Professor Spooner's Blog

I have written about the federal investigation of JP Morgan’s “Sons and Daughters” program before, but as the coverage continues I thought it was time to revisit.  As this article details, in late 2009 the JP Morgan Chase executives in Hong Kong were feeling the pressure. They had lost out on several lucrative deals, and were frustrated to sit on the sidelines watching their competitors, Goldman Sachs and Deutsche Bank, move ahead in the emerging Eastern markets. As the article cites, in 2009, JPMorgan was 13th among banks winning business in China and Hong Kong.

Emails have revealed that JP Morgan’s frustration led it to escalate its “Sons and Daughters” program, and increase its efforts to hire the children of key Chinese leaders. (At what point will bankers learn to stop sending these emails????)  The bank also kept detailed track of the results of these hires.  What might be most important to regulators is that JP Morgan kept tabs on similar efforts by all of its competitors, thus implicating those banks in the investigation as well.

Neither the SEC nor the DOJ have made any decisions about the legality of these efforts to hire children in order to obtain business. So let’s take a look at the law and make some educated guesses. Although the Foreign Corrupt Practices Act has been around since after Watergate, the law is only recently receiving attention by federal regulators, and hence the business community. The FCPA prohibits the: “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to” a foreign official. The “bribe” must be made with corrupt intent, meaning to induce the recipient to misuse his official position. So the questions here will be 1) whether the jobs for children are “something of value” and 2) whether the banks had corrupt intent.

The FCPA Resource Guide, published by the DOJ and SEC, notes that payments or gifts to third parties, such as family or friends of the government official, are an indirect way of influencing the government official, and thus illegal. Corrupt intent may depend on whether the children were qualified for the jobs. In other words, the US government would be hard pressed to ban banks from hiring a qualified candidate who just so happened to be the child of a Chinese government official.

But these programs, like “Sons and Daughters,” smell different, don’t they? A concerted effort to win contracts by hiring family members of government officials isn’t “fair.” It certainly seems that applying the plain language of the FCPA it is illegal, although there is limited precedent interpreting that language, so we cannot be sure.

But is any hiring fair? Don’t we spend hours teaching you all to network and use your connections? Is JP Morgan’s Sons and Daughters program any different?

A word about all those damn emails. I jest about bankers’ inability to stop sending incriminating emails, but the tone of the communications that I have read indicates that the bankers had no idea there was anything wrong with their efforts to hire children of influential Chinese officials. We have all studied the many pitfalls that blind us to unethical behavior. Does anyone see any of those pitfalls here?