Businesslawtoday 2016 06 07

Practical Steps to Mitigate Corruption Risks in Hiring
Author(s): Margaret M. Cassidy and Bradley J. McAllister

Source: Business Law Today , (June 2016), pp. 1-5
Published by: American Bar Association
Stable URL: https://www.jstor.org/stable/10.2307/businesslawtoday.2016.06.07
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms
American Bar Association is collaborating with JSTOR to digitize, preserve and extend access to
Business Law Today
This content downloaded from

39.41.223.217 on Sat, 06 Nov 2021 21:34:34 UTC
All use subject to https://about.jstor.org/terms
Click to view the latest
June 2016
Business Law TODAY
BUSINESS LAW TODAY

Practical Steps to Mitigate
Corruption Risks in Hiring
By Margaret M. Cassidy and Bradley J. McAllister
Overview practices and that the prosecutions will prosecute instances where an individual or
The U.S. government has been investigat- impact overseas hiring. business unlawfully influences a govern-
ing the hiring practices of U.S. businesses Either way, a business can take some ment official to act or to refrain from act-
and has taken the position that hiring rela- practical steps to demonstrate that their hiring by offering, promising, or giving some-
tives of government officials in exchange ing practices are objective and not a “bribe” thing of value. Most states have similar
for government business or government intended to obtain government business statutes prohibiting bribery.
action violates corruption laws. Businesses or government favors whether the busi- If a foreign government official is in-
should consider reviewing and revamp- ness is working with foreign or domestic volved, the U.S. government can use the
ing anticorruption policies and hiring pro- governments. Foreign Corrupt Practices Act, which es-
cedures to ensure legal and ethical hiring sentially prohibits offering or promising
practices. Selected Laws and Regulations anything of value to obtain or retain busi-
In August 2015, the SEC reached a settle- Before reviewing these steps, it’s important ness or to gain a government advantage or
ment with BNY Mellon based on allegations to appreciate the laws and regulations the to influence a government decision.
that the firm gave internships to relatives government may use to mount these pros- Given the settlements with BNY Mellon
of officials at a Middle Eastern sovereign- ecutions. Doing so establishes a framework and Qualcomm, along with the other fed-
wealth fund in exchange for business. Simi- for effective internal controls to manage cor- eral investigations into hiring practices, it
larly in March 2016 Qualcomm settled with ruption risk in the hiring process. Although is clear that U.S. prosecutors consider a job
the SEC for allegedly giving jobs to relatives the recent prosecutions have focused on in- or even an internship to be “something of
of government officials to obtain both gov- teractions with foreign government officials, value” that if exchanged for government
ernment business and government favors in similar risks of corruption exist when inter- business or government action merits in-
China. Further, HSBC Holdings PLC, JP acting with federal, state, and local govern- vestigation and possible prosecution.
Morgan, and other financial institutions are ment officials in the United States.
facing investigations for supposedly giving Ethics Laws
jobs to relatives of government officials in Bribery But, corruption laws are not the only le-
exchange for government business or gov- Generally, exchanging “anything of value” gal construct that prohibits providing “fa-
ernment action. for government business or government vors” such as jobs to government officials.
Wall Street firms disagree with the gov- action is bribery whether a foreign govern- Both the U.S. federal government as well
ernment’s position that their hiring prac- ment official or a government official in as state and local governments have eth-
tices are illegal. Banks assert that the gov- the United States. The U.S. federal govern- ics laws that essentially prohibit govern-
ernment is criminalizing standard hiring ment can use its domestic bribery statute to ment officials from soliciting or accepting,
Published in Business Law Today, June 2016. © 2016 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any 1
portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written
consent of the American Bar Association.

