Bank of New York Mellon Settles Bribery Case Over Interns

August 20, 2015

The three interns at Bank of New York Mellon who joined the firm in the summer of 2010 seemed unusual choices on paper. None met the financial giant’s rigorous criteria, and none were hired through the usual internship programs.

They gained their positions a different way, according to government regulators: Their relatives were high-ranking officials at a Middle Eastern sovereign wealth fund that was a client of the firm.

The Securities and Exchange Commission announced on Tuesday that it had settled a foreign bribery case with Bank of New York Mellon, accusing the bank of doling out the three internships as a way to appease officials at the Middle Eastern investment fund.

Handing out the three internships — to the son and the nephew of one official at the sovereign fund, and to the son of another official — to keep a hefty client mandate violated the Foreign Corrupt Practices Act, according to the regulator. The law prohibits American companies from trying to woo foreign officials with valuable offerings like cash or gifts.

Internships, while not straight-up cash payments, can amount to valuable presents all the same. The bestowing of coveted work positions has come under scrutiny on Wall Street in the past, including moves by other major banks to hire the children of top Chinese government officials.

In a publicly disclosed filing with the S.E.C.’s administrative court, the regulator argued that the three internships at BNY Mellon were not awarded based on merit. Instead, they were meant to satisfy the unnamed sovereign wealth fund, which gave the bank about $711 million in assets to manage.

According to the filing, one of the unnamed officials at the fund made a personal request to the bank in February 2010 to obtain internships for his son and his nephew, calling them an “opportunity” for the company. Official X, as he is identified in the document, later became “angry” and berated bank executives for delays in winning the positions.

“By not allowing the internships to take place, we potentially jeopardize our mandate,” one BNY Mellon executive wrote to another in an email, according to the filing.

Another executive wrote in an email: “I am working on an expensive ‘favor’ for [Official X] — an internship for his son and cousin (don’t mention to him as this is not official).”

Around the same time, another unnamed official at the sovereign fund, identified as Official Y, also sought an internship for his son.

Referring to the second internship request, another BNY Mellon executive wrote in an email, “Its [sic] silly things like this that help influence who ends up with more assets / retaining dominant position.”

Ultimately, the son and the nephew of Official X won spots in BNY Mellon’s Boston office from Aug. 6, 2010, through Feb. 25, 2011, and were paid more than other interns who had college degrees. Official Y’s son interned at the bank’s London office from July 4, 2010, through Dec. 17 of that year, though that position was unpaid.

Despite gaining the valuable positions, the interns did not exactly work as hard as others in their positions might have, the S.E.C. said.

A human resources executive confronted Official X’s son and nephew for repeatedly missing work. And a performance review of Official Y’s son described his work as “O.K.” and said that he “wasn’t actually as hardworking as I would have hoped.”

According to the administrative filing, the awarding of the internships showed that BNY Mellon lacked the necessary controls to avoid matters of corruption and bribing foreign officials.

“The F.C.P.A. prohibits companies from improperly influencing foreign officials with ‘anything of value,’ and therefore cash payments, gifts, internships, or anything else used in corrupt attempts to win business can expose companies to an S.E.C. enforcement action,” Andrew J. Ceresney, the S.E.C.’s director of enforcement, said in a statement. “BNY Mellon deserved significant sanction for providing valuable student internships to family members of foreign officials to influence their actions.”

According to the S.E.C.’s administrative filing, BNY Mellon has agreed to pay $14.8 million to settle the matter.

“We are pleased to reach an agreement with the S.E.C. that allows us to put this matter behind us,” Kevin Heine, a spokesman for BNY Mellon, said in a statement. “As the S.E.C. noted, we cooperated with the S.E.C. throughout this process, and had already taken steps to enhance our existing internal controls and procedures with respect to our internship and hiring practices.”

Bank of New York Mellon Settles Bribery Case Over Interns