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« Job: Compliance Officer Entry (Credit Suisse - Pune, India) | Main | China Corruption Blotter (June 13, 2014) »
Friday
Jun132014

The princeling problem: In search of a legal theory (Part 3)

In the prior post we distilled a two-prong rule for hiring the relatives of officials, based on the Guidance, opinion releases, and prior cases.  That rule is:
 
Hiring the relative of a foreign official can violate the FCPA where the official’s duties relate to the hiring company’s interests, and something of value passes through the relative to the official.
 
JP Morgan, so far as we can tell, was deliberately selecting the children of officials whose duties related to the bank’s commercial interests.  So the first prong is satisfied.
 
That brings us to the second prong, which is precisely the crux of the princeling problem.  To my knowledge, there is not (yet) any evidence that JP Morgan passed things of value to the foreign officials through the hired princelings.  This does not appear to be the government’s theory, and yet the government is proceeding with the case.  By my reckoning, that must mean one of three things:
 
1.  There is evidence not yet publicly available that the bank passed (or offered, promised, or authorized the passage of) things of value to the official, or at very least, the government is now looking for such evidence;
 
2.  The government believes there is a bright line to be drawn between the son or daughter of a foreign official and a brother or other relative; or
 
3.  The government has changed its theory, departing from (and effectively reversing) the guidance it provided in the 1980’s concerning hiring the relatives of foreign officials.
 
Let’s look at each of these.
 
As for (1), only time will tell whether it is true, and there’s not much to say about it now.
 
The second explanation raises the possibility that the JP Morgan enforcement theory will further refine, and yet be fully consistent with, the earlier guidance.  The problem is, how do we distinguish between sons/daughters and other relatives?  As I alluded to last post, it’s easy if the son/daughter is a minor or otherwise financially dependent:  any income of the child is a savings to the father.  But if (s)he is not – that is, if the princeling is not a child or a financially dependent adult (and I don’t think JP Morgan was hiring princelings as babysitters) – then what is the difference?
 
We might assume that the hiring of a child has greater emotional or psychological value to the official, but that is merely an assumption.  Some parents are completely estranged from their children; indeed, history teaches that this sort of thing happens with some regularity in powerful families.  More to the point, personal closeness hasn’t seemed relevant in the past:  we didn’t know, or even ask, how close on a personal level the other relatives in the opinion releases were to the officials.  Finally, the FCPA Guidance’s fairly extensive discussion of “things of value” makes no mention of emotional or psychological value.  Rather, it catalogues a long list of items of monetary value – cash, expensive gifts, lavish trips, etc.
 
So if the government intends to distinguish between other relatives and sons/daughters, and hold that sons/daughters are different in a way that rises to the level of an FCPA violation, here’s a plea that the government will do so explicitly, with sufficient specificity to provide guidance for future cases.  Similarly, if the government is now adopting an emotional or psychological value theory for things of value, please tell us what that theory is and how we can use it to govern our conduct.
 
But what about the third possibility, that the government is essentially reversing its earlier, published position?  That turns out to be a real doozy, on a couple different levels – it raises a number of questions that go to the very heart of the rule of law.
 
We’ll explore those questions next post.

________

Andy Spalding is a senior editor of the FCPA Blog. He's an Assistant Professor at the University of Richmond School of Law. He can be contacted here.