to the other two interns, the SEC’s order states: “because Interns A and B had already graduated from college” BNY paid the interns “above the normal salary scale for BNY Mellon undergraduate interns but below the scale for postgraduate interns.”

In other words, the SEC found that BNY Mellon violated the FCPA’s anti-bribery provisions, not necessarily because of the compensation offered to the Interns, but rather the SEC’s belief that the Interns should never have been interns at BNY Mellon in the first place and because of this – again in the words of the SEC – the alleged “foreign officials” “derived significant personal value in being able to confer this benefit on their family members.”

Time Line

According to BNY Mellon’s disclosures: “in January 2011, the Enforcement Division of the U.S. Securities and Exchange Commission (the “SEC Staff”) informed several financial institutions, including BNY Mellon, that it had commenced an inquiry into certain of their business practices and relationships with sovereign wealth fund clients.”

Thus, BNY Mellon was under FCPA scrutiny for approximately 4.5 years.

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