The SEC is investigating whether JP Morgan Chase violated the FCPA by hiring two children of Chinese officials to win business.
The New York Times reported Saturday that the investment bank hired the son of the chairman of the China Everbright Group, a China state-controlled conglomerate, and won business from the group that included a stock offering by a subsidiary.
JP Morgan’s Hong Kong office also hired the daughter of a Chinese railway official. The bank went on to help China Railway raise more than $5 billion in its 2007 IPO, the Times report said.
In its quarterly report filed with the SEC on August 7, New York-based JP Morgan Chase said only that it had received ‘a request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients.’
But the Times saw a confidential U.S. government document, it said, showing that the SEC asked JP Morgan for specific records about its hiring decisions in the two cases.
Giving jobs to family members of government officials can violate the FCPA if the action benefited a foreign official and was intended to help the employer obtain or retain business.
In a post five years ago, the FCPA Blog said:
[A]s far as we know, neither the FCPA itself nor any Opinion Releases or cases say that commercial dealings with family members of government officials are per se violations of the FCPA. If a family member is being used to make an illegal payment “indirectly” to a foreign official, then a violation would probably result, in the same way that indirect payments through other agents are illegal. But the mere fact of the consanguinity is not determinative.
The SEC asked JP Morgan about the decision to hire Tang Xiaoning, the Times said. His father is Tang Shuangning, chairman since 2007 of the China Everbright Group. Before that he was second in command at China’s top banking regulator.
Executives at China state-controlled companies such as Everbright can be deemed ‘foreign officials’ under the FCPA; giving them anything of value directly or indirectly in exchange for business can violate the law.
The Times report said JP Morgan won its first work from China Everbright and China Railway Group after hiring the two officials’ children. Both have apparently left the bank and couldn’t be reached, the Times said.
The New York Times identified one of the hires as Zhang Xixi. Her father was the former deputy chief engineer of China Railway Group, a state-controlled construction company. He was ‘detained on suspicion of corruption, according to China’s official state-run news agency,’ the Times said.
The SEC asked JP Morgan if the bank had ‘investigated the reported arrest’ of Zhang’s father, the Times said.
China’s rail system has been the center of a huge corruption scandal. Last month, a Beijing court handed former railways minister Liu Zhijun a suspended death sentence. Prosecutors said he accepted more than $10 million in bribes to help people win promotions or contracts between 1986 and 2011.
The SEC asked JP Morgan for ‘documents sufficient to identify all persons involved in the decision to hire’ the railway official’s daughter, the New York Times said.
Richard L. Cassin is the Publisher and Editor of the FCPA Blog. He can be contacted here.