Nepotism

What Is Nepotism?

Nepotism refers to the unethical practice of people in positions of authority or power using that power to benefit their relatives.

This might include giving them jobs, promotions, contracts, or other advantages regardless of merit, talent, or credentials. When nepotism happens in government, state-owned companies, or any organization handling public money, it is widely recognized as a form of corruption.

What is the Meaning of Nepotism?

The word nepotism comes from the Latin nepos, meaning “nephew.” Synonyms include favoritism, cronyism, patronage, and partiality, but also have their own distinct meanings.

During the Renaissance, popes routinely appointed their nephews to powerful positions in the Catholic Church — a practice so common it gave the behavior its name. Centuries later, the pattern is the same everywhere it appears: someone entrusted with authority uses it to advance family instead of serving the institution.

Nepotism exists in every country and every sector.

For example…

a government minister who steers contracts to a company owned by his brother, or a state oil company that hires the president’s daughter into a senior role she is not qualified for, or a multinational bank that gives jobs to the children of foreign officials in exchange for business.

Some of these situations are unethical but legal. Others are crimes — and in specific cases, like a company using jobs for officials’ relatives as bribes, the person who reports it may qualify for a financial award under U.S. whistleblower laws.

Key Takeaways

• Nepotism is a form of favoritism shown to relatives by people in power, typically in hiring, promotions, or the award of contracts.
• International anti-corruption frameworks treat nepotism in public office as a form of corruption. The United Nations Convention against Corruption — the only legally binding global anti-corruption treaty, with 190 states parties — covers abuse of functions (Article 19), which UNODC explains can involve favoritism and nepotism.
• Whether nepotism is illegal depends on where it happens. Most countries restrict nepotism in the public sector; in the private sector, it is generally legal unless it crosses into bribery, fraud, or discrimination.
• Under the U.S. Foreign Corrupt Practices Act (FCPA), hiring the relatives of foreign government officials to win business is bribery. JPMorgan paid $264 million in 2016 over its “Sons and Daughters” hiring program in China.
• Whistleblowers who report nepotism-related corruption at publicly traded companies — from anywhere in the world — may qualify for financial awards through the U.S. SEC Whistleblower Program.

How Nepotism Works

Nepotism replaces merit with bloodline. In other words, instead of asking “who is the best person for this job or contract?”, the decision-maker asks “which of my relatives can I put here?” This can lead to major risks in industries where investors or lives are at stake.

But the damage goes well beyond one unfair hire.
Nepotism corrodes institutions in several ways:

• It destroys merit systems: when positions are filled by family connection, qualified people stop applying, competent employees leave, and the institution’s performance degrades, leading to serious risks – in many countries, often evaded through impunity.
• It creates built-in conflicts of interest: in an institution where nepotism thrives, a supervisor cannot objectively evaluate, discipline, or pay a relative. Every personnel decision becomes compromised.
• It enables larger corruption: a relative placed in a procurement office can steer contracts. A relative placed in a finance role can approve fraudulent invoices. This is why anti-corruption frameworks treat unchecked favoritism in hiring as a corruption risk.
• It concentrates power: in governments, packing ministries and state-owned enterprises with family members lets a ruling group control public resources and shield itself from oversight — a hallmark of grand corruption.

Nepotism appears in the private sector too, particularly in family-owned businesses, where hiring relatives is often lawful and often expected. A family business promoting the founder’s son is a governance question for its owners – but a public official or a publicly traded company doing the same with entrusted power or shareholder money is a different matter entirely.

Nepotism vs. Cronyism vs. Patronage vs. Favoritism

These terms are often used interchangeably, but they describe different relationships:

• Nepotism is favoritism toward relatives — family by blood or marriage.
• Cronyism is favoritism toward friends and close associates.
• Patronage is favoritism toward political supporters — jobs and contracts handed out as rewards for loyalty.
• Favoritism is the umbrella term for any preferential treatment based on relationships rather than merit.

All four undermine institutions the same way, and anti-corruption laws frequently address them. The common thread that they share is the abuse of entrusted power for private benefit — the standard definition of corruption itself.

Is Nepotism Illegal?

It depends on where it happens and who does it. Nepotism is almost universally condemned as unethical — but it is only sometimes a crime. Below is an overview of how the law treats nepotism internationally, in the United States, and in the private sector.

