The U.S. Foreign Corrupt Practices Act (FCPA) prohibits the entities it covers from corruptly offering “anything of value” to a foreign official for the purposes of obtaining or retaining business. In most cases, the “thing of value” offered is a traditional bribe—money, expensive gifts, lavish vacations, etc. But in some cases, firms do “favors” for foreign officials that are less direct, and do not conform quite so obviously to traditional notion of bribery. Making a generous donations to the official’s favorite charity is one example; another, which has become increasingly prominent in recent FCPA investigations—primarily in cases involving China—is preferential hiring of the relatives of the foreign officials in exchange for business opportunities. This issue got a lot of press particularly in connection with the SEC’s investigation of hiring practices at JP Morgan and other investment banks in China, but the issue is more pervasive.
These investigations raised an interesting legal question: Can providing a job or internship to the adult relative of a foreign official ever count as providing “anything of value” to the official him- or herself? To my mind, the answer is a clear yes, but not everyone agrees. Last year, Professor Andy Spalding and I engaged in a spirited and constructive debate on this question (see here, here, here, and here)—and though I think in the end our positions (mostly) converged, there was perhaps still some lingering doubt (though not in my mind) as to whether the U.S. government would or should adopt the view that offering a bribe to an official’s relative can count as offering something of value to the official.
That doubt has been laid to rest. In the BNY Mellon settlement from last August, the settlement document explicitly endorsed the view that the firm’s decision to provide internships to foreign officials’ relatives counted as providing “anything of value,” because “[t]he internships were valuable work experience, and the requesting family members derived significant personal value in being able to confer this benefit on their family members.” And last week, the SEC announced a settlement with Qualcomm regarding investigations into Qualcomm’s alleged FCPA violations in China; although the violations included more traditional bribes (such as lavish gifts, travel, and entertainment), the settlement focuses substantially on Qualcomm’s practice of hiring the relatives of Chinese officials (and executives at state-owned enterprises, who count as foreign officials for FCPA purposes) in exchange for favorable treatment—even when these candidates would not meet Qualcomm’s normal hiring standards.
As GAB readers know, I think that this view is legally correct, good policy, and entirely consistent with the DOJ and SEC’s past statements on this issue, including the FCPA Resource Guide (which admittedly doesn’t discuss this specific scenario explicitly). The recent settlements in BNY Mellon and Qualcomm do not, of course, have any bearing on whether I’m correct in those views. But insofar as there might have been any uncertainty about the U.S. government’s position, it has been eliminated. This is likely bad news for J.P. Morgan, but good news for the world. Why do I think it’s good news for the world? Three main reasons:
- First, and most straightforwardly, bribery is bad. All of the policy arguments in favor of the FCPA apply just as much to non-traditional bribes (like hiring a foreign official’s relative) as to traditional bribes (like paying for a foreign official’s luxury vacation). This point may seem banal, and I guess it is–but it’s worth making in light of the fact that many people seem to think that there’s some significant qualitative difference in these sorts of bribes. If bribery distorts markets, undermines fair competition, etc., then we should prohibit all forms of bribery, not just those that involve suitcases full of cash. And, by the way, the “everyone does it” argument cuts no more ice with this sort of preferential hiring than it does with traditional “gifts” and other material favors. (Of course, in some cases a legitimate transaction may be harder to distinguish from a bribe. There’s not really any legitimate reason to hand a foreign official a suitcase full of cash. There may well be legitimate reasons to hire an official’s relative. But this goes to the problem of proof of corrupt intent and business purpose, not to any categorical exclusion of non-traditional bribes from the “anything of value” category.)
- Second, a sometimes-overlooked additional adverse effect of this sort of preferential hiring is the impact on qualified, highly-motivated, and unconnected young people in the societies where this sort of hiring is pervasive (like China). Promoting meritocracy in systems where opportunities for advancement have traditionally been based on personal connections is a good thing. Cultivating the image that U.S. companies (or other Western countries) have a different approach to business–one that emphasizes capabilities rather than background–is a good thing. And in many countries (China included), work opportunities at these firms are sufficiently prized, relative to domestic firms, that collective adherence to a different, higher standard could actually make a positive difference.
- Third, as many have pointed out, the SEC and DOJ’s decision to go after these sorts of preferential hiring practices in China calls attention to the extent to which similar practices are prevalent in the U.S. domestic market. I think the accusations of a “double standard” are somewhat overstated, given that in the FCPA context, the cases so far (including BNY Mellon, Qualcomm, and–according to media reports–JP Morgan) involve relatively crude and clear quid pro quos; the U.S. government has not suggested in these cases that merely hiring well-connected individuals, and hoping to benefit (in a diffuse way) from their connections is illegal. And indeed, if a U.S. attorney got hold of documents indicating that a firm had promised a federal official to hire his child in exchange for favorable regulatory treatment or a big government contract, I actually think there would be little doubt that prosecution would be both warranted and forthcoming. But the larger point–that these aggressive investigations into oversees preferential hiring calls attention to the preferential hiring of the children of the powerful and well-connected in the U.S.–is likely correct. But to my mind, this is all to the good. Just because certain practices are widespread doesn’t mean that they’re good. And often U.S. foreign policy interests have had desirable collateral effects back home–for example, when the tension between American Cold War rhetoric about “freedom” contrasted uncomfortably with pervasive discrimination against African-Americans. Again, I’m not really convinced that the contrast between foreign and domestic approaches to preferential hiring are actually “hypocritical“, but even if it were, why isn’t the right answer to “level up” rather than “level down”?