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Dangerous Liaisons: Criminalization of “Relationship Hires” under the Foreign Corrupt Practices Act

On August 17, 2013, the New York Times published a front page story on JPMorgan Chase & Co. that cast the firm at the center of an international bribery scandal and sparked a media firestorm. The article reported that the U.S. Securities and Exchange Commission (SEC) had opened a bribery investigation into the firm’s hiring practices in China pursuant to the Foreign Corrupt Practices Act (FCPA), a statute that regulates bribery and public corruption in foreign countries. The story continued to garner national attention in the weeks following the article’s release, especially after the Department of Justice (DOJ) joined the SEC’s investigation. At the center of the controversy was the unusual nature of the investigation itself: unlike most FCPA bribery investigations, which target financial payments to foreign officials in exchange for business advantages, the central issue underpinning the JPMorgan investigation was the firm’s apparent practice of hiring well-connected children of Chinese business and political leaders. More specifically, the government’s investigation targeted the firm’s “Sons and Daughters” program in China, a hiring program that allegedly favored children of Chinese owners of state-controlled enterprises in China. JPMorgan purportedly relied on this hiring process to gain a competitive advantage in China, where state-owned enterprises dominate the economy.

Although most media reports on the JPMorgan investigation characterize it as an unusual approach for the government, probes into corporate hiring practices are part of an increasingly apparent trend in FCPA enforcement. About eight months after the JPMorgan investigation began, DOJ and the SEC sent letters to at least five other financial institutions, requesting information on their hiring practices in Asia. Federal agencies have justified these types of “relationship hire” investigations as well within the scope of the FCPA. The FCPA prohibits the exchange of “anything of value” with foreign officials for any “improper advantage”—language that appears to encompass offers of employment to relatives of foreign officials. Critics of the FCPA’s application to relationship hires have questioned the government’s reading of the Act’s language, characterizing it as an “aggressive” interpretation.

Despite the publicity surrounding the JPMorgan scandal, very little scholarship has examined relationship hires as an issue that defines and tests the limits of future FCPA enforcement. This Comment begins this discussion by analyzing both the rationale for the government’s application of the FCPA to relationship hires and the implications of this type of FCPA enforcement.