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Presenting a live 90-minute webinar with interactive Q&A

FCPA Compliance in Hiring

Practices in Foreign Markets Minimizing FCPA Enforcement Risks, Strengthening Compliance

Procedures for Pre- and Post-Hiring, and Navigating Conflicts of Interest

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, FEBRUARY 10, 2016

Edward J. Fishman, Partner, K&L Gates, Washington, D.C.

James G. Tillen, Member, Miller & Chevalier, Washington, D.C.

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FCPA Compliance in Hiring Practices in

Foreign Markets

February 10, 2016

James G. Tillen

Miller & Chevalier

6

The FCPA prohibits

All covered persons

from offering, promising, giving, or authorizing

money or anything of value

directly or indirectly

to a foreign official

to induce the official to act or refrain from acting, to

influence acts of other foreign officials, or to provide an

improper advantage

to obtain or retain business

7

“Anything of Value”

• Hiring relatives and close associates of officials as

employees, interns, agents, partners, or consultants

may be perceived as giving “anything of value” to the

official under the FCPA

Direct economic benefit if relative is a dependent

Risk of a pass-through by relative to official

Intangible benefit to official even if no direct economic

benefit

• Assuming that the other statutory elements are met, there

is a risk of prosecution

8

“Princelings” Investigations

• Federal authorities have opened a series of bribery

investigations into financial institutions which hired the

relatives of officials

The inquiry centers on whether banks who gave jobs

and internships to relatives of managers of state-owned

companies, including children of Chinese officials known

as “princelings,” violated the FCPA

Some banks have pushed back on the investigations

through meetings, calls, and letters to regulators alleging

government overreach

9

Bank of New York Mellon (“BNY Mellon”)

• SEC alleged that BNY Mellon provided three summer internships

to family members of two government officials in order to retain

and obtain business related to a Middle Eastern sovereign

wealth fund (“SWF”)

SWF officials requested the internships and made numerous follow-up

inquiries

Some BNY Mellon employees viewed the internships as a way to influence

the officials’ decisions and maintain business

The interns were not hired through BNY Mellon’s existing internship

program and would not have met the program’s hiring criteria

According to the SEC, the internships were “valuable work experience, and

the requesting official derived significant personal value in being able to

confer this benefit on their family members.”

BNY Mellon had few internal controls relating to the hiring of customers and

relatives of customers

10

Bank of New York Mellon (“BNY Mellon”)

• August 18, 2015: SEC and BNY Mellon settled anti-

bribery and internal accounting provisions violations

stemming from BNY Mellon’s hiring of relatives of

government of officials for its summer internship

program

Without admitting or denying the findings laid out in the

SEC’s order, BNY Mellon agreed to pay $8.3 million in

disgorgement, $1.5 million in prejudgment interest, and

$5 million civil penalty

It is unclear how the disgorgement amount was calculated

11

Other Illustrative Cases: BellSouth

• BellSouth’s subsidiary in Nicaragua employed the wife

of a Nicaraguan legislator as a lobbyist

• During the wife’s period of employment, the legislator

was involved in enactments favorable to BellSouth’s

interests

• BellSouth paid the wife $60,000

• BellSouth settled FCPA charges with SEC in 2002 and

paid a $150,000 penalty

12

Other Illustrative Cases: UTStarcom Inc. (“UTSI”)

• UTSI provided or offered full time salary and

employment benefits within the United States to

foreign government customers or their family

members.

• Three of these individuals received such salaries and

benefits without ever working for UTSI

• UTSI Company drafted false performance reviews for

these three individuals, and even sponsored

permanent residency applications

• UTSI settled FCPA charges with SEC in 2009 and paid

$1.5 million in fines

13

Other Illustrative Cases: Paradigm and Tyson

• Paradigm B.V.: In 2007, Paradigm entered into a non-

prosecution agreement with the DOJ regarding

allegations that, inter alia, Paradigm hired the brother

of a government decision maker as a driver.

To resolve this and other allegations, Paradigm paid a $1

million fine

• Tyson Foods Inc.: Improper payments included sham jobs

to the spouses of Mexican veterinarians in charge of

certifying products for export

To resolve these and other allegations, Tyson paid a $4 million fine

om 2011

14

DOJ Opinion No. 84-01

• American company sought to engage as a Marketing Representative a foreign firm whose principals were related to head of state.

