JPMorgan to pay $200m fine for hiring Chinese ‘princelings’

JPMorgan has agreed to pay a fine of more than $200 million (€186 million) to settle a US investigation into its employment of well-connected Chinese "princelings" to win business, sources say.

The settlement, expected to be announced on Thursday, would be the first to arise from a Securities and Exchange Commission inquiry launched in 2013 to determine whether bank hiring practices breached the US Foreign Corrupt Practices Act. The 1977 law bans companies from paying bribes to overseas officials to win business.

The investigation sent shivers around the global banking community because hiring well-connected people for financial jobs is common in China where there is a strong emphasis on guanxi, or personal connections, in doing business.

Princelings are technically the children of high-ranking Communist party officials, but the term is often generally applied to the sons and daughters of China’s elite.

JPMorgan had made several high-profile hires, including Gao Jue, son of a Chinese commerce minister, later employed by Goldman Sachs, and Tang Xiaoning, son of a former bank regulator, who went on to chair Everbright Group.

Other banks

The investigation into JPMorgan soon widened to include other banks. Earlier this year, HSBC said it was one of several under investigation. Others to have been contacted by the regulator include Goldman Sachs, Deutsche Bank, Citigroup and Morgan Stanley.

The US inquiry has coincided with a Chinese crackdown on corruption, adding to the pressure on western investment banks struggling in Asia with slowing economies and lower fees than they earn elsewhere.

Since 2013, many banks have shifted away from promoting well-connected “rainmakers” to lead their mainland businesses in favour of lower-profile leaders. They have also de-emphasised forging strong connections with senior officials.

Churn among JPMorgan's top ranks in the wake of the SEC probe saw Fang Fang step down as China investment banking head in 2014 and Todd Marin as vice-chairman of the its Asia investment bank last year.

As a result of the US investigation, the bank stepped away from various deals, including the public floats of Tianhe Chemical and Everbright Bank, because it was connected with the children of the chairmen of both groups.

Joyce Wei, daughter of Tianhe chairman Wei Qi, worked at JPMorgan from January 2012-August 2013, according to the Hong Kong regulator's register of authorised finance professionals.

– (Copyright The Financial Times Limited 2016)