39.41.223.217 on Sat, 06 Nov 2021 21:34:34 UTC
June 2016
Business Law TODAY
either directly or indirectly, any gratuity, mandated to have some system of inter- equate to fully effectuate BNY Mellon’s
gift, favor, loan, or anything of monetary nal controls that give it assurance that its anti-bribery policy.
value from anyone who has business with employees and agents are not acting con- Similarly Qualcomm settled, without ad-
the government or who has any other in- trary to the law when interacting with gov- mitting liability, SEC claims that it violated
terests that may be substantially impacted ernment officials. Further, businesses are the FCPA bribery prohibitions and the FCPA
by the government official’s duties. (See expected to have methods to prevent and internal control requirements because of its
e.g. Standards of Ethical Conduct 5 C.F.R. detect criminal activity as well as to en- hiring practices. (The SEC Qualcomm al-
Part 2635; 48 C.F.R. § 3.101; Conflicts of courage ethical business conduct and com- legations included other allegations beyond
Interest, 18 U.S.C. §§ 202-209). When de- pliance with laws. hiring practices.) According to the facts in
veloping protocols to mitigate the risk of Thus, any compliance controls designed the Qualcomm settlement, government of-
illegal or unethical hiring practices, these to mitigate the risk of improper hiring ficials from two Chinese state-owned tele-
ethics laws and regulations should also be should include measures to avoid actions communications enterprises (SOEs), re-
considered and incorporated. that may be construed as a bribe. But the quested that Qualcomm provide internships,
controls also need to include direction on educational payments, and eventual full-time
Definition of Government Official complying with ethics laws as well as pro- employment to their family members. The
To adequately address corruption risk around viding sufficient guidance to identify who Qualcomm settlement documents referenced
hiring, businesses also need to consider the may be a government official. Finally, con- acknowledgment by Qualcomm employees
definition of “government official” as well as trols should be responsive to how a busi- via e-mails that the internships were impor-
how the business interacts with government ness interacts with government officials, to tant to maintain ongoing business relation-
officials. Here in the United States, persons include possibly having employees that are ships with the SOEs and certain “customer
elected or appointed to government positions government officials. relationship benefits” would accrue, or be
or who work for a government entity are withheld, if the government official’s family
government officials and, for the most part Steps to Mitigate Improper Hiring member were not hired. The SEC also ac-
that is clear. The BNY Mellon and Qualcomm settle- cused Qualcomm of not having adequate in-
Identifying who may be a government of- ment agreements provide insight into the ternal controls to assure its employees were
ficial when working internationally is not so facts the government relied on to prosecute not providing “anything of value” to govern-
clear. In many countries the government, a them. A review of these facts will inform ment officials.
royal family, or a political party may own, businesses of approaches to mitigate key It is clear from these settlements that
manage, or work in business and they are risk areas that may subject a corporation the government now considers a job for a
all considered government officials. Further, to similar investigations and prosecutions family member of a government official as
the Foreign Corrupt Practices Act defines over hiring practices. something of value for purposes of corrup-
employees of the UN, World Bank, and sim- BNY Mellon settled, without admitting tion statutes. These cases also reiterate that
ilar organizations as government employees. to, SEC claims that it violated the FCPA organizations must have controls in place to
Business can interact with government bribery prohibitions and the FCPA inter- avoid running afoul of corruption laws. The
officials as potential customers, custom- nal control requirements because of its following suggestions on revamping hiring
ers, or as a regulator. However, an often hiring practices. According to the settle- practices may demonstrate to prosecutors
overlooked relationship with government ment, BNY Mellon managed the assets of that a businesses hiring is ethical and legal.
officials is the fact that a business may ac- a Middle Eastern sovereign wealth fund
tually employ a government official or a and wanted additional business from the 1. Clarify Your Anticorruption Policy
close family member of a government of- fund. The SEC alleged that the govern- In its settlement with the government,
ficial. For example, a business may have ment officials who managed the sover- BNY Mellon explicitly agreed to address
a U.S. employee who is the mayor of a eign wealth funds repeatedly asked BNY hiring government officials’ relatives in
small town, a member of a school board, Mellon to provide their family members its anticorruption policy. So anticorrup-
or a member of a port authority commis- with BNY Mellon internships. The settle- tion policies should clearly state that hiring
sion. All would be considered government ment referenced BNY Mellon e-mails that someone in exchange for government busi-
officials. Similarly, a business may have an demonstrated BNY Mellon employees ness or a government favor is illegal and
employee who has a close family member believed that by giving the internships to violates policy. In fact, the policy should
who is a government official. the government officials’ family member, make it clear that the business does not give
BNY Mellon would benefit from addi- favors, jobs, money, gifts, entertainment, or
Internal Controls Requirements tional business from the funds. The SEC anything of value to a government official,
Businesses are not only prohibited from also pled in the settlement that BNY Mel- foreign or domestic, in exchange for some
engaging in corrupt activity but are legally lon’s system of internal controls was inad- government business or government benefit.