• Safeguards:

Marketing Rep promised not to give anything of value to influence any official acts in favor of the firm.

The firm was highly qualified and had a successful record as a Marketing Rep.

• DOJ decided to take no enforcement action.

15

DOJ Opinion No. 95-03

• A proposed JV partner of a U.S. Company was controlled by a relative of the leader of the foreign country.

• The relative himself was a government official in that country.

• The relative's duties were not related to company's or JV's interests in the country.

• The DOJ decided to take no enforcement action.

16

Factors considered in assessing a violation

• Relationship between the relative/associate and the official

Dependent? Spouse? Close relative/friend? Distant relative?

• Official requests company hire relative/associate or provide

benefit to relative/associate

• Official’s ability to benefit the Company

• Offer is made while business decision is pending before the

Official

• Offer is made in secret

• Act is intended to influence official

• Business need, commercial reasonableness, and consistency

with the normal hiring process of the offer

• How the official or relative/associate is paid

17

Thank You

James G. Tillen

Miller & Chevalier

655 Fifteenth Street, NW

Suite 900

Washington, DC 20005

202-626-5800

jtillen@milchev.com

© Copyright 2014 by K&L Gates LLP. All rights reserved.

Strafford Webinar Presented by

Ed Fishman

K&L Gates LLP

Washington, D.C.

FCPA Compliance in Hiring

Practices in Foreign Markets

February 10, 2016

STRATEGIES FOR MANAGING HIRING RISK

Recruiting and Hiring Controls

Due Diligence on Candidates

Training of Involved Personnel

Oversight During Employment

Periodic Testing of Controls

klgates.com 19

RECRUITING AND HIRING CONTROLS

Establish a formal written process for hiring interns

and employees

Consistently follow the established process without

making exceptions

Document recruiting and hiring decisions to support

legitimate offers and maintain supporting

documentation (application, resume, interview

summary, justification report)

Ensure that “relationship” candidates meet baseline

qualifications and don’t receive special treatment

klgates.com 20

BNY MELLON HIRING CONTROL FAILURES

BNY did not evaluate or hire the SWF Interns through its

established internship program

SWF Interns did not meet stringent academic and

professional experience qualifications

BNY hired the SWF Interns before meeting or

interviewing them (contrary to standard procedure)

BNY had no intention of hiring the SWF Interns as full-

time employees (contrary to standard procedure)

klgates.com 21

IDENTIFYING RELATIONSHIP HIRE RISKS

There needs to be a rigorous due diligence process in

place for identifying “relationship hire” risks or related

conflicts of interest through the following mechanisms:

Internship/employment application needs to have sufficient

mechanism for identifying each candidate’s relationship to

customers, government officials or other relevant stakeholders

HR department/compliance team needs to conduct independent

due diligence on potential connections between candidate and

customers/other stakeholders

Sales/business team/management employees that lobby for any

internship/employment candidate need to be questioned about

business implications of the hiring opportunity and any

associated risks and necessary controls

klgates.com 22

IMPORTANCE OF TRAINING PERSONNEL

INVOLVED IN REVIEWING AND MAKING

HIRING DECISIONS

Business and HR staff need to be sensitized to

compliance risks associated with relationship hires

HR staff needs to be vigilant about potential red flags

and empowered to object when necessary

Relationship hires should be reviewed and cleared by

legal/compliance staff sufficiently removed from the

business interests

The final decision on a relationship hire should be

made at a senior level by a manager sufficiently

removed from the business interests

klgates.com 23

BNY MELLON HIRING PERSONNEL IGNORED THE

FOLLOWING RED FLAGS

SWF officials “persistently” inquired about status of

internships and became “angry” about delays

SWF officials claimed that BNY competitors were

willing to provide the internship “opportunity”

