EXAMINING THE JPMORGAN "PRINCELING" SETTLEMENT: INSIGHT INTO CURRENT FOREIGN CORRUPT PRACTICES ACT (FCPA) INTERPRETATION AND ENFORCEMENT.

• Published date: 22 March 2018
• Author: Earle, Beverley,Cava, Anita
• Date: 22 March 2018

Introduction 368
                II. Current FCPA: Princeling Settlements et al 371
                 A. FCPA Brief History 371
                 B. JPMorgan Settlement, November 17, 2016 373
                 C. BNY Mellon and Qualcomm settlements 379
                 D. Declinations under the 2016 "Pilot Program" and its
                Extension 380
                 E. Post-Princeling Settlements: Citigroup and Walmart? 383
                III. Legal Context 384
                 A. New Cases 385
                 1. US v. Hoskins 385
                 2. Kokesh v. SEC 386
                 3. Bio Rad Whistleblower 387
                 4. PetroTiger 389
                B. Non-FCPA decisions 390
                 1. Skilling v. United States and Honest Services Fraud 390
                 2. Redefining and restricting liability in public corruption
                cases 391
                 a) Blagojevich 391
                 b) McDonnell v. United States 392
                 c) O'Brien v. United States 393
                 d) Samson v. United States 394
                 e) Silver 396
                 3. A Unanimous Supreme Court Affirms Liability in Insider
                Trading: Salman v. United States (2016) 397
                 4. Looking at Over-Criminalization? Andersen, Bond and
                Yates 400
                IV. Political and Ethical Context 403
                V. Conclusion: Lessons Going Forward from the Princelings
                Settlements 408
                

INTRODUCTION

The Foreign Corrupt Practices Act (FCPA), enacted by the U.S. Congress in 1977, criminalized the paying of bribes to foreign officials by individuals and entities from the United States as well as those whose transactions touched the United States. (2) Although prosecutions initially were very rare, their number increased substantially starting in 2007. (3)

In 2013, the government began investigating several U.S. companies with a pattern of hiring sons and daughters of public officials in China. Three years later, BNY and Qualcomm settled cases involving so-called "princeling" hiring programs. (4) During this time period, the Department of Justice (DOJ) also conducted an investigation of the "Sons and Daughters" hiring program at JPMorgan Chase and JPMorgan Securities (Asia Pacific) Limited ("JPMorgan APAC") (a Hong Kong-based subsidiary of JPMorgan Chase & Co.) that lasted three years and included one hundred interns as well as full time employees hired based on referrals of foreign officials." (5)

In an interesting decision from a timing perspective, JPMorgan decided to resolve its dispute with the government in late November 2016, despite President-elect Trump's public comments hostile to the FCPA in the past. (6) The company reached a $264 million settlement agreement (7) regarding its hiring individuals to obtain quid pro quo benefits from Chinese entities (8) and JPMorgan APAC signed a non-prosecution agreement (NPA), (9) despite reports that the case may not be completely over as some issues are still being investigated. (10)

Reportedly, other banks are still under review for their hiring practices in Asia. (11) In SEC filings, Citigroup recently disclosed an ongoing investigation "concerning compliance with Foreign Corrupt Practices Act and other laws... with respect to the hiring of candidates referred by or related to foreign government officials." (12) In this instance, however, the country disclosed as involved was not China. It will not be a surprise if similar settlements follow.

CEO Jaime Dimon has made a passionate defense of the need to understand the importance of flexibility in doing business. (13) Recent commentators have expressed some sympathy for that argument:

JPMorgan was far from the first bank to use its princeling hires as
                leverage. According to a Bloomberg report, JPMorgan ramped up its
                hiring program after the bank lost a key deal to competitor Deutsche
                Bank in 2009. The daughter of the client's chairman worked for
                Deutsche. It's not hard to see how "quid pro quo" deals could be
                tempting for global banks operating in an often inhospitable market
                Banking is a protected core industry under the Chinese Communist Party
                and Western banks have been losing market share to domestic Chinese
                competitors over the last decade. Advisers to companies raising capital
                often come across sensitive corporate financial data--information
                Beijing may not want foreign banks to see. (14)
                

JPMorgan went to extreme lengths to obtain business from its Asian clients, reflecting a degree of insouciance about the enforcement of the FCPA that bears scrutiny and analysis. This paper attempts to examine this first and then considers consequent issues. One question is whether and how President Trump's Department of Justice appointees will change the interpretation of the FCPA, thereby affecting settlement decisions. A more interesting question may be what will happen in future cases where the evidence is less damning than the apparent "smoking guns" in JPMorgan Chase emails, spreadsheets and faux-compliance policies. Would a referral of a candidate from either a foreign official or a well-connected foreign applicant be viewed as a normal course of business or a violation of federal law?

