| HONG KONG
HONG KONG Aug 22 The U.S. government's bribery
investigation into JPMorgan's employment of at least two
Chinese bankers has prompted banks and other corporations across
the globe to take a close look at their hiring practices.
One strategy that is certain to come under scrutiny is the
Enlisting the relative of a top customer for a summer
internship or an entry-level job is common to businesses
worldwide, but it's especially rife in banking.
The industry has held strong to a well-worn mechanism where
clients will "pass on" CVs or resumes of their relatives or
friends to coverage bankers, whose role is to visit top
executives of companies in a particular industry or sector and
sell them the bank's services.
The bankers, in turn, make sure those CVs reach the staff in
charge of that year's intern list.
"It happens all the time where a coverage guy will toss over
some client kid's CV," said a Hong Kong based investment banker.
"Finance is about doing favours for people. It's what makes the
world go round."
Client hires don't necessarily by-pass the usual battery of
rigorous tests and interviews that other applicants must take.
But, according to headhunters and bankers interviewed by
Reuters, when it comes down to two otherwise similarly qualified
candidates, the one with influential connections will win out.
The distinction between hiring a relative of a foreign
official who may be well connected, and offering employment to
such a person in the express hope of winning specific business,
is key to proving violations of the U.S. Foreign Corrupt
"Frankly, we've got a list of all our Chinese nationals and
are going through it right now checking all the connections just
to be safe," said a source at a U.S. bank in Hong Kong.
"POLITICALLY EXPOSED PERSONS"
The practice is more prevalent in China, bankers say,
because the culture in business of "guanxi", based around
connections and the exchange of favours, encourages clients to
push CVs on bankers, while having an "in" with state-owned firms
is seen as more effective in winning deals than elsewhere.
Some banks have become more rigorous in vetting potential
China hires in recent years as the result of increased
regulatory scrutiny, sources at those firms say. These checks
can include a "PEP" (Politically Exposed Person) check on
Following the conviction in 2012 of Morgan Stanley's
Garth Peterson for FCPA violations including bribery of a
Chinese official, the U.S. investment bank has become extremely
rigorous in vetting potential hires and their backgrounds,
sources at the bank told Reuters.
U.S. law does not stop companies from hiring politically
connected executives. But hiring people in order to win business
from relatives can be bribery, and the SEC is investigating
JPMorgan's actions under the FCPA, a source told Reuters.
FCPA violations can come with criminal liability, though
lawyers say civil fines and admission of wrongdoing is a more
likely outcome for JPMorgan should the government win its case.
Neither of these outcomes is something banks wish to face,
meaning their list of well-connected employees is getting added
attention since news of the JPMorgan probe.
"Any lawyer or compliance person sitting in Asia who read
about the JPMorgan probe will have gone straight to HR and said
'give me a list' and started conducting reviews. I'd be very
surprised if anyone's sitting still on this," said William
McGovern, partner at law firm Kobre & Kim in Hong Kong and a
former branch chief at the SEC in Washington and New York.
PRODUCTIVE PROFESSIONALS, OR NOT...
Some of these princeling hires are productive professionals.
Others are not.
"He was totally useless, would turn up late, always had
doctor's appointments, would cancel catch-up coffees...," said
another banker of an intern at his firm who was the son of an
African government official.
In another example, a China-based investment banker at a
U.S. firm said a private equity client slid the CV of a "close
friend" across the table at the end of a long meeting discussing
potential investments the fund might make, asking if the banker
knew of any starting positions available.
"We took him on as an intern, but he would come in at 10
a.m. every morning and do nothing all day," the banker said.
When the nephew of a prominent diplomat won a role a
European bank as a level 1 analyst in its M&A division, he would
have beaten thousands of applicants with top grades from the
world's elite universities who apply for such coveted starter
positions in the financial industry every year.
But the nephew proved a disappointment.
"He was a complete donkey. But of course there was no way to
get rid of him. After 2-3 years, he finally left the bank and
everyone was relieved," said a Paris-based banker familiar with
While the majority of such hires are qualified to perform
their jobs and do indeed work hard, the practice of tolerating
those like the diplomat's nephew who coast on their connections
could come under increased scrutiny given that so-called 'sham'
positions could trigger an FCPA violation.
"The message is not that you can't hire relatives of clients
or government officials, which is a pervasive practice, it's
that you have to make sure you know what these folks have been
hired to do and ensure they are actually doing it," said Kobre &