JP Morgan Chase to pay $374m to settle China bribe scandal

The headquarters of JP Morgan Chase on Park Avenue in New York.
The headquarters of JP Morgan Chase on Park Avenue in New York.PHOTO: AFP

WASHINGTON (AFP) - JP Morgan Chase has agreed to pay US$264 million (S$374 million) to settle a foreign bribery case dubbed the "princelings case" in which the bank gave prized jobs to friends and relatives of Chinese officials, US officials announced on Thursday.

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

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

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

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.

Despite the large settlement, Mr Bart Naylor of policy watchdog group Public Citizen, complained that the bank "has escaped true accountability".

"JPMorgan 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.

Officials at a regional subsidiary in Hong Kong created a client job referral programme sometimes known internally as the 'Sons and Daughters Program' 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.

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 roles 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 in to the Securities and Exchange Commission.

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

Other countries have adopted similar laws but none enforces it as aggressively as the United States.

US enforcement of the law has broadened in recent years, with authorities in Washington extending their reach to more industries and scrutinising a greater range of business practices for corruption.