JPMorgan Chase has caught the ire of regulators for allegedly hiring and giving internships to candidates based on requests from foreign governments, officials, and clients. The Securities and Exchange Commission (SEC) points out that this type of nepotism is a breach of federal law, and now the company must pay a $264 million settlement.
“Referral Hires did not compete against other candidates based on merit and, in most instances, were less qualified,” SEC officials said. “Referral Hires whose relationships generated sufficient revenue for JPMorgan APAC were offered longer-term jobs, while others were given shorter terms of employment unless the referring client offered additional business to the firm.”
The Foreign Corrupt Practices Act prohibits companies from making any “offer, payment promise to pay, or authorization of the payment of money, or offer, gift, promise to give, or authorization of the giving of anything of value to any foreign official.”
Nevertheless, regulators say that JP Morgan Chase did just that between 2006 and 2013 with nearly 200 of its positions and internships. The suit alleges that the practices were conducted by investors at the Asia-Pacific (APAC) regional offices in order to obtain and retain business with foreign officials.
Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, stated that attempts to hide these deals were obvious. In fact, those in charge of the schemes created spreadsheets to document the pros and cons of the transactions.
“The misconduct was so blatant that JPMorgan investment bankers created ‘Referral Hires vs Revenue’ spreadsheets to track the money flow from clients whose referrals were rewarded with jobs. The firm’s internal controls were so weak that not a single referral hire request was denied,” she said.
The number of placements using these methods weren’t small in scale, either. The SEC stated that almost half of all hires came through foreign government officials at more than 20 state-owned entities (SOEs) during the seven-year period, generating $100 million in revenue for the bank.
Further, the SEC says that JPMorgan knew that the practices were illegal but continued them anyway. Bank staff even went so far as to provide inaccurate or incomplete information during reviews so that referral hires could pass compliance tests.
“JPMorgan engaged in a systematic bribery scheme by hiring children of government officials and other favored referrals who were typically unqualified for the positions on their own merit. JPMorgan employees knew the firm was potentially violating the FCPA yet persisted with the improper hiring program because the business rewards and new deals were deemed too lucrative,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.
As part of the settlement, JPMorgan will pay $130 million to settle the SEC corruption charges, $72 million to the Justice Department, and $61.9 million to the Federal Reserve Board of Governors.