HONG KONG: A US banking regulator's probe into JPMorgan's hiring practices in China will have rival banks scrambling to review their own records, lawyers say, in a market where ties to political and business leaders can be key to winning big deals.
Banks around the world commonly hire people with government connections, but this is especially prevalent in China due to the role the ruling Communist Party plays in the country's business.
Offering a job to one of China's so-called princelings the offspring of China's political elite is now a potential liability, with the US Securities and Exchange Commission (SEC) investigating whether JPMorgan's Hong Kong office hired the children of China's state-owned company executives with the express purpose of winning underwriting business and other contracts, said a person familiar with the matter.
US law does not stop companies from hiring politically connected executives. But hiring people in order to win business from relatives can be bribery, and the SEC is investigating JPMorgan's actions under the US Foreign Corrupt Practices Act (FCPA), the person added.
"If I were a competitor of JPMorgan, I would definitely start to do some internal investigations looking into the relationships with princelings," said a China-based lawyer who works with financial institutions.
Bank of America, Citigroup, Credit Suisse , Goldman Sachs and Macquarie are just a few of the banks to have employed relatives of top Chinese officials in the past five years. The banks declined to comment or did not respond to requests for comment.
Marie Cheung, a Hong Kong-based spokeswoman for JPMorgan, declined to comment on the matter beyond what was in the bank's regulatory filings, noting the bank was cooperating with probes.
The distinction between hiring a relative of a foreign official who may be well connected, and offering employment to such a person in the express hope of winning specific business is key to proving FCPA violations, according to a report on the FCPA published last October by law firm Gibson, Dunn & Crutcher.
"DOJ and the SEC will examine the circumstances of the engagement to determine whether the purpose of the relative's hiring is to improperly influence the foreign official," the report noted, adding that in such cases FCPA violations may occur even if the employee is otherwise qualified for the job.
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