By Aruna Viswanatha and Emily Flitter
(Reuters) - The U.S. Justice Department is probing Morgan Stanley for its hiring practices in China, according to a person familiar with the matter.
The move comes as U.S. authorities expand their investigation into whether banks' hiring of politically connected Chinese employees may have breached U.S. bribery laws.
Wesley McDade, a spokesman for Morgan Stanley, declined to comment.
U.S. authorities' interest in the hiring practices of banks operating in China first came to light in August when media reports disclosed that the U.S. Securities and Exchange Commission was looking at whether JPMorgan Chase & Co's Hong Kong office hired the children of powerful heads of state-owned companies in China with the express purpose of winning underwriting business and other contracts.
JPMorgan has said it is cooperating with the probe.
The Justice Department is working closely with the SEC, which has launched a sweeping investigation that has widened from JPMorgan to look at whether a number of financial services companies have been violating bribery laws through their hiring, said the person and another individual familiar with the probe.
Apart from JPMorgan and Morgan Stanley, Reuters could not determine which other banks are under scrutiny.
The SEC has asked firms across the global financial services industry to provide information about their hiring of the relatives of government officials in China, said the two people, who were not authorized to speak publicly.
As part of that broader sweep, the SEC passed along information to the Justice Department about Morgan Stanley, one of the people said, while declining to provide details about what investigators uncovered.
Another source confirmed Morgan Stanley did receive a letter from the SEC asking for information about its China hiring practices. The source said the firm has not been contacted by the Justice Department, which may indicate that the DOJ's criminal probe is at an early stage.
It is unclear if the Justice Department's interest in Morgan Stanley and other firms will lead to any action against them.
Authorities' scrutiny of Morgan Stanley's dealings in China comes after Justice Department officials repeatedly praised the bank's "rigorous compliance program" to prevent corruption. In various speeches encouraging firms to better police for bribery, officials have pointed to Morgan Stanley's vigilance as the reason why the bank did not face charges after its former top real estate dealmaker in China pleaded guilty last year to conspiring to evade internal controls to enrich himself and a Chinese government official.
Morgan Stanley was early to spot China's economic promise, purchasing a stake in an investment bank there in 1995. It now has more than 20 dedicated China investment bankers, the most among foreign banks, and has worked on some of the largest IPOs there in recent years.
JPMorgan said in a regulatory filing earlier this month that it is cooperating with requests for information, including subpoenas, from the SEC and the Justice Department about its hiring practices in the Asia Pacific region.
One source said that probe began based on information provided by a JPMorgan insider.
The investigation has sent chills across global banks. It has become a common practice for investment banks to 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.
The SEC and criminal prosecutors at the Justice Department are examining whether hiring practices violated the Foreign Corrupt Practices Act, a U.S. law that bars bribes or special favors to foreign government officials in exchange for business.
At issue is whether the banks hired unqualified applicants as a favor to a government official who was in a position to award them business.
One person familiar with the SEC inquiry said it closely resembles in structure a previous investigation U.S. authorities conducted into whether oil and gas companies paid bribes to circumvent import regulations in Africa and elsewhere.
Six companies including Royal Dutch Shell Plc, Transocean Inc. and Tidewater Inc and their shared freight forwarder Panalpina Inc paid a total of $236 million in 2010 to resolve related investigations.
(Reporting by Aruna Viswanatha in Washington and Emily Flitter in New York; additional reporting by Matthew Miller in Beijing; Editing by Karey Van Hall and Leslie Adler)