JPMorgan Traded Jobs for Deals in China

This quid pro quo was both illegal and sort of joyless.

JPMorgan Asia Pacific, home of the summer camp.

Photographer: Jerome Favre/Bloomberg

Don't do this:

In 2010, a senior JPMorgan APAC investment banker wrote to a colleague regarding a Referral Hire from a private sector client: "They are close to mandating banks for their IPO. We are a strong contender. Blink