FCPA:  JPMorgan

In terms of the FCPA, the recent resolutions by the SEC with JPMorgan Chase & Co. and by the Department of Justice with JPMorgan Securities (Asia Pacific) Limited raise a number of issues.  Most significant is the need for attention to be given to hiring practices used as a means of influencing the award of business.   Often referred to as the hiring of “princelings,” the Statement of Facts associated with the non-prosecution agreement issued by the U.S. Department of Justice describe an orchestrated effort to use the hiring of sons and daughters of government officials or officials of government-owned or controlled entities as a means of influencing decisions to direct business to the Asian subsidiary of JPMorgan.  The same pattern is reflected in the administrative order issued by the SEC.

Though not the sole consideration, one of the critical factors in the analysis is whether the criteria used to hire relatives of officials were based upon the same rigorous criteria as other interns.   A related factor is whether the expectations in terms of substantive work and working conditions were the same for all interns.  While no express prohibition exists as to the hiring of relatives of government officials, any hiring that does not subject the relative to the same standard as other interns is likely to be viewed as suspect.

The resolution also highlights the importance of implementing, enforcing, and actively monitoring compliance practices associated with hiring.  One of the most significant relates to the need to carefully monitor the effectiveness of policies that are put in place.  The settlement documents demonstrate that JPMorgan was sensitive to the prospect of hiring serving as a means of improperly influencing business decisions of government or government-owned or controlled entities.  Compliance procedures were implemented in its Asian subsidiary.  Steps were even taken to update and further expand the compliance policies and procedures.  However, officials with the Asian subsidiary actively circumvented the compliance policies and procedures, including falsifying records.  The efforts were pervasive and clearly linked to influencing business decisions.

In the ultimate sense, JPMorgan and its officials failed to actively monitor and test the effectiveness of its compliance policies and procedures.  When concerns were raised, adequate deference and attention was not given to those concerns.  Testing the effectiveness and adequacy of a compliance program in a foreign culture presents a major challenge.  But all the policies and procedures are of little use if they are not being regularly tested and actively monitored in various ways.  In large part, this is associated with the adequacy of internal controls.  But even for entities not subject to the accounting and internal control provisions, the practical effect is a form of willful blindness that may expose an entity to violations of the anti-bribery provisions.


Previous Post
FCPA Enforcement under a New Administration
Next Post
Anti-Bribery Compliance: Effective Monitoring