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

Multimedia Obama, Modi Break Nuclear Deal Deadlock

Impasse over liability issues had been stalling bilateral civilian nuclear cooperation; deal reached at start of US president's three-day visit to India More

WHO's Late Efforts in Tackling Ebola Highlight Need for Reform

Health experts debate measures to reform agency’s response to global public health emergencies in special one-day session on deadly outbreak More

One Tumultuous Year in Power for CAR's President

As sectarian violence raged across Central African Republic, interim President Catherine Samba-Panza has Herculean task: to end civil war and put country back on right track More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Worldwide Photo Workshops Empower Youthi
X
Julie Taboh
January 23, 2015 11:08 PM
Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.
Video

Video US Marching Bands Grow Into a Show of Their Own

The 2014 Super Bowl halftime show was the most-watched in history - attracting an estimated 115 million viewers. That event featured pop star Bruno Mars. But the halftime show tradition started with marching bands, which still dominate the entertainment at U.S. high school and college American football games. But as Enming Liu reports in this story narrated by Adrianna Zhang, marching bands have grown into a show of their own.
Video

Video Secular, Religious Kurds Face Off in Southeast Turkey

Turkey’s predominantly Kurdish southeast has been rocked by violence between religious and secular Kurds. Dorian Jones reports on the reasons behind the stand-off from the region's main city of Diyarbakir, which suffered the bloodiest fighting.
Video

Video Kenya: Misuse of Antibiotics Leading to Resistance by Immune System

In Kenya, the rise of drug resistant bacteria could reverse the gains made by medical science over diseases that were once treatable. Kenyans could be at risk of fatalities as a result if the power in antibiotics is not preserved. Lenny Ruvaga has more on the story from Nairobi.
Video

Video Solar-Powered Plane Getting Ready to Circumnavigate Globe

Pilots of the solar plane that already set records flying without a drop of fuel are close to making their first attempt to fly the craft around the globe. They plan to do it in 25 flying days over a five month period. VOA’s George Putic reports.
Video

Video How Experts Decide Ethiopia Has the Best Coffee

Ethiopia’s coffee has been ranked as the best in the world by an international group of coffee connoisseurs. Not surprisingly, coffee is a top export for the country. But at home it is a source of pride. Marthe van der Wolf in Addis Ababa decided to find out what makes the bean and brew so special and how experts make their determinations.
Video

Video Yazidi Refugees at Center of Political Fight Between Turkey, Kurds

The treatment of thousands of Yazidis refugees who fled to Turkey to escape attacks by Islamic State militants has become the center of a dispute between the Turkish government and the country's pro-Kurdish movement. VOA's Dorian Jones reports.
Video

Video World’s Richest 1% Forecast to Own More Than Half of Global Wealth

The combined wealth of the world's richest 1 percent will overtake that of the remaining 99 percent at some point in 2016, according to the anti-poverty charity Oxfam. Campaigners are demanding that policymakers take action to address the widening gap between the ‘haves’ and the ‘have nots’, as Henry Ridgwell reports for VOA from London.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8930
JPY
USD
117.98
GBP
USD
0.6673
CAD
USD
1.2445
INR
USD
61.498

Rates may not be current.