39.41.223.217 on Sat, 06 Nov 2021 21:34:34 UTC
June 2016
Business Law TODAY
2. Standardize Aspects of the Hiring business to corruption. The process should To avoid the reality or the perception of
Process also include steps to conduct further due dil- making a hire in exchange for government
The interns that BNY Mellon hired at igence on the hire when a relationship with business or government favors, an organi-
the behest of the government officials were a government official is disclosed. Imple- zation should have written, defined educa-
hired before being interviewed and BNY menting a two-tiered review system in the tion and experience requirements as well as
Mellon sales and client relationship em- hiring process, disclosing relationships and clearly articulated soft skills such as lead-
ployees had wide discretion to make initial then conducting due diligence on any dis- ership ability, emotional intelligence and
hiring decisions. Although BNY Mellon closures, affords the business the opportu- maturity. Then, any applicant needs to meet
had a standard process for hiring interns, nity to not only have visibility on hires with those requirements. Doing so sets a defini-
apparently these interns did not go through relationships with government officials but tive standard for all applicants minimiz-
that process. As part of its settlement, BNY creates an avenue to review whether the hire ing the risk of an unqualified person being
Mellon agreed to set up a centralized hir- is in exchange for government business or hired simply because of their connections
ing process so every applicant for a full- government favors. with a government official.
time hire or an internship had to be routed However, this process must clearly de-
through the centralized human resource ap- fine the relationships that the applicant 5. Conduct Training and Message the
plication process. must disclose because failing to do so will Policy and the Processes
By creating a standardized application impede the process with too many disclo- The SEC noted in the Qualcomm settle-
process, a business eliminates the opportu- sures. For example, must an applicant dis- ment that certain employees had not been
nity for employees to independently make close a relationship with a cousin, an uncle, trained on the FCPA. Additionally, accord-
a hiring decision for improper reasons. A or just parents and siblings? This decision ing to the Qualcomm settlement, Qual-
centralized process that requires recruiting should be informed by each business’ op- comm did not have a sufficient bench of
professionals and human resource profes- erations such as where it does business and compliance officers to oversee corruptions
sionals to manage the hiring process en- how often potential clients refer hires to the risks so, without this support employees
ables hiring recommendations based on business. Additionally, the process should were not well situated to identify potential
objectivity, since human resource profes- be clear on the extent of any due diligence risks of corruption. BNY Mellon likewise
sionals are not involved in the sales pro- to be conducted on the applicant who dis- had not trained HR professionals. BNY
cess. It also assures that hiring decisions closes a relationship with the government. Mellon was also faulted because it did not
are informed with the subject matter exper- Finally, the process must define who is re- assure all employees completed the corrup-
tise of those charged with managing human sponsible for reviewing the due diligence tion training and because some employees
capital for a business, human resources, and who has the final authority on whether did not “understand” the training.
rather than being left to the sales team. the candidate continues through the hiring Anticorruption policies and the process-
process. es developed to enable compliance with
3. Disclose Relations with Government those policies must be systematically com-
Officials 4. Have Written Standards on Who Gets municated throughout the organization and
BNY Mellon’s settlement agreement Hired to third parties. The board, executives, em-
required that it establish methods for ap- In both the BNY Mellon case and the ployees and third parties need to be given
plicants to disclose relationships with gov- Qualcomm case, facts in the settlement training, messages, and the opportunity to
ernment officials and that anticorruption documents demonstrate that the hires made raise questions or concerns on corruption
officers had to review the disclosure, ap- at the behest of the government officials policies and adherence to procedures. Em-
proving any hires with these connections. did not meet either organization’s hiring ployees and leaders in high-risk groups,
According to the Qualcomm settlement, standards. BNY Mellon required candi- like recruiting, HR, and business develop-
one applicant was referred to during the dates to be from select schools, have a spe- ment should be trained more regularly and
Qualcomm hiring process as “must place” cific GPA, leadership skills as well as have should receive more regular communica-
and as having influence with Chinese gov- an affinity for financial services. However, tions reminding them of the policies and
ernment officials. the interns it hired at the request of the gov- procedures. Further, the training should
Developing a standard application pro- ernment official did not meet these require- be designed to assure it is effective—that
cess that requires applicants to disclose ments. Likewise, in the Qualcomm case, is, that employees understand the require-
personal or business relationships with gov- the settlement indicated that one candidate ments and are able to execute. This can be
ernment officials or whether the applicant who was hired at the request of the gov- done either by conducting live training that
ever worked for the government will furnish ernment official had previously been a “no includes a question and answer period or
recruiting and human resource with infor- hire” since the candidate’s skills did not through computer-based training that in-
mation to detect hires that may expose the match the job. cludes testing to complete the course.

