In the wake of the New York Times' announcement in 2013 and follow-up analysis by The Week of JP Morgan Chase paying $75,000 per month to the 32-year-old daughter of the former Chinese prime minister -- ostensibly to promote its standing in China -- Business Spectator now reports that Goldman Sachs says regulators have initiated probes into its international hiring practices. Goldman said the hiring probe was tied to the bank's compliance with the Foreign Corrupt Practices Act ("FCPA"), which illegalizes bribes to foreign officials. As Business Spectator reports, the disclosure, contained in a quarterly securities filing, is the latest indication regulators have expanded their investigation of whether JPMorgan Chase and other big banks employed the sons and daughters of prominent foreign officials to win business in China and elsewhere.
So when does nepotism cross the line to become an FCPA violation? Stated another way, can the SEC prove that banks provided "anything of value" to "foreign officials" for the purpose of "influencing official acts" in order to assist banks from "obtaining or retaining business" or to "secure an improper advantage"? In the absence of an upfront agreement, it appears to be a difficult case for regulators to win. Even The New York Times acknowledges that the JP Morgan Chase documents it has seen "do not identify a concrete link between the bank's decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws." Nevertheless, FCPA investigations are notoriously expensive and create business disruption and upheaval. Exhibit A: Avon recently reported it spent over $300 million since 2009 in attorneys' fees and professional expenses related to an FCPA investigation.
The take-away here? Businesses should be aware that hiring family members of foreign officials could open them up to potential liability under the FCPA. Before taking such action, businesses should take steps to comprehensively document that the rationale for the hire constitutes a legitimate business purpose and is unrelated to influencing official acts to secure an improper advantage or obtain or retain business.