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JPMorgan to pay $264m penalty for hiring ‘princelings’

JPMorgan has agreed to pay $264m to settle a US probe into its employment of well-connected Chinese “princelings” to win business.

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.

JPMorgan will pay $130m to the SEC, $72 million to the Department of Justice and $61.9 million to the Federal Reserve.

The investigation sent shivers around the global banking community because hiring well-connected people for financial jobs has been 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 applied to the sons and daughters of China’s elite more generally.

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.

The probe 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 investigation has coincided with a Chinese crackdown on corruption. It has added 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 SEC’s 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 Wei Qi, Tianhe chairman, worked at JPMorgan between January 2012 and August 2013, according to the Hong Kong regulator’s register of authorised finance professionals.

Via FT