A federal investigation into the hiring practices of JPMorgan Chase has expanded beyond the borders of China, where the bank faces questions about whether it hired the children of powerful Chinese officials to win lucrative business there.
The bank disclosed in a securities filing on Friday that authorities were now looking into "its business relationships with certain related clients in the Asia-Pacific region and its engagement of consultants in the Asia Pacific region." JPMorgan did not specify where the inquiries were directed.
But according to people briefed on the matter, government authorities are examining JPMorgan's hiring practices throughout Asia, focusing on South Korea, Singapore and India. That scrutiny comes after JPMorgan itself flagged those countries for further review, the people said.
The investigations from the Securities and Exchange Commission and the Justice Department, the people noted, are still in fledgling stages. Hong Kong and British authorities are also investigating the bank's hiring practices, said the people, who spoke on the condition of anonymity.
It is unclear whether authorities suspect improper activity in these regions beyond China, or are simply placing a marker for a possible broader investigation. Either way, though, the global focus signals a fresh challenge for the bank and an escalation of the inquiry.
The focus of the case surfaced in August, when the New York Times reported that federal authorities - led by the SEC's antibribery unit - had begun an investigation into the bank's hiring of the sons and daughters of China's elite. They included the daughter of a Chinese railway official and the son of Tang Shuangning, a former Chinese banking regulator who is now the chairman of the state-controlled financial conglomerate China Everbright Group, according to a confidential government document reviewed by The Times.
At one point, according to interviews with the people who spoke on the condition of anonymity, the bank created a formal "Sons and Daughters" program. And in some cases, JPMorgan won business from companies with ties to the children.
JPMorgan, which first made an oblique reference to the SEC's investigation in its quarterly filing in August, said on Friday the bank was "cooperating with these investigations." The bank declined to comment further.
JPMorgan has not been accused of any wrongdoing. Public documents do not show a concrete tie between the bank's decision to hire children of Chinese officials and its ability to secure lucrative business deals. The bank has begun an exhaustive review of its own hiring practices across the globe, according to people with knowledge of the internal investigation. It is also regularly providing documents to the SEC and the Justice Department, these people said.
The broadening scrutiny comes as the bank, once a favourite in Washington, is grappling with legal and regulatory woes. Even as JPMorgan has reached a tentative $13 billion settlement over its mortgage practices in the run-up to the financial crisis, it is also facing an accelerating criminal investigation related to Bernard L Madoff's Ponzi scheme. In that case, federal prosecutors in Manhattan and the FBI suspect JPMorgan failed to alert authorities to indications of Madoff's fraud.
The corruption investigations into JPMorgan's hiring practices could prove particularly thorny for the bank and its chief executive, Jamie Dimon.
The investigations hinge on the Foreign Corrupt Practices Act, a 1977 federal law that effectively bars United States companies from giving "anything of value" to foreign officials to obtain "an improper advantage" in retaining business. In recent years, the SEC and the Justice Department have increased their enforcement of the law, which is violated if a company acts with "corrupt" intent, or with the expectation of offering a job in exchange for government business.
So far that link is unclear in the JPMorgan case. Yet, according to interviews, along with a review of securities filings and news reports, JPMorgan employees in Asia pinpointed the advantages of hiring the officials' children. In an internal document, the interviews show, the employees linked the hires to the "revenue" that JPMorgan obtained from companies run by those same officials.
In the case of Tang Xiaoning, the son of the chairman of China Everbright, the SEC and the Justice Department are examining the employees at the bank who were involved in the decision to hire Tang, who is thought to have joined JPMorgan in 2010. Authorities, the people said, are zeroing in on whether JPMorgan won coveted business from the China Everbright Group and its banking subsidiary.
The hiring of Tang, the review of securities filings and news reports shows, came at an opportune time for the bank. Before employing Tang, JPMorgan seemed to do little if any business at all with China Everbright. But since the hiring, China Everbright has become one of the bank's esteemed Asian clients. JPMorgan was picked in 2011 to be one of 12 financial advisers on China Everbright's decision to become a public company. The deal languished in the midst of turbulent markets and broad questions about China's banking system.
And in 2012, JPMorgan was the sole bank chosen to advise China Everbright International, a subsidiary, on a $162 million sale of shares, according to S&P Capital IQ, a research service. According to securities filings, JPMorgan owns a stake in the subsidiary.
Then that same year, JPMorgan helped China Everbright navigate its role in what was, according to Dealogic, the largest private equity deal ever in China.
The "Sons and Daughters" program started in 2006 as the friends and family of China's top echelons were jostling for positions at JPMorgan, the interviews show. And what began as an effort to ferret out nepotism and avoid bribery accusations in the United States became a two-tiered process. Those well-heeled applicants appeared to enjoy less stringent standards and fewer interviews.