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DOJ Catch of the Week -- JPMorgan Chase

Posted  November 18, 2016

By the C|C Whistleblower Lawyer Team

This week’s Department of Justice “Catch of the Week” goes to JPMorgan Chase.  Yesterday, the banking giant and its Hong Kong-based subsidiary JPMorgan Securities (Asia Pacific) Limited agreed to pay a combined total of roughly $265 million to resolve foreign bribery charges relating to JPMorgan’s so-called Sons and Daughters Program.  This was a scheme in which the bank secured large business deals in China by awarding prestigious jobs to relatives and friends of Chinese government officials.  See DOJ Press Release and SEC Press Release.

According to the bank’s admissions, senior Hong Kong-based investment bankers set up and used a “client referral program” to hire candidates referred by clients and government officials.  But in order to be hired, a referred candidate had to have a “directly attributable linkage to business opportunity.”

As just one example of how the program worked, in late 2009 a Chinese government official communicated to a senior JPMorgan banker that hiring a referred candidate would significantly influence the role the bank would have in an upcoming initial public offering for a Chinese state-owned company.  Because the referred candidate was not qualified for an investment banking position, JPMorgan created a new position for the candidate in New York.  JPMorgan subsequently obtained a leading role in the IPO.

JPMorgan admitted that candidates hired during the scheme were typically given the same titles and paid the same amount as entry-level investment bankers, despite the fact that many of these hires performed ancillary work such as proofreading and provided little real value.  The corrupt scheme netted JPMorgan at least $35 million in profits from business mandates with Chinese state-owned companies.

As part of the settlement, JPMorgan agreed to pay the DOJ a criminal penalty of $72 million.  This amount was discounted because of the “significant employment action” JPMorgan took against employees involved in the scheme.  The bank facilitated the termination of six employees and disciplined another 23 employees who failed to effectively detect the misconduct or supervise those engaged in it.  The bank also imposed more than $18.3 million in financial sanctions on former or current employees in connection with the remediation efforts.

JPMorgan also agreed to pay the SEC roughly $130 million to settle charges that the bank’s conduct violated the Foreign Corrupt Practices Act.  The Federal Reserve System’s Board of Governors also assessed a $61.9 million civil penalty.  Thus, the combined U.S. criminal and regulatory penalties paid by JPMorgan and its Hong Kong subsidiary are approximately $264.4 million.

In announcing the settlement, the government made clear it will not tolerate foreign bribery.  DOJ Criminal Chief Leslie Caldwell was particularly succinct in his condemnation of the bank:

The so-called Sons and Daughters Program was nothing more than bribery by another name.  Awarding prestigious employment opportunities to unqualified individuals in order to influence government officials is corruption, plain and simple.

The SEC was equally strong in its denunciation of the conduct, referring to JPMorgan’s “systematic bribery scheme” as “blatant” and its internal controls “weak” with the singular goal of securing business rewards and new deals deemed too lucrative to forego.

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