Citing a “confidential United States government document,” the New York Times reports that “Federal authorities have opened a bribery investigation into whether JPMorgan Chase hired the children of powerful Chinese officials to help the bank win lucrative business …”.
The Times article states:
“In one instance, the bank hired the son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state-controlled financial conglomerate […] After the chairman’s son came on board, JPMorgan secured multiple coveted assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, records show. The Hong Kong office of JPMorgan also hired the daughter of a Chinese railway official. That official was later detained on accusations of doling out government contracts in exchange for cash bribes, the government document and public records show. The former official’s daughter came to JPMorgan at an opportune time for the New York-based bank: The China Railway Group, a state-controlled construction company that builds railways for the Chinese government, was in the process of selecting JPMorgan to advise on its plans to become a public company, a common move in China for businesses affiliated with the government. With JPMorgan’s help, China Railway raised more than $5 billion when it went public in 2007.”
As the Times article notes, JPMorgan made passing reference to the inquiry in its most recent quarterly filing. The August 7th filing identified, under the heading “Regulatory Developments” the following.
“A request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients.”
The Times article quotes me as follows.
“While the hire of a son or daughter itself is not illegal, red flags would be raised if the person hired was not qualified for the position, or, for example, if a firm never received business before and then lo and behold, the hire brought in business.”
Indeed, there have been Foreign Corrupt Practices Act enforcement actions where the conduct at issue involved the hiring of children or spouses of alleged “foreign officials.”
For instance, in the Tyson Foods enforcement action, part of the FCPA conspiracy alleged was “to place the wives of the [Mexican government] veterinarians on [a subsidiary company’s] payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services …”. According to the DOJ, approximately $260,000 “in improper payments were made to the … veterinarians, both indirectly and directly, including through payments to wives of [the] veterinarians.”
In the Daimler enforcement action, the DOJ alleged that the company and its subsidiary in China “employed agents to assist in securing commercial vehicles and Unimog business from Chinese governent customers.” Also the allegations supporting the FCPA conspiracy charge were: (i) the company made “a purported commission payment” to “the wife of a Chinese government official at Sinopec” in connection with the sale of commercial vehicles to Sinopec; and (ii) the company made a payment “to a relative of a Chinese government official” associated with the Bureau of Geophysical Prospecting in connection with the sale of commercial vehicles to the entity.
In the Siemens enforcement action, the DOJ alleged that that Siemens Bangladesh “paid $5,000 to the daughter of a Bangladesh Telegraph Telephone Board (BTTB) official ostensibly to work as an ‘engineer’ on the BTTB project, despite the fact that Siemens Bangladesh did not need such an engineer and did not have the budget for the position.”
In the UTStarcom enforcement action, the SEC’s allegations included that the company “provided foreign government customers or their family members with work visas and purportedly hired them to work for [the company] in the U.S., when in reality they did no work for the company.”
In the Paradigm enforcement action, according to the DOJ, “during the same time frame as [a business deal was being discussed with an alleged Mexican “foreign official”], the same [alleged “foreign official”] requested that Paradigm Mexico hire his brother.” The DOJ stated: “Paradigm Mexico acquiesced to that demand and hired the decision maker’s brother as a driver. While employed at Paradigm Mexico, the brother did perform some work as a driver.”
Certain other FCPA enforcement actions have also alleged other things of value given to children or spouses of alleged “foreign officials.”
As to a potential cause and effect relationship between JPMorgan’s alleged hiring of children of alleged foreign officials, the article, in addition to the above, also states:
“Before hiring [the son of the chairman of the China Everbright Group], JPMorgan appeared to do little if any business with China Everbright, based on a review of securities filings and news reports. Since then, though, China Everbright has emerged as one of its prized Asian clients.”
“The Ministry of Railways has never hired JPMorgan directly, securities filings and news reports suggest. But those records indicate that the China Railway Group, the construction company whose largest customer is thought to be the Chinese government, hired JPMorgan to take it public in 2007. [The daugher of the former deputy chief engineer of China’s railway ministry] was hired around this time. […] About four years later, when [the daughter] was an associate at the bank, JPMorgan won out again. This time, according to media reports, the operator of a high-speed railway from Beijing to Shanghai picked the bank to steer it through its own public offering. That deal fell apart after a 2011 train collision killed 40 people and injured hundreds.”
For additional reading see here from the Wall Street Journal, here from Reuters, here from Fortune, here from the Washington Post, here from the Financial Times and here from The New Yorker (noting “of all the allegations of bribery lodged in recent years against foreign businesses in China … [JPMorgan’s scrutiny] is likely to produce dyspepsia in corporate suites in Beijing and Shanghai, where bright, fresh-faced hires are sometimes known less by their credentials than by their parentage”).
On Monday, the first day of trading after the Times article, JPMorgan’s stock closed down 2.7% to $51.83.
