After more than three years of digging into JPMorgan Chase's hiring practices in China, federal authorities have determined that the bank hired the children of Chinese leaders as part of a quid pro quo to win business in the booming nation, clearing the way for a costly punishment.
As soon as Thursday, the authorities will announce a roughly $264 million settlement with the bank and its Hong Kong subsidiary, according to people briefed on the matter who spoke on the condition of anonymity. The authorities, which include criminal prosecutors and civil regulators, will accuse the bank of orchestrating a long-running foreign bribery scheme.
When The New York Times reported on the contours of a settlement in September, it was not known whether the authorities would explicitly accuse the bank of carrying out a quid pro quo — providing jobs in exchange for lucrative assignments from Chinese government-run companies.
This issue, which strikes at the heart of whether JPMorgan violated United States law governing foreign bribery, became a focal point of the investigation and the ensuing settlement negotiations.
The bank argued that the hiring of well-connected employees was routine in China, and that its own hires fell into a gray area of foreign bribery laws. The United States government, however, concluded that in several instances, senior JPMorgan bankers explicitly linked those jobs or internships to securing deals with Chinese government-run companies, the people briefed on the matter said.
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JPMorgan, the people said, formalized the hiring into what it called the Sons and Daughters program. The bank even went so far as to create spreadsheets that tracked its hires to specific clients — and the bank's ability to convert these hires into business deals. In reaching the settlement, JPMorgan is expected to accept the findings and conclusions of the investigators.
A spokesman for JPMorgan declined to comment, as did a spokesman for the Justice Department's criminal division in Washington and the United States attorney's office in Brooklyn. The Securities and Exchange Commission and the Federal Reserve, which handled the civil regulatory aspects of the investigation, declined to comment.
The settlement, which was smaller than once expected because JPMorgan showed a high degree of cooperation with investigators, followed a painful period for the bank.
When the China hiring investigation first came to light in a front-page article in The Times three years ago, it added to a growing list of regulatory problems, including the $6 billion "London whale" trading scandal and a $13 billion settlement with the Justice Department over the bank's sale of mortgage securities in the years before the 2008 financial crisis.
The China settlement will now put to rest one of the last big regulatory headaches for the bank. Some of the senior bankers suspected of carrying out the hiring have since left JPMorgan.
Just as important, the agreement signals the final chapter in the Obama administration's pursuit of wrongdoing on Wall Street. That effort garnered big-dollar settlements and splashy headlines, but no criminal prosecutions of top Wall Street executives after the financial crisis — an absence that has drawn much criticism and public debate.
The foreign bribery case against JPMorgan is no different. The United States attorney's office in Brooklyn and the Justice Department's criminal division in Washington are expected to impose a roughly $70 million penalty on the bank but will not charge any of the bankers who doled out the jobs. The S.E.C. will assess the largest punishment, about $130 million of the overall $264 million settlement, while the Fed will impose a roughly $62 million penalty.
The bank also secured a moral victory by avoiding criminal charges, the people briefed on the matter said, and instead negotiated a rare nonprosecution agreement.
Donald J. Trump's surprise victory in the presidential election last week could disrupt the public perception that banks are treated leniently. Steve Bannon, a media executive appointed as Mr. Trump's chief White House strategist, lamented in 2014 that "not one criminal charge has ever been brought to any bank executive" associated with the 2008 crisis.
Mr. Trump's presidency also could be a turning point in how banks and other corporations do business in China. On the campaign trail, Mr. Trump called China a "currency manipulator" and threatened to impose tariffs on Chinese imports, but as president-elect he has shifted his tone and promised that the two nations would have "one of the strongest relationships."
No matter the relationship going forward, the Justice Department is expected to continue enforcing the Foreign Corrupt Practices Act — the 1977 law that underpins the case against JPMorgan — and that might mean more cases against big banks operating in China.
The JPMorgan case would represent one of the first major crackdowns on a big bank for violations of this law, but Deutsche Bank, Goldman Sachs, HSBC and other banks have also hinted that they face investigations into their hiring practices in China. Those investigations may fizzle, but the JPMorgan case provides a template for prosecutors and regulators to bring these sorts of cases, which once seemed far-fetched.
JPMorgan's lawyers urged prosecutors not to criminalize hiring practices that were common in the region. While hiring an American politician's child in exchange for a government contract is a clear violation of law, global companies routinely hire the sons and daughters of leading Chinese politicians.
JPMorgan went even further, however, and hired the family members of potential clients while seeking their business. Specifically, JPMorgan hired the children of Chinese officials running state-controlled companies that were seeking banks to help them go public.
The Foreign Corrupt Practices Act essentially bars United States companies from giving "anything of value" to a foreign official to win "an improper advantage" in retaining business.
Initially, JPMorgan sought to prevent such violations. But as the Sons and Daughters program expanded, senior JPMorgan bankers explicitly tied those hires to securing deals with Chinese government-run companies, the people briefed on the matter said.
In an email previously reported by The Times, a JPMorgan executive in Hong Kong linked one prominent hire to "existing and potential business opportunities" from a Chinese government-run company.
The executive also described the broader benefits of the hiring program, telling colleagues in another email: "You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship" with winning assignments to advise Chinese companies.
JPMorgan is said to settle bribery case over hiring in China
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