Lessons Learned from Credit Suisse Corrupt Hiring Scheme and FCPA Settlement (Part II of II)

Credit Suisse has joined the ranks of other banks and companies that have settled FCPA violations involving hiring of government officials’ relatives in exchange for business benefits, including JPMorgan Chase; BNY Mellon, and Qualcomm.  There are several banks still under investigation for such practices, including Citigroup, Barclays, Deutsche Bank, HSBC and Goldman Sachs.

The hiring program enforcement actions demonstrate the Justice Department’s and SEC’s broad application of the term “anything of value” in the FCPA to benefits afforded to sons, daughters and relatives of government officials.

After reading the respective statement of facts in the DOJ and SEC settlements, you have to scratch your head over the brazen nature of Credit Suisse’s conduct.  This is not a very close call as to illegal conduct, notwithstanding the debate surrounding the application of the bribery prohibition to benefits that flow directly to sons, daughters and relatives, and indirect benefit to foreign officials (parents and relatives).

Hiring and Employment Risks: The agreed upon facts demonstrate the real and tangible risks that a hiring program can quickly turn into a vehicle to make substantial payments to otherwise unqualified employees on a continuing basis in order to ensure the award of multiple contracts and/or secure required regulatory officials from government officials.  Credit Suisse was able to deftly and illegally leverage its relationships with hired relatives to gain valuable contracts from government officials through a variety of techniques beyond just hiring the sons, daughters and relatives.  Indeed, Credit Suisse provide these unqualified employees with promotions, bonuses keyed to specific contracts controlled or influenced by the related family member in the government, and other benefits as a way to secure continuing benefits.  Think of this as a continuing bribery scheme keyed to leveraging a specific relationship for Credit Suisse’s benefit.

Beyond a real teaching moment as to corruption risks from such hiring practices, the Credit Suisse enforcement action reveals a number of important lessons learned:

Policy Statements and No Controls: Both the DOJ and SEC noted that Credit Suisse maintained a strong policy statement against hiring practices and referrals of relatives of foreign officials.  Notwithstanding such a broad policy prohibition, Credit Suisse failed to implement appropriate controls to implement such a policy.  It is easy to make a broad statement but always more difficult to build a system of controls that effectively protect against such conduct.

Hiring Procedures and Controls: In designing appropriate hiring practices to protect against corruption risks, the DOJ and SEC settlements noted certain practices, including:

(a) documentation of justification for a hiring decision confirming that hiring was made in accordance with hiring policies and procedures;

(b) conducting full background checks to confirm absence of any direct or indirect connection to a foreign official who might be involved in or able to influence potential business opportunities or regulatory approvals;

© ensure proper oversight by human resource, legal and compliance staff of hiring activities to ensure that hiring decisions, promotions, bonuses or other benefits are appropriately awarded and tied to objective performance criteria; and

(d) conduct annual reviews of hiring practices to ensure compliance with procedures and documentation requirements.  As part of review, select sample of employees and ensure that there is no connection to foreign officials or, if there is such a connection, that appropriate controls and mitigation measures were implemented to minimize such risks.

Remediation and Discipline:  Credit Suisse did not earn full remediation credit because it tailed to impose adequate disciplinary measures against managers and employees related to the corrupt hiring program.  Such a failure to impose appropriate discipline cost Credit Suisse between 5 to 10 percent credit from the 15 percent credit awarded.  It is hard to justify incurring such additional costs to avoid imposing sufficient disciplinary measures against Credit Suisse Hong Kong employees.  Whatever you may think about such a tradeoff, Credit Suisse’s notification of policy infractions against three employees certainly does not send a very strong measure about the seriousness of such conduct.  Credit Suisse’s weak disciplinary response to the violations suggests a failure to commit to the culture and consequences needed to promote its positive culture of compliance.

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