BNY Mellon: The Internships the Business Team Could Not Refuse

In the BNY Mellon FCPA case, the bank agreed to pay $14.8 million to settle Securities and Exchange Commission allegations that it provided internships to officials’ relatives to win and retain sovereign wealth fund business. For someone in recruiting, client service or compliance, the revealing connection is between the candidate the bank agreed to hire and the business the requesting official could send its way.

The agency announced the Foreign Corrupt Practices Act settlement on August 18, 2015, following an investigation by its Boston Regional Office. Its allegations concerned three internships arranged during 2010 and 2011 for relatives of two officials affiliated with a Middle Eastern sovereign wealth fund. According to its order, the hiring requests reached the bank through people responsible for its business with the fund.

The Sovereign Wealth Fund Was the Customer

The Securities and Exchange Commission’s order describes a fund whose officials controlled public assets and could influence BNY Mellon’s fees. It was wholly owned by a Middle Eastern country and chaired by its finance minister, with political appointees among its most senior members.

According to the order, BNY Mellon held approximately $55 billion of the fund’s assets in custody during the relevant period. It earned fees for safeguarding and administering those assets, with fees subject to increase when the fund’s European office allocated more assets to the bank. A separate securities-lending agreement allowed the bank to lend out certain assets and significantly increased its revenue from the relationship.

The order says the asset-servicing team wanted more assets in custody and looser lending restrictions after the financial crash. A separate BNY Mellon asset-management business managed approximately $711 million for the fund and sought further allocations.

The agency alleged that employees used the internships to influence the sovereign wealth fund relationship. Officials who could direct public capital to the bank were asking it to deliver private benefits to their families.

The Internship Requests Carried Business Expectations

According to the Commission, the first official wanted internships for his son and nephew and controlled allocations of new assets to existing managers. He made the request after a business meeting, repeatedly followed up, and told his bank contact that a competitor could arrange the placements if BNY Mellon did not. The bank’s account manager treated refusing the request as a threat to the investment-management mandate.

The order quotes an employee responsible for the fund’s asset-management relationship discussing the internships:

According to the order, the same employee told human resources that the official wanted the request kept from the fund and later directed an assistant to stop sending emails about it. The agency alleged that after the bank granted the request, it retained the mandate and received additional assets from the official’s department within a few months.

The order describes a second official at the fund’s European office who requested an internship for his son. He had authority over decisions directly affecting BNY Mellon’s business. Employees acting for him asked about the internship during discussions about transferring assets to the bank, while client-service problems had already strained the relationship.

The order quotes the custody relationship manager putting the hiring decision beside the asset decision:

The order says the manager feared a competitor would hire the son and take market share. It also says that after granting the request, BNY Mellon retained its custody and securities-lending business with the European office, which continued to grow. These were separate requests reaching different parts of the bank, each tied to business the official could influence.

The Candidates Bypassed the Ordinary Hiring Process

The Commission described a normal postgraduate internship program requiring academic qualifications, relevant work experience and multiple interviews. It alleged that these recent graduates lacked the required credentials, were not enrolled in a qualifying degree program, and were hired before anyone at the bank had even met or interviewed them. BNY Mellon also had no plan to convert their placements into permanent jobs, unlike its usual approach to student interns.

Instead, the order describes customized rotational programs that gave the relatives experience across several business units. The son and nephew of the first official went to Boston, while the second official’s son went to London. Their approximately six-month placements lasted substantially longer than the bank’s normal summer internships.

The order describes benefits beyond pay. The Boston interns received more than the ordinary undergraduate salary scale but less than the postgraduate scale, while the London intern was unpaid. BNY Mellon arranged visas for all three and paid the associated legal fees and filing costs. The agency alleged that the officials derived significant personal value from being able to give their relatives this work experience.

Senior employees helped the placements happen, according to the order. One forwarded resumes to human resources in support of the first official’s relatives, and senior officers backed the other official’s request. The order also says that when the European-office official later asked for his son’s placement to include an additional business unit, the bank accommodated that request as well.

For an insider, the hiring-bribery question connects the recruiting exception to the customer relationship. Here the agency alleged that the bank kept accommodating the interns despite attendance problems involving the Boston placements and disappointing performance reported about the London placement.

The Policy Existed, but Hiring Could Bypass Compliance

The Securities and Exchange Commission alleged a specific failure in internal accounting controls around hiring. The order describes a code of conduct, a foreign-bribery policy and training already in place. The policy recognized that benefits other than money could be bribes, but employees received little guidance tailored to the hiring risks in the asset-servicing and asset-management businesses.

According to the order, the bank did not ensure that everyone took or understood the training. Sales staff and relationship managers had wide discretion over initial hiring decisions, human resources staff were not trained to flag problematic referrals, and senior managers could approve officials’ requests without a mechanism requiring legal or compliance review. We see the central problem in that approval path: the people seeking the customer’s business could also deliver the customer’s personal favor.

The SEC Settlement Addressed the Benefit and the Controls

The Commission’s order addressed both alleged bribery through internships and inadequate controls over those hires. It required the bank to return $8.3 million in gains, pay $1.5 million in interest and pay a $5 million civil penalty. The amount ordered back exceeded the penalty.

In the agency’s account, the value of the internships to the officials lay in the work experience they could confer on their relatives, including a placement without pay. A payroll figure alone would leave much of that alleged benefit out of view.

What the Hiring File and the Account File Show Together

The BNY Mellon allegations connect records that can sit in different departments. Recruiting records show the candidates’ qualifications, the normal selection criteria and the exceptions. Client correspondence shows who requested the placements, who followed up, and what the business team expected in return. Asset-allocation and mandate records show the decisions those officials could influence.

The order’s account of visa arrangements, rotation plans and senior approvals explains how the bank delivered the requested benefit. The messages about keeping the request personal explain why the official’s employer might see less than the people arranging it. An employee who knows those connections can give the hiring and business records meaning that either file would lack on its own.

The same connection appears in JPMorgan‘s referral-hiring allegations. In its separate SEC order, the agency described spreadsheets tracking revenue from clients whose referrals had been hired, alongside hiring questionnaires edited or prefilled to conceal expected business benefits. BNY Mellon’s case gives an insider a smaller, concrete version of that pattern: the request, the exception, the official’s authority and the bank’s commercial expectation.

What Money Determines the Reward?

Eligible whistleblowers can share SEC whistleblower awards of 10% to 30% of the money collected through qualifying enforcement actions. Our whistleblower experts assess how your original information about the hiring and banking decisions could contribute to enforcement.

A whistleblower case under the separate False Claims Act can pay 15% to 30% of what the government recovers. The BNY Mellon internship case was an SEC action under the Foreign Corrupt Practices Act. We work through the applicable program with you around the conduct and records you know.

You Saw Who Moved the Application

If a client’s request changed a hiring decision and you know what business was behind it, speak to one of our Whistleblower Experts about who moved the application. We bring in financial-services whistleblower lawyers who understand foreign-bribery allegations and SEC enforcement. You bring the view from inside the bank, and we bring the expertise and partnership to build your strongest FCPA whistleblower case.