At JPMorgan, easy way in for China elite
Bank’s hires of top officials’ children at center of bribery investigation
The program was originally called “Sons and Daughters.” And although it was supposed to protect JPMorgan Chase’s business dealings in China, the program went so off track that it is now the focus of a federal bribery investigation in the United States, interviews and a confidential government document show.
JPMorgan started the program in 2006 as the friends and family of China’s ruling elite were clamoring for jobs at the bank, according to the interviews with former bank employees and financial executives in China and the United States. The program’s existence, which has not been previously reported, suggests that the bank’s hiring of such well-connected employees was widespread.
Saying they wanted to weed out nepotism and avoid bribery charges in the United States, JPMorgan employees in Asia started the program to hire well-connected candidates on a separate track from ordinary applicants. Without the program and its heightened scrutiny of the candidates, the employees argued, JPMorgan might hire the children of Chinese officials to win business.
But in the months and years that followed, the two-tiered process that could have prevented questionable hiring practices instead fostered them, according to the interviews as well as the confidential government document. Applicants from prominent Chinese families, interviews show, often faced few job interviews and relaxed standards. While many candidates met or exceeded the bank’s requirements, some had subpar academic records and lacked relevant expertise.
JPMorgan, which declined to comment, has not been accused of any wrongdoing. And no one has indicated that the children of Chinese officials helped the bank secure the business. Furthermore, public documents do not offer a concrete link between the bank’s hiring practices and its ability to secure business deals.
Yet, according to the interviews, which were conducted on the condition of anonymity, JPMorgan employees in Asia recognized the benefit of hiring Chinese officials’ children. In an internal document, the interviews show, the employees linked the hires to the “revenue” JPMorgan obtained from companies run by those same officials.
It is unclear why and when the bank “Sons and Daughters” program morphed from a safeguard into a liability. But the results were clear: Children with elite pedigrees faced lower standards. In one instance, according to the interviews, the bank continued to employ the son of Tang Shuangning, the chairman of a state-controlled financial conglomerate, even though some JPMorgan officials questioned the younger Tang’s financial expertise.
The son, whose resume included impressive stints at other global banks, is one of two former JPMorgan employees to surface in an anti-bribery investigation by the Securities and Exchange Commission, according to a confidential agency document sent to the bank and reviewed by The New York Times. The SEC document — a May 2013 letter to JPMorgan that outlined the scope of the agency?s inquiry — sought “documents sufficient to identify all persons involved in the decision to hire” the employees.
The SEC did not inquire about the daughter of Ning Gaoning, the chairman of China’s giant state-run food company, COFCO. However, according to a review of securities filings and public records, she was an intern at JPMorgan during the summer of 2012. JPMorgan won business from COFCO, or a subsidiary, before she joined the bank. Yet after she arrived, a subsidiary of COFCO also hired JPMorgan to advise on its plan to raise about $580 million through an issuance of shares, a deal that could draw interest from the SEC.
The SEC is coordinating its civil investigation with federal prosecutors and the FBI, officials said Thursday, although the criminal authorities have not yet contacted the bank. Hong Kong authorities are also investigating the hiring practices, according to people briefed on the matter.
According to the interviews, an internal JPMorgan investigation into its hiring practices across the globe has so far identified more than 250 such hires in Asia alone. That number included the sons and daughters of private Chinese companies, a practice that would not violate U.S. law but could cause regulatory problems overseas.
At the heart of the SEC’s investigation is the Foreign Corrupt Practices Act of 1977, which essentially bans U.S. companies from giving “anything of value” to a foreign official to win “an improper advantage” in retaining business.
According to legal experts, there is nothing inherently improper about hiring well-connected people. To run afoul of the law, a company must act with “corrupt” intent, or with the expectation of offering a job in exchange for government business.
It is unclear whether the SEC will find such a link in JPMorgan’s case. Still, according to securities filings and the confidential SEC document, some of the bank’s hiring came at an opportune time.
One striking example was the hiring of Tang Xiaoning, whose father is the chairman of the China Everbright Group, the state-controlled financial conglomerate.
Before the hiring in 2010, the bank’s business with China Everbright was limited, if not nonexistent, based on a review of securities filings and news reports. Since then, though, JPMorgan won a steady flow of business. In 2011, China Everbright’s banking subsidiary picked JPMorgan as one of 12 financial advisers on its decision to become a public company, a common move in China for businesses affiliated with the government. While that deal was delayed amid global economic turmoil and large questions about China?s banking system, JPMorgan has since secured other coveted business from China Everbright.
In 2012, for example, JPMorgan was the sole bank hired to advise China Everbright International, a subsidiary focused on alternative energy businesses, on a $162 million sale of shares, according to Standard & Poor?s Capital IQ, a research service. JPMorgan also advised the China Everbright Group on its role in what was, according to the research firm Dealogic, the largest-ever private equity deal in China.
With those relationships in mind, the SEC asked the bank for “all documents” relating to the younger Tang’s “recruitment, hiring” and application.
The SEC is also examining the hiring of Zhang Xixi, whose father is Zhang Shuguang, the former deputy chief engineer of China?s railway ministry. She joined JPMorgan around 2007. In the months and years to come, the bank nestled closer to the railways business in China.
The government agency has never hired JPMorgan directly, securities filings and news reports suggest. Still, those records indicate that the China Railway Group, the construction company whose largest customer is thought to be the Chinese government, picked JPMorgan to advise it on plans to become a public company in 2007.
JPMorgan scored desired business about four years later when Zhang was an associate at the bank. The operator of a high-speed railway from Beijing to Shanghai picked the bank to guide it through its own initial public stock offering, according to news reports. In the SEC document, the agency requested that JPMorgan turn over documents related to the public offering.
Zhang’s father, the document noted, was detained on the suspicion of corruption. To date, he has not been prosecuted.