SEC fines British banking giant Barclays $6 million for hiring relatives of business prospects in further tendril of ‘princelings’ scandal
The chief watchdog of the U.S. securities sector penalized one of London’s largest banks more than $6 million for broad corruption failings by illicitly trying to boost its investment banking business by hiring the friends and relatives of powerful foreign government officials – bringing the total number of banks to fall for similar actions to nearly a half-dozen.
The Securities and Exchange Commission in a just-announced penalty order stated Barclays PLC will pay $6.3 million to settle charges that it violated the U.S. Foreign Corrupt Practices Act (FCPA) by hiring the relatives and friends of foreign government officials in a bid improperly influence them in connection with its investment banking business.
In recent years, some half-dozen of the world’s largest banks – including Credit Suisse, Societe Generale, JPMorgan Chase and others – have paid regulatory and investigative agencies hundreds of millions of dollars for offering coveted internships and similar instruments to get an edge in certain business deals, colloquially dubbed the “princelings” scandal.
As in other past cases, the graft gaffes occurred in Asia, where some countries still consider bribery and influence peddling as part and parcel of standard business practices.
Between April 2009 and August 2013, Barclays hired approximately 117 job candidates referred by or connected to foreign government officials or non-government clients.
Most of these candidates were hired through an unofficial internship program called the “work experience program,” but some were hired into Barclays’ formal internship program, its graduate program or in permanent positions, according to the SEC order.
In the order, the SEC stated that Barclay’s Asia Pacific Region (APAC) provided “valuable employment to the relatives, friends, and associates of government officials to obtain or retain business or other benefits,” a move in direct contravention of stated corporate counter-corruption compliance policies and done with the knowledge of a regional compliance officer.
Many of these “relationship Hires” were made through an ad hoc and very much unofficial intern program, while others were surreptitiously hired through Barclays’ formal intern program, its graduate program, or as candidates for permanent positions, though in many cases they skirted certain reviews, had falsified experience or didn’t possess the requisite skillset for the positions.
The SEC listed a bevy of Barclays failures in this area, including crafting and maintaining a system of internal accounting controls around its hiring practices to “provide reasonable assurances that its employees were not bribing foreign officials in violation of company policy and the FCPA.”
‘Unofficial’ internship program
The bribing at Barclays started roughly a decade ago, with a seemingly innocuous “internship” program.
In April 2009, a senior executive in APAC approved an “unofficial intern” program for Barclays Korea that was separate from Barclays’ formal internship program.
The stated purpose of the program was to provide work experience opportunities for Korean college students and “on occasion to provide positions for ‘relationship’ requests for qualified students.”
That didn’t happen in practice.
Overall, roughly half of the candidates in this program between 2009-2013 had a connection to a Barclays client.
A senior banker in Korea responsible for the program was even more direct in the graft-gilt aim of the program, stating that, in his view, the “key factor behind relationship hiring decisions was what business the client could deliver to the bank.”
The senior banker also stated that “relationship hiring decisions were made based on whether the client was important, whether the hire would enhance the business relationship, and whether hiring the candidate would ‘open doors’ or otherwise help the bank win business.”
This practice began with Korea and later extended to other countries within APAC.
As well, in an attempt to cover their tracks, Barclays’ employees in the Asia Pacific Region “falsified corporate records to conceal the true source of the candidates and the reasons for hiring them,” according to the SEC.
As part of the settlement, Barclay’s agreed to pay just more than $6.3 million, the figure lowered considerably to the bank’s remedial acts and cooperation with the investigation.
Lack of enterprisewide compliance program
All this occurred even though Barclays created and touted anti-bribery and corruption policies that included prohibitions on providing employment in exchange for business, between 2009 and 2013, it lapsed on the oversight and enforcement around the initiated.
The bank “failed to effectively train APAC employees or monitor their compliance with those policies,” according to the SEC. “APAC bankers and compliance personnel lacked familiarity with and understanding of Barclays’ anti-bribery and corruption policies, particularly as those policies related to hiring.”
The order highlights many areas of confusion about what constituted corruption when employment influence and business opportunities collided.
For example, an APAC senior executive “claimed he did not know that offers of employment were items of value or that such offers could not be used to obtain business,” according to the SEC.
As well, one banker who worked at Barclays business units in both Korea and Hong Kong from June 2005 to March 2017 said “he was not aware of the FCPA until 2013,” according to the enforcement order.
Other Barclays bankers in the region mirrored similar sentiments, saying they were not aware that Barclays included internships and offers of employment within the definition of “anything of value.”
When shown Barclays policy on anti-bribery and corruption, one banker said he had “never seen it before,” the SEC stated.
Even compliance professionals in certain parts of Asia, the sentinels of understanding, identifying and countering corruption, where clueless.
A senior regional compliance executive said that he “never read the 2009 anti-bribery and corruption policy,” which required pre-approval by compliance before Barclays could offer internships to public officials or their close family members, and he also stated that it was “not until 2012 that he understood that an internship was considered an item of value for compliance purposes,” (via the SEC).
Monroe’s Musings: These SEC actions are excellent blueprints to see how corruption can enter into a bank, even one with an extensive anti-bribery compliance program.
Banks should consider weaving their sanctions, negative news and politically-exposed person (PEP) screening systems with their human resource and hiring systems to better uncover illicitly connected, and corrupted, hires.