Barclays is now among a growing list of financial institutions to have to pay a penalty for violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act due to questionable hiring practices. As with other cases of its kind, numerous compliance failures were present.
On Sept. 27, the Securities and Exchange Commission announced Barclays will pay $6.3 million to settle charges that it violated the FCPA by hiring the relatives and friends of foreign government officials in order to improperly influence them in connection with its investment banking business. According to the SEC’s order, Barclays’ Asia Pacific Region (APAC) provided valuable employment to the relatives, friends, and associates of government officials to obtain or retain business or other benefits. Many of these “relationship hires” were made through an unofficial intern program, but some were also hired through Barclays’ formal intern program, its graduate program, or as candidates for permanent positions.
The SEC’s order found Barclays “failed to devise and maintain a system of internal accounting controls around its hiring practices sufficient to provide reasonable assurances that its employees were not bribing foreign officials in violation of company policy and the FCPA. In addition, with respect to certain hires, Barclays’ employees in the Asia Pacific Region falsified corporate records to conceal the true source of the candidates and the reasons for hiring them.”
For compliance officers, the order presents yet more lessons on how not to run an anti-corruption hiring program. Those lessons are discussed in more detail below:
Failure to train. Although Barclays’ anti-corruption policies prohibited providing employment in exchange for business, it “failed to effectively train APAC employees or monitor their compliance with those policies” between 2009 and 2013, the order stated. “APAC bankers and compliance personnel lacked familiarity with and understanding of Barclays’ anti-bribery and corruption policies, particularly as those policies related to hiring.”
In one specific example, “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,” the order said.
Short-sighted compliance reviews. By June 2009, APAC compliance officers knew of the practice of hiring interns, including the relatives and friends of clients. “To the extent compliance officers reviewed relationship hiring requests, their review was generally limited to potential conflicts of interest, despite an April 2009 Barclays policy that expressly addressed anti-corruption risks related to these hiring decisions,” the SEC order stated. “APAC compliance officers stated that they were unaware of this aspect of the policy, and a senior APAC compliance executive said that he had never read the 2009 anti-bribery and corruption policy.”
“In fact, a senior compliance officer responsible for reviewing referral hires, acknowledged that, in evaluating hiring requests, he never reviewed information relating to pending business with Barclays’ clients, even though he had access to that information,” the order continued. “Moreover, even though Barclays’ policy required ‘compliance monitoring’ in the hiring process, the same compliance officer could not explain what that requirement was or how it was conducted.”
Relationship hires made without consulting compliance. “In some instances, when compliance was consulted, employees withheld information or falsified documents to conceal the identity of the person or entity requesting the hire,” the order stated. “At other times, compliance approved hires even in circumstances where employees candidly identified that the justification for the relationship hire was the potential for future business.”
Compliance turns a blind eye. In September 2010, APAC bankers sought approval to hire through Barclays’ graduate program the daughter of a government official—the senior executive of a Chinese state-owned enterprise. The daughter performed poorly during the interview process and received a “do not hire” recommendation.
According to the SEC order, “compliance knew about the possibility of a future transaction with the state-owned enterprise and that the banker anticipated hiring the daughter would help Barclays win business going forward. When the local compliance officer escalated the issue to a senior compliance officer, highlighting the comment about winning business based on the daughter’s connections, the senior compliance officer responded: ‘I’m sure this is not the first time.’ He then approved the offer, as long as the business would confirm that she would be hired for ‘her qualifications and her skills, not for any other reason.’ There is no evidence the business unit provided such a confirmation. Nevertheless, Barclays APAC offered the executive’s daughter a position in its graduate program.”
As a result of the examples cited above, and many more described in the order, the SEC found Barclays violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, Barclays agreed to pay $6.3 million, consisting of disgorgement of $3.8 million, prejudgment interest of $984,040, and a $1.5 million civil penalty. The SEC considered the company’s remedial acts and cooperation with the investigation in determining whether to accept Barclays’ offer of settlement.