Federal authorities have opened a bribery investigation into whether JPMorgan Chase hired the children of powerful Chinese officials to help the bank win lucrative business in the booming nation, according to a confidential U.S. government document.
In one instance, the bank hired the son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state-controlled financial conglomerate, according to the document, which was reviewed by The New York Times, as well as public records. After the chairman’s son came on board, JPMorgan secured multiple coveted assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, records show.
The Hong Kong office of JPMorgan also hired the daughter of a Chinese railway official. That official was later detained on accusations of doling out government contracts in exchange for cash bribes, the government document and public records show.
The former official’s daughter came to JPMorgan at an opportune time for the New York-based bank: The China Railway Group, a state-controlled construction company that builds railways for the Chinese government, was in the process of selecting JPMorgan to advise on its plans to become a public company, a common move in China for businesses affiliated with the government. With JPMorgan’s help, China Railway raised more than $5 billion when it went public in 2007.
The focus of the civil investigation by the Securities and Exchange Commission’s anti-bribery unit has not been previously reported. JPMorgan — which has had a number of run-ins lately with regulators — made an oblique reference to the inquiry in its quarterly filing this month. The filing stated that the SEC had sought information about JPMorgan’s “employment of certain former employees in Hong Kong and its business relationships with certain clients.”
In May, according to a copy of the confidential government document, the SEC’s anti-bribery unit requested from JPMorgan a battery of records about Tang Xiaoning. He is the son of Tang Shuangning, who since 2007 has been chairman of the China Everbright Group.
The agency also inquired about JPMorgan’s hiring of Zhang Xixi, the daughter of the railway official. Among other information, the SEC sought “documents sufficient to identify all persons involved in the decision to hire” her.
The government document and public records do not definitively link JPMorgan’s hiring practices to its ability to win business, nor do they suggest that the employees were unqualified. Furthermore, the records do not indicate that the employees helped JPMorgan secure business. The bank has not been accused of any wrongdoing.
Yet the SEC’s request outlined in the confidential document hints at a broader hiring strategy at JPMorgan’s Chinese offices. Authorities suspect that JPMorgan routinely hired young associates who hailed from well-connected Chinese families that ultimately offered the bank business.
A spokesman for JPMorgan said, “We publicly disclosed this matter in our 10-Q filing last week, and are fully cooperating with regulators.”
The Ministry of Railways, which has since been restructured into various agencies, and the China Everbright Group did not respond to requests for comment. A spokeswoman for the SEC declined to comment.
Attempts over the weekend to reach Zhang and Tang Xiaoning, both of whom have left JPMorgan, were unsuccessful.
It is uncommon for U.S. authorities to scrutinize such practices. Only a handful of Wall Street employees have ever faced bribery accusations.
Legal experts note that there is nothing inherently illicit about hiring well-connected people. To run afoul of the law, a company must act with “corrupt” intent, or with the expectation of offering a job in exchange for government business.