People walk by Barclays bank branch in London. Credit: Tupungato/Shutterstock.com

A federal regulator has shined the light on several compliance failures at the British bank Barclays after the bank agreed to pay $6.3 million to settle corruption offenses related to hiring friends and relatives of public officials in Asia in order to win business.

The U.S. Securities and Exchange Commission highlighted the compliance issues in the bank's Sept. 27 consent order.

It accused the London-based bank of violating the Foreign Corrupt Practices Act's books and records and internal accounting controls provisions when it hired 117 referrals from Asian government officials. Such employees are termed "relationship hires."

The order shows that the illegal hiring practices began in 2009 in South Korea, and spread throughout the Asia-Pacific region, including Hong Kong, through 2013.

Barclays did not issue a statement on the settlement, and its representative declined to comment on Monday. In the order, the bank neither confirmed nor denied the allegations.

In April 2009, the order states, the bank agreed to hire the son of a key foreign official at a Korean state-owned entity where Barclays wanted to be the lead manager on a $1 billion bond offering. Shortly after the hire, the bank received a mandate to co-manage the bond offering.

Other such hires, and bond deals, soon followed.

In 2009 Barclays had a hiring policy that expressly addressed anti-corruption risks related to these decisions, the order says. The policy required "compliance monitoring" in the hiring process.

According to the order, here are a few examples of what the investigators found:

• Compliance officers stated they were unaware of the anti-corruption aspect of the policy and mainly looked at conflicts of interest.
• A senior compliance executive said that "he had never read the 2009 anti-bribery and corruption policy."
• One senior compliance officer "responsible for reviewing referral hires, acknowledged that, in evaluating hiring requests, he never reviewed information relating to pending business with Barclays' clients even though he had access to that information." Moreover, even though the policy required compliance monitoring in the hiring process, "the same compliance officer could not explain what that requirement was or how it was conducted."
• A local compliance officer in Hong Kong escalated the referral hire of a Chinese government official's daughter to a senior officer because it was based on winning business, the senior officer responded, "I'm sure this is not the first time." The daughter was hired.
• In some cases, Barclays employees falsified corporate records to conceal the identity of the person requesting the hire, as well as the reasons for the hire.
• In 2012 Barclays revised its policy on referral hires to require an attestation that the hire was not being made for the purpose of obtaining or retaining business. "The new requirement had little impact. … Bankers sometimes provided inaccurate attestations, and even where a disclosure was accurate, compliance approved the hires despite pending or potential business."

Barclays has since said it shut down the internship program and terminated numerous employees involved in the compliance failures. It also tightened its hiring policy and began enhanced training initiatives.

Arthur Middlemiss, a partner at Lewis Baach Kaufmann Middlemiss in New York, focuses his practice on financial crimes and compliance. Middlemiss told Corporate Counsel, "The bank seems to have gotten halfway home. It recognized the risk and implemented policies, but failed to implement them."

He said the settlement teaches in-house counsel two key lessons: First, "execute an adequate risk assessment and adjust compliance mechanisms; [then] make sure those mechanisms are working."

If employees violate the policy, Middlemiss said, there needs to be an immediate and commensurate reaction. That could mean retraining, repercussions with respect to performance review and compensation, or firing, depending on the nature of the foul.

"But the case again proves that good governance requires policy execution," Middlemiss added, "and policy execution requires adequate resources dedicated to training and audit."

Barclays is the latest of several banks that have paid millions of dollars for making similar relationship hires abroad. They include JPMorgan Chase & Co., which paid $264 million in 2016 for illegal hiring in China; Credit Suisse Group, $77 million last year for hires in Asia; Deutsche Bank, $16 million in August for hires in China and Russia; and Bank of New York Mellon, $14.8 million in 2015 for illegal hiring in the Middle East.