One of the Foreign Corrupt Practices Act cases we’ve been paying relatively more attention to here on GAB is the investigation of JP Morgan’s hiring practices in Asia (mainly China), in connection to allegations that JP Morgan provided lucrative employment opportunities to the children of powerful Chinese officials–both in the government and at state-owned enterprises (SOEs)–in exchange for business. A couple weeks back the Wall Street Journal published a story about the case, indicating that the government and JP Morgan were likely to reach an agreement soon in which the firm would pay around $200 million to settle the allegations. (The WSJ story is behind a paywall, but Thomas Fox has a nice succinct summary of both of the case generally and of the recent developments reported by WSJ.)
I’ll admit that my first reaction, on seeing the WSJ report, was skepticism that we were actually on the verge of seeing a settlement announcement. After all, the last time the WSJ broke a story about an imminent settlement of an FCPA case we’ve been following here on GAB, it was a story about the Walmart investigation last October; that report said that “most of the work had been completed,” and hinted that the announcement of a (smaller-than-expected) settlement was imminent. It’s now nine months later… and still no settlement. Apparently the Walmart case may have gotten more complicated since the WSJ‘s October report, but still, I think there are sometimes good reasons to season these inside scoops with the appropriate grains of salt. But, back to the reports on JP Morgan’s Asian hiring practices.
To me the most interesting feature of the recent report concerns the legal issue that is reportedly the sticking point between the government and JP Morgan. That issue is not the question whether an SOE official is a “foreign official” for FCPA purposes: According to the WSJ report, JP Morgan is not disputing the government’s position that SOE executives, at least in this case, are foreign officials, even though that issue is a major focus of critics who believe the government’s interpretation of the FCPA is too broad. And, the question whether a job for a relative counts as “anything of value”–the question that provoked the extended blog debate between Professor Andrew Spalding and me, as well as a good chunk of the other commentary on the case–also does not seem to be something that JP Morgan is contesting. Rather, at least according to the WSJ report, the big question seems to be whether an offer of a job to an official’s relative, given with the intent to influence that official’s exercise of her duties, is a violation of the FCPA even if there is no quid pro quo–at least if the conduct takes place in a country where preferential hiring for official’s relatives is “standard business practice.”
This seems to be to be a legitimately hard legal question, and one where I’m not yet sure what I think. As our regular readers may know, I’m generally fairly “hawkish” on FCPA enforcement, usually sympathizing with the government’s broad reading. And the text of the FCPA can certainly be read not to require any quid pro quo–indeed, that might be the more natural reading. But in contrast to some of the other accusations of alleged overreach lodged against the US FCPA enforcement agencies, here (if the reports are to be believed) the argument on the other side is fairly strong, both as a matter of law and as a matter of policy. In the end, I think I still come down on the government’s side, both on the legal question and the policy issue. But I’m genuinely conflicted, and would very much like to hear what others think on this one.
First, some quick background on the statute for those who haven’t committed it to memory. Simplifying a bit (but not, I hope, too much for present purposes) the FCPA, as relevant to this case, prohibits JP Morgan and other covered entities from “corruptly … offer[ing] … or authoriz[ing] the giving of anything of value to any foreign official for purposes of influencing any act or decision of such foreign official in his official capacity … in order to assist … in obtaining or retaining business….” Let’s stipulate that there’s no question that JP Morgan gave something of value (the job to the relative) to a foreign public official, with the purpose of influencing that official’s decisions so that they would favor JP Morgan’s business interests. But let’s also assume that there was never any express quid pro quo, or even a tacit agreement. Rather, let’s assume that JP Morgan provided these jobs to officials’ relatives with the hope and expectation that doing so would make the officials more likely to throw business JP Morgan’s way. Is that an FCPA violation? Or is a quid pro quo required?
Note that the FCPA language quoted above does not require a quid pro quo in so many words. The operative language covers giving anything of value for purposes of influencing the foreign official in the exercise of her duties, in order to secure a business advantage. One can clearly provide benefits “for the purpose” of influencing a decision without an agreement that the benefits are being provided in exchange for the decision. All the action, then, is in the adverb corruptly.That word is not defined in the statute; the legislative history of the FCPA, as quoted in the government’s FCPA Resource Guide, says that an offer or payment is made “corruptly” when it is “intended to induce the recipient to misuse his official position.” The key word in that explanation (which otherwise doesn’t add much to the statutory language) is misuse, which fits with the understanding, applied in other areas of law, that act is done “corruptly” when it is in some sense intentionally wrongful.
So, can an offer be made “corruptly” even if there’s no agreement? If the question is asked that generally, I think the answer has to be yes. If a company showers an official with cash and luxury gifts, and we learn (or have strong enough evidence to confidently infer) that this was done with the expectation and intent that it would help win business that the firm wouldn’t otherwise get, this should count as benefits given “corruptly”–that is, for a wrongful improper purpose.
