SEC- BNY Mellon Settle FCPA Charges Tied To Hiring Relatives of Officials
The SEC has been investigating sovereign wealth funds and issues relating to the hiring of friends and family of foreign officials for some time. Now it has filed a settled action centered on both of those issues which contains a cautionary note for those who have not updated their compliance procedures in view of these inquiries. In the Matter of The Bank of New York Mellon Corporation, Adm. Proc. File No. 3-16762 (August 18, 2015).
Respondent BNY Mellon is a global financial services firm which at times operates through subsidiaries and affiliates. One unit is BNYM Asset Servicing. Another is wholly owned BNY Mellon Boutique, an asset management firm.
Middle Eastern Sovereign Wealth Fund became a client of BNYM Asset Servicing in 2000. The services were largely custodial. The unit maintained about $55 billion in assets for the Wealth Fund. Two years later Asset Servicing entered into an arrangement with the Wealth Fund under which the assets could be loaned out in accord with certain guidelines. Following the market crisis, during which the lending terms were constricted, Asset Servicing sought to expand the terms under which those loans could be made.
In 2009 the Wealth Fund became a client of Asset Management, designating the Boutique to manage about $711 million in assets. Under the terms of the agreement the assets under management could be increased.
Officials X and Y, both senior officials connected to the Wealth Fund, began seeking internships for relatives in 2010. At the time BNY Mellon had an established summer internship program for undergraduates. There was a separate summer program for postgraduates actively pursuing an MBA or similar degree. Admission to the postgraduate program was highly competitive and governed by stringent hiring standards.
Official X requested that Intern A, his son, and Intern B, his nephew, be hired. He repeated his request in a number of emails. He made it clear that this was “more of a personal request” and that the Wealth Fund was not to know about it. Internally at the bank, Official X was acknowledged to be a “key decision maker.” The request was granted, although none of the program hiring standards were followed. BNY Mellon retained the Boutique mandate and further assets were transferred by Official X’s department within a few months.
Official Y sought to have Intern C, his son, retained. Official Y was viewed as essential to obtaining new business by the bank. At the time of the request a number of client service issues had threatened to weaken the relationship. After retaining Intern C, without following the usual hiring process, BNY Mellon retained its existing custody and securities lending business which continued to grow.
The internships for Interns A, B and C were customized one-of a-kind- training programs crafted for these interns. They were “neither inexpensive nor easy for BNY Mellon to structure,” according to the Order. Nevertheless, the interns turned out to be less than exemplary employees.
BHY Mellon had a code of conduct and a specific FCPA policy. During the time period, however, BNY Mellon “had few specific controls relating to the hiring of customers and relatives of customers, including foreign government officials,” according to the Order. Here the senior managers were able to approve the hiring of the interns without any review by persons with legal or compliance backgrounds. Accordingly, the Order notes, the system of internal accounting controls were deficient.
The Order alleges violations of Exchange Act Section 30A and Section 13(b)(2)(B). The Commission acknowledged the cooperation of BNY Mellon and its remedial acts which, prior to the SEC’s investigation, included initiating reforms to its anti-corruption policy to address the hiring of government officials’ relatives.
To resolve the case Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, BNY Mellon agreed to pay disgorgement of $8.3 million, prejudgment interest and a civil money penalty of $5 million. BNY Mellon acknowledged that a penalty of over $5 million was not imposed based on its cooperation.