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J.P. Morgan, China, cronyism, and the Foreign Corrupt Practices Act

Written by Brooks Hays, staff writer and content editor (1/03/2014)

A cursory reading of the latest headlines surrounding J.P. Morgan’s hiring of China’s elites (supposedly in hopes of earning favor with businesses there) might leave one wondering: what’s so illegal about that?

That J.P. Morgan and other banks hired the sons and daughters of powerful Chinese politicians, as well as the offspring of the heads of state-owned business, might not strike many as particularly surprising. After all, you don’t have to be depressingly cynical to realize cronyism is a simple reality of business—even in today’s so-called “meritocracy.” What’s more, anyone nominally familiar with China’s political economy would know that being well-connected is vitally important to success in business there.

As James Parker, a former Beijing financial analyst, explained to the Global Post earlier this year: “For those familiar with the financial industry in China or Hong Kong, there really is no revelation here. The hiring of well connected people is extremely common, and indeed considered necessary, and not just in the financial industry.”

But under certain circumstances, what some might simply consider unsavory but necessary cronyism or nepotism can and does qualify as corruption and bribery—acts punishable under specific federal laws. And when it comes to federal law in America, the nature of China’s political economy is not a valid excuse for carrying out illegal acts. The law in question here is the Foreign Corrupt Practices Act (FCPA), which explicitly forbids certain classes of persons and entities from making payments to foreign government officials to assist in obtaining or retaining business. The anti-bribery provisions of the FCPA specifically prohibit the willful use of the mails or wires corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or “anything of value” to any person while knowing that the money or thing of value will influence or induce a foreign official in his official capacity or secure any improper advantage. The “anything of value” language is broad and undefined. According to a number of news reports, including several filed by The New York Times, federal investigations concerning the hiring practices of Wall Street banks—including J.P. Morgan—in China and Hong Kong are ongoing; but no official allegations of wrongdoing have been levied by the S.E.C. or any other law enforcement agency.

As mentioned above the hiring by J.P. Morgan of well-connected Chinese men and women is not specifically identified as subject to the provisions of the FCPA, but could certainly be “anything of value.” The FCPA requires that here has to be an explicit trade of gift or payment (whether that’s a promise of a job or a Mercedes or a suitcase full of cash) for a business contract. Whether or not J.P. Morgan, or any other Wall Street firm, crossed a legal boundary hinges upon whether the conduct of the giver is deemed to be “willfully corrupt.” In order to find the conduct “corrupt” , it has to be clear that the intention behind the conduct was, as our FCPA definitions page explains, “…to persuade the beneficiary to misuse his or her authority, giving unfair business advantage to the issuer.” And in order for the conduct to be deemed “willfully” corrupt, it must be determined that “the issuer had corrupt intentions and that he or she knew that his or her actions were in violation of the law.”

These definitions are open to interpretation, of course. Whether or not the evidence collected by the SEC and Department of Justice so far is, in their estimation, enough to punish J.P. Morgan or any other bank isn’t yet clear, at least not to those looking in from the outside. That J.P. Morgan kept specific spreadsheets and wrote explicit e-mails, tracking new business contracts and deals in relation to Chinese crony-hires—while other companies simply did the same but didn’t talk about—could be their undoing. We’ll have to wait in see.

From a criminal defense perspective, perhaps the most pointed lesson (aside from not sending e-mails about your bad behavior) is the importance of procuring legal counsel even if criminal charges have yet to be filed. Charges against J.P. Morgan and their employees may never come, but that hasn’t stopped several J.P. Morgan execs in Hong Kong from hiring criminal defense attorneys. J.P. Morgan may not be the best group to look to for ethical advice, but when it comes to defending themselves in the court of law, they’re pretty well-practiced at this point.

The outcome of this case could affect not just Wall Street banks and the way they conduct their hiring practices but also the many government contracting firms in Virginia, Maryland, and DC that try to win business from the governments of other countries. If you need the services of a federal criminal defense lawyer, our attorneys are ready and waiting to speak to you about the details of your case.