News / Economy

JPMorgan China Probe Puts Spotlight on Banks

JPMorgan Chase, the country's biggest bank by assets
JPMorgan Chase, the country's biggest bank by assets
Reuters
A U.S. banking regulator's probe into JPMorgan'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 China's political elite - is now a potential liability, with the U.S. Securities and Exchange Commission (SEC) investigating whether JPMorgan's Hong Kong office hired the children of China's state-owned company executives with the express purpose of winning underwriting business and other contracts, said a person familiar with the matter.
 
U.S. law does not stop companies from hiring politically connected executives. But hiring people in order to win business from relatives can be bribery, and the SEC is investigating JPMorgan's actions under the U.S. 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 institutions.
 
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 cooperating 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.
 
“DOJ and the SEC will examine the circumstances of the engagement to determine whether the purpose of the relative's hiring is to improperly influence the foreign official,” the report noted, adding that in such cases FCPA violations may occur even if the employee is otherwise qualified for the job.

Gray area
 
“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 authorized to speak publicly about the issue.
 
The SEC probe coincides with a broader focus by the U.S. government on China-related corruption and the impact on U.S. businesses and individuals. Violating the FCPA can result in criminal liabilities, the lawyer said, though in this case a likely outcome, if the U.S. government prevails, 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, chairman of China Everbright Group, a state-controlled financial conglomerate, and a former Chinese banking regulator. After the younger Tang joined JPMorgan, the bank secured several important assignments from the Chinese conglomerate, including advising a subsidiary on a stock offering, according to the newspaper.
 
The SEC is also probing JPMorgan's hiring of Zhang Xixi, the daughter of a now-disgraced Chinese railway official. The bank went on to help advise the official's company, which builds railways for the Chinese government, on its plans to go public, the newspaper said.
 
The bank has not been accused of wrongdoing, the New York Times said, citing a government document. There is no documentary evidence that Zhang Xixi or Tang Xiaoning were unqualified, but the SEC is checking whether the bank's Hong Kong office routinely won business from companies connected to its employees, the newspaper reported.
 
Princeling bankers
 
It's sometimes overstated how influential such hires can be, bankers and headhunters say.
 
When UBS Securities won a mandate to handle a more than $6 billion stock offering by PetroChina in 2007, attention focused on the bank's earlier hiring of the daughter of a top executive at the government-run oil and gas company.
 
In that case, UBS's investment banking division had no idea that the PetroChina CFO's daughter had been hired as a graduate trainee in the fixed-income division when they pitched for the deal, IFR magazine reported at the time. UBS was then the leading Asian equities franchise and a natural choice for the deal.
 
It's important to distinguish between well-connected junior hires who may work at a bank for a short time, and similarly connected professionals who go on to carve out a career for themselves in the financial  industry.
 
“The industry is still a meritocracy and over the course of a few years, it pretty readily separates the wheat from the chaff - so even if a 'connected' person is hired, unless they perform, they too are shown the door,” wrote Russell Kopp, managing director at Correlate Search, in an email.
 
The list of prominent princeling bankers in China includes Bank of America's Margaret Ren, the daughter-in-law of former Chinese Premier Zhao Ziyang, who has also worked at Bear Stearns, Citigroup and BNP Paribas. When Ren was at Merrill Lynch, she shared the role of China investment banking chairman with Wilson Feng, whose father in-law is Wu Bangguo, former chairman of the National People's Congress. Feng left banking in 2009 to run an investment fund.
 
Other high profile names include Credit Suisse's China investment banking chairman Janice Hu, the granddaughter of former party chairman Hu Yaobang and a veteran banker in her own right. Wen Ruchun, the daughter of former premier Wen Jiabao, worked at Credit Suisse's Beijing branch for a year, according to a document obtained by Reuters.
 
For many children of the Chinese elite who are hired by Wall Street banks, it's their business school credentials as much as their family connections that get them a foot in the door, according to a Hong Kong-based managing director at a U.S. bank who is involved in hiring.
 
“These kids tend to be well educated. If Harvard Business School or Stanford let these influential people in, and those schools are on the list of places we tend to hire from, it's a natural process,” said the banker.