Under International Anti-Corruption Law

The United Nations Convention against Corruption (UNCAC), in force since 2005 and joined by 190 states parties, is the global baseline.

It does not use the word “nepotism,” but it covers the conduct: Article 19 addresses abuse of functions — a public official using their position, in violation of law, to obtain an undue advantage for themselves or for another person.

Placing an unqualified relative in a public job or steering a state contract to a family member fits squarely within this concept. UNCAC also calls on countries to protect the people who report corruption (Article 33).

Because UNCAC requires countries to consider criminalizing abuse of functions rather than mandating it, national laws vary widely.

Some countries prosecute public-sector nepotism as a criminal abuse of office; others treat it as an administrative or disciplinary offense; in some, laws exist on paper but are rarely enforced. That enforcement gap is precisely why whistleblowers — and cross-border reporting channels — matter so much in nepotism cases.

In the United States

The U.S. offers a useful case study in how a country can regulate nepotism directly — but the rules are very different depending on the sector.

In the public sector

The federal anti-nepotism law, 5 U.S.C. § 3110, has prohibited nepotism in federal employment since 1967. It bars federal public officials — including Members of Congress — from appointing, employing, promoting, advancing, or even advocating for a relative in any agency they control.

The statute names 27 categories of covered relatives, which means, with respect to a public official, an individual who is related to the public official as father, mother, son, daughter, brother, sister, uncle, aunt, first cousin, nephew, niece, husband, wife, father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, stepfather, stepmother, stepson, stepdaughter, stepbrother, stepsister, half brother, or half sister.

Nepotism is also one of the fourteen prohibited personnel practices in the federal workforce, listed at 5 U.S.C. § 2302(b)(7) and enforced by the independent U.S. Office of Special Counsel (OSC). OSC’s guidance makes clear the ban goes beyond hiring: a federal official cannot complete a relative’s performance review, push for a relative to receive easier duties, or direct a subordinate to give a relative a bonus.

These rules are enforced administratively rather than criminally.

Federal employees who witness nepotism can file a complaint with OSC, which can pursue corrective and disciplinary action through the Merit Systems Protection Board — and officials have been suspended and demoted for violations.

Narrow exceptions exist (OPM regulations allow temporary hiring of relatives during emergencies that pose an immediate threat to life or property), but the default rule is a hard prohibition.

In the private sector

None of these laws apply to private companies. In the United States, for example, a private business owner can lawfully hire their son, promote their daughter, or fill its ranks with relatives — nepotism in the private sector is, by itself, legal.

It becomes a legal problem in three situations:

• When it violates employment discrimination laws (for example, where hiring through family networks effectively excludes protected groups)
• When it breaches the fiduciary duties that executives of publicly traded companies owe their shareholders.
• When the job itself is the bribe — hiring an official’s relatives to win business, an offense U.S. regulators have prosecuted for hundreds of millions of dollars.

When Nepotism Becomes Bribery: The FCPA “Princelings” Cases

A clear example of nepotism prosecuted as corruption comes from a series of U.S. enforcement actions known as the “princelings” cases — where the nepotistic hire was the bribe.

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits companies from giving foreign government officials “anything of value” to win or retain business. American regulators concluded that a job or internship for an official’s child is a thing of value like any other:

BNY Mellon — $14.8 million (2015). The first princelings case. The SEC charged the bank with providing valuable student internships to family members of officials at a Middle Eastern sovereign wealth fund — relatives who bypassed the bank’s competitive hiring standards entirely — in order to keep the fund’s business.

Qualcomm — $7.5 million (2016). The SEC charged the technology company with hiring relatives of Chinese government officials who were deciding whether to select Qualcomm’s products — proof that the pattern extends beyond banking into any industry that depends on official decisions.

JPMorgan Chase — $264 million (2016). The largest case. The bank’s Asia-Pacific subsidiary ran an internal “Sons and Daughters Program,” hiring roughly 100 interns and employees referred by Chinese officials to win more than $100 million in business, including IPO roles for state-owned companies. The SEC ordered more than $130 million, the DOJ imposed a $72 million criminal penalty, and the Federal Reserve added $61.9 million.

Credit Suisse — $77 million (2018). The SEC found that over six years, the bank’s Hong Kong operation offered jobs to more than 100 people referred by or connected to foreign government officials as a quid pro quo for investment banking business, paying roughly $30 million to the SEC and a $47 million criminal penalty to the DOJ.

