BNY Mellon Had Some Very Special Interns

And they were "okay," which really must have been a pleasant surprise.

This is BNY Mellon's logo.

Photographer: Guy Calaf/Bloomberg

Good lord banking is the worst job:

In February 2010, at the conclusion of a business meeting, Official X made a personal and discreet request that BNY Mellon provide internships to two of his relatives: his son, Intern A, and nephew, Intern B. As a Middle Eastern Sovereign Wealth Fund department head, Official X had authority over allocations of new assets to existing managers such as the Boutique, and was viewed within BNY Mellon as a “key decision maker” at the Middle Eastern Sovereign Wealth Fund. Official X later persistently inquired of BNY Mellon employees concerning the status of his internship request, asking whether and when BNY Mellon would deliver the internships. At one point, Official X said to his primary contact at BNY Mellon that the request represented an “opportunity” for BNY Mellon, and that the official could secure internships for his family members from a competitor of BNY Mellon if it did not satisfy his personal request. The same BNY Mellon employee later wrote to a BNY Mellon colleague that Official X had become “angry” because BNY Mellon was experiencing delays in delivering the internships, and had openly questioned the employee’s job performance and professionalism because of the delays.

Emphasis added. Imagine being that BNY Mellon banker and having a huge client, with $55 billion of assets in your custody, accuse you of incompetence for not getting his nephew a job. What can you do? Pointing to your top-tier MBA and expertise in negotiating securities lending agreements would not be responsive. It turns out that those things are not the right measure of competence. Just get the kids jobs.

He did: The kids got their internships (along with Intern C, the son of Official Y, another official at the same fund). BNY Mellon kept the sovereign wealth fund's business: $55 billion of assets under custody, plus $711 million of assets under management at a BNY asset management boutique. And today BNY Mellon settled with the Securities and Exchange Commission for $14.8 million for making that trade, which is at least arguably a violation of the U.S. Foreign Corrupt Practices Act, since viewed in a certain (really, any) light those internships look like bribes to the sovereign-wealth fund officials to keep their fund's business. Those are some expensive internships! That's, like, 592,000 Seamless dinner allowances.

It is hard not to feel bad for BNY. Who among us has not given our clients' semi-competent relatives jobs in exchange for business? Certainly there are ominous rumblings that many global banks did it, and that more FCPA enforcement actions are coming. 1 And these kids weren't even that bad. Sure "they did not meet the criteria of BNY Mellon’s existing internship programs," but once on the job they were ... semi-competent. The SEC says:

The Interns were less than exemplary employees. On at least one occasion, Interns A and B were confronted by a BNY Mellon human resources employee concerning their repeated absences from work. A Boutique portfolio manager who worked with Intern C observed that his performance was “okay” and that “he wasn’t actually as hardworking as I would have hoped.”

In my experience, the phrase "less than exemplary" is normally used in the construction that the Greeks knew as litotes, "ironical understatement in which an affirmative is expressed by the negative of its contrary." So when you say an employee was "less than exemplary," normally you follow up with "in that he embezzled millions of dollars before murdering his boss, burning down the corporate headquarters and fleeing the country." These guys were "less than exemplary" in that they were, and this is an exact quote, "okay." 2 For recent college graduates who couldn't be fired because of family connections, "okay" is pretty good!

I feel for BNY too because international finance operates as a Maussian gift economy in which spontaneous favors are bestowed to create ill-defined obligations. I said the other day that "the whole business of financial services is about flinging free things at clients in the hopes that they will give you some extremely overpriced paying work," and for that system to work the free stuff and the paid stuff need to be incommensurable. You don't do a bond deal for free in the hopes of getting paid for the next bond deal. 3 You do a below-market loan in the hopes of getting paid for a bond deal. You provide free financial analysis in the hopes of getting paid for a merger. You give out free apps in the hopes of selling structured notes.

It's nice if you do the the free work for your institutional clients, in the hopes that those same institutions will give you the business. But in practice institutions are made up of people. You can't treat an institution to a round of golf and a steak dinner. You're in the people business. You help the company's treasurer with analysis so that he can look smart in front of the chief financial officer, hoping that he'll give you a bond deal in gratitude. And if the client has an opening for a CFO, you recommend a good candidate, hoping that the new CFO will owe you one. And, sure, if the CFO has a nephew who's adrift in life after dropping out of art school ... sure. Shh. It's all taken care of.

There is of course a point where this tips over from "relationship-building" into "bribery," but, you know, good luck identifying it. 4 Even the conduct in the BNY case has some plausible institutional justification. 5 Sovereign wealth fund officials are governmental or quasi-governmental agents. (That's why bribing them is illegal under U.S. law! 6 ) And for many countries it is not a ridiculous goal to have more young people train at global financial institutions. Officials X and Y don't seem to have wanted cushy highly-paid sinecures for their sons and nephew 7 ; the bribe, such as it was, was not money or even a resume line but rather actually useful training. The internships were "customized one-of-a-kind training programs" that offered the interns "the opportunity to work in a number of different BNY Mellon business units, enhancing the value of the work experience beyond that normally provided to BNY Mellon interns." And "the Interns were to return to the Middle East at the conclusion of their internship and BNY Mellon had no plan to hire them as full-time employees." The internships were at least in part a way for these governmental officials to import U.S. financial knowledge into their country. 8  By way of their own sons and nephew, but still. 

