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Caught in Kleptocracy
The Cost of Nepotism: J.P. Morgan to Pay $200 Million

Last fall, reports began to surface that, in violation of the Foreign Corrupt Practices Act (FCPA), J.P. Morgan had been running a “Sons and Daughters” program; hiring children of several powerful Chinese officials as well as friends and family of leaders at “75% of major Chinese firms it took public”. The Wall Street Journal reports:

The settlement is expected in the coming months and would resolve criminal and civil matters under a foreign bribery probe that has dogged the bank for years. J.P. Morgan likely would admit that its hiring practices violated U.S. law but wouldn’t be charged criminally, the people said.

J.P. Morgan Chase is surely not the only company to engage in such behavior. It joins a diverse cohort of Western businesses, from Siemens to ENI, who have already settled on similar charges as they operate in markets where corruption is the name of the game.

The settlement is an encouraging sign that Washington is getting more serious about addressing the tacit cooperation Western enablers (i.e. bankers, lawyers, real estate agents, accountants) provide foreign kleptocrats, running counter to American principles and even at the cost of national security. The settlement news adds welcome momentum, coming on the heels of other promising corruption investigations into foreign kleptocrats and their relationships here in the U.S.

But, there is still much to worry about as more light is shed on these hiring arrangements. Not only is this a small chipping away at the tip of what is likely an iceberg of FCPA violations, it raises questions about whether the arrangements are influencing hiring practices in America. In one email, a J.P. Morgan executive discussed how to “handle the son in NY and leverage the father in China”. It is not difficult to see the same reasoning being extended here at home but with the father in Capitol Hill or the Treasury. It is a culture and norm that we probably know too little about but which demands more scrutiny.

It is debatable where the line for criminal prosecution lies, but the malpractice across the spectrum does reflect a concerning moral bankruptcy in the highest echelons of our elite institutions and is another disappointing blow to our now increasingly fragile belief in a meritocratic society.

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  • Andrew Allison

    Speaking of corruption, ” J.P. Morgan likely would admit that its hiring practices violated U.S. law but wouldn’t be charged criminally, the people said.” It seems to me that the culture of corruption at home should be receiving more attention.

  • Fat_Man

    As I drive around town, I listen to sports talk radio. The gas bags love to spend their time denouncing the NFL for failing to stop its players from beating their WaGs. It is a way for the sports talkers to preen their morality in the face of a grossly immoral world. What the sports talkers do not and cannot talk about is the NFL’s existential problem. The absolutely best football players in the world come from violent mysogonistic sub-cultures where they are alpha males. If you want to know what they are thinking, listen to their popular “songs”. They will beat their WaGs, and there is no way of stopping them, short of disassembling their sub-culture, which is politically impossible. I doubt that the sports talkers know this, but even if they do, they cannot discuss it. If they did they would be hounded from the airwaves for political incorrectness.

    TAIs endless complaints about the corruption of foreigners and the passivity of US business in the face thereof, or even their willingness to play the game, are of the same cloth. Why the ddevil should Americans care about corruption in China? Doesn’t corruption weaken the regime? Why should we lift a finger to help Xi’s anti-corruption campaign, when TAI knows and has said that it is a tool that he is using to shore up his power.

    The US should not care about nor should it take any effort to stop corruption in foreign countries. The US should worry about corruption in its own government. Until Bill and Hillary Clinton spend their days breaking rocks in the hot sun, the US has no business worrying about foreign corruption.

    • Observe&Report

      The US has every business worrying about foreign corruption precisely because corruption doesn’t stay confined within the borders of a given country. The Clintons are a prime example of this. They’ve taken hundreds of millions of dollars in speaking fees and “donations” to the Clinton Foundation from corrupt foreign “businessmen” and kleptocrats who, having enriched themselves at their own people’s expense, proceed to infect the Western body-politic with the same rotten business practices they honed at home.

      Cleaning up our act at home is certainly important, but you can’t fully expunge corruption by ignoring it abroad anymore than you can confront Islamic terrorism by ignoring the source of the poison in the fundamentalist maddrassas and Gulf Arab donors and governments who bankroll them. It’s a multi-front war, the home front is just one of them.

  • http://www.quora.com/Richard-Treitel/answers Richard T

    Elizabethan England was run with shameless nepotism at social levels high, medium, and probably low. They used other business practices that would, these days, be called corrupt. Somehow the system worked. I wouldn’t even say it worked in spite of these practices. It worked because they worked, to the extent necessary. When you gave your son or nephew a chance to “stick in his thumb and pull out a plum”, you also gave him some guidance on how to actually do the job, and some warnings. Usually they were heeded; if not, you heard about it.

    In England the transition from guanxi to modern ways took centuries, so there was time to smooth out the rough spots and bypass pockets of resistance. (Forgive my metaphors.) China is trying to move very fast, and finding rocks in the road, not to mention fortresses.

    Businesses, as always, are following the rules in the jurisdictions where they operate. The thing is, they have to follow the unwritten rules, the ones that are enforced when the written rules are not.

  • Blackbeard

    I used to run SE Asia for a large international engineering company. The FCPA was a constant worry, not because we would ever engage in bribery or anything like bribery, but because you can’t work anywhere in Asia without local partners and it can be very hard to know what they are doing behind your back.

    When you move away from obviously illegal things like bribes to less clear issues such as helping someone’s relatives get a job, (Something that happens often in the U.S. too.) the problem is that every other country, including France, Canada, Australia, etc., thinks that’s fine. The U.S. Idea, that everyone in the world should do things our way, is arrogant and hopelessly naive.

    • f1b0nacc1

      Well said, a quick review of the career(s) of Chelsea Clinton might be instructive here…

  • Jacksonian_Libertarian

    You can’t do business in China without dealing with the Kleptocrats.

  • vepxistqaosani

    There was no intent on J.P. Morgan’s part to violate any law; therefore, they should not be punished at all.

    Right? Right?

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