JPMorgan Chase Agrees to Pay Over $264M to Resolve Foreign Corrupt Practices Act Charges

To settle civil and criminal charges alleging violations of the Foreign Corrupt Practices Act, JPMorgan Chase (JPM) will pay more than $264M: $130M to the U.S. Securities and Exchange Commission, $72M to the U.S. Department of Justice, and $61.9M to the Federal Reserve Board of Governors. The settlements come following a probe that went on for several years into the bank’s hiring practices in Asia.

As part of the agreement, JPMorgan Securities (Asia Pacific) Limited (JPMorgan APAC) admitted that it established the “Sons and Daughters” referral program in 2006 to give preference to job candidates with ties to upcoming client deals. According to authorities, the bank hired 100 interns and full-time employees because foreign officials referred them. Some of these referrals were relatives of these officials. In order to be hired, a candidate had to have direct ties with a “business opportunity.”  The Justice Department has called the program “bribery.”

The DOJ’s release reports that among the admissions made related to the resolution was that in 2009, a Chinese government official told a senior JPMorgan APAC  banker that if a certain referred candidate were hired this would “significantly influence” the role the bank would have in an upcoming IPO for a company owned by the Chinese state. The banker notified senior colleagues, who spent several months attempting to bring the candidate into an investment banking position in New York. Even though this referred candidate did not have the qualifications for the job, senior JPMorgan APAC bankers created a position for this individual, and the bank was granted a lead role in the initial public offering. JPMorgan APAC also admitted that referred candidates were given the same salary and titles as entry-level investment bankers even though their tasks were “ancillary,” such as proofreading.

JPMorgan ended the Sons and Daughters hiring program 13 years ago. A JPMorgan spokesperson said that the bank took action against individuals who were involved. Because of the program, the bank was able to keep and win business from government officials and clients, which allowed JPMorgan to make over $100M in revenues.

To settle the civil case brought by the SEC, the bank will pay over $105M in disgorgement and more than $25M in interest. The SEC found that JPMorgan violated the Securities Exchange Act of 1934’s “anti-bribery, books and records, and internal controls provisions.” The regulator’s Enforcement Division FCPA unit noted that the “misconduct was so blatant” that investment bankers at the bank set up ‘Referral Hires v. Revenue’ spreadsheets so they could chart the flow of money that came from clients whose referrals were hired. FCPA unit chief Kara Brockmeyer said that internal controls at JPMorgan were “so weak” that no referral hire request was ever denied.

The SEC’s case against JPMorgan involved a cease and desist order as did the case brought by the Federal Reserve System’s Board of Governors.

Foreign Corrupt Practices Act
The FCPA prohibits the payment of bribes to foreign officials for the purpose of winning or keeping business.  The FCPA can apply to prohibited behavior anywhere in the world. Publicly traded companies, their officers, employs, directors, agents (including consultants, third party agents, joint venture partners, distributors, and others) and stockholders have to abide by the FCPA. Violations of the Act can lead to civil enforcement and criminal cases.

The SSEK Partners Group is a securities fraud law firm.

The SEC Order in the JPMorgan/FCPA Case (PDF)

JPMorgan’s Investment Bank in Hong Kong Agrees to Pay $72M Penalty for Corrupt Hiring Scheme in China, Justice.gov