JPMorgan and its Hong Kong unit have agreed to pay a total of $264m in fines to the US regulators to settle allegations that it hired the relatives of Chinese government officials in order to win business.
The firm was being probed by the US Securities and Exchange Commission (SEC) and the Justice Department for several years over the so-called “Sons and Daughters Program” or hiring of 'princelings', which is in violation of the Foreign Corrupt Practices Act (FCPA).
The bank hired about 100 employees between a seven-year period at the request of foreign government officials in exchange for business, SEC said.
US attorney Robert Capers of the eastern district of New York said: “In this case, JPMorgan employees designed a program to hire otherwise unqualified candidates for prestigious investment banking jobs solely because these candidates were referred to the bank by officials in positions to award business to the bank.
“In certain instances, referred candidates were hired with the understanding that the hiring was linked to the award of specific business. This is no longer business as usual; it is corruption.”
Under the settlement arrangement, JPMorgan will pay $130m in penalty to the SEC, $72m to the Justice Department, and $61.9m to the Federal Reserve Board of Governors.
SEC enforcement division FCPA unit chief Kara Brockmeyer said: “The misconduct was so blatant that JPMorgan investment bankers created ‘Referral Hires vs Revenue’ spreadsheets to track the money flow from clients whose referrals were rewarded with jobs. The firm’s internal controls were so weak that not a single referral hire request was denied.”
JPMorgan APAC, the Hong Kong affiliate of the bank, said that candidates hired as part of the scheme were bestowed the same titles and given same salary as entry-level investment bankers, even though they performed ancillary work of little real value.
The Hong Kong unit admitted that the hiring agreements with Chinese officials brought profits of at least $35m to JPMorgan APAC.