JPMorgan Chase's ties with Wen Jiabao's family investigated
Relationship with daughter part of bribery inquiry into whether bank swapped contracts and jobs for deals with state-owned firms
- Yes: 20%
- No: 80%
To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm run by a 32-year-old executive named Lily Chang.
Chang's firm, which received a US$75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Chang lacked the influence and public name recognition needed to unlock business for the bank.
But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that "Lily Chang" was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who was premier at the time with oversight of the economy and its financial institutions.
JPMorgan's link to Wen Ruchun - which came during a time when the bank also invested in companies tied to the Wen family - has not been previously reported. Yet a review by The New York Times of confidential documents, Chinese public records and interviews with people briefed on the contract shows that the relationship pointed to a broader strategy for accumulating influence in China: put the relatives of the nation's ruling elite on the payroll.
And the Wen family's sway was not just political. After Wen Ruchun's father joined the inner circle of China's rulers as deputy prime minister in 1998, the family amassed a secret fortune through a series of partnerships and investment vehicles, a 2012 investigation by the Times found.
Now, US authorities are scrutinising JPMorgan's ties to Wen Ruchun, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned companies, according to the documents and interviews. The bank, which is co-operating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing.
The investigation began with an examination of the bank's decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate. The contract with the consulting firm of Wen Ruchun, 40, indicates that the bank's hiring practices also touched the highest rungs of political power in China. Her father was premier from 2003 until earlier this year. Her mother has served as a government official with oversight of the nation's gem and diamond industry. And since 2006, Wen Ruchun's husband has been an official at the China Banking Regulatory Commission, according to online database China Vitae.
For Wen Ruchun's consulting firm, Fullmark Consultants, the JPMorgan deal was lucrative. While many Hong Kong investment bankers were earning as much as US$250,000 a year, JPMorgan paid her firm US$900,000 annually from 2006 to 2008, records show, for a total of US$1.8 million.
JPMorgan appeared to benefit from the relationship as well. Fullmark claimed in a confidential letter to the bank that it "introduced and secured" business for JPMorgan from the state-run China Railway Group, a construction company that builds railways for the central government. The bank was an underwriter in the company's 2007 initial public offering, which raised about US$5 billion.
It is not known whether Wen Jiabao played any role in that deal. But as premier he would have had ultimate responsibility for state-owned companies and their regulators.
In a previous regulatory filing, the bank said authorities were examining "its business relationships with certain related clients in the Asia Pacific region and its engagement of consultants".
The documents do not identify a concrete link between the bank's decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank had violated anti-bribery laws.