According to media reports, the US government is currently examining whether J.P. Morgan violated US anti-corruption laws by hiring the children of Asian government officials allegedly with the intent of bribing their parents to obtain business. What began as scrutiny of the company's Hong Kong office has since widened to encompass other Asian countries, and is reported to include other banks and hedge funds as well.
Executives from every sector are nervously considering their hiring practices, and wondering what the investigation might mean for them. After all, in Asia and beyond, busi-nesses have long recruited not only the best and the brightest but also the most well connected.
Examples of law firms, management consultancies, private equity firms, oil and gas companies and pharmaceutical giants hiring children of politicians and officials the world over are too numerous to mention.
It surely did not escape the notice of the management consultancy McKinsey that the then 22-year-old Chelsea Clinton, while undoubtedly well educated at Stanford and Oxford, was the daughter of a former president, a sitting US senator and potential future president.
The reality is that relationship banking is about precisely that - relationships. Access to key relationships is why the top banks have always hired those who can open doors and introduce new business - especially in new or less open markets. Indeed, the hiring of family members of influential people is not confined to the children of government officials.
It has long been common practice for companies to hire or provide internships to the children of key clients. This has led some people to wonder whether the current probe implies that the US government is attempting to rewrite the rules of hiring and to criminalise abroad conduct routinely practised at home.
Given that the investigation is in its early stages - J.P. Morgan has not been charged or even accused of any wrongdoing and may never be - it is a little hard to know the government's theory. However, it is almost certainly more nuanced than many are suggesting.
The US Foreign Corrupt Practices Act prohibits providing, with corrupt intent, anything of value to a foreign official to influence their decisions.
The government investigation seems to be focused on trying to determine whether certain princelings and children of officials were hired with the expectation that their employment would lead their parents to direct business to the bank. Thus, the government is apparently looking for evidence that hiring decisions were made with the intent to obtain business from the parents, not merely because the individuals were well connected.
This distinction is of great legal significance, but may not be so easy to untangle from legitimate business decisions.
After all, every hiring decision at a company is done in an effort to further the company's business interests. In the end, the legal difference may be hard to prove as it sits at a point on a continuum from what is legal under the Foreign Corrupt Practices Act - such as hiring the child of a well-connected government official with the hope that the hiring will lead to important introductions that might bring in new business; to the questionable - hiring a government official's child with the hope that the new employee's own parents will direct government business to the firm; to the clearly illegal - hiring a government official's child under an explicit or implicit agreement that as a result the government official will direct government business to the firm.
The investigation will require the careful examination of decision-making and negotiations surrounding both the hiring decisions and the deals and contracts with the entities to which these new employee's parents were connected.
The recent probe is a wake-up call for businesses everywhere. Because the motives for hiring the child of an important government official can be mixed, including some combination of qualifications, hoped for connections, and potential improper influence, the entire process must be carefully managed.
Businesses should consider whether they need to conduct enhanced employee background checks of officials' children that go way beyond what many currently use. These are required not only to verify their employment and academic history and confirm the lack of a criminal record, but also to understand their political connections or family ties. The system should also be overseen more carefully than most hiring decisions to ensure that decisions are made in a defensible and appropriate manner.
Not knowing how exposed their businesses are or how tough the US authorities will be has many senior executives concerned.
Beyond the C-suite, the hiring probe also has many diligent and qualified sons and daughters of officials and politicians worried that they may be barred from employment in future or have their careers and achievements dismissed based on nepotism and corruption.
Greater transparency and scrutiny around hiring should be welcomed by everyone, but must not focus only on Asia or the Chinese princelings - it has to include the children of politicians and officials worldwide.
Ian Barclay heads the Asia practice of Stroz Friedberg, a global risk management firm, and is based in Hong Kong. Seth Berman, a former prosecutor with the US Department of Justice, heads the international offices of Stroz Friedberg and is based in London