Types Of SEC Cases:  FCPA

 JPMorgan Chase Fined More Than $264 Million For FCPA Violations

The SEC charged JPMorgan Chase & Co. (“JPMorgan”), with engaging in a systemic FCPA (Foreign Corrupt Practices Act) scheme. The SEC’s Administrative Order stated that JPMorgan, through JPMorgan Securities (Asia Pacific) Limited, conducted a client referral hiring program that provided non-competitive jobs to relatives and friends of senior officials, so that JPMorgan could leverage these positions to obtain or retain banking business. The SEC charged that in doing so, JPMorgan violated the anti-bribery, books and records, and internal controls provisions of the FCPA.

The SEC Order

7-Year FCPA Scheme Included Nearly 100 Foreign Officials

The SEC claimed that JPMorgan conducted the FCPA scheme through a special hiring program known as the “Client Referral Program.” That program was created to enable certain candidates, known as “referral hires”, to bypass the firm’s standard hiring process.  It was exclusive to candidates referred by existing clients, prospective clients, or foreign government officials.  Those candidates did not participate in the normal hiring process.  The majority of those candidates were less qualified than candidates hired through JPMorgan’s traditional, competitive hiring program. According to the SEC, “referral hires” were given jobs based on the direct or potential influence that their hiring might have on the banking revenue that JPMorgan expected to garner from the referring client.  The length and quality of the job offered was directly linked to the amount of potential revenue or the amount of profits expected. JPMorgan allegedly conducted its FCPA employment scheme for roughly seven years, between 2006 and 2013.  During that time, the firm hired approximately 200 interns and full-time employees through the program. Of those hired, almost 100 of them were referred by foreign government officials at twenty different Chinese state owned entities.  In turn, those Chinese state owned entities engaged JPMorgan on transactions that resulted in revenue of over $100 million to the firm.

Employees Knew That The Hiring Program Violated The FCPA

The SEC further asserted that not only did JPMorgan employees violate the FCPA by conducting the hiring program, but that employees fully understood that the hiring of such individuals for the express purpose of obtaining or retaining revenue was a violation of the FCPA. As stated in the Administrative Order, during the compliance and legal review steps of the hiring process, in order to conceal the scheme, JPMorgan investment bankers and other personnel regularly withheld pertinent information or submitted inaccurate or incomplete information.  Of the roughly 200 candidates submitted through the Client Referral Program, none were denied employment by the legal or compliance departments.

The SEC’s press release

In an SEC press release, the Director of the SEC’s Enforcement Division stated:

JPMorgan engaged in a systematic bribery scheme by hiring children of government officials and other favored referrals who were typically unqualified for the positions on their own merit….  JPMorgan employees knew the firm was potentially violating the FCPA yet persisted with the improper hiring program because the business rewards and new deals were deemed too lucrative.

The Chief of the SEC Enforcement Division’s FCPA Unit added:

The misconduct was so blatant that JPMorgan investment bankers created “Referral Hires vs Revenue” spreadsheets to track the money flow from clients whose referrals were rewarded with jobs.  The firm’s internal controls were so weak that not a single referral hire request was denied.

Disgorgement And Interest

For the FCPA violations, the SEC fined JPMorgan $105,507,668 in disgorgement, with an additional $25,083,737 in prejudgment interest. JPMorgan was also expected to pay $72 million to the Department of Justice and $61.9 million to the Federal Reserve Board of Governors.

Whistleblowers Can Report FCPA Violations To The SEC

This case illustrates some types of misconduct that could give rise to SEC whistleblower cases if reported to the Commission through the SEC whistleblower program. However, the SEC has not made any public statement as to whether this case was itself an actual SEC whistleblower case.  The SEC Office of the Whistleblower posts Notices of Covered Action (“NoCA”) for Commission actions where a final judgment or order results in monetary sanctions exceeding $1 million.  The NoCA list does not disclose if a particular Enforcement action was brought as the result of an SEC whistleblower case, tip, complaint, or referral being filed with the Commission.

Additional Information

For more information about FCPA (Foreign Corrupt Practices Act) violations, click on the links below:
  • The SEC’s Order.  (External link to the SEC’s website.)
  • The SEC’s Press Release about the case.  (External link to the SEC’s website.)

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