Article by Patricia Hurtado, Keri Geiger, & Matt Robinson | Featured on Bloomberg
A JPMorgan Chase & Co. intern had poor grades at the Wharton School. His supervisor in Asia told colleagues that “he’s not really built” for investment banking. He had “attitude issues,” had trouble “following basic rules” and was a prolific napper. Yet in 2010 he was offered a full-time job, over the reservations of some executives.
Those details emerged on Thursday as JPMorgan agreed to pay about $264 million to settle U.S. allegations that it hired children of Chinese decision-makers to win business in violation of anti-bribery laws. Investigators described a systematic effort to curry favor with government officials and business executives.
The Wharton student’s father was an executive of a Taiwanese company offering an $800 million transaction to the bank. In an e-mail, one banker wrote, “The quid pro quo is an analyst job for his son.”
The government’s 21-page agreement with JPMorgan ended an almost three-year investigation that set off a debate on Wall Street over whether U.S. business standards should be applied in foreign countries and whether favors to influential officials amounted to criminal activity.
U.S. officials said JPMorgan employees at the bank’s Hong Kong subsidiary sought to maximize profits by providing jobs and internships to children of individuals it hoped to do business with. In spite of a company policy prohibiting such quid pro quo, employees kept a spreadsheet that tracked the recruits and the revenue attributable to each one — and then doctored or altered paperwork about the hiring activity “to conceal the corrupt arrangement.” In all, the bank generated at least $35 million in profits as a result of those hires, U.S. officials said.
“Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple,” Assistant Attorney General Leslie Caldwell said.
The bank will pay about $130 million to the Securities and Exchange Commission, $72 million to the Justice Department and $62 million to the Federal Reserve.
Neither JPMorgan nor individual employees are being prosecuted. Such leniency reflects the bank’s willingness to quickly turn over records and change global policies to eliminate questionable hiring practices at the start of the inquiry, U.S. officials said. The Justice Department’s fraud section started a pilot program this year meant to reduce fines and sanctions in exchange for full cooperation, and the SEC says it reduces penalties or forgoes punishment altogether for companies that cooperate.
Earlier: U.S. Offers Incentives for Companies to Self-Report Corruption
“We’re pleased that our cooperation was acknowledged in resolving these investigations,” JPMorgan spokesman Brian Marchiony said in a written statement. “The conduct was unacceptable. We stopped the hiring program in 2013 and took action against the individuals involved. We have also made improvements to our hiring procedures and reinforced the high standards of conduct expected of our people.”
The Office of the Comptroller of the Currency is also investigating JPMorgan’s hiring practices in China, people familiar with the situation have said.
JPMorgan shares were up more than 0.75 percent to $77.98 at 1 p.m. in New York.
‘Quid Pro Quo’
JPMorgan engaged in the activity, which it called the Sons and Daughters Program, from 2006 to at least 2012 even though the bank had an anti-corruption policy designed to avoid any “quid pro quo arrangement,” U.S. officials said.
“Certain senior executives and employees of the company conspired to engage in quid pro quo agreements with Chinese officials to obtain investment-banking business,” they said. This included creating a program “to provide specific personal benefits to senior Chinese officials in the position to award or influence the award of banking mandates.”
Cultivating Clients
Federal prosecutors in the office of the Brooklyn U.S. attorney, Robert Capers, described at least six clients that the bank’s Asia unit sought to cultivate as part of the scheme, including a state-owned financial services firm; a private Chinese manufacturing company; the Taiwanese private holding company; a state-owned Chinese bank and financial services firm; the deputy minister of a Chinese government agency and the executive vice president of a state-owned and controlled Chinese bank.
U.S. officials didn’t name any of the individuals or companies involved in the program.
Prosecutors cited a series of e-mails JPMorgan officials exchanged during the years-long scheme. In November 2009, for example, a JPMorgan executive in Asia suggested that the bank institute a practice of prioritizing “hires linked to upcoming transactions.”
A managing director observed in September 2009 that “people in other investment banks are doing a better job. Therefore, in theory, we can accommodate more powerful sons and daughters that could benefit the entire platform.” Another e-mail discussed making hires “directly attributable linkage to business opportunity.”
The JPMorgan settlement was constructed as a kind of “roadmap” for other companies willing to self-report and provide full cooperation into foreign corruption investigations, people with knowledge of the situation have said.
Other Inquiries
The Justice Department is still investigating at least five other unidentified Wall Street banks to see if they’d hired relatives of influential Chinese officials or executives of state-run enterprises to help obtain business or as a reward for steering business their way, two of the people said. They also looked at whether that hiring ran afoul of 1977 Foreign Corrupt Practices Act, which makes it a crime to pay or give other benefits to a foreign government official.
Prosecutors in the JPMorgan case cited several lackluster hires who got jobs as a result of their ties to decision-makers in Asia. For example, a JPMorgan supervisor asked if an entry-level investment banker was producing “real investment banking productivity” or “is he a photocopier?” “Photocopier,” the bank supervisor replied, nevertheless recommending later that the employee should be promoted, saying, “The deal is large enough we’d be crazy not to accommodate her father’s wants.”
Another prospective hire, whose father was a deputy minister at a Chinese government agency, got a job with the bank’s Asia offices even though some bankers said “he was the worst business analyst candidate they had ever seen,” an executive wrote in an e-mail.
Despite managers’ misgivings about the son of the Taiwanese company executive, the napping intern joined the bank’s staff in New York, prompting one banker to write, “Happy young man, and his dad will also be very pleased.” Three months later, JPMorgan won the company’s business, prosecutors said. The father “certainly followed through,” a bank employee wrote.
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