39.41.223.217 on Sat, 06 Nov 2021 21:34:34 UTC
June 2016
Business Law TODAY
Also, it is vital to assure that all those employee was referencing the government As discussed above, a standard hiring
who must take the training do so and that official’s suggestion that Qualcomm need- process that removes hiring authority from
the business documents who took the trained to make the hire to continue to benefit business development and instead requires
ing and who received the communications. from its relationship with the government. human resource oversight should limit hir-
In 2012, Morgan Stanley avoided an FCPA ing decisions based on illicit requests from
prosecution in part because it was able to In matters of improper hiring practic- government officials. Similarly, having de-
inform DOJ the precise number of times es, recruiters and human resources are fined hiring criteria; requiring an applicant
it had tried certain employees on its cor- the front line in identifying red flags to disclose relationships with government
ruption policies and the precise number of around a potential hire. Therefore, officials; conducting due diligence on those
times the offending employee and been re- recruiters and human resource profes- disclosures; and requiring legal or compli-
minded about complying with anticorrup- sionals must be empowered to ques- ance review of those disclosures creates the
tion laws. tion the motives for a particular hire. controls that assure compliance with law.
They also must clearly understand However, to effectively manage these con-
6. Monitor Compliance With Policies where they can go for legal counsel in trols and to address instances when it is ethi-
According to the Qualcomm settlement, the event they encounter a hiring situ- cally and legally appropriate to circumvent
although it had standards around its hir- ation that seems suspicious. Finally, policy, decisions need to be documented.
ing practices, employees deviated from the they must be able to seek legal counsel Further, the standard hiring process should
standard hiring practices by hiring individ- without getting grief for doing so. document whether the candidate fit the hir-
uals that did not meet the minimum qualifi- ing criteria or not and it should document
cations of the position.. 8. Have Employees Certify to Complying why the candidate was hired or not hired.
Having great policies and standard pro- with Policy Also, if the decision is made to hire some-
cesses will be of no help if employees feel BNY Mellon’s settlement noted that as one who does not have the required back-
they do not have to follow them if the right part of its annual certification to comply ground or there was a decision to circumvent
business opportunity presents itself. So, in with the BNY Mellon’s Code of Conduct, hiring processes, the decision and why it was
addition to creating the policies and proce- BNY Mellon agreed to have its employees made should be explained and documented.
dures which are designed to help employ- annually certify compliance with the cen- The assessment should include an opinion on
ees avoid corrupt activity, a business needs tralized hiring process. the legality of the transaction as well as the
to conduct regular audits of these policies Once a business establishes policies and impact a hiring decision, even if legal, would
and procedures to assure employees are not procedures and trains on those policies and have on the business’ reputation.
circumventing them. If these audits identify procedures, it should also require employees
instances of noncompliance, employees, re- to annually certify that they have followed 10. Investigative Processes
gardless of role in the business, need to be the policy and processes. The certification Finally, when a recruiting or hiring is-
disciplined. Further, audit findings should should not only give employees the option sue appears to be inconsistent with policy
also be used to assess whether the policies to affirm compliance but it should also give or occurred outside of the standard hiring
and procedures are effective in achieving the employees the option to indicate that before processes, an organization should have a de-
goal of hiring without corrupt influence. If making a certification, they must talk with fined method to investigate the matter. The
the findings reveal that processes are inef- the anticorruption policy owner, ethics or investigative findings should be documented
fective in doing so, policies and processes legal about any actions they are now ques- and any decision, either to hire or to abort
should be updated to be responsive. tioning. Certifications, while valuable, can the hire, should be noted. Lawyers, con-
be harmful if employees are asked to reveal sulting with human resources and impartial
7. Empower Recruiting and HR to Bring instances of policy violations that may im- business leaders, need to be able to call foul
Issues Forward plicate a violation of corruption laws. and stop a hire.
The SEC described in the Qualcomm Finally, depending on what the investiga-
settlement that Qualcomm HR personnel 9. Document Decisions tion reveals and the nature of the business,
responded to internal pressure from a vice In the BNY Mellon settlement BNY lawyers will need to work with business
president to hire a government official’s Mellon senior managers had the authority leaders to determine if in fact the practices
son despite an assessment that the indi- to approve the hires that the government need to be disclosed to the government.
vidual would “be a drain on teams.” When officials had requested without legal, com-
questioned about the hiring decision, the pliance or human resources review of the Conclusion
HR employee explained that “we’re operat- decision. As a result, the SEC claimed that Ultimately, an organization needs to ana-
ing under a different paradigm here than a BNY Mellon did not have the necessary lyze its hiring practices in light of the U.S.
normal hire/no hire decision tree.” The HR controls to assure compliance with law. government’s increased focus on prosecut-

