JPMorgan pays $264 million to settle FCPA investigation over hiring practices in China

  • Riyaz Dattu
  • Waleed Malik
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Dec 6, 2016

On November 17, 2016, J.P. Morgan Chase & Co. (“JPMorgan”) and a subsidiary, JPMorgan Securities (Asia Pacific) Limited (“JPAC”), agreed to pay more than $264 million to settle claims that they infringed the U.S. Foreign Corrupt Practices Act (“FCPA”) by systematically awarding jobs to relatives and friends of Chinese government officials in exchange for business opportunities. JPMorgan is the latest multinational enterprise whose overseas hiring practices have resulted in fines being paid under the FCPA; as we have previously noted, the Bank of New York Mellon and Qualcomm Incorporated also paid fines to settle similar claims in August 2015 and March 2016, respectively. These cases highlight the need for multinational enterprises to be aware of the broad reach of foreign anti-corruption legislation and to develop effective internal control systems to regulate foreign activities of the enterprise, including its hiring processes.

JPMorgan’s “Sons and Daughters Program” and the Settlements

According to a press release issued by the Securities and Exchange Commission (the “SEC”), JPAC set up the “Sons and Daughters Program” in 2006 to hire candidates referred by clients and government officials in China. The SEC alleged that JPMorgan hired approximately 100 interns and full-time employees at the request of foreign government officials which, in turn, allowed the firm to win or retain business worth over $100 million.

The SEC commenced an investigation into JPMorgan’s hiring practices in 2013. JPMorgan initially argued that its hiring practices did not violate the FCPA. However, the SEC and other investigators concluded otherwise. JPMorgan and JPAC entered into three settlements to address the claims against them:

  • JPAC agreed to pay a $72 million criminal penalty to the U.S. Department of Justice as part of a non-prosecution agreement.
  • The SEC filed a cease-and-desist order against JPMorgan, which included a requirement to disgorge $130.5 million in profits.
  • The Federal Reserve System’s Board of Governors also issued a consent cease-and-desist order requiring a $61.9 million civil penalty be paid by JPMorgan.

Implications

The enforcement actions taken against JPMorgan emphasize the broad range of activities that can fall within the reach of anti-corruption legislation, which is not restricted to the giving of monetary bribes and can cover the conferral of any kind of benefit motivated by an unlawful purpose. This holds true for companies subject to the jurisdiction of Canadian law enforcement and regulators as well. Like the FCPA, the Corruption of Foreign Public Officials Act in Canada applies to a broad range of activities, including the giving of a “benefit of any kind.” Therefore, Canadian companies with overseas operations should act diligently in assessing the full extent of potential liability under anti-corruption laws, including liability that can arise as a result of their hiring practices.

Further, Canadian companies also need to develop and maintain robust internal control mechanisms, including providing clear guidance to company employees and agents that may conduct business on the company’s behalf, on what is and is not permissible. As we have discussed before, internal controls include, among other things, control activities that cover policies and procedures designed to ensure that management directives are carried out (e.g., approvals, authorizations, reconciliations, and segregation of duties). In the absence of such controls, companies are far more likely to face punitive enforcement actions, and the resulting financial and reputational damage, because their foreign operations ran afoul of anti-corruption legislation.