BNY sales employee notified HR that SWF officials

didn’t want the SWF itself to know about the

internship request or arrangement

BNY sales employee described the arrangement to a

colleague as an “expensive favor” that BNY could not

reject “from a commercial point of view”

klgates.com 24

OVERSIGHT OF ACTIVITY OF EMPLOYEES

AND INTERNS DURING EMPLOYMENT Active monitoring is necessary to ensure that

“relationship hires” do not receive special treatment

Controls must be implemented to ensure the

employment arrangement is not a “sham”

Controls must be implemented to ensure that the

Company does not engage in business or regulatory

interactions with an affiliated entity (if possible)

Periodic review and monitoring of the “relationship hire”

arrangements is necessary to ensure the original

parameters remain in place

klgates.com 25

BNY INTERNAL CONTROL FAILURES RELATING TO

SPECIAL TREATMENT OF INTERNS

SWF Interns benefitted from customized training

program with rotational opportunities

SWF Interns had longer internship period than

standard arrangement

SWF Interns were paid above the normal salary scale

BNY arranged and paid all costs for their work visas

SWF Interns were “less than exemplary employees”

and had “repeated absences from work” yet were

allowed to continue their lengthy internships without

any reprimand or other consequences

klgates.com 26

SEC DESCRIPTION OF BNY CONTROL FAILURES

BNY had few specific controls relation to the hiring of

customers and relatives of customers, including relatives

of government officials

Sales staff and client relationship managers were given

wide discretion in making initial hiring decisions

HR staff was not trained to flag problematic hires

Senior managers were able to approve hires requested by

SWF officials without any mechanism to ensure review by

anyone with a legal/compliance background

Conclusion: BNY controls were “insufficiently tailored to

the corruption risks inherent in the hiring of client referrals”

klgates.com 27

BNY MELLON REMEDIAL ACTIONS

BNY changed anti-corruption policy to explicitly address

the hiring of relatives of government officials

BNY requires that every application for a full-time hire or

internship is routed through a centralized HR application

process

BNY requires each employee to certify annually that he or

she is not responsible for hiring through a non-centralized

channel

BNY’s anti-corruption office reviews those applicants who

indicate that they or a close personal associate is or has

recently been a government official

klgates.com 28

MORE DIFFICULT HIRING-RELATED RISKS

Evaluating “relationship hires” in the absence of a

formal, rigorous hiring program

Evaluating “relationship hires” where there is a less direct

business connection

Managing the appearance of impropriety throughout the

course of a “relationship hire” arrangement

Managing risk if the business relationship with the affiliated

government official changes over time

klgates.com 29

SIMILAR COMPLIANCE STRATEGIES FOR ENGAGING

THIRD-PARTY CONSULTANTS WITH RELATIONSHIPS

Similar control mechanisms should be implemented for

third-party consultants that may have sensitive

relationships with government officials or entities

Due diligence questionnaire should be used to identify

relationship risks and need to independently verify whether

any such risks may exist (e.g. politically-exposed persons)

Consulting arrangement must be validated as legitimate

and necessary by independent compliance staff

Oversight and monitoring of the consulting arrangement

should be performed on a periodic basis

Consider seeking DOJ Opinion Procedure Release in very

sensitive situations

klgates.com 30

UNIQUE CHALLENGES IN CERTAIN MARKETS

Asia – cultural norms around “relationship hires”

Europe – protection of personal information under

data protection laws and possible implications for due

diligence investigations on candidates

Middle East – broad definition of “immediate family”

members and frequency of dealings with royal family

members

Africa and Latin America – local shareholder and local

content requirements often may necessitate

partnering with politically-connected individuals

klgates.com 31

CONCLUDING OBSERVATIONS

You should develop specific, written policies and

procedures for identifying potential “relationship hires”

You must review and evaluate potential “relationship hires”

and the proposed terms and conditions of employment

based on formal, objective criteria in a consistent manner

and through a transparent, independent and robust

decision-making process

You must continue to monitor and review any “relationship

hire” arrangements on a periodic basis to ensure there is

no special treatment, no “sham” employment and that any

potential changes to the underlying parameters of approval

(such as an effort to seek business with the connected

government entity) are thoroughly evaluated

klgates.com 32

THANK YOU AND QUESTIONS?

Ed Fishman

K&L Gates LLP

1601 K Street NW

Washington, DC

202-778-9456

ed.fishman@klgates.com

klgates.com 33