This paper will analyze current FCPA settlements and the sparse new case law. We will review recent decisions in the domestic legal environment for how quid pro quo is interpreted in the bribery and insider trading context to see if there is any analogy to the less-litigated FCPA context. We will look at cases with language regarding over-enforcement or criminalization of business conduct. In addition, we examine the political climate in light of the recent presidential election--including possible violations of election law prohibiting solicitations of "anything of value" (15)--for insight into FCPA enforcement. We conclude with some lessons for business gleaned from JPMorgan and other settlements and the broader legal environment.

II. CURRENT FCPA: PRINCELING SETTLEMENTS ET AL.

A. FCPA Brief History

The United States' Foreign Corrupt Practices Act (FCPA), passed in 1977, criminalized bribing foreign officials by offering them "anything of value" to assist in "obtaining or retaining business." (16) A section of the FCPA imposed additional obligations on publicly traded companies to maintain accurate books and records. (17) A violation of the books and records provision is easier to prove than the exchange of value for "obtaining or retaining business," a quid pro quo arrangement. The statute was not vigorously enforced until relatively recently, after the 1997 OECD Convention on Combating Bribery of Foreign Public Officials, (18) which reflected a growing international consensus on the corrosive corruption of bribery on economic development. This history is reflected in the statistics graphically displayed by Stanford researchers. (19)

In 2016, the U.S. government collected $2.48 billion under the FCPA, the largest amount of money to date in one year. (20) The FCPA Blog reported the top ten biggest FCPA cases, including three new 2016 cases but not the JPMorgan Chase case:

Siemens (Germany): $800 million, 2008
                Alstom (France): $772 million, 2014
                KBR/Halliburton (USA): $579 million, 2009
                Teva Pharmaceutical (Israel): $519 million, 2016
                Och-Ziff(USA): $412 million, 2016
                BAE (UK): $400 million, 2010
                Total SA (France): $398 million, 2013
                VimpelCom (Holland): $397.6 million, 2016
                Alcoa (USA): $384 million, 2014
                Snamprogetti Netherlands
                B.V./ENI S.p.A (Holland/Italy): $365 million, 2010 (21)
                

Seven of the top ten include foreign companies, which fuels some international distrust that the United States' enthusiasm for this statute stems in part from a desire to punish foreign competitors. (22) This list also underscores the emerging effect of international cooperation in addressing bribery and corruption, notably the implementation of the UK Bribery Act (23) and increasingly zealous enforcement of national laws. (24) There is no doubt the last decade is a vastly different legal context from the early years of the FCPA. (25)

Thomas Fox, an influential FCPA blogger, dubbed 2016 the "Year in FCPA Corporate Enforcement" in his recently published book of the same title. (26) He underlines the flurry of enforcement activity between late December 2016 and President Trump's swearing-in-office in January of 2017, which amounted to almost "20 billion in fines and penalties" and exceeded what had been collected in the fiscal year 2016. (27) Fox suggests "[t]he reasons for the settlements vary from corporation to corporation but one overriding reason is certainty." (28) He also notes "timing" as a factor; companies that do not settle will have to negotiate with a whole new set of individuals. (29)

Knowing what the penalty might be provides certainty and often leads to a stock price rise. (30) It is worth noting, however, that Walmart appears to reject this fear of uncertainty as it has yet to make a deal with the government with respect to their longstanding bribery investigation. (31)

B. JPMorgan Settlement, November 17, 2016

JPMorgan Chase and its Asian entity started the "Sons and Daughters Program" in 2006 and ended it in 2013, when the government began its investigation. (32) As noted above, the entities entered into the close to quarter-billion-dollar settlement in late November 2016. (33) Prior to reaching the deal, JPMorgan fired six individuals and reportedly disciplined over twenty employees. (34) Interestingly, despite policy announcements promising increased personal criminal liability in FCPA cases, (35) the DOJ did not pursue that option in this situation, even though there was particularly strong evidence of intent to garner business through the hiring program. (36) The DOJ describes the case in specific terms.

In 2006, responding to numerous requests from its clients, JPMorgan Chase and its Asian entities designed a "referral hiring" stream affording less-rigorous screening and less-demanding employment for targets of opportunity. (37) In the settlement agreement, the firm admitted that "[u]ndcr the revamped Client Referral Program, referred candidates for employment needed... a '[d]irectly attributable linkage to business opportunity' to be considered for a job." (38) A 2006 email regarding this policy makes clear that the firm both knew about and was concerned by the compliance issues arising under the program...