![JPMorgan chief executive James Dimon. The company's behaviour crossed the line: "This is no longer business as usual; it ...](/content/dam/images/g/m/b/g/d/r/image.related.afrArticleLead.620x350.gssaam.png/1479453482284.jpg)
![](/web/20161118234527im_/http://www.afr.com/content/dam/images/1/4/1/u/u/y/image.imgtype.afrAuthorAvatar.120x120.png/1426118157768.png)
Shanghai:
It was known as the "sons and daughters program" and has now cost investment bank JPMorgan Chase $US264 million ($346 million) in fines.
Its habit of hiring the children of high-ranking Chinese officials was always considered the way to do business in Asia, but authorities in the US put a stop to that practice on Thursday.
In fining JPMorgan, authorities have labelled its actions "corrupt" and the focus now turns to others including HSBC, Goldman Sachs and Deutsche Bank, who have hinted they may be facing similar investigations.
"We do not expect this to be the last action resulting from that sweep," Andrew Ceresney, the head of enforcement at the Securities and Exchange Commission, told reporters.
There has also been speculation over the years about the involvement of Macquarie Group, but it is understood it is not part of this investigation.
The speculation came about due to Macquarie hiring the son-in-law of a former Chinese railway minister and the son of a former banking regulator in 2005 and 2006.
Macquarie has said its policy is not to comment on regulatory matters.
Need to do actual work
"You can still hire relatives of government officials but they need to go through the normal hiring process and they need to do actual work," said Sam Williamson, the managing partner of Quinn Emanuel's Shanghai office and a former Federal prosecutor in the US.
"We tell our clients you can't use jobs or internships as a business generation mechanism."
According to US prosecutors JPMorgan crossed the line by linking the employment of some staff to government deals involving their family members.
JPMorgan even put a figure on this.
According to US authorities, the bank would only hire a candidate who had been referred by a Chinese government official if they could help win or retain business which would generate $100 million in revenue.
The bank called this a "directly attributable linkage to business opportunity".
"The common refrain that this is simply how business is done overseas is no defence," Robert Capers, a prosecutor who worked on the case told The Wall Street Journal.
"This is no longer business as usual; it is corruption."
From 2006 until February 2013, JPMorgan is estimated to have hired 200 interns and full-time staff at the request of clients. Around half of these were connected with Chinese government officials or senior figures at state-owned enterprises.
Practice 'institutionalised'
US authorities say JP Morgan "institutionalised" the practice of hiring relatives of top Chinese officials, even making a spreadsheet showing their family connections and how much revenue this had generated for the bank.
Another sign such hires were outside the bank's normal practices was them being considered a marketing cost, rather than employment expense.
Authorities said many of the candidates were unqualified to work at the Wall Street bank, but were hired anyway.
One was described as "photocopier level", while on another occasion the bank's Asian operations created a position in New York and then helped pay the salary of the well-connected new hire.
US authorities say the practice began around 2006, but was ramped up in 2009 when JPMorgan felt it was losing business to rival firms whose staff had better connections in mainland China.
"We lost a deal to DB [Deutsche Bank] today because they got chairman's daughter work for them this summer," one JPMorgan banker said in an email.
At that time a rush of Chinese state-owned companies were looking to list in either Hong Kong or New York, delivering giant fees to investment banks, law firms and the accountants tasked with preparing these offerings.
JPMorgan is said to have given priority to hiring relatives of those directly connected with a so-called decision maker, who could influence which bank was mandated for a deal.
"The so-called Sons and Daughters program was nothing more than bribery by another name," Leslie Caldwell, the head of the Justice Department's criminal division, said.
The investigation into JPMorgan was conducted by the SEC, Department of Justice, Federal Reserve and prosecutors in New York. The fine will be paid to these agencies, with the SEC receiving the bulk of the settlement or $US191 million, according to JPMorgan's regulatory filings.
While no criminal charges were brought against JPMorgan, the matter is not over yet.
"Other related investigations are ongoing. The firm continues to co-operate with these investigations," JPMorgan said.
Under the Foreign Corrupt Practices Act it is illegal to give anything to a government official to win "an improper advantage".