Deutsche Bank — $16 million (2019). The most recent case — and the first to reach beyond Asia. The SEC’s order found the bank hired relatives at the request of foreign officials in both the Asia-Pacific region and Russia, including the daughter of a Russian deputy minister, with referral hires bypassing its merit-based hiring process.

These cases established a principle that matters enormously for international whistleblowers: nepotistic hiring, when used to influence foreign officials, is a federal offense in the United States — no matter where in the world it happens.

An employee in Hong Kong, Dubai, or anywhere else who witnesses this kind of scheme at a company covered by U.S. securities law is witnessing an FCPA violation.

How to Report Nepotism

The right reporting channel depends on several things: what you witnessed, who you work for, where the misconduct happened, and whether the case is large enough to qualify for a reward program.

If you have witnessed nepotism used to win business from government officials — hiring an official’s relatives in exchange for contracts, licenses, or deals — this may be an FCPA violation reportable to the U.S. Securities and Exchange Commission.

The SEC Whistleblower Program accepts tips from anywhere in the world, allows you to report anonymously through a U.S. attorney, and pays awards of 10% to 30% of sanctions when your information leads to a successful enforcement action over $1 million.

Our SEC international whistleblowers guide walks through the process step by step.

If you are a U.S. federal employee who has witnessed a supervisor hire, promote, or advocate for a relative, the misconduct can be reported as a prohibited personnel practice to the U.S. Office of Special Counsel.

But these cases are rarely simple — whether OSC, your agency’s Inspector General, or another channel is the right path depends on the facts, and a misstep can weaken your case or expose you to retaliation before protections attach. Speaking with a whistleblower attorney first can help you choose the strongest route and protect yourself from the outset.

If the nepotism involves fraud against a government — for example, relatives’ companies winning rigged public contracts — it may support a fraud claim under laws like the U.S. False Claims Act, depending on the government involved and the funds at stake.

Regardless of your status or residency, document what you observed, preserve evidence lawfully, and speak with an experienced whistleblower attorney before reporting — especially if you are outside the United States, where a consultation can clarify whether U.S. reward programs reach your case. Start with our International Whistleblowing 101 guide, then contact our team for a confidential consultation.

Frequently Asked Questions

Is nepotism a form of corruption?

Yes, when it involves entrusted power. International anti-corruption frameworks, including the UN Convention against Corruption, treat a public official’s use of their position to benefit relatives as abuse of functions — a recognized corruption offense.

Private favoritism inside a family business is generally an ethics and governance issue rather than corruption in the legal sense.

Is nepotism illegal?

It depends on the country and the sector.

Most countries restrict nepotism in public office through civil service, conflict-of-interest, or abuse-of-office laws. In the United States, federal law (5 U.S.C. § 3110) flatly prohibits federal officials from hiring or advocating for relatives. Private-sector nepotism is usually legal — unless it functions as a bribe, enables fraud, or violates discrimination laws.

Can I get a reward for reporting nepotism?

Possibly. Nepotism alone is not usually enough — but nepotism used to bribe foreign officials (an FCPA violation) or connected to fraud, bribery, or accounting violations at a publicly traded company can qualify for SEC whistleblower awards of 10% to 30% of sanctions collected. Whistleblowers anywhere in the world are eligible.

What is the difference between nepotism and cronyism?

Nepotism benefits relatives; cronyism benefits friends and associates. Both replace merit with personal connection, and both are treated as forms of favoritism and — in public office — corruption.

Was hiring someone’s child really treated as bribery?

Yes. In the FCPA “princelings” cases, U.S. regulators found that jobs and internships given to relatives of foreign officials were “things of value” exchanged for business. JPMorgan paid $264 million, BNY Mellon $14.8 million, and Qualcomm $7.5 million to settle such charges.

The Bottom Line

When people in power hand jobs, promotions, and contracts to their relatives, they are converting public trust — or shareholder money — into family property. International law recognizes it as corruption when public officials do it, and U.S. enforcement has shown that even corporate hiring decisions can be prosecuted as bribery when relatives of officials are the currency.

If you have witnessed nepotism connected to bribery, fraud, or abuse of public office — in any country — you may have both legal protection and a potential financial award available to you. The first step is understanding your options. Our team offers confidential consultations for whistleblowers worldwide.