A Hong Kong-based subsidiary of a multinational bank has agreed to pay a total of $264.4 million in penalties for violating the Foreign Corrupt Practices Act in an effort to win business in China. This amount includes $130.5 million in disgorgement and interest to be paid to the Securities and Exchange Commission, a $72 million criminal penalty to be paid to the Department of Justice, and a $61.9 million civil penalty to be paid to the Federal Reserve System’s Board of Governors.
According to a DOJ press release, the subsidiary launched a “client referral program” in 2006 to hire relatives and friends of Chinese government officials as a means to influence those officials to award investment deals to the subsidiary. The program was revamped in 2009 to prioritize hires linked to upcoming client transactions. The DOJ states that the subsidiary’s employees misused compliance questionnaires to justify and paper over corrupt business arrangements and that compliance personnel drafted and modified questionnaires that failed to state the true purpose of the hire. The SEC notes that during a seven-year period the subsidiary hired about 100 interns and full-time employees under this program, enabling the firm to win or retain business resulting in more than $100 million in revenues.
The subsidiary has entered into a non-prosecution agreement with the DOJ under which it will pay the criminal penalty, continue to cooperate in any ongoing investigations and prosecutions relating to the conduct at issue (including of individuals), enhance its compliance program, and report to the DOJ on the implementation of that enhanced program.
The DOJ states that while the subsidiary did not voluntarily and timely disclose the conduct at issue it did receive full credit for its cooperation with the criminal investigation, including conducting a thorough internal investigation, making foreign-based employees available for interviews in the U.S., and producing documents from foreign countries in ways that did not implicate foreign data privacy laws. The subsidiary also terminated six employees who participated in the misconduct and disciplined another 23 who, although not involved in the misconduct, failed to effectively detect it or supervise those engaged in it. Further, the subsidiary imposed more than $18.3 million in financial sanctions on former or current employees in connection with its remediation efforts.
Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office noted that the FBI has recently established three dedicated international corruption squads to combat these types of schemes.