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JP Morgan pays $264m to settle Foreign Corrupt Practices Act probe

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As reported by BBC, JP Morgan Chase & Co. has agreed to pay a USD $264 million to the United States government to settle claims that the bank violated the Foreign Corrupt Practices Act (FCPA) by hiring children of highly-placed Chinese officials to gain business in China.

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Foreign Corrupt Practices Act

The FCPA (15 U.S.C. § 78dd-1) is a United States law that makes it illegal for American issuers, companies and individuals to influence foreign officials with any personal payments or rewards. Because the FCPA concerns the intent of the bribery rather than the amount, there is no requirement of materiality and offering anything of value as a bribe (whether cash or non-cash items) is prohibited. The FCPA is one of the most stringent bribery laws in the world, and penalties for violating this law include not only monetary fines but also possible prison time.

The United States Securities and Exchange Commission (SEC) and Department of Justice (DOJ) are both responsible for enforcing the FCPA. The SEC and DOJ began their investigation into JP Morgan’s China hiring practices in 2013.

Indirect violations

In the present case the DOJ did not present evidence that JP Morgan paid Chinese officials directly. However, the DOJ ruled that JP Morgan had nevertheless violated the FCPA by hiring otherwise unqualified candidates for prestigious (and highly-paid) investment banking jobs solely because those candidates were introduced to the bank by Chinese government officials who could give the bank business.

According to BBC, “[t]he SEC said that over seven years, about 100 interns and full-time employees were hired at the request of foreign government officials, enabling JP Morgan to win or retain business that generated more than $100m in revenues.” Moreover, the DOJ alleged that in some cases candidates were hired based on the understanding that their jobs were linked to the award of specific business, which the DOJ said certainly constituted FCPA violations.

JP Morgan is the largest bank in the United States by assets. The bank’s USD $264 million settlement for FCPA violations includes a $130m payment to the SEC, $72m to the DOJ and $61.9m to the Federal Reserve Board of Governors.

China anti-bribery laws

China has its own domestic anti-bribery laws, which JP Morgan’s hiring practices may also have violated. China is often reluctant to enforce such laws against corruption of state officials, but has shown some willingness to enforce laws against commercial bribery (e.g., to the extent that doing so emphasizes the government’s intolerance of corruption without undue risk of embarrassing the Communist Party).

Chinese laws that criminalize official corruption, defined as payments to state officials, include Articles 389–95 of the country’s Criminal Law.

Commercial bribery is prohibited by Article 8 of the Law Against Unfair Competition of The People’s Republic of China and also by Article 163 of the country’s Criminal Law.

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