J.P. Morgan Nears Settlement on Asia Hiring
July 21 2016 - 2:10PM
Dow Jones News
J.P. Morgan Chase & Co. is expected to pay around $200
million later this year to settle criminal and civil probes over
its Asia hiring practices, including a China program in which it
hired sons and daughters of powerful people, people familiar with
the matter said.
The settlement, which is expected in the coming months with
federal prosecutors and regulators, would resolve a foreign bribery
probe that has dogged the bank for years. Under the expected pact's
terms, J.P. Morgan would likely admit that its hiring practices
violated a U.S. law prohibiting giving something of value in
exchange for business, the people said.
A resolution to the J.P. Morgan investigation would be the first
in a wide-ranging probe into banks' hiring of so-called
princelings, the kin of high-ranking Chinese government officials
and managers of state-owned companies, allegedly to curry favor in
getting deals. A settlement could also pave the way for similar
outcomes in ongoing inquiries into other banks.
The scrutiny into the bank and several of its rivals gained
steam after several Wall Street Journal articles detailing banks'
business practices in Asia. J.P. Morgan hired the children of
several powerful Chinese government officials who appeared to be
unqualified for their positions, the Journal reported, and kept
some on despite poor job performance. In one email, a bank
executive discusses how to "handle the son in NY and leverage the
father in China."
Some defense lawyers, though, have predicted that it would be
tough to prove criminal liability in the cases, and prosecutors
have privately conceded a criminal case would be difficult to
prove.
With a settlement, J.P. Morgan would be set to avoid more costly
penalties that could have come, including the filing of criminal
charges. The bank is likely to enter into a nonprosecution
agreement, some of the people said, whereby it admits to wrongdoing
and agrees to reforms but avoids the public filing of charges.
The expected pact would resolve investigations into alleged
violations of the U.S. Foreign Corrupt Practices Act by the Justice
Department, U.S. Attorney for the Eastern District of New York and
Securities and Exchange Commission. The terms are in the late
stages of negotiation, but any deal could fall apart or change in
coming weeks, the people said.
J.P. Morgan, the largest U.S. bank by assets, would likely to
have a nonprosecution agreement, which most companies prefer to a
so-called deferred prosecution agreement, or DPA, which results in
the filing of criminal charges in court and the involvement of a
federal judge.
The settlement timing has been unclear for months, but people
close to the case said the coming presidential election and
prosecutors' fiscal year-end of Sept. 30 may be pushing the process
along. The bank's lawyers have been meeting regularly for more than
a year with prosecutors at the U.S. Attorney's office in Brooklyn,
people familiar with the case have said.
As J.P. Morgan investigated the hiring, many of the bank's
senior executives in Asia left. It isn't clear whether any
individuals could face civil or criminal charges.
The probe into the New York bank has lasted more than three
years and included a dispute over the government's interpretation
of the foreign-bribery laws. Bank lawyers have accused the
government of overreaching by threatening to criminalize standard
business practices in some countries, according to people close to
the firms.
The pushback differs from the normal squabbling over settlement
terms, in part because the outcome is likely to set a blueprint for
future cases.
Both sides have agreed that an executive of a state-owned
company is considered a government official, but there is dispute
over what conduct is considered legally corrupt in cultures in
which it is common to hire well-connected individuals. U.S.
government officials have told the banks that hiring someone with
the intent of winning business is, in itself, a legal violation
even if there isn't an explicit quid pro quo, the people said.
Other banks under scrutiny include Citigroup Inc., Credit Suisse
Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan
Stanley and UBS Group AG, according to regulatory filings.
Representatives of the banks declined to comment or didn't
immediately respond to requests for comment.
For months it has been unclear if the Justice Department would
push for harsher terms from a J.P. Morgan settlement because it had
experienced difficulty proving criminal wrongdoing, people close to
the case said. Specifically, it has been challenging for
prosecutors to prove a quid-pro-quo in which banks "princelings"
internships led to revenue-producing assignments for the bank,
these people said.
Bank of New York Mellon Corp. in August 2015 agreed to pay $14.8
million to settle civil charges on an FCPA case about giving
internships to relatives of officials from a Middle Eastern
sovereign-wealth fund. The pact, in which the firm didn't admit or
deny wrongdoing, was one of the first enforcement actions brought
by the SEC against a financial institution under the FCPA.
Write to Emily Glazer at emily.glazer@wsj.com, Christopher M.
Matthews at christopher.matthews@wsj.com and Aruna Viswanatha at
Aruna.Viswanatha@wsj.com
(END) Dow Jones Newswires
July 21, 2016 13:55 ET (17:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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