39.41.223.217 on Sat, 06 Nov 2021 21:34:34 UTC
June 2016
Business Law TODAY
ing businesses for hiring practices that may risks of working with foreign, federal, Pittsburgh Journal of Technology
violate corruption laws. The review should state, and local governments so Law and Policy. In fall 2015, he
consider not only the organization’s current they are better able to be profitable participated in the U.S. Securities
hiring methods but also the countries where and reputable corporate citizens. and Exchange Commission’s
it recruits and hires. But, hiring practices in She has counseled business leaders; Student Honors Program where
the United States should not be ignored be- executed risk assessments; conducted he worked as an extern in the
cause those too can expose a business to a internal investigations; and assisted Foreign Corrupt Practices Act unit
corruption allegation. The results of that re- clients with mergers, acquisitions, within the Division of Enforcement
view should inform on the need to develop third party due diligence, and crisis in Washington, DC. During law
or refine policies and procedures for protect- management on matters related school, he completed an internship
ing itself from accusations of illegal or un- to corruption, money laundering, in Alcoa’s Ethics and Compliance
ethical hiring. Compliant and ethical hiring fraud, international trade, the False unit in Pittsburgh, Pennsylvania.
can mitigate the exposure of bribery, other Claims Act, political law, ethics, and In summer 2014, he worked as an
criminal charges, or regulatory violations government procurement. extern for the Pennsylvania Office of
by eliminating trading jobs for government General Counsel in the Department
favoritism. Bradley McAllister is a May 2016 of Environmental Protection in
graduate of the University of Harrisburg, Pennsylvania. Mr.
Margaret Cassidy is founder and Pittsburgh School of Law, where he McAllister holds a BS in business
principal at Cassidy Law and completed a concentration in energy administration and a BA in
provides legal counsel to businesses and environmental law and served politics from Washington and Lee
on the legal, ethical, and compliance as a member of the University of University.

39.41.223.217 on Sat, 06 Nov 2021 21:34:34 UTC

Businesslawtoday 2016 06 07

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Businesslawtoday 2016 06 07

Uploaded by

Copyright:

Available Formats

Practical Steps to Mitigate Corruption Risks in Hiring

Author(s): Margaret M. Cassidy and Bradley J. McAllister

Stable URL: https://www.jstor.org/stable/10.2307/businesslawtoday.2016.06.07

This content downloaded from