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

Video One Year After Thai Coup, No End in Sight for Military Rule

Since carrying out the May 22, 2014 coup, the general has retired from the military but is still firmly in charge More

Goodbye, New York

This is what the fastest-growing big cities in America have in common More

Job-Seeking Bangladeshis Risk Lives to Find Work

The number of Bangladeshi migrants on smugglers’ boats bound for Southeast Asian countries has soared in the past two years More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Turkey's Main Opposition Party Hopes for Election Breakthroughi
X
May 22, 2015 10:23 AM
Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Turkey's Main Opposition Party Hopes for Election Breakthrough

Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Europe Follows US Lead in Tackling ‘Conflict Minerals’

Metals mined from conflict zones in places like the Democratic Republic of Congo are often sold by warlords to buy weapons. This week European lawmakers voted to force manufacturers to prove that their supply chains are not inadvertently fueling conflicts and human rights abuses. Henry Ridgwell reports from London.
Video

Video Class Tackles Questions of Race, Discrimination

Unrest in some U.S. cities is more than just a trending news item at Ladue Middle School in St. Louis, Missouri. As VOA’s Kane Farabaugh reports, it’s a focus of a multicultural studies class engaging students in wide-ranging discussions about racial tensions and police aggression.
Video

Video Mind-Controlled Prosthetics Are Getting Closer

Scientists and engineers are making substantial advances towards the ultimate goal in prosthetics – creation of limbs that can be controlled by the wearer’s mind. Thanks to sophisticated sensors capable of picking up the brain’s signals, an amputee in Iceland is literally bringing us one step closer to that goal. VOA’s George Putic reports.
Video

Video Afghan Economy Sinks As Foreign Troops Depart

As international troops prepare to leave Afghanistan, and many foreign aid groups follow, Afghans are grappling with how the exodus will affect the country's fragile economy. Ayesha Tanzeem reports from the Afghan capital, Kabul.
Video

Video Poverty, Ignorance Force Underage Girls Into Marriage

The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video South Korea Marks Gwangju Uprising Anniversary

South Korea this week marked the 35th anniversary of a protest that turned deadly. The Gwangju Uprising is credited with starting the country’s democratic revolution after it was violently quelled by South Korea’s former military rulers. But as Jason Strother reports, some observers worry that democracy has recently been eroded.
Video

Video California’s Water System Not Created To Handle Current Drought

The drought in California is moving into its fourth year. While the state's governor is mandating a reduction in urban water use, most of the water used in California is for agriculture. But both city dwellers and farmers are feeling the impact of the drought. Some experts say the state’s water system was not created to handle long periods of drought. Elizabeth Lee reports from Ventura County, an agricultural region just northwest of Los Angeles.
Video

Video How to Clone a Mammoth: The Science of De-Extinction

An international team of scientists has sequenced the complete genome of the woolly mammoth. Led by the Swedish Museum of Natural History in Stockholm, the work opens the door to recreate the huge herbivore, which last roamed the Earth 4,000 years ago. VOA’s Rosanne Skirble considers the science of de-extinction and its place on the planet
Video

Video Blind Boy Defines His Life with Music

Cole Moran was born blind. He also has cognitive delays and other birth defects. He has to learn everything by ear. Nevertheless, the 12-year-old has had an insatiable love for music since he was born. VOA’s June Soh introduces us to the young phenomenal harmonica player.

VOA Blogs

World Currencies

EUR
USD
0.8957
JPY
USD
120.93
GBP
USD
0.6393
CAD
USD
1.2199
INR
USD
63.470

Rates may not be current.