JPM JP Morgan Chase and Co

By Emily Glazer, Christopher M. Matthews and Aruna Viswanatha 

J.P. Morgan Chase & Co. is expected to pay around $200 million to settle federal investigations into whether it tried to win business by hiring the sons and daughters of powerful people in Asia, people familiar with the matter said.

The settlement is expected in the coming months and would resolve criminal and civil matters under a foreign bribery probe that has dogged the bank for years. J.P. Morgan likely would admit that its hiring practices violated U.S. law but wouldn't be charged criminally, the people said.

While the terms are in the late stages of negotiation, a deal could fall apart or change in coming weeks, the people said.

A resolution to the J.P. Morgan investigation would be the first among the wide-ranging probes into Wall Street banks' hiring of "princelings," the kin of high-ranking Chinese government officials and managers of state-owned companies, allegedly to curry favor in getting deals. The settlement could pave the way for similar outcomes in ongoing inquiries into other banks, people familiar with the cases have said.

The Wall Street Journal has previously reported that J.P. Morgan hired the children of several powerful Chinese government officials who appeared to be unqualified for their positions and kept some on despite poor job performance. In one email, a bank executive discussed how to "handle the son in NY and leverage the father in China."

One of the hires, Gao Jue, is the son of China's current commerce minister, Gao Hucheng. Gao Jue did poorly on his job interviews at J.P. Morgan, messed up his work visa, accidentally sent a sexually explicit email to a human-resources employee and was described by a senior banker as "immature, irresponsible and unreliable," according to internal bank emails reviewed by the Journal and people familiar with the matter. J.P. Morgan's decision to hire Mr. Gao was widely understood within the bank to have been supported by William Daley, a senior executive at the time and former U.S. commerce secretary and White House chief of staff, according to the internal bank emails.

Mr. Daley declined to comment. At the time of the page-one Wall Street Journal article, Gao Jue declined to comment through his then-employer, Goldman Sachs Group Inc. His father, Gao Hucheng, didn't respond to questions sent to the Ministry of Commerce.

The Journal also previously reported that the head of Hong Kong's stock exchange, Charles Li, also was involved in controversial hiring efforts when he worked at J.P. Morgan several years ago, citing people familiar with the matter and emails reviewed by the Journal. Mr. Li sponsored a large number of referrals, including a family friend of Huang Hongyuan, then a senior official at the China Securities Regulatory Commission and now the president of the Shanghai Stock Exchange, according to an internal spreadsheet that tallied his hires.

Mr. Li said in a 2015 statement to the Journal that internships and referral hires were made based on credentials and feedback from multiple sources, were screened by the firm's lawyers and compliance staff, and that he alone couldn't decide to hire a candidate.

In all, J.P. Morgan hired 222 candidates under a program known internally as "Sons and Daughters" that ran from 2004 to 2013. They included those referred by officials at nine of 12 large Chinese companies that the bank took public in Hong Kong.

The U.S. Foreign Corrupt Practices Act sets potential heavy penalties for companies that use financial inducements to win business from public officials. The J.P. Morgan probe has been watched closely in part because it is one of the first major investigations into Wall Street under FCPA and because the government has pushed its enforcement of the law into grayer areas such as hiring practices from more direct forms of bribery.

The probe into the New York bank has lasted more than three years. J.P. Morgan's lawyers along with others at large U.S. and European banks have accused the government of overreaching in the hiring cases by threatening to criminalize standard business practices in some countries, people close to the firms said.

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 corrupt from a legal point of view in cultures where it is common to hire well-connected individuals. U.S. government officials have told the banks that hiring someone with connections to a government official with the intent of winning business is, in itself, a violation of law even if there isn't an explicit quid pro quo, the people said.

Prosecutors have privately conceded, however, that a criminal case would be difficult to prove in situations like the princeling hirings. In the J.P. Morgan example, they have faced difficulty proving a quid pro quo in which banks' princeling internships led to revenue-producing assignments, people close to the case said.

Under the settlement being discussed, J.P. Morgan would pay a big fine but likely avoid more costly penalties. The bank is likely to enter into a nonprosecution agreement, some of the people said, whereby it admits to wrongdoing and agrees to make changes but avoids criminal charges.

The expected pact would resolve investigations by the Justice Department, U.S. Attorney's Office for the Eastern District of New York and Securities and Exchange Commission.

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.

Many of J.P. Morgan's senior executives in Asia left as the bank investigated the hiring. It isn't clear whether any people could face civil or criminal charges.

Other banks under scrutiny include Citigroup Inc., Credit Suisse Group AG, Deutsche Bank one of the first enforcement actionsAG, Goldman Sachs Group Inc.,HSBC Holdings PLC, Morgan Stanley and UBS Group AG, according to regulatory filings. Representatives of the banks declined to comment.

Bank of New York Mellon Corp. in August 2015 agreed to pay $14.8 million to settle civil charges in a 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 22, 2016 02:47 ET (06:47 GMT)

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