JPMorgan Chase settles China bribery claims for $264M

The deal was negotiated for JPMorgan by Mark Mendelsohn, partner at Paul, Weiss, Rifkind, Wharton & Garrison, co-chair of the firm's FCPA group and a former deputy chief of the U.S. Justice Department Criminal Division's fraud section. Mendelsohn is widely credited with building the Justice Department's modern FCPA program. The agreement letter and nonprosecution agreement were made public by the government Thursday.

By having the company fully cooperate with the probe, Mendelsohn was able to win points for his client and avoid criminal charges while paying a lower fine.

JPMorgan Securities (Asia Pacific) Limited (APAC), a subsidiary of JPMorgan Chase, had contended that the hiring of sons and daughters is a common business practice in the region.

“The common refrain that this is simply how business is done overseas is no defense,” Eastern District of New York U.S. Attorney Robert Capers said in a statement released Thursday. “In this case, JPMorgan employees designed a program to hire otherwise unqualified candidates for prestigious investment banking jobs solely because these candidates were referred to the bank by officials in positions to award business to the bank.”

Launched in 2006, the Sons and Daughters program supposedly had safeguards for compliance with the FCPA—but trouble began in 2007 when employees began submitting false information on compliance questionnaires to hide the hiring of relatives.

One deception included automatically including the answer “no expected benefit” to the company of whether it would reap rewards from mom or dad for hiring the kids.

An email from a JPMorgan-APAC managing director said there had been a “few disastrous cases” of hiring well-connected but incompetent offspring. Nonetheless, the director wrote, “We have more lobs [lines of business] in China therefore in theory we can accommodate more 'powerful' sons and daughters that could benefit the entire platform.”

Assistant attorney general Leslie Caldwell said in a statement, “The so-called Sons and Daughters program was nothing more than bribery by another name.”

An agreement letter signed by Justice Department officials and Mendelsohn and JPMorgan general counsel Stacey Friedman, filed Thursday in the Eastern District, said the company received “full credit” for a thorough internal investigation that included providing documents and making foreign-based employees available for interviews.

Five employees were forced to leave the company and another 23 were disciplined for failing to detect the misconduct and poor supervision.

The company also got credit for imposing more than $18.3 million in sanctions on former or current employees.

The agreement letter was signed by fraud section chief Andrew Weissmann, principal deputy chief Sandra Moser, deputy chief Daniel Kahn, assistant chief Leo Tsao, trial attorneys James McDonald and Derek Ettinger, and assistant U.S. attorney James Loonam.

By Mark Hamblett, The New York Law Journal

A subsidiary of JPMorgan Chase & Co. ran a nepotism program on a grand scale in China, Justice Department officials said Thursday, as the bank agreed to pay $264.4 million to settle allegations it hired the sons and daughters of government officials to bribe its way to investment deals.

Targeting the bank's “Sons and Daughters” program used to curry favor with influential figures, the Justice Department announced an unprecedented enforcement deal under the Foreign Corrupt Practices Act.

In addition to paying $72 million to the Justice Department, JPMorgan will pay, in related proceedings, $130.5 million in disgorgement to the U.S. Securities and Exchange Commission, and $61.9 to the Federal Reserve System's board of governors.