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The following blog post was originally published in ACFE Insights on October 24, 2016. 

Recently, HSBC announced that it was under investigation by the Securities and Exchange Commission (SEC) for its hiring practices in Asia. HSBC’s practice of hiring employees based upon their ties to government officials may violate the U.S. Foreign Corrupt Practices Act (FCPA). The FCPA regulates the activities of organizations and individuals with ties to the U.S. in matters involving foreign government officials. Foreign government officials include the heads of major government agencies and other leaders, down to the customs agent at a port or an environmental inspector. The FCPA forbids businesses and individuals from currying favor with government officials to get or keep business. Hiring the relative of a foreign government official to get or keep business is not permitted under the FCPA; however, that is what HSBC is being investigated for.

Hiring those with ties to government is not a new problem for global banking organizations. In 2015, BNY Mellon paid a nearly $15 million fine for providing student internships to family members of wealthy foreign officials in the Middle East. Other banks are being queried by the SEC about their potentially improper hiring practices, including Credit Suisse, Goldman Sachs, Morgan Stanley, Citigroup and UBS.

The FCPA does not forbid hiring family or friends of a government official. It does, however, make it illegal to hire anyone with a corrupt intent to obtain or keep business based upon that employee’s relationship to government officials. The SEC and the U.S. Department of Justice (DOJ) both take an aggressive view when it comes to FCPA enforcement, and they can be less than reasonable when it appears that an organization is trying to provide any benefit to enhance its standing with a government official. Improper hiring practices that violate the FCPA can readily give rise to civil penalties imposed by the SEC and possible criminal cases brought by the DOJ.

Below are five ways global organizations can avoid FCPA liability:

1. When hiring outside the U.S., develop policies and procedures assuring that internships and jobs are being filled only by the best people.
2. Be specific about the types of benefits that can be provided to officials.
3. Provide crucial FCPA training, preferably in person, to those making important hiring decisions outside of the U.S.
4. Perform due diligence regarding an applicant’s credentials and ties to government officials to insure that the record is clear regarding why that employee was hired.
5. Conduct FCPA audits to make sure that hiring practices outside the U.S. are compliant with the FCPA.

Conclusion

Hiring for global employees may create liability, but with good due diligence and effective compliance policies, you can protect your organization.