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FraudTalk - Thought Leadership on Asset Recovery

Wednesday, 2nd September 2015

The Bank of New York Mellon has earned the ignominious title of first Bank to be charged by the U.S. Securities and Exchange Commission (SEC) with violating the Foreign Corrupt Practices Act (FCPA). And the bribe? Internships. As reported by Global Investigations Review (GIR), BNY Mellon agreed to settle Aug. 18 without admitting or denying allegations that it violated the FCPA by hiring relatives of foreign officials as interns.BNY Mellon agreed to pay the SEC a total of $14.8 million, $8.3 million of which represents disgorgement of profits from its operation in the Middle East and North Africa region, plus $1.5 million in interest and a $5 million penalty.

This is reportedly the first foreign bribery enforcement action in which internships, as opposed to cash, constituted the alleged bribe, and BNY Mellon is not alone. JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG have also been investigated over whether their hiring practices violated the foreign bribery statute. The outcome of these investigations is not currently known.

As a result of an investigation into BNY Mellon’s practices (part of an industry-wide investigative sweep in 2011) the SEC discovered that valuable internships had been offered to the relatives of certain foreign government officials associated with one of BNY Mellon’s clients, to assist BNY Mellon in retaining and obtaining business. BNY Mellon, per an employee, felt it was “not in a position to reject the request from a commercial point of view” even though it was a “personal request” from the foreign official.
Clearly, when an organization is driven by the desire to make a profit at all costs, it will never be in a position to reject a request for a bribe “from a commercial point of view.” Can such a mindset be changed?

The short-term answer is no. There will always be competitors willing to go to great lengths to win business. That is the very nature of competition. There is no doubt that “BNY Mellon deserved significant sanction for providing valuable student internships to family members of foreign officials to influence their actions," as Andrew Ceresney, the SEC's director of enforcement, said in a statement released by the SEC. However the problem that lead to this sanction will not disappear overnight or even over the next decade.

The desire if not need to increase profit will always be present. In the words of a relationship manager at BNY Mellon “It’s [sic] silly things like this that help influence who ends up with more assets.”

In the governing of a well-functioning society, different interest groups are represented, not just those focused on the numbers. Why? Because many factors impact the bottom line. This should hold true for any organization, public or private. The creation of separate interest units within an organization, all with an equal voice in decision-making, can go a significant way toward ensuring that it is not just profit that rules. The creation of profit at all costs is rarely, if ever consistent with the many varied factors (such as environmental, human rights, or employee welfare to name a few) that come into play in the pursuit of the goal of profit maximization.

To tackle the problem presented by briberyit will be necessary to cultivate a business ethic that incorporates healthy and fair competition; that avoids the temptation to bend rules to create advantages; and above all an ethic that puts people before profit. The Dalai Lama, one of the most respected religious leaders of our time has said that ethics are more important than religion, in business, ethics should be more important than profit. The Dalai Lama hopes to, and believes he will, see a free Tibet before he dies. Can we hope fora business environment free from corruption?

Martin S. Kenney is an international expert on asset recovery and commercial litigation and a member of ICC FraudNet. Based in the British Virgin Islands, Martin Kenney & Co. Solicitors focuses on representation of people harmed by international economic crime, as well as on complex insolvency, bankruptcy and commercial litigation work.

ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country.Our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit. FraudNet has been recognized byChambers Global as the world’s leading asset recovery legal network.

Written by Martin S. Kenney