Most of all, though, I feel for BNY because of e-mail. There's that famous financial-crisis moment when Senator Carl Levin asked Goldman Sachs CFO David Viniar about Goldman Sachs e-mails saying rude things about its own deals. Levin asked Viniar if those e-mails made him feel anything, and Viniar immortally responded: "I think that's very unfortunate to have on e-mail." He quickly backtracked, but that is clearly what he meant. 9  Similarly, if you asked a reasonable bank executive how he feels about hiring mediocre interns who happen to be the children of powerful officials at major Middle Eastern sovereign wealth funds, I think he would reply: "I think that's very unfortunate to have on e-mail." It's obviously what you do. I mean, you don't sacrifice business in the Middle East just for an overly fussy interpretation of U.S. anti-bribery rules. You just don't put it in e-mail. I mean, you certainly don't do this:

A Boutique account manager wrote in a February 2010 e-mail concerning the internship request for Interns A and B that BNY Mellon was “not in a position to reject the request from a commercial point of view” even though it was a “personal request” from Official X. The employee stated: “by not allowing the internships to take place, we potentially jeopardize our mandate with [the Middle Eastern Sovereign Wealth Fund].”

Or this:

“[W]e have to be careful about this. This is more of a personal request . . . [Official X] doesn’t want [the Middle Eastern Sovereign Wealth Fund] to know about it.” The same employee later directed his administrative assistant to refrain from sending e-mail correspondence concerning Official X’s internship request “because it was a personal favor.”

I mean, fine, say that last part, but don't make a record of it! Just, shh. Get it done. Show some job performance and professionalism. Any internship can be explained as part of a context of relationship building and information exchange. These interns were hired because of their unique background and knowledge of Middle Eastern business conditions, not as part of an explicit quid pro quo to win the fund's business by doing personal favors for its executives. You could say. If you hadn't already put the explicit quid pro quo in an e-mail. Or many e-mails. If nothing else, these enforcement cases will teach banks that: A financial system built on personal relationships maintained by favors and implicit debts works great. Just don't be too tidy-minded about it: If you link the favors and the debts explicitly, if you make the exchange too clear, and if you put it in e-mail, that's when you get in trouble.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. The ball started rolling with JPMorgan and has spread at least to Credit Suisse, Goldman Sachs, Morgan Stanley, Citigroup, UBS and Deutsche Bank, as well as BNY Mellon.

  2. Oh fine, and they missed work a few times. Were they adding that much value when they came?

  3. Though in equities that's kind of how league-table block trades work.

  4. One easy way to identify it is in various entertainment and gift policies, in which you're allowed to buy someone a gift or meal worth less than $X, but not more than $X. But steak is, in the scheme of things, cheap. The real favors -- information, introductions, career assistance -- mostly don't have dollar values. 

  5. Though as Joseph Cotterill points out, sovereign wealth fund governance principles require that "dealing with third parties for the purpose of the SWF's operational management should be based on economic and financial grounds, and follow clear rules and procedures," which this procedure arguably fell short of.

  6. I mean, I wouldn't necessarily recommend that you go around bribing non-governmental foreign executives, but the theory behind FCPA enforcement for internships relies on the internships being for relatives of government officials. See paragraph 29 of the SEC order:

    Section 30A of the Exchange Act prohibits any issuer with a class of securities registered pursuant to Section 12 of the Exchange Act, or any officer, director, employee, or agent acting on behalf of such issuer, in order to obtain or retain business, from corruptly giving or authorizing the giving of, anything of value to any foreign official for the purposes of influencing the official or inducing the official to act in violation of his or her lawful duties, or to secure any improper advantage, or to induce a foreign official to use his influence with a foreign governmental instrumentality to influence any act or decision of such government or instrumentality.

  7. "BNY Mellon determined, because Interns A and B had already graduated from college, that Interns A and B should be paid above the normal salary scale for BNY Mellon undergraduate interns but below the scale for postgraduate interns. Intern C was unpaid." The unpaid one is the one who was "okay"!

  8. And imaginably into their fund, in the general case, though there is no mention of that in this SEC order.

  9. As evidenced by the fact that Goldman responded by banning swear words in e-mail, and later by the Great Greg Smith Muppet Hunt of '12

    Goldman responded by launching an investigation into what was nicknamed internally “the muppet hunt”. The investigators interviewed dozens of staff and sifted through millions of emails, finding about 4,000 “muppet” references. But they said 99 per cent of those referred to last year’s movie of the same name.

    Disclosure: I used to work at Goldman. I also used to swear in e-mail.

To contact the author on this story:
Matt Levine at

To contact the editor on this story:
Zara Kessler at

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