JPMorgan Chase & Co. has agreed to pay about $264 million to settle corruption charges that accused the investment bank of seeking to influence Chinese government officials by giving jobs and internships to their friends and relatives, the Securities and Exchange Commission said Thursday.
The firm, which was subject to civil and criminal investigations stemming from its hiring practices in Hong Kong and China, is specifically accused of violating the Foreign Corrupt Practices Act (FCPA), a federal law that prohibits bribing foreign officials.
Hoping to gain more banking business, bankers in JPMorgan’s offices in Asia bypassed the firm’s normal hiring practices and hired about 100 interns and full-time employees who were referred by foreign government officials in a seven-year period, starting 2006.
JPMorgan couldn’t immediately be reached for comment.
Calling it “a systematic bribery scheme,” Andrew Ceresney, director of the SEC enforcement division, said the candidates were “typically unqualified for the positions on their own merit.”
Candidates hired through the so-called “Sons and Daughters Program” were typically given the same titles and paid the same amount as entry-level investment bankers but performed “ancillary work such as proofreading and provided little real value to any deliverable product,” according to the Justice Department.
The firm’s bankers in Hong Kong were aware that they were potentially violating the FCPA in creating the program, but continued it because “the business rewards and new deals were deemed too lucrative,” Ceresney said.
JPMorgan will pay more than $130 million to the charges from the SEC.
The company is also expected to pay $72 million to the Justice Department and $61.9 million to the Federal Reserve Board of Governors related to the hiring practices. As part of the settlement with the Justice Department, JPMorgan will not face prosecution and has agreed to continue to cooperate with any ongoing investigations.
The practice, which enabled the company to generate more than $100 million in revenue, was so blatant that its investment bankers created “Referral Hires vs Revenue” spreadsheets to track the money flow from clients who managed to get jobs for their referrals, according to Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit.
In order to be hired, a referred candidate had to have a direct link to a business opportunity.
“The firm’s internal controls were so weak that not a single referral hire request was denied,” Brockmeyer said.
“In certain instances, referred candidates were hired with the understanding that the hiring was linked to the award of specific business,” United States Attorney Robert Capers of the Eastern District of New York said in a statement. “This is no longer business as usual; it is corruption.”
In one case cited by the Justice Department, a Chinese government official told a senior JPMorgan banker in Asia in 2009 that hiring a referred candidate could result in JPMorgan landing a prominent role in an upcoming initial public offering of a Chinese state-owned company. Despite being told that the candidate was not qualified, JPMorgan bankers in Asia hired the candidate in New York, resulting in the company landing a leading role in the IPO.
