Lawrence White and Michael Flaherty Hong Kong
A US banking regulator’s probe into JPMorgan Chase’s hiring practices in China will have rival banks scrambling to review their own records, lawyers say, in a market where ties to political and business leaders can be key to winning big deals.
Banks around the world commonly hire people with government connections, but this is especially prevalent in China due to the role the ruling Communist Party plays in the country’s business.
Offering a job to one of China’s so-called princelings – the offspring of the political elite – was now a potential liability, with the US Securities and Exchange Commission (SEC) probing whether JPMorgan’s Hong Kong office hired the children of executives of Chinese state-owned firms with the express purpose of winning underwriting business and other contracts, a person familiar with the matter said.
US law does not stop firms from hiring politically connected executives. But hiring people in order to win business from relatives could be bribery, and the SEC was investigating JPMorgan’s actions under the US Foreign Corrupt Practices Act (FCPA), the person added.
“If I were a competitor of JPMorgan, I would definitely start to do some internal investigations looking into the relationships with princelings,” said a China-based lawyer who works with financial groups.
Bank of America, Citigroup, Credit Suisse , Goldman Sachs and Macquarie are just a few of the banks to have employed relatives of top Chinese officials in the past five years. The banks declined to comment or did not respond to requests for comment.
Marie Cheung, a Hong Kong-based spokeswoman for JPMorgan, declined to comment on the matter beyond what was in the bank’s regulatory filings, noting the bank was co-operating with probes.
The distinction between hiring a relative of a foreign official who may be well connected, and offering employment to such a person in the express hope of winning specific business is key to proving FCPA violations, according to a report on the FCPA published last October by law firm Gibson, Dunn & Crutcher.
“If JPMorgan put the person down in their books as a legitimate hire, and then it turns out that the person is there just to get certain connections, then anything you pay can be considered a bribe,” said the China-based lawyer, who was not authorised to speak publicly about the issue.
The SEC probe coincides with a broader focus by the US government on China-related corruption and the impact on US businesses and individuals. Violating the FCPA could result in criminal liabilities, the lawyer said, though in this case a likely outcome, if the US government prevailed, would be a civil fine and the admission of wrongdoing.
According to the New York Times, JPMorgan hired Tang Xiaoning, the son of Tang Shuangning, the chairman of state-controlled financial conglomerate China Everbright Group and a former Chinese banking regulator. After the younger Tang joined JPMorgan, the bank secured several important assignments from the Chinese conglomerate. – Reuters