Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

What to make of the bribery investigations of hiring official’s children? It will merely require a genealogical background check before hiring any non-American.

leave a comment »

I don’t quite know what to make of this, but have an idea.

4/29 – Wall Street Journal – Wall Street Pushes Back on Foreign Bribery Probe – Here is a situation I don’t understand.

Several big banks have hired children of senior level government officials and managers of state-owned companies. J.P. Morgan is the one in the headlines at the moment. At some point in time said banks got permission for some deal or approval for some in-country activity.

The U.S. Department of Justice is looking at those hiring decisions to consider whether they are violations of the Foreign Corrupt Practices Act. That law prohibits paying government officials something of value in return for approving a commercial transaction. Bribery, in other words.

At issue is whether hiring children of high level officials is illegal. Until now, that has not been considered a violation of the FCPA.

So….

On one hand, I am savvy enough to know that in many parts of the world giving a good job to the child of a senior level official is an indirect way to pay the official in order to get a deal you want. Or perhaps just obtain favor for a future time when official favor is needed. Or just gain enough favor to avoid getting thrown out of the country.

There are many places around the world where bribery is the norm. Following those customs by an American company is a violation of American laws.

On the other hand, this is apparently not been an issue in the past. Ever.

It is apparently a new definition the Department of Justice has recently developed and they now wish to impose. Retroactively, of course.

I perceive it is generally agreed this is a new interpretation, unilaterally developed by the Department of Justice.

The article says the bank is reviewing the hiring of 200 people to see if there is any possible connection between them and any deal the bank has been involved in.

On the other, other hand, the situations in public are over-the-top. They look rather extreme to be the basis for a new broad-brush policy.

Other articles from the WSJ, such as this one, suggest that companies hiring the ‘princelings’, perceive there is a quid pro quo, or at least the lower level staff believe that is the case.

Check out the alleged inquiry made back to the person who hired the daughter of a company president with an expected IPO:

…can we make her do some real work or is she a protected species?

Another article pointed out that the son of the Commerce Secretary made several oopies in the hiring process that would have ended the discussions if anyone else made them. (Oopies, as in allegedly sending a sexually explicit email to an HR staffer.) His father allegedly intervened on his behalf when a year after starting he received a layoff notice along with a large number of other staff. He was retained.

Unintended consequences

Do you see the unintended yet obvious and inevitable consequence?

I expect there will be a range of people who are unemployable by American companies, especially financial institutions.

Obviously all children of top-level government officials and very top-level of state-owned enterprises cannot be hired by any company with business in front of the government or that could have business in front of that agency at any point in the future.

How far out does the ban go? Obviously such ban would apply to siblings of the official and siblings of the official’s spouse. Seems fairly obvious to me that would carry forward to nieces and nephews and parents.

How about cousins? Grand nephews? Children of the official’s lifelong buddies?

Why just the most senior officials? Seems a ban would apply to second level officials, which we would call the “C suite” – the most senior finance, accounting, marketing, IT, procurement, and production staff. Depending on the government agency and nature of the activity, this ban could stretch down several levels of management.

Would the ban apply to every subsidiary of an American company? Would an American manufacturing subsidiary have to check relationships of every one of their sibling subsidiaries?

That would make a large volume of bright people in every country unemployable by American companies or any business subject to American laws.

The article hints it would be a foolish company that would risk a criminal indictment in order to seriously challenge this creative new interpretation of the FCPA. I agree. That means the creative interpretation will probably never be subject to court scrutiny or assessment by a jury.

Genealogical research needed before hiring any non-Americans

If hiring certain relatives of senior level officials is going to be considered a criminal violation of the FCPA in the future along with the attendant fines and publicity, then any American company doing business outside the United States would be astoundingly foolish not to do genealogical research on every person hired who is not an American citizen. There’s no telling what undisclosed relationships with a senior or nearly senior official might exist.

Let me expand that.

If a company risks criminal indictments from hiring sons, daughters, nieces, or siblings of senior staff, it would be necessary to do genealogical research on every person hired, even natural-born US citizens. It would be foolish to risk either a criminal indictment or having to walk away from huge deals.

Consider a situation to illustrate the point. I’m aware of someone who is a natural-born American citizen. One of this person’s parents is a senior level official in the government of another country. If the DoJ interpretation stands, it would be a criminal violation for any American company to hire this person if the company had, has, or will have any business deals appear in front of that official or that agency.

I’m aware of another situation where a naturalized American citizen has a sibling who is a very senior level official in the government of another country. Does that relationship make this person unemployable to an American business working in that country? How about the person’s children?

Large numbers of people would be unemployable by international companies if this foolishness stands.

This might be a great way to close the door on subtle bribery. Or could be a really big deal that imposes severe costs on American businesses and makes large numbers of people unemployable by any American company that does business outside the U.S.

Seems like foolishness to me. What do you think?

Written by Jim Ulvog

May 1, 2015, 11:29 am at 11:29 am

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: