JP Morgan pays US$264m to settle China bribery case

JP Morgan Chase, the largest bank in the world by market capitalisation, admitted to receiving more than US$100 million worth of new business after hiring candidates referred by clients, including by senior Chinese officials in positions to steer bus
JP Morgan Chase, the largest bank in the world by market capitalisation, admitted to receiving more than US$100 million worth of new business after hiring candidates referred by clients, including by senior Chinese officials in positions to steer business to the bank. The authorities brought no criminal charges against the bank as part of the settlement and took no enforcement action against individuals. PHOTO: AGENCE FRANCE-PRESSE
MS LESLIE CALDWELL, chief of the US Justice Department's criminal division, on the actions of JP Morgan Chase.
MS LESLIE CALDWELL, chief of the US Justice Department's criminal division, on the actions of JP Morgan Chase.

Bank's shares traded higher despite announcement

WASHINGTON • JP Morgan Chase has agreed to pay US$264 million (S$375 million) to settle a foreign bribery case dubbed the "princelings case" in which the bank gave prized jobs to friends and relatives of China's elite, United States officials announced on Thursday.

The multinational bank, now the world's largest by market capitalisation, admitted to receiving more than US$100 million worth of new business after hiring candidates referred by clients, including by senior Chinese officials in positions to steer business to the bank.

Despite the announcement, shares in JP Morgan were trading higher on Thursday afternoon, up 0.6 per cent shortly after 2000 GMT (4am Singapore time yesterday) in New York.

"Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple," Ms Leslie Caldwell, chief of the US Justice Department's criminal division, said in a statement.

The case drew attention for its focus on the use of hiring as a form of bribery, and for the princelings' work habits revealed when company e-mails were scrutinised.

Over a seven-year period, between 2006 and 2013, JP Morgan Chase hired nearly 100 employees and interns referred by government officials at 20 different state-owned businesses in China, officials said.

  • Questionable hires

  • Under their Sons And Daughters Programme, JP Morgan Chase hired nearly 100 employees and interns referred by government officials at 20 different state-owned businesses in China between 2006 and 2013. JP Morgan's executives in Asia then used their connections with these government agencies to help the company and clients navigate tangled regulatory landscapes.

    Many of the candidates were unqualified but they were hired anyway. Some instances, with no names revealed, were highlighted in the investigations:

    •One man hired was the son of a powerful executive who had a Wharton degree but a "not very impressive, poor G.P.A." and had both an "attitude issue" and a "napping problem". GPA, or grade point average, measures academic achievement.

    •There was another whose productivity was described as being of "photocopier" level.

    •Yet another was the son of a Chinese official who did "very, very poorly" in his interviews but still secured a position in New York, only to be transferred again. This employee "sent out an e-mail (inadvertently copied to a human resource personnel), where he made some inappropriate sexual remarks". His peers described him as "immature, irresponsible and unreliable", but he kept his job.

    •In one case in 2011, a JPMorgan employee asked that a candidate be given a permanent position despite "undeniable underperformance", because the "deal is large enough and we are pregnant enough with this person, that we'd be crazy not to accommodate her father's wants".

According to reports, in one e-mail, a bank executive discussed how to "handle the son in New York and leverage the father in China". One hire was derided as "a photocopier", while another was described as "an intern doing nothing" with a "napping habit".

Despite the settlement, Mr Bart Naylor of policy watchdog group Public Citizen, complained that the bank "has escaped true accountability". "JP Morgan executives belong in jail, but instead, shareholders will foot the bill for what one government official described as 'systemic bribery'," he said in a statement.

CLEARLY BREAKING THE LAW

Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple.

MS LESLIE CALDWELL, chief of the US Justice Department's criminal division, on the actions of JP Morgan Chase.

Officials at a regional subsidiary in Hong Kong created a client job referral programme sometimes known internally as the Sons And Daughters Programme to hire candidates of strategic value to the bank, according to the Justice Department.

By 2009, senior executives had refined the programme to seek candidates with "directly attributable linkage to business opportunity", federal prosecutors said, citing internal JP Morgan Chase records.

In one example, JP Morgan won a leading role in the initial public offering for an unnamed state-owned Chinese company after hiring a candidate, who bank executives knew was unqualified, for a job in New York.

The candidate had been referred in 2009 by a senior Chinese official who promised the business in return for the hire.

Candidates hired in this programme typically received salaries equivalent to entry-level investment bankers, despite performing mainly minor tasks such as proof-reading, according to the Justice Department.

The authorities brought no criminal charges against the bank as part of the settlement and took no enforcement action against individuals.

However, a JP Morgan Chase subsidiary in Hong Kong fired six employees and disciplined 23 others for their role in the misconduct, the Justice Department said.

In the settlement, JP Morgan Chase agreed to pay US$134 million in fines to the Justice Department and Federal Reserve, as well as another US$130 million to the Securities and Exchange Commission.

Since 1977, the United States has criminalised the practice of bribing foreign officials to win business under a Watergate-era statute known as the Foreign Corrupt Practices Act.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on November 19, 2016, with the headline 'JP Morgan pays US$264m to settle China bribery case'. Print Edition | Subscribe