This weekend reports surfaced that the SEC is investigating JPMorgan for hiring Chinese 'princelings' (the privileged children of ruling Communist Party leaders) in order to land business in the country.
The bank has yet to be accused of any wrong-doing, and the SEC isn't accusing these hires of being unqualified people either.
So cue the — 'oh c'mon, it's just business' — crowd, correctly pointing out that these kids are well-connected, and probably some of the best educated people in the country. Why wouldn't JPMorgan want to hire them?
It's a really simple argument, but it doesn't take into account what constitutes a crime in this case — the true causes and effects of these hires.
The problem isn't who JPMorgan is hiring, it's why — and if JPMorgan is hiring these people in order to land business deals, that's a violation of the Foreign Corrupt Practices Act, and there is legal precedent for the government to take action.
To understand that, you have to look at these hires on a case by case basis. In this story there are two specific hires that require a deeper look at cause and effect.
First off, according to the New York Times, is the hiring of a Chinese railway official 's daughter in JPMorgan's Hong Kong office back in 2007. The official's daughter was hired while his agency, The China Railway Group, was selecting JPMorgan to advise on its IPO. The bank raised $5 billion for the company. The official was later detained on accusations of doling out public documents for cash bribes.
The second case involves the son of the CEO of a company called China Everbright. JPMorgan had never done business with the company before hiring the CEO's son, but once he was hired, China Everbright became one of the banks "prized Asian clients."
U.S. companies are required to stick to certain rules when they operate abroad, whether a ruling oligarchy happens to be consolidating their grasp on power or not.
And according to the Foreign Corrupt Practices Act, it doesn't even matter if the workers are qualified, the mere act of hiring a family member in order to foster a business relationship with someone is a no-no.
That's why, in 2007, a company called Paradigm caught the government's ire for a plethora of questionable foreign dealings, one of which was hiring the brother of a "decision maker" at Mexico's state oil company, Pemex.
Paradigm officials had already spent $10,000 "entertaining" the decision maker, according to government filings, when his brother was hired as a driver for the company.
Now, the decision maker's brother did actually work as a driver (so that's nice) but around the same time, Paradigm also scored a contract with Pemex through this "decision maker."
Not a good look — Paradigm was forced to admit wrongdoing (you know JPMorgan does not like that) and make changes to their rules and internal bribery controls as a result.
So add this to the long list of reasons JPMorgan should be treading lightly these days — at home and abroad.
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