JPMorgan Chase has agreed to pay more than $130 million to settle charges by the Securities and Exchange Commission that overseas hiring practices violated the Foreign Corrupt Practices Act, specifically its anti-bribery, books and records, and internal controls provisions.
The SEC says that the mega-bank won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends.
JPMorgan also is expected to pay $72 million to the Justice Department and $61.9 million to the Federal Reserve Board of Governors for a total of more than $264 million in sanctions resulting from the firm’s referral hiring practices.
According to an SEC order issued on Nov. 17, investment bankers at JPMorgan’s subsidiary in Asia created a client referral hiring program that bypassed the firm’s normal hiring process and rewarded job candidates referred by client executives and influential government officials with well-paying, career-building JPMorgan employment. During a seven-year period, JPMorgan hired approximately 100 interns and full-time employees at the request of foreign government officials, enabling the firm to win or retain business resulting in more than $100 million in revenues to JPMorgan.
“JPMorgan engaged in a systematic bribery scheme by hiring children of government officials and other favored referrals who were typically unqualified for the positions on their own merit,” said Andrew Ceresney, director of the SEC’s Enforcement Division, said in a statement. “JPMorgan employees knew the firm was potentially violating the FCPA yet persisted with the improper hiring program because the business rewards and new deals were deemed too lucrative.”
“The misconduct was so blatant that JPMorgan investment bankers created ‘Referral Hires vs. Revenue’ spreadsheets to track the money flow from clients whose referrals were rewarded with jobs,” says Kara Brockmeyer, chief of the Enforcement Division’s FCPA Unit, added. “The firm’s internal controls were so weak that not a single referral hire request was denied.”T
Between 2006 and 2013, the firm provided jobs and internships to the relatives and friends of certain key executives of its clients, prospective clients, and foreign government officials in the Asia-Pacific region as a personal benefit to the requesting officials in order to obtain or retain investment banking business or other benefits for the firm,” the SEC’s order says. “Many of JPMorgan’s clients were state-owned entities, and therefore the client executives requesting employment for their relatives and friends were foreign government officials under the FCPA. “The firm provided these jobs and internships with the intent to corruptly influence the foreign government officials making the requests,” it alleges.
Investment bankers at JPMorgan’s subsidiary in Asia, JPMorgan Securities (Asia Pacific) Limited, JPMorgan APAC, created a client referral hiring program to leverage the promise of well-paying, career building JPMorgan employment for the relatives and friends of senior officials with its clients in order to assist JPMorgan APAC in obtaining or retaining business, the SEC says. A special hiring program (Client Referral Program) was created at JPMorgan APAC for referred candidates that bypassed the firm’s normal hiring process and was made available exclusively to candidates referred by clients, prospective clients, or foreign government officials (Referral Hires).
Non-referral JPMorgan APAC hires were subjected to a rigorous screening process and competed against other candidates for a limited number of positions. Referral Hires did not compete against other candidates based on merit and, in most instances, were less qualified than those employees hired through the firm’s non-referral hiring programs. Instead, Referral Hires were hired based on direct or potential links to investment banking revenue that could be generated from the referring client in exchange for the hire. Referral Hires whose relationships generated sufficient revenue for JPMorgan APAC were offered longer-term jobs, while others were given shorter terms of employment unless the referring client offered additional business to the firm.
In 2010 and 2011, JPMorgan APAC employees created spreadsheets to track the revenue to the firm from clients whose candidates were hired through the Client Referral Program, the SEC alleges.
Over a seven-year period, JPMorgan hired approximately 200 interns and full-time employees at the request of its APAC clients, prospective clients, and foreign government agencies and officials.
“JPMorgan APAC bankers leveraged connections with these government agencies to assist other clients and the firm itself in navigating complicated regulatory landscapes,” the order dsays.
The SEC argues that JPMorgan APAC employees were well aware that hiring relatives and friends of foreign government officials for the purpose of obtaining or retaining business posed the risk of violating the FCPA and often provided inaccurate or incomplete information as part of the legal and compliance review designed to prevent these violations or withheld key information so that the Referral Hires would pass compliance review. “The legal and compliance review of Referral Hires became a formality in which JPMorgan APAC investment bankers and supporting personnel provided inaccurate or incomplete answers to secure approval for hires without revealing the links to business as a result of certain Referral Hires,” it says. “Of all the candidates that passed through JPMorgan APAC’s Client Referral Program, none were rejected by the legal and compliance review.”
The firm also “failed to devise and maintain a system of internal accounting controls around its hiring practices sufficient to provide reasonable assurances that its employees were not bribing foreign officials in contravention of company policy.” APAC employees also “failed to follow the firm’s internal accounting controls” and “took steps to hide the magnitude and purpose of the Client Referral Program from others within the firm.”
JPMorgan agreed to pay $105,507,668 in disgorgement plus $25,083,737 in interest to settle the SEC’s case. The SEC considered the company’s remedial acts and its cooperation with the investigation when determining the settlement.