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$15 Million Penalty to Settle Charges of FCPA Violations

Thursday, August 20, 2015
Sandler, Travis & Rosenberg Trade Report

The Securities and Exchange Commission announced Aug. 18 that a U.S. financial institution has agreed to pay $14.8 million to settle charges that it violated the Foreign Corrupt Practices Act by providing student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund. This amount includes $8.3 million in disgorgement, $1.5 million in prejudgment interest and a $5 million penalty. The SEC states that it considered the bank’s remedial acts and its cooperation when determining this settlement.

An SEC investigation found that the bank did not evaluate or hire the individuals at issue through its existing, highly competitive internship programs that have stringent hiring standards and require a minimum grade point average and multiple interviews. The SEC states that these individuals did not meet the rigorous criteria yet were hired with the knowledge and approval of senior employees to corruptly influence foreign officials and win or retain contracts to manage and service the assets of the sovereign wealth fund.

The SEC’s order finds that the bank lacked sufficient internal controls to prevent and detect the improper hiring practices. It did have an FCPA compliance policy but maintained few specific controls around the hiring of customers and relatives of customers, including foreign government officials. Sales staff and client relationship managers were permitted wide discretion in their initial hiring decisions and human resources personnel were not trained to flag potentially problematic hires. Senior managers were able to approve hires requested by foreign officials with no mechanism for review by legal or compliance staff.

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