Between 2006 and 2013, JPMorgan Chase and its subsidiary, JP Morgan Securities (Asia Pacific) Limited (JPM-APAC) took on about 100 Chinese interns and full-time employees. That seems harmless enough in itself, but these hires have been at the centre of a bribery case spread over two continents and worth hundreds of millions of dollars.
The ‘Sons and Daughters’ program started in 2006, with the intention to weed out nepotism amongst China’s ruling elite. The idea was that well-connected candidates would be considered for jobs on a separate track from the ordinary applicants. JP Morgan argued that, without this program, it may have seemed that the company would hire the connected children to win business.
without this program, it may have seemed that the company would hire the connected children to win business
However, the program seems to have shifted from safeguard to liability, fostering exactly the issue is was set up to avoid. In order to win business from members of the Chinese government and state-owned companies, it seems JPM-APAC instead targeted their children, offering them high-ranking and well-paid positions in the business in order to curry favour with their parents. A spreadsheet was kept, tracking the details of each of its hires, and the bank’s ability to convert these hires into business deals (more than $100 million worth). An internal JPMorgan investigation into hiring practices identified more than 250 well-connected hires in Asia alone, including sons and daughters of private Chinese companies – the practice would not violate US law, but they could cause regulatory problems overseas.
investigation into hiring practices identified more than 250 well-connected hires in Asia alone, including sons and daughters of private Chinese companies
Now, the problem here is a simple one – this looks massively like bribery, and a company in the US cannot fall foul of anti-bribery laws. The company has not been accused of any wrongdoing per se, but interviews suggest the employees recognised the value of the connected children, who faced lower standards. An example of this is the son of Tang Shuangning, the chairman of a state-controlled financial conglomerate. The bank continued to employ him, even though officials were questioning his financial expertise and competence.
JP Morgan is in trouble for violating the Foreign Corrupt Practices Act (FCPA), which forbids bribing foreign government officials. It doesn’t forbid banks from hiring children of corporate executives but, as the most attractive corporate clients in China are state-owned enterprises, it becomes an issue.
JP Morgan is in trouble for violating the Foreign Corrupt Practices Act (FCPA), which forbids bribing foreign government officials.
The Securities and Exchange Commission (SEC) and the Justice Department (DoJ) began an investigation in 2013, in which US federal officials were not been shy in criticising the bank. Kara Brockmeyer, head of the SEC’s FCPA enforcement efforts, noted that ‘the misconduct was so blatant,’ and that no referral to the program was ever denied a job. The DoJ called the scheme ‘bribery by any other name,’ and said that it had threatened national security.
In November 2016, the bank was ordered to pay $264 million to settle the claims against it – $130m to the SEC for violations of the FCPA, $72m to the US Justice Department and $61.9m to the Federal Reserve Board of Governors.
And so ended a story of supposed banking impropriety. JP Morgan is not the bank to be questioned over its practices, nor will it be the last – it should serve as a reminder, however, that if you don’t play by the book, there could be consequences down the line.