JPMorgan Chase

JPMorgan begins internal probe into its hiring of well-connected Chinese

Move seen as effort to mitigate penalties amid US regulator's investigation of employment of offspring of powerful Chinese individuals

PUBLISHED : Thursday, 22 August, 2013, 12:00am
UPDATED : Thursday, 22 August, 2013, 4:54am

JPMorgan has began an internal probe into its hiring of well-connected Chinese individuals in Hong Kong and is adopting measures to mitigate potential penalties as US authorities investigate its operations.

The bank has hired US law firm Paul, Weiss, Rifkind, Wharton & Garrison to investigate its hiring practices in Hong Kong, the Financial Times reported. Moreover, according to Reuters, it is close to hiring two directors with finance and risk expertise.

"Internal investigations provide JPMorgan with information on any possible misconduct and position the company to defer any criminal prosecution," said Daniel Roules, a partner at US law firm Squire Sanders. "The hiring of risk executives is intended to convey to the US authorities that JPMorgan wants to co-operate in rooting out misconduct and ensuring compliance."

[SEC] will follow the thread … discovering new violations as they go

Mark Pulvirenti, executive director of AlixPartners, an international business advisory firm, said: "The extent of JPMorgan's co-operation with the US authorities will be a determining factor in relation to any penalty that may ultimately be issued."

The anti-bribery unit of the US Securities and Exchange Commission (SEC) is investigating the bank's hiring in Hong Kong of Zhang Xixi, a daughter of Zhang Shuguang, a former senior mainland railway official under arrest for corruption, and Tang Xiaoning, a son of Tang Shuangning, chairman of China Everbright Group. Both offspring no longer work for the New York-listed bank. Roules said the hirings could be investigated under the US Foreign Corrupt Practices Act (FCPA).

"Giving the child of a foreign official a job at a company where the official can influence business could constitute a violation. This is frequently cited as an improper business advantage," Pulvirenti said.

He said the questions the SEC would ask the bank included whether it was involved in tenders or business negotiations involving the related officials around the time of the hirings.

The investigations and lawsuits were likely to force JPMorgan to modify its practices and result in management changes, Roules said.

The US Department of Justice is investigating the bank's energy trading practices in the United States, Bloomberg reported. On August 14, the SEC charged two former JPMorgan traders based in the US with fraudulently overvaluing investments to hide losses.

"When the US authorities launch an investigation, they will follow the trail wherever it leads, regardless of geography," Roules said. "They will follow the thread in one case, discovering new violations as they go. Because JPMorgan is a US company, its employees are bound by the FCPA anywhere in the world."

Pulvirenti said: "US regulators will typically broaden an investigation to the extent that … issues in one jurisdiction are linked to another."