As readers no doubt are aware, since August 2013 JP Morgan has been under FCPA scrutiny for its alleged hiring of so-called Chinese princelings (family members of alleged Chinese officials) to curry favor with Chinese officials in a position of influence over its business.
JP Morgan’s FCPA scrutiny soon lead to an industry sweep of the financial services industry concerning hiring practices in China and other Asian countries. Among the other banks under scrutiny are: Bank of New York Mellon Corp., Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sach Group Inc., Morgan Stanley, and UBS AG.
Given the industry, the FCPA scrutiny has generated a significant amount of critical commentary. For instance, in this Wall Street Journal editorial former SEC Commissioner Arthur Levitt called the FCPA scrutiny of the financial industry “scurrilous and hypocritical.” He wrote:
“If you walk the halls of any institution in the U.S.—Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people.”
Double standard aside, in response to the FCPA scrutiny FCPA Inc. churned out clients alerts and other publications regarding best practices for hiring family members of foreign officials.
The following best practices were rightly noted (see here and here).
- Check the educational and professional qualifications of the individual being considered for employment and ensure that they are appropriate for the position being filled. Evidence that a relative of a government official was hired into a position for which he or she was not qualified will likely result in a finding that they were hired for improper purposes.
- Ensure that the salary and treatment given to the relative of the government official is commensurate with the position and consistent with other individuals in a similar position. Evidence that the relative of the government official is receiving a salary significantly higher than other individuals at a similar level and occupying similar positions suggests the additional funds may be provided to influence the related government official.
- Confirm that the position was not created specifically for the relative of the government official. Evidence that the position was created for a specific person will suggest that the company’s sole purpose in hiring the individual was to gain influence with the government official.
- Make certain that, to the extent possible, the responsibilities of the relative of the government official do not fall in the realm of conduct over which the government official holds regulatory or other decision making authority. For example, a relative of a government official charged with bank oversight should not be hired as the compliance officer for a bank subject to that authority. Similarly, the hiring decision-maker should be independent of the business unit that may interact with the government official.
- “An individual whose sole qualification for a prestigious Wall Street gig is a powerful mother or father in the … government should raise red flags.” If an individual “is not otherwise qualified for the position at [a] financial services company, the DOJ and SEC will ask about the basis for the hiring.”
Against this backdrop, as highlighted in this recent New York Times article:
“As [former Florida Governor and Republican Presidential Candidate Jeb] Bush sought to create a personal fortune for himself and his family after eight years in public office, he found a ready source of income: speeches sponsored by corporations and industry trade groups, including some that benefited from his administration’s policies.
Since 2007, Mr. Bush has delivered about 260 paid speeches, earning around $10 million in the process, according to records provided this week by his presidential campaign. The speeches, combined with his consulting and investment businesses, rapidly transformed his finances: His and his wife’s net worth soared to at least $19 million from $1.3 million over the past eight years.
The wealth he amassed from the speaking circuit pales in comparison to that collected by Hillary Rodham Clinton, a Democratic candidate. But it underscores the ease with which political figures can turn their public prominence into private riches.”
As relevent to the FCPA scrutiny of the financial services industry, as recently highlighted here by the Wall Street Journal, a release of Mr. Bush’s tax returns reveals that “over about six years as an adviser for the defunct Wall Street bank Lehman Bros. and later Barclays PLC, Mr. Bush earned, on average, between $1.3 million and $2 million.”
If the above bullet-point best practices were asked in connection with Mr. Bush’s adviser positions with Wall Street Banks, would what the answer be?
If the answers turned out to be the same as the answers regarding Wall Street’s FCPA scrutiny for allegedly hiring Chinese princelings, what’s the difference?
Let’s call a spade a spade.
We have princelings in this country too as well as individuals who bounce in and out of politics and “private” life so often that they are effectively part of the political class regardless of the precise moment in time in which the question is posed.
