JPMorgan: The Hiring Program That Kept Score in Banking Deals

In the JPMorgan sons and daughters FCPA case, the bank agreed to pay $130,591,405 to resolve the Securities and Exchange Commission’s allegations that it used jobs and internships to obtain investment banking business. The agency said bankers tracked the business associated with their hires while compliance questionnaires concealed the expected benefits. For someone who knows the recruiting process, the client relationship or the deal pipeline, this case shows how those records can tell very different stories about the same job.

The SEC’s November 17, 2016 order concerned JPMorgan Chase & Co. and a referral program run by its Hong Kong investment banking subsidiary, JPMorgan Securities (Asia Pacific) Limited. The agency described approximately 200 interns and full-time employees hired at clients’ and officials’ requests over seven years. Nearly 100 were referrals from officials at more than twenty Chinese state-owned enterprises. The agency’s account reaches into recruiting, staffing and compliance, each of which it described as part of the arrangement.

The Sons and Daughters Program Had Its Own Hiring Rules

JPMorgan’s sons and daughters program put client referrals on a separate hiring track, according to the order. Ordinary applicants competed for limited positions through academic screening, skills assessments and multiple interviews. Referral candidates generally bypassed those standards, and most would not have secured their positions without the client’s request.

The order described jobs with the same titles as those held by ordinary recruits, significant salaries and other benefits, but different workloads and expectations. Some referral hires received special treatment on assignments and promotions. In the agency’s account, the bank was supplying something valuable to the person requesting the hire: employment, experience and a place on a JPMorgan resume for a relative or friend.

The Foreign Corrupt Practices Act case involved foreign officials at state-owned customers who could influence banking business. The agency connected their requests to live commercial opportunities, hiring exceptions and bankers’ expectations of a return. It also described referrals from government agencies whose connections bankers used to help the firm and its clients navigate regulatory hurdles.

According to the order, the bank’s policies had already addressed this precise exchange. Its training used the example of an unpaid internship for an official’s daughter as part of a deal, and its rules required advance review of referrals. We see the absurdity in the bank teaching employees how a job could become a bribe while running a special hiring track built around the business that job might bring.

When a Job Request Met a Live Banking Pitch

The order traced one referral from an internship in China through Hong Kong to a job in New York, alongside bankers’ efforts to win deals. The candidate was the son of an executive at a Chinese state-owned energy business. During discussions about his Hong Kong internship, bankers were pitching mergers and acquisitions work and discussing a potential block trade with the father’s company.

According to the order, a banker asked the intern to obtain nonpublic information through his father, which the intern did not provide. The banker also told him that a full-time offer would require him to bring in a deal. In the agency’s telling, the hiring conversation had become a conversation about what the family could deliver.

The order described how, when the son wanted a New York position, his father enlisted another executive, this time at a state-owned financial institution preparing an initial public offering. That executive could influence which banks received roles in the offering. JPMorgan bankers believed hiring the candidate could improve their role and that refusing could jeopardize it.

According to the order, the candidate interviewed with multiple New York groups, and each rejected him. Recruiters and bankers described shortcomings against the requirements of the positions. Senior Asia-Pacific bankers nevertheless arranged a fixed-term job, and the regional chief executive approved it.

The agency reported that in April 2010, JPMorgan received a significant role in the financial institution’s offering. Bankers subsequently credited the candidate’s family connections with helping secure that business and another offering. It also described how the New York hire went ahead without a fresh referral questionnaire, leaving the commercial developments out of the compliance review.

For an insider, the important comparison is between the recruiting decision and the client decision. The agency connected repeated hiring requests, rejected interviews, pressure from officials, an approved job and the banking work that followed. Each record supplied a different part of the exchange.

Referral Hires Had Revenue Targets

JPMorgan’s bankers evaluated the referral program by its contribution to banking business, the order said. A revision in 2009 prioritized requests from decision-makers who could influence near-term transactions. Its proposed selection criteria included “Directly attributable linkage to business opportunity,” and subsequent staffing reports retained that requirement.

The order quoted a senior banker describing the program as having an “almost linear relationship with mandates in China.” Bankers then created “Referral Hires vs Revenue” spreadsheets with columns for the hire, the referring relationship and client revenue. On the agency’s account, a hiring roster had become a way to track which relationships generated banking work.

The same commercial test reached contract extensions. The order quoted a banker explaining that referral hires generally had a one-year term and needed to bring in a new profitable deal to justify staying. A departing hire described what that felt like from the other side of the desk:

The employee’s account makes the bargain plain: his value to the bank depended on the business his family could supply. It also gives a recruiter or staffing employee a concrete connection to recognize between a contract renewal and a profitable transaction.

