Deutsche Bank to pay $16M in FCPA case over hiring practices

From at least 2006 through 2014, “Deutsche Bank provided valuable employment to the relatives of foreign government officials in various parts of the world as a personal benefit to the officials in order to improperly influence them to assist the bank in obtaining or retaining business or other benefits,” the Securities and Exchange Commission said in an Aug. 22 administrative order.

The SEC charged Deutsche Bank with violating the FCPA’s books-and-records and internal accounting controls provisions and ordered it to pay $16 million. This amount includes $10.7 million in disgorgement, a $3 million penalty to the SEC, and prejudgment interest of $2.4 million.

For compliance officers, particularly, the administrative order presents a litany of lessons on how not to run an anti-corruption hiring program. Those lessons are described in more detail below:

Deutsche Bank’s Global Anti-Corruption Policy went ignored. Since at least 2009, Deutsche Bank’s Global Anti-Corruption Policy prohibited employees from providing “anything of value” to a government official to gain an improper business advantage. In 2009, Deutsche Bank amended the policy, specifically defining “anything of value” to include job offers and recognizing providing employment at the request of a client, potential client, or government official could violate the bank’s anti-bribery policies. Despite these prohibitions, since at least 2006 Deutsche Bank’s operations in the Asia-Pacific (APAC) region engaged in a pattern and practice of employing relatives at the request of the executives of state-owned entities (SOEs) whose employees are deemed “foreign officials” under both the FCPA and Deutsche Bank policies.

Referral hires bypassed Deutsche Bank’s highly competitive and merit-based hiring process. Typically, applicants are required, among other things, to have a high-grade point average, to pass competency-based numerical and verbal skills tests, and advance through multiple rounds of interviews. Referral hires, on the other hand, “did not compete against other candidates based on merit or academic qualification and, in many instances, were less qualified than those employees hired through Deutsche Bank’s formal hiring process,” the SEC said.

“To help unqualified referral hires appear qualified, some APAC-based Deutsche Bank employees even drafted portions of their résumés, provided them with interview questions and answers in advance, and coached them on how to appropriately respond to questions,” the SEC said. “Some were hired without being interviewed at all.”

Deutsche Bank did not enforce its hiring policy. Since 2010, Deutsche Bank had a written hiring policy in APAC that prohibited employees from offering temporary employment to candidates referred by current or potential clients. “This hiring policy was not effectively enforced and did not apply to all categories of hires,” the SEC said. “Additionally, Deutsche Bank, although aware of corruption risks in its referral hiring practices, failed to implement global policies sufficiently to address this risk until 2015.”

Moreover, the SEC said, “while Deutsche Bank had defined ‘anything of value’ in 2009 to specifically include job offers and enacted the APAC Hiring Policy in 2010, it did not implement a global hiring policy with this effect until October 2015.”

Employees created false books and records. These false books and records that concealed corrupt hiring practices failed to accurately document and record certain related expenses. Also, Deutsche Bank failed to devise and maintain a system of internal accounting controls around its hiring practices sufficient to provide reasonable assurances that its employees did not bribe foreign government officials.

Deutsche Bank lacked systems to verify compliance with its Global Conflicts of Interest Policy. Under the policy, employees were supposed to be “walled off” or ring-fenced from business that created a potential conflict of interest. “This policy was also not effectively enforced,” the SEC said. Deutsche Bank employees at times assigned referral hires to work on deals where the referral hire’s parent or other close family member was a key decision maker or the source of the referral in order to further capitalize on their personal relationship. “Deutsche Bank lacked systems to verify compliance with this policy,” the SEC said.

Hiring practices were not limited to APAC region. According to the SEC, similar misconduct took place from 2009 to 2012 in Russia, where Deutsche Bank employees hired relatives at the request of foreign officials in Russia to obtain or retain business or other benefits. As was the case in APAC, Russian referral hires were sometimes unqualified. In some instances, if requested by the candidate or parent, Deutsche Bank’s London-based global management authorized unqualified Russian referral hires to work in London. One Russian referral hire performed so poorly in London that a London-based human resource employee deemed him “a liability to the reputation of the program, if not the firm.”

Enforcement trend

The SEC’s FCPA action against Deutsche Bank is part of a much broader enforcement trend over the last few years.

Consider the following:

• In August 2015, the Bank of New York Mellon reached a $14.8 million settlement with the SEC for FCPA violations over its hiring practices;
• In March 2016, digital telecommunications maker Qualcomm reached a $7.5 million settlement with the SEC for FCPA violations for hiring relatives of Chinese government officials;
• In November 2016, JPMorgan Chase was charged with FCPA violations concerning its overseas hiring practices and ordered to pay $264 million in total penalties; and
• In June 2018, Credit Suisse Hong Kong was ordered to pay a $47 million penalty and entered a non-prosecution agreement with the Department of Justice concerning its hiring practices in the APAC region.

Other banks that have disclosed FCPA-related investigations due to questionable hiring practices include HSBC, Citigroup, Barclays, UBS, Morgan Stanley, and Goldman Sachs.

The warning to all compliance officers in the financial services industry is that if firms are going to provide internships or employment to relatives of government officials, those hires demand enhanced scrutiny, oversight, and monitoring, because you can be sure the government is watching.