Did JPMorgan commit bribery by hiring the kids of Chinese politicians?

August 19, 2013
The SEC is said to be looking into JPMorgan's hiring of the children of top Chinese leaders. (Photo by Spencer Platt/Getty Images)
The SEC is said to be looking into JPMorgan's hiring of the children of top Chinese leaders. (Photo by Spencer Platt/Getty Images)

The news that has people in the world of finance talking today is this from the New York Times: Federal officials are investigating whether JPMorgan Chase committed a form of bribery by hiring the kids of senior Chinese leaders.

The Securities and Exchange Commission's anti-bribery unit is reportedly taking a particular look at the bank's hiring of the son of the chief of a state-controlled financial conglomerate (and former No. 2 official of China's bank regulator), and the daughter of the state-controlled China Railway Group. The investigators, it appears, are looking into whether hiring the children of high Chinese officials was a back-door way of winning business from state-controlled firms. JPMorgan, for example, handled the public offering of the China Railway Group's stock.

What makes the investigation a little bit shocking is that JPMorgan seems to have done what every company seeking to do business in China (and many other markets, for that matter) do: hire politically connected people to help ensure that you will be able to business unimpeded. Proving bribery would be no easy task.

Is a business hiring the son of a senator because he's the most qualified person for the job, or because he has political connections that will help the firm, or because his salary will amount to funneling money indirectly to the senator and thus make the lawmaker more inclined to do the company's bidding? The first is perfectly fine, the second is legal but ethically icky, and the third is illegal. But good luck, if you are the SEC or a federal prosecutor, proving that any given situation is the third type of case, unless the parties were dumb enough to make explicit quid pro quo agreements (or, even stupider, put those agreements in e-mails).

The JPMorgan inquiry, though, does show a shift toward a more aggressive stance by the U.S. government in trying to prevent American companies from bribing officials overseas. The United States has long had a tough law on the books banning such things, the Foreign Corrupt Practices Act. But now it is getting more of a workout.

“The interesting thing about the FCPA in recent years is how it's grown to cover more industries,” said Jack Massey, a partner at Sutherland, Asbill & Brennan. “The biggest FCPA prosecutions have involved energy, defense and engineering firms, because they operate globally, they put a lot of people on the ground in the developing world, and they have to deal with corrupt sovereigns. In the new era, however, as more firms do business abroad, the government is turning its sights to the likes of Wal-Mart, JPMorgan and Hollywood studios, demonstrating its increased commitment to enforcement.”

The U.S. government is taking a hard line on practices that are considered a routine cost of doing business in many countries in the world, of which the new JPMorgan inquiry is a prime example. The government's basic message to companies doing business overseas has been: Be zealous in complying with the law, and confess quickly and reach a settlement if you find that you ran afoul of it.

For those companies, the question now is whether the JPMorgan investigation signals that even hiring politically connected young employees will put them under the microscope, or if there was something about this situation that makes it different from the routine practice of hiring people who have connections and know how to get things done.

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