Federal authorities are investigating JP Morgan’s hiring practices in China, looking at whether JPMorgan (JPM) hired the children of powerful Chinese officials to help the bank score business, The New York Times reports.
In a review of a government document with details of the bribery investigation, the newspaper cites an example of the bank hiring the son of a former Chinese banking regulator who is now the chairman of the state-controlled financial conglomerate China Everbright Group. After the hire, JPMorgan attained coveted assignments from the Chinese firm where the father worked.
Okay, so we're talking about a company hiring well-connected people to get a business edge? This doesn’t sound exactly shocking, particularly in China.
“Corruption and cronyism are completely par for the course in China, so there's nothing unusual about the matter under investigation,” Jim Rickards, author of Currency Wars and senior managing director of New York merchant bank and broker-dealer Tangent Capital, tells The Daily Ticker in an email. “It is how business works in China.” (Rickards represents clients doing business in China and frequently meets with Chinese government officials and senior Chinese bankers, both in China and the U.S.)
That said, Rickards is also a lawyer, and he points out, “it may still be illegal with very serious consequences if it is tantamount to a bribe.”
He says any bribe (e.g. a “no show” job) violates the Foreign Corrupt Practices Act – a 1977 federal law that bans U.S. companies from giving anything of value to foreign officials to win an improper business advantage. According to Rickards, a violation can lead to securities fraud charges, lost foreign tax credit, and even criminal prosecutions.
In the accompanying video, we talk to Yahoo! Finance senior columnist Michael Santoli about the cost of doing business in China and if it’s worth it. We also compare this story to some practices in the U.S. that don’t sound much different.
As for JPMorgan, the Wall Street Journal reports a growing number of lawsuits and investigations could force the firm to absorb $6.8 billion in future legal losses above its existing reserves – putting it on pace to best Bank of America (BAC) as the “too big to fail” firm with the most legal trouble.
What impact is all this having on one of the nation’s largest banks? Check out the video above to find out.
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- Jim Rickards