While the soon-to-be-empowered Trump administration grapples with the issue of what roles, if any, Donald Trump's grown children—Ivanka, Eric, and Donald Jr.—or his son-in-law Jared Kushner should or could play in the White House, the issue of nepotism is coming front and center in business circles as well.
Federal law prohibits officeholders, including the president, from appointing family members to positions at the agencies where they hold sway over hiring decisions. The code reads: "A public official may not appoint, employ, promote, advance, or advocate for appointment, employment, promotion, or advancement, in or to a civilian position in the agency in which he is serving or over which he exercises jurisdiction or control any individual who is a relative of the public official." The law was signed by President Lyndon Johnson in 1967, who was unhappy about the appointment by John F. Kennedy of his brother, Robert Kennedy, to the post of attorney general in the prior administration.
While it's not illegal for CEOs and other executives to appoint family members to positions at the companies where they work—the anti-nepotism law applies only to public officials—it doesn't mean that companies don't need to worry about what friends and family company executives are hiring. Enforcement agencies are cracking down on the practice of companies hiring relatives of those they do business with to curry favor on contracts or other deals. They consider the practice akin to paying a bribe to secure business, in violation of the Foreign Corrupt Practices Act.
JP Morgan's 'Friends and Family' Policy
Indeed, baking giant JPMorgan Chase just learned that lesson to the tune of a $264 million in fines. The bank agreed to pay more than $130 million to settle Securities and Exchange charges that it won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends in violation of the FCPA. JPMorgan also is expected to pay $72 million to the Justice Department and $61.9 million to the Federal Reserve Board of Governors for a total of more than $264 million in sanctions resulting from the firm's referral hiring practices.
"JPMorgan engaged in a systematic bribery scheme by hiring children of government officials and other favored referrals who were typically unqualified for the positions on their own merit," said Andrew J. Ceresney, director of the SEC Enforcement Division. "JPMorgan employees knew the firm was potentially violating the FCPA yet persisted with the improper hiring program because the business rewards and new deals were deemed too lucrative."
The charges at JPMorgan serve as a warning to all companies who do business internationally and for internal audit departments to check for lax hiring practices or a lack of controls that could let the practice of nepotism put the company in danger of running afoul of FCPA laws. The SEC even cited the bank for poor controls. "The firm's internal controls were so weak that not a single referral hire request was denied," said Kara Brockmeyer, chief of the SEC Enforcement Division's FCPA Unit.
While it's too soon to tell if Donald Trump will find a way around the anti-nepotism laws to bring family members into the Whitehouse staff in some capacity, know that companies who hire family members to curry favor with business partners and win contracts will likely find no easy way around the law, and could soon be making their own appointments with some Washington agencies, including the SEC and the DoJ.