BK Bank of New York Mellon Corporation

By Daniel Huang And Lisa Beilfuss 

Bank of New York Mellon Corp. agreed to pay $14.8 million to settle charges that it violated foreign-bribery laws by giving internships to relatives of officials from a Middle Eastern sovereign-wealth fund.

The settlement is the first enforcement action brought by the Securities and Exchange Commission against a financial institution under the Foreign Corrupt Practices Act, which bans U.S. companies from giving anything of value to a foreign official to gain an unfair advantage or business favors.

A number of U.S. banks are under investigation for similar hiring practices.

One of the sovereign-wealth fund officials in 2010 told a BNY Mellon employee that he could "secure internships for his family members from a competitor of BNY Mellon if it did not satisfy his personal request," according to court documents, and later became "angry" when the internships were delayed.

The SEC didn't name the fund or the country it represents.

The interns were the sons of two officials and the nephew of one of those officials, and they didn't meet the bank's standards for interns, including minimum grade-point average, according to the agency. The interns were recent college graduates.

In one email, a BNY Mellon employee wrote, "I want more money for this. I expect more for this...we're doing [the official] a favor."

Despite repeated absences and comments from managers belittling their work ethic, the interns were able to extend their positions to six months, significantly longer than the duration afforded through the normal summer internship program, the SEC said.

With the settlement Tuesday, the SEC established that "valuable student internships" are covered under the FCPA's effort to bar improper exchanges of "anything of value."

When the violations took place in 2010 and 2011, BNY Mellon held around $55 billion of the fund's assets in its servicing arm and $711 million in assets under management. The bank earns fee revenue from assets it services and manages.

In settling the charges, the bank didn't admit or deny wrongdoing. Certain current and former BNY Mellon employees under scrutiny for potential FCPA violations weren't charged, the SEC said.

"We are pleased to reach an agreement with the SEC that allows us to put this matter behind us," the bank said in a statement, adding it had already taken steps to enhance internal controls and procedures surrounding internship and hiring practices.

In a media call following the announcement, SEC enforcement director Andrew Ceresney said the settlement with BNY Mellon is the first action to arise from a broader examination of financial institutions in recent years and their relationships with sovereign-wealth funds.

Other banks under civil or criminal investigation for possible FCPA violations include J.P. Morgan Chase & Co., Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley and UBS Group AG, according to regulatory filings.

Hiring the friend or family member of an official isn't necessarily a violation of the FCPA but may be grounds for an offense if the decision was made to induce a reward or business deal.

Several Wall Street banks have banded together to push back against regulators for what they call an "aggressive" campaign to criminalize standard business practices in some countries, The Wall Street Journal reported in April.

The probe into J.P. Morgan, arguably the most high profile in the group, hasn't moved forward very much, people familiar with the process said. Any settlement is unlikely to happen until 2016, and the timing is still fluid, these people said.

The largest U.S. bank by assets is under investigation over its hires in Asia. Earlier this summer, the Justice Department indicated it will be initiating another round of interviews of current and former J.P. Morgan employees as it seeks more information on the bank's hiring in Asia, some of these people said.

Emily Glazer contributed to this article.

Write to Daniel Huang at dan.huang@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

August 18, 2015 16:26 ET (20:26 GMT)

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