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JPMorgan Chase paying $264m for corrupt hiring scheme in China

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Staff Writer | Thursday November 17, 2016 1:40PM ET
JPMorgan
Banking   The Foreign Corrupt Practices Act

The Securities and Exchange Commission (SEC) announced that JPMorgan Chase & Co. has agreed to pay more than $130 million to settle SEC charges.


Those charges claim that it won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends in violation of the Foreign Corrupt Practices Act (FCPA).

JPMorgan also is expected to pay $72 million to the Justice Department and $61.9 million to the Federal Reserve Board of Governors for a total of more than $264 million in sanctions resulting from the firm’s referral hiring practices.

According to an SEC order, investment bankers at JPMorgan’s subsidiary in Asia created a client referral hiring program that bypassed the firm’s normal hiring process and rewarded job candidates referred by client executives and influential government officials with well-paying, career-building JPMorgan employment.

During a seven-year period, JPMorgan hired approximately 100 interns and full-time employees at the request of foreign government officials, enabling the firm to win or retain business resulting in more than $100 million in revenues to JPMorgan.

The SEC’s order finds that JPMorgan violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934.

JPMorgan agreed to pay $105,507,668 in disgorgement plus $25,083,737 in interest to settle the SEC’s case. The SEC considered the company’s remedial acts and its cooperation with the investigation when determining the settlement.

According to JPMorgan APAC’s admissions, beginning in 2006, senior Hong Kong-based investment bankers set up and used a “client referral program,” also referred to as the “Sons and Daughters Program,” to hire candidates referred by clients and government officials. The Sons and Daughters Program was used as a means to influence those same officials to award investment deals to JPMorgan APAC. By late 2009, JPMorgan APAC executives and senior bankers revamped the client referral program to improve its efficacy by prioritizing those hires linked to upcoming client transactions. In order to be hired, a referred candidate had to have a “directly attributable linkage to business opportunity.”

According to admissions made in connection with the resolution, these quid pro quo arrangements were discussed internally among JPMorgan APAC bankers.

For example, in late 2009, a Chinese government official communicated to a senior JPMorgan APAC banker that hiring a referred candidate would significantly influence the role JPMorgan APAC would receive in an upcoming initial public offering (IPO) for a Chinese state-owned company.

The banker communicated this message to several senior colleagues, who then spent several months trying to place the referred candidate in an investment banking position in New York.

Despite learning from personnel in New York that this referred candidate was not qualified for an investment banking position, senior JPMorgan APAC bankers created a new position for the candidate in New York, and JPMorgan APAC thereafter obtained a leading role in the IPO.

Further, JPMorgan APAC employees misused compliance questionnaires to justify and paper over corrupt business arrangements.

Employees also used a template with pre-filled answers, including that there was “no expected benefit” from the hire, and compliance personnel drafted and modified questionnaires that failed to state the true purpose of the hire.

 

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