Yahoo Finance JP Morgan Chase to pay $264m over Chinese 'princelings' bribery scheme
Settlement with US regulators follows three-year corruption investigation
Bank hired children of Chinese officials to secure Asia-Pacific business
JP Morgan Chase agreed to pay $264m on Wednesday to settle charges that it employed well-connected Chinese “princelings” in order to win business in the Asia-Pacific region.
The settlement with US regulators comes after a three-year investigation into a vast foreign bribery scheme that violated the Foreign Corrupt Practices Act (FCPA). It could be the first of several such deals with Wall Street banks.
“JP Morgan engaged in a systematic bribery scheme by hiring children of government officials and other favoured referrals who were typically unqualified for the positions on their own merit,” said Andrew Ceresney, director of the Securities and Exchange Commission’s (SEC) enforcement division.
“JP Morgan 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 Department of Justice called the scheme “bribery by any other name” and said it had recently created three dedicated international corruption squads “to combat this type of quid pro quo, and we’ll use all resources at our disposal to uncover and put an end to these crimes”.
Starting in 2006 senior Hong Kong-based JP Morgan bankers set up and used a “client referral programme”, also referred to as the “sons and daughters programme”, to hire candidates referred by clients and government officials.
The bank admitted that some candidates hired under the scheme did little more than proof reading but were paid the same amount as entry-level investment bankers. In one case bankers in New York told their Hong Kong peers that one Chinese hire was unqualified to be an investment banker. But a senior Chinese official had said that his hiring would help JP Morgan secure a lucrative role in an upcoming initial public offering (IPO) of a state-owned company. A position was created for the candidate in New York, and JP Morgan thereafter obtained a leading role in the IPO.
Related: JP Morgan Chase to pay $307m for steering investors toward own products
The DoJ calculates the scheme increased profits at JP Morgan by at least $35m.
“US businesses cannot lawfully seek to gain a business advantage by corruptly influencing foreign government officials,” said US attorney Robert Capers of the eastern district of New York.
“The common refrain that this is simply how business is done overseas is no defence. In this case, JP Morgan employees designed a programme to hire otherwise unqualified candidates for prestigious investment banking jobs solely because these candidates were referred to the bank by officials in positions to award business to the bank. In certain instances, referred candidates were hired with the understanding that the hiring was linked to the award of specific business. This is no longer business as usual; it is corruption.”
Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said: “The misconduct was so blatant that JP Morgan investment bankers created ‘referral hires vs revenue’ spreadsheets to track the money flow from clients whose referrals were rewarded with jobs. The firm’s internal controls were so weak that not a single referral hire request was denied.”
A JPMorgan spokesman said in an email: “The conduct was unacceptable.” The hiring program was halted in 2013 and the bank took actions against those responsible, the spokesman said.
