JPMorgan: $264 Million Settles FCPA Bribery Charges on 200 China Friends & Family Hires

A U.S. government investigation into a JPMorgan hiring program in Asia concluded with a multi-$264 million settlement. The SEC found substantial evidence that J.P. Morgan offered prestigious jobs to the children of Chinese government officials in exchange for the officials' influence to secure lucrative investment-banking assignments - a violation of the Foreign Corrupt Practices Act (FCPA).

JPMorgan: $264 Million Settles FCPA Bribery Charges on 200 China Friends & Family Hires

In 2006, JPMorgan APAC created a referral program known internally as the “Sons & Daughters Program.” According to the SEC order, the initial goal of the program was to accommodate frequent requests “to hire the relatives and friends of senior executives or officials with its clients, prospective clients, and contacts within foreign government ministries” by offering targeted entry-level and short-term employment opportunities.

Compliance Officer Chris Charnock’s Concerns Dismissed by JPMorgan Management

While the program may have been created in good faith in the beginning, by 2011, JPMorgan employees in Asia were already trying to raise concerns with compliance executives in New York that the bank might be charged with bribery.

But the reports, which originated with Chris Charnock, an Asia-based compliance officer, were dismissed by higher management until the alleged misconduct attracted the attention of the Securities and Exchange Commission.

According to SEC information, JPMorgan violated three different provisions of the 1934 Securities Exchange Act: anti-bribery, books and records, and internal controls.

IPO Work for JPMorgan Swapped for Unqualified Hires & Falsifying Compliance Docs

A typical example of the wrongdoing was the well-documented case of a Chinese government official who directly made it known to a senior banker at JP Morgan that if a referred candidate were to be hired, the financial institution would play a prominent role in an upcoming IPO for a Chinese state-owned company.

When efforts to place the candidate in New York revealed that he was not qualified for an investment banking position, a new position was created especially for the candidate. As a result of the placement, JPMorgan secured a leading role in the IPO. In order to make the arrangement look like a regular hire, employees entered false information into compliance questionnaires and other documents.

FCPA Enforcement Head Brockmeyer says Blatant Misconduct Tracked by Spreadsheets

As a result of the corrupt hiring scheme, JPMorgan made a net profit of at least $35 million in connection with favoring decisions from companies owned by the Chinese state. According to Kara Brockmeyer, who runs the SEC Enforcement Division’s FCPA Unit, “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.”

SEC Shows Mercy for JPMorgan’s Quick FCPA Cave & Cooperation, Still $264MM

JPMorgan has agreed to pay the SEC $105 million in disgorgement and $25 million in prejudgment interest. The banking institution will also have to pay a $61.9 million civil penalty and a $72 million criminal penalty, totalling over $264 million in combined penalties. The sanctions might have been more severe, but the SEC took into consideration the company's cooperation with the investigation.

In addition to the monetary penalties, as part of the non-prosecution agreement, JPMorgan has committed to continue cooperating with any ongoing investigations into the misconduct, to improve its compliance program, and to offer regular reports on the implemented changes. 

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