JPMorgan linked business deals to China hiring
- Article by: BEN PROTESS and JESSICA SILVER-GREENBERG
- New York Times
- December 7, 2013 - 10:02 PM
U.S. authorities have obtained confidential documents that shed new light on JPMorgan Chase’s decision to hire the children of China’s ruling elite, securing e-mails that show how the bank linked one prominent hire to “existing and potential business opportunities” from a Chinese government-run company.
The documents, which also include spreadsheets that list the bank’s “track record” for converting hires into business deals, offer the most detailed account yet of JPMorgan’s “Sons and Daughters” hiring program, which has been at the center of a federal bribery investigation for months. The spreadsheets and e-mails — recently submitted by JPMorgan to authorities — illuminate how the bank created the program to prevent questionable hiring practices but ultimately viewed it as a gateway to doing business with state-owned companies in China, which commonly issue stock with the help of Wall Street banks.
The hiring practices seemed to have been an open secret at the bank’s headquarters in Hong Kong, according to the documents, copies of which were reviewed by the New York Times. In the e-mail citing the “existing and potential business opportunities,” a senior JPMorgan executive in Hong Kong emphasized that the father of a job candidate was the chairman of the China Everbright Group, a state-controlled financial conglomerate. The executive also extolled the broader benefits of the hiring program, telling colleagues in another e-mail: “You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship” with winning assignments to advise Chinese companies. Until now, the indications of a connection between the hires and business deals have not been so explicit.
In addition to the documents, interviews with current and former JPMorgan employees suggest that some people inside or affiliated with the bank bristled at the hiring strategy. At least two whistleblowers have raised concerns.
The scrutiny of JPMorgan, which has not been accused of any wrongdoing, could provide a template for federal authorities as they expand their investigation to include the hiring practices of at least five other Wall Street banks conducting business in China, according to interviews with people briefed in the inquiry who were not authorized to speak publicly.
JPMorgan is cooperating with the government inquiries from the SEC and the U.S. attorney’s office in New York.
There is no indication that executives at JPMorgan’s headquarters in New York were aware of the hiring practices described in the documents. And authorities might ultimately conclude that the bank’s hiring, while aggressive, did not cross a legal line.
JPMorgan declined to comment. The SEC and the prosecutors in New York also declined to comment.
The breadth of the investigations underscore how pervasive the hiring practices may have become in China. For two decades, Wall Street banks have sought out China’s so-called princelings, turning family and friends of senior officials into bank employees and consultants.
Consultants to help
The documents reviewed by the Times, along with the interviews, suggest that some executives at JPMorgan felt a need to scramble to compete with Wall Street rivals that already had footholds in China. JPMorgan may have adopted some of their hiring strategies — and even shared employees and consultants.
Fullmark Consultants, a firm that JPMorgan hired in 2006 to help improve its standing in China, also did business with Credit Suisse, according to interviews. Fullmark, which received a $75,000-a-month contract over two years from JPMorgan, was run by Wen Ruchun, the daughter of Wen Jiabao, who at the time was China’s prime minister, with ultimate responsibility over state-owned companies. In the contract with JPMorgan and other clients, which is now at the center of the federal bribery investigation, Wen used the alias “Lily Chang.”
The SEC and prosecutors are building their investigation around the Foreign Corrupt Practices Act, a 1977 law that makes it illegal for U.S. companies to exchange “anything of value” with foreign officials to win “an improper advantage” in obtaining business. Federal authorities have adopted a tougher stance in recent years, taking aim at U.S. companies suspected of acting with “corrupt intent,” or with an expectation of trading a job for government business.
It is unclear whether JPMorgan ever reached an upfront agreement with Chinese government officials. And the records reviewed by the Times do not suggest that the employees were unqualified. According to documents and interviews with current and former employees, JPMorgan created the “Sons and Daughters” program in 2006 with the expectation that the hires would receive heightened scrutiny.
But by 2009, the “Sons and Daughters” program was putting the job candidates on the fast track to employment. The documents show that applicants from prominent Chinese families faced less stringent hiring standards — and fewer job interviews — than the average junior-level hire.
The bank once proposed another program for “full-time referrals” that would have offered the well-connected hires a one-year contract worth $70,000 to $100,000. The program, internal documents said, might offer “directly attributable linkage to business opportunity.”
JPMorgan also briefly kept “historical deal conversion” spreadsheets, according to interviews with people briefed on the investigation. In one column, JPMorgan listed job candidates; in another, the bank recorded its “track record” for winning business from companies tied to those candidates. Other spreadsheets listed well-connected hires and the revenue JPMorgan earned from deals with private and state-owned Chinese companies linked to those hires, documents show.
In discussions with authorities, the people briefed on the investigation said, JPMorgan has explained that it did not connect revenue to the “Sons and Daughters” program. Instead, the bank has said, the spreadsheets were meant to assess whether JPMorgan bankers, in hopes of securing full-time jobs for some interns in the program, had exaggerated the revenue received from state-owned companies.
The spreadsheets included about 30 employees with ties to state-owned companies or Communist Party officials, including the daughter of the deputy minister of propaganda, a relative of a Chinese financial regulator and the nephew of the executive chairman at Sinotruk, which is part of a state-owned trucking enterprise.
JPMorgan also tracked the revenue it received from private Asian companies that referred job candidates to the bank, a practice that would not fall under the Foreign Corrupt Practices Act. One hire was connected to Fubon Financial Holding, a financial services conglomerate in Taiwan that, according to the spreadsheet, produced 2009 revenue of $900,000 for JPMorgan.
JPMorgan bankers in Hong Kong coveted the business with Fubon. In an August 2010 e-mail reviewed by The Times, a JPMorgan banker in Hong Kong explained that the bank had “picked up a new mandate in Taiwan today,” but that holding onto the deal would depend on securing a job for someone related to a company executive.
“All we have to do,” the banker said, is secure the relative “a full-time analyst job at JPM in N.Y.”
The problem, another employee in Hong Kong acknowledged, was that the candidate’s “napping habit will be an eye-opening experience for our N.Y. colleagues.”
While the e-mail appears to suggest a quid pro quo, the message is unlikely to alarm federal authorities, because it involves a private company rather than a state-owned enterprise.
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