Why China is loath to pursue US probe into JPMorgan hiring

‘Princeling’ hiring scandal exposes nexus of corruption between party and Wall Street
By Tom Mitchell in Beijing


The Chinese Communist party’s corruption watchdog has a tricky problem that the US Securities and Exchange Commission, of all organisations, may be able to help solve.
The Central Commission for Discipline Inspection (CCDI) has been a victim of its own success when it comes to catching “tigers” — Chinese government, military and state-owned enterprise officials with vice-ministerial rank or higher.
When you have bagged, on average, more than 50 tigers a year for three years running, the public expects the skins to keep coming. 

But that is easier said than done, even in a country where corruption flourished as much as it did before the launch of Xi Jinping’s anti-corruption campaign in 2013.
This is where the SEC could come in. 

All the CCDI needs to do is start pulling on some of the threads recently unravelled by the US securities regulator.
Last week the US regulator accepted a $264m settlement offer from JPMorgan, which admitted to running a sophisticated jobs-for-mandates scheme. 

Chinese “princelings” — the progeny of China’s most senior government officials and executives at state-owned enterprises — were granted jobs or internships in return for which the same officials and executives steered business towards the US investment bank.
According to the SEC, at least 100 “referral hires” on behalf of Chinese officials at more than 20 SOEs and 10 government agencies yielded JPMorgan tens of millions of dollars in investment banking revenues.
It constituted a blatant violation of the US Foreign Corrupt Practices Act. 

The SEC’s 26-page summary of JPMorgan’s “Sons & Daughters” programme would be amusing were it not so outrageous.
Some of the referral hires were so incompetent they were referred to internally at JPMorgan as “photocopiers”. 

Contracts often ran from mid-January until mid-December so the hires would not show up on end-of-year headcount tallies — and were renewed only if the mandates kept coming.
Chinese officials have been given very long jail terms for less.
Two years ago, Liu Tienan, a former vice-minister at China’s powerful economic planning agency, the National Development and Reform Commission, was sentenced to life in prison after he and his son were charged with accepting bribes totalling Rmb36m, or $5.2m at the current exchange rate.
The bribes included a shareholding in a car dealership for Liu Junior. 

The arrangement was facilitated by a state auto executive whose company was regulated by NDRC.
Just $5.2m in alleged bribes? 

What amateurs. 

In last week’s settlement with JPMorgan, the SEC documented more than $100m in investment banking revenues attributable to the jobs-for-mandates scheme.
The CCDI could easily increase its tiger count if it asked some awkward questions of the Chinese executives and officials who directed more than $100m in state funds JPMorgan’s way so their sons and daughters could work or take internships there.
However, there are a few reasons why the party’s corruption investigators are unlikely to pick these low-hanging fruit.
It is one thing when official graft involves state-owned enterprises. 

That does not surprise the average man or woman on the Chinese street. 

But a corrupt intersection between the Chinese Communist party and Wall Street? That is too sensitive a connection.

The CCDI also likes to control its corruption investigations start-to-finish, and there is no telling where some of the SEC’s threads might lead.
In one example of the often collusive nature of Chinese corruption, a government official was able to get his son an internship in JPMorgan’s Hong Kong office but not a coveted analyst position in New York. 

So the official asked for help from an executive at a Chinese SOE, who joined the eventually successful lobbying effort.
The whole sorry saga does, however, highlight one big difference between Chinese and American justice. 

When Chinese officials find themselves in the CCDI’s crosshairs, they often spend the rest of their lives behind bars. 

When investment bankers are targeted by Uncle Sam, their employers just pay a fine.