JPMorgan probed for bribery in China

U.S. authorities opened an investigation into JPMorgan Chase over claims that the bank hired the children of influential Chinese officials to secure business in the country, the New York Times reported Saturday. News of the investigation broke amid ongoing scrutiny for the $6-billion trading loss the bank suffered in the high-profile "London whale" derivatives scandal.

A report posted in the Time’s online edition cited a confidential U.S. government document as its source for the story on the China-hiring probe. The Times said the probe is a civil investigation by the Securities and Exchange Commission's anti-bribery unit.

"We publicly disclosed this matter in our 10-Q filing last week and are fully co-operating with regulators," a JP Morgan spokesman was quoted by the Times as saying.

One case cited by the paper was when the bank hired the son of Tang Shuangning, a former Chinese banking regulator who was now chairman of state-run China Everbright Group financial conglomerate. The paper reported that JPMorgan secured a succession of sought-after deals from China Everbright after hiring his son, Tang Xiaoning.

The Times report said the Hong Kong office of JPMorgan had also hired the daughter of a now-disgraced Chinese railway official and went on to help advise his company, which builds railways for the Chinese government, on its plans to go public.  

On Wednesday, federal prosecutors brought criminal charges against two former JPMorgan traders involved in an unrelated scandal, alleging the two had deliberately understated losses on trades on the bank's books, hiding millions of dollars.

The practice of hiring politically-connected bankers in China was widespread in the early to mid-2000's, when Wall Street firms engaged in so-called 'elephant hunting', a term used to describe the chasing of mandates to manage the multi-billion dollar stock offerings of the country's big state-owned enterprises.

Many senior investment bankers in China now feel that the heyday for such underwriting contracts has passed, with far fewer jumbo state-owned company listings happening. But banks and private equity firms alike still prize connections to top decision makers.

"It's been happening for the past 20 years," said Ronald Wan, Chair Professor of Renmin University of China and a former banker, referring to the hiring of politically connected Chinese bankers. The key to the JPMorgan probe, he said, was whether these hirings had any special bonus attached or any actual corruption that could be traced.

Wan added that such hiring happens all across the world, though in China, connections to the right people who know the system is especially useful. Battushig Batbold, the son of Mongolia's prime minister, has been an employee of Morgan Stanley, the Wall Street Journal reported in 2011.

JPMorgan said in its filing that it had received "a request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the firm's employment of certain former employees in Hong Kong and its business relationships with certain clients."

The newspaper report stressed that the government document did not definitively link JPMorgan's hiring practices to its ability to win business. It also said there had been no suggestion that the employees hired by the bank were unqualified and said JPMorgan, although under investigation, had not been accused of any wrongdoing.

Al Jazeera and wire services