The order also described an unpaid summer training program that participants could put on their resumes. Bankers selected candidates based on client relationships, with no compliance review, and discussed a benchmark of $3 million in new client revenue for referrals. Even a program without a salary had a business target.

The Compliance Answer Changed, the Business Pitch Stayed

In the JPMorgan sons and daughters hiring case, the Securities and Exchange Commission described FCPA controls that asked about the right subjects but accepted misleading answers. The questionnaires asked about qualifications, interviews, competing applicants, current pitches and the expected benefit to the bank. The agency said bankers and support staff edited answers that disclosed business benefits, supplied prefilled answers and portrayed referral candidates as ordinary recruits.

The order described one banker who initially wrote that a hire would strengthen the bank’s relationship with a client executive and its position as an adviser on the client’s offerings. After a compliance support employee challenged that answer, the banker said the hire would not benefit the firm or affect its position. The original answers never reached the person giving final approval, and the request passed.

In another example in the order, a questionnaire disclosed a potential financing transaction with a state-owned customer’s subsidiary but denied any expected benefit from hiring the chairman’s son. A few weeks after the job offer, the proposing banker reported winning a role as sole bookrunner on a placement for that subsidiary. We would want to understand why the commercial team expected a benefit that the approval record denied.

The order also described contracts timed to remove referral hires from the year-end headcount. Employment ended in mid-December and restarted in January, keeping those positions out of the internal count while allowing the program to continue. Together, the questionnaires and staffing records formed part of the agency’s books-and-records and internal-controls case under the Foreign Corrupt Practices Act.

No referral candidate was rejected by the regional legal and compliance team from 2007 through 2012, according to the order. A newly appointed compliance officer challenged the practice in 2013, effectively ending the program, although new referral hires still worked that summer.

The Same Hiring Pattern Appeared Beyond JPMorgan

BNY Mellon faced SEC allegations about internships for relatives of officials at a Middle Eastern sovereign wealth fund. The agency alleged that the bank bypassed its competitive internship standards to win or retain work managing and servicing the fund’s assets. It also alleged that client relationship managers had substantial discretion, HR staff lacked training to flag these hires and senior managers could approve them without legal or compliance review.

Qualcomm’s SEC order described employment and internships offered to officials’ relatives to influence technology business in China. In one example, interviewers rejected an official’s son as failing the job’s requirements, but an HR director advocated hiring him because the customer had requested the favor. The common thread in the agency’s accounts is visible in the records: a recruiting judgment gives way to a commercial relationship, and the company supplies the job.

What the Banking Money Measured

The JPMorgan order described more than $100 million in revenue from transactions with referring state-owned enterprises over the program’s seven-year period. The settlement required $105,507,668 in disgorgement, the return of gains. We see the scale of the bargain in those amounts: the hiring program pursued banking revenue large enough to stand beside the civil settlement obligation.

For the state-owned financial institution’s offering tied to the New York hire, the order stated more than $23 million in net profits. In the agency’s account, the return the bankers pursued was banking work, while the benefit supplied to the official was the job for someone close to him.

What Records Show a Hiring Bribe?

The records that matter in a hiring case connect the request, the job and the business opportunity. In JPMorgan’s case, that meant referral messages, interview results, different versions of compliance questionnaires, employment contracts and revenue spreadsheets. We work through the decisions those records document with you:

• The referral and the pitch. Who requested the job, what authority that person held, and what banking work the team was pursuing at the time.
• The interview and the offer. What recruiters concluded, who overrode the decision, and what the eventual role required.
• The questionnaire and the messages. What compliance was told compared with the benefits bankers discussed among themselves.
• The contract and the revenue record. How hiring dates, renewals and headcount treatment lined up with deals and client income.

What Whistleblower Rewards Can Change

Whistleblower rewards can change the incentives inside a company, as research on financial reporting suggests. The March 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, available through MIT Sloan, studied companies exposed to state False Claims Acts through public pension fund ownership. It estimated a 5% to 9% reduction in accounting-fraud likelihood, measured using financial-statement indicators, after that exposure.

Whistleblower rewards depend on the program. A whistleblower case under the separate False Claims Act can pay 15% to 30% of what the government recovers. SEC whistleblower awards use their own rules for eligible information and collected sanctions.

You Know Why the Job Was Created

If you saw a client’s hiring request change a recruiting decision or a compliance answer, speak with our whistleblower experts. We help you connect the hiring file to the banking deals and build your strongest Foreign Corrupt Practices Act whistleblower case. We bring in whistleblower lawyers who know foreign bribery in financial services and stay beside you through the process.