SEC Starts to Notify Banks of FCPA Enforcement


Since Bank of New York Mellon revealed at the end of last month that they received a Wells Notice from the SEC in 2014, the speculation has started that 2015 will be the year of enforcement of the Foreign Corrupt Practices Act against financial institutions.

A Wells Notice is a letter sent by the SEC which notifies the parties under investigation that the Commission has made a preliminary decision to bring an enforcement action against them. According to a Wall Street Journal article a few years ago, the SEC drops approximately 20% of cases without bringing an enforcement action after sending a Wells Notice.

The SEC began the investigations into the financial industry back in 2010 or 2011, around the time of the creation of the SEC whistleblower program. It has cast a wide net over the past 4 years, with Goldman Sachs, JPMorgan, Citigroup, Blackstone, Barclays, Deutsche Bank, Credit Suisse and Morgan Stanley all on the list of those targeted.

The FCPA prohibits U.S. corporations, as well as companies listed on a U.S. stock exchange, from giving anything of value to a foreign official to obtain or retain business improperly. The investigations appear to target the banks for two practices.

First, some banks are under investigation for employing intermediaries, a.k.a. fixers, to gain access to foreign government officials for a fee. If the “consultants” used the fee to bribe the government officials, the bank has violated the FCPA. Specifically, several banks were investigated for gaining access to the Libyan Sovereign Wealth Fund.

An employee of a sovereign wealth fund is considered a foreign official for the purposes of the FCPA. The sovereign wealth fund is a state-controlled investment entity that typically invests money from foreign currency operations, fiscal surpluses, or the revenue from exported resources.

The Libyan Investment Authority has already sued a couple investment banks in a London court. It has accused Goldman Sachs, for example, of throwing lavish parties that hoodwinked officials into investing more than $1 billion with them. Goldman has disputed the allegations.

Although many violations of the FCPA involve bribes of cash payments or their equivalent as describe above, the challenged practices also involve the hiring of family or relatives of foreign officials in either jobs or internships.The investigation of BNY Mellon relates to the provision of a limited number of internships to family members of sovereign wealth fund officials.

When the position is a sham, either because the individual is not qualified for it or they have to do no work, then the use of the position as a bribe is fairly clear.  However, there had been speculation in legal circles that a properly qualified individual completing the work required by the position might not be a a violation of the FCPA simply because it was offered to a person connected to a foreign official.

Our SEC whistleblower attorneys haven’t seen any news reports about individuals that have filed reports with the government in this area, but feel free to contact one of our whistleblower lawyers handling FCPA matters to discuss the issue further if you are curious or have evidence of similar violations at other companies.

The banks aren’t the only ones in potential trouble. Another industry on the hot seat for the FCPA is the pharmaceutical and medical device manufacturers.  They must be careful to comply with the law because doctors and other medical professionals working at state-run hospitals are considered foreign officials.  Teva recently admitted in its annual report that its investigation has resulted in a finding that it ‘likely’ violated the FCPA.  Additionally, GlaxoSmithKline is potentially subject to an enforcement action because of lavish trips it provided to foreign officials.  GSK paid nearly $500 million to China to settle their bribery charges at the end of 2014.