You May Like

UN Fears Rights Violations in China-backed Projects

UNHCHR investigates link between financing development and ignoring safeguards for human rights More

Boko Haram Violence Tests Nigerians’ Faith in Buhari

New president has promised to stem insurgency; he’s scheduled to meet with President Obama at White House July 20 More

Social Media Network Wants Privacy in User’s Hands

Encryption's popularity in messaging is exploding; now it's the foundation of a new social network More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Making Music, Fleeing Bombs: New Film on Sudan’s Internal Refugeesi
X
Carolyn Weaver
July 06, 2015 6:47 PM
In 2012, Sudanese filmmaker Hajooj Kuka went to make a documentary among civil war refugees in Sudan’s Blue Nile and Nuba Mountains region. What he found surprised him: music was helping to save people from bombing raids by their own government. VOA’s Carolyn Weaver has more.
Video

Video Making Music, Fleeing Bombs: New Film on Sudan’s Internal Refugees

In 2012, Sudanese filmmaker Hajooj Kuka went to make a documentary among civil war refugees in Sudan’s Blue Nile and Nuba Mountains region. What he found surprised him: music was helping to save people from bombing raids by their own government. VOA’s Carolyn Weaver has more.
Video

Video Rice Farmers Frustrated As Drought Grips Thailand

A severe drought in Thailand is limiting the growing season of the country’s important rice crop. Farmers are blaming the government for not doing more to protect a key export. Steve Sandford reports from Chiang Mai, Thailand.
Video

Video 'From This Day Forward' Reveals Difficult Journey of Transgender Parent

In her documentary, "From This Day Forward", filmmaker Sharon Shattuck reveals the personal journey of her transgender father, as he told his family that he always felt he was a woman inside and decided to live as one. VOA’s Penelope Poulou has more.
Video

Video Floodwaters Threaten Iconic American Home

The Farnsworth House in the Midwest State of Illinois is one of the most iconic homes in America. Thousands of tourists visit the site every year. Its location near a river inspired the design of the house, but, as VOA’s Kane Farabaugh reports, that very location is now threatening the existence of this National Historic Landmark.
Video

Video Olympics Construction Scars Sacred Korean Mountain

Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Xenophobia Victims in South Africa Flee Violence, Then Return

Many Malawians fled South Africa early this year after xenophobic attacks on African immigrants. But many quickly found life was no better at home and have returned to South Africa – often illegally and without jobs, and facing the tough task of having to start over. Lameck Masina and Anita Powell file from Johannesburg.
Video

Video Family of American Marine Calls for Release From Iranian Prison

As the crowd of journalists covering the Iran talks swells, so too do the opportunities for media coverage.  Hoping to catch the attention of high-level diplomats, the family of American-Iranian marine Amir Hekmati is in Vienna, pleading for his release from an Iranian prison after nearly 4 years.  VOA’s Heather Murdock reports from Vienna.
Video

Video UK Holds Terror Drill as MPs Mull Tunisia Response

After pledging a tough response to last Friday’s terror attack in Tunisia, which came just days before the 10th anniversary of the bomb attacks on London’s transport network, British security services are shifting their focus to overseas counter-terror operations. VOA's Henry Ridgwell has more.
Video

Video Obama on Cuba: This is What Change Looks Like

President Barack Obama says the United States will soon reopen its embassy in Cuba for the first time since 1961, ending a half-century of isolation. VOA White House correspondent Luis Ramirez reports.
Video

Video Hate Groups Spread Influence Via Internet

Hate groups of various kinds are using the Internet for propaganda and recruitment, and a Jewish human rights organization that monitors these groups, the Simon Wiesenthal Center, says their influence is growing. The messages are different, but the calls to hatred or violence are similar. VOA's Mike O’Sullivan reports.
Video

Video Blind Somali Journalist Defies Odds in Mogadishu

Despite improving security in the last few years, Somalia remains one of the most dangerous countries to be a journalist – even more so for someone who cannot see. Abdulaziz Billow has the story of journalist Abdifatah Hassan Kalgacal, who has been reporting from the Somali capital for the last decade despite being blind.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.

VOA Blogs

World Currencies

EUR
USD
0.9084
JPY
USD
122.73
GBP
USD
0.6431
CAD
USD
1.2639
INR
USD
63.444

Rates may not be current.