But here’s where things start to get a little tricky, for two reasons:
- First, part of our understanding of whether an offer is made “corruptly” is with reference to ordinary business practices in the relevant context. When FCPA scaremongers suggest that the statute would criminalize buying a government official a cup of coffee or taking her out to a nice dinner after a business meeting, the DOJ/SEC can rightly respond that, not only would the government never prosecute such cases, that conduct probably isn’t prohibited by the FCPA in the first place. Such acts–though indisputably the provision of things of value, and likely intended to influence the public official in the broad sense of cultivating goodwill–were not done “corruptly”; no reasonable person would interpret them as a wrongful attempt to get the official to misuse her authority. As the government puts it in the Resource Guide: “[C]orrupt intent requirement protects companies that engage in the ordinary and legitimate promotion of their businesses while targeting conduct that seeks to improperly induce officials into misusing their positions.” But although I’m usually not a big fan of cultural relativism arguments in the FCPA context, it seems plausible that what counts as “ordinary and legitimate promotion” might vary from context to context. Is it possible that giving preferential treatment to official’s relatives in some contexts is so common that it would not be viewed as a wrongful attempt to get an official to misuse her position, but rather as a courtesy along the lines of the cup of coffee.
- Second, even without invoking cultural relativism, we might conclude that ingratiating one’s firm with the powerful and well-connected by hiring their friends and relatives may in fact be fairly common–so common, in fact, that the acts would not be considered “corrupt” by most people in the relevant community (that qualifier invites important questions, but hold them for the moment). In earlier posts, when I’ve taken on the folks who assert that a job for an official shouldn’t count as “anything of value” under the FCPA because doing so would criminalize common practices in the US–ones that practically every firm engages in–I’ve been quick to dismiss those arguments. But I’ve done so in part by emphasizing that the hiring must be done with corrupt intent, and that if in the US a prosecutor found evidence that a firm had offered a federal official’s child a job as part of a quid pro quo deal with the government official for favorable treatment, that almost certainly would be viewed as a federal crime and prosecuted as such. Looking back, I think I may have been a bit to cavalier in my dismissal of the concern, if only because I was assuming (without really thinking about it) that all the FCPA cases we might see in this vein would involve a quid pro quo. Indeed, the news reports suggested strong evidence that there was a quid pro quo in the JP Morgan case. But if the FCPA doesn’t require a quid pro quo in these cases, then we do have to confront the question of whether this creates a sufficiently awkward double standard that we might not even consider the job offer “corrupt” in the legal sense.
So that’s what I’m struggling with. At the moment, I’m still tentatively inclined to think that these job offers, when made with the express purpose of influencing particular official decisions, should still count as FCPA violations, for the following reasons:
- On the cultural relativism argument, as a general rule the fact that a practice is widespread and widely tolerated does not cut much ice in FCPA cases. Indeed, the statute seems to signal quite clearly its hostility to such arguments by creating an affirmative defense under which the defendant must show the conduct was legal under the express written laws of the host country. In practice, this defense is hardly ever invoked, and never invoked successfully. But its mere presence signals fairly strongly that the statue admits of no other limitations grounded in alleged different understandings of what constitutes a bribe.
- A case-by-case analysis is appropriate here, and may help distinguish “thumb on the scale” preferential hiring from gross attempts to offer jobs to relatives as inducements to public officials. The three key considerations, to my mind, ought to be (1) the degree of connection between the job offer and a particular official decision, or set of decisions (as distinct from general goodwill and connections); (2) the degree to which the official indicated that he very much hoped the firm would hire the relative (even if there was not enough evidence of agreement to establish a quid pro quo); and (3) the degree to which the firm relaxed its ordinary standards to hire the official’s relative. On that last point, just as we can distinguish the nice business meal from the luxury all-expense paid vacation, and the cab fare from the private jet, so too we can distinguish between the hiring of a well-qualified candidate whose personal family connections might have been a “plus factor” from the hiring of a lazy and incompetent relative whose only benefit to the firm is favorable treatment by the powerful relative.
- On the point about how such hiring practices are common in the US, the above point mostly covers it, but to that I’d add that many of the arguments I made in the earlier post would still be valid: just because something is widespread here doesn’t make it good, and maybe the push to crack down on this behavior in foreign markets might have the salutory effect of getting us to take a harder look at ourselves.
For those reasons, I think JP Morgan likely violated the FCPA in this case even if there wasn’t a quid pro quo. But as I said at the beginning, I’m not at all certain about this, and I do hope others who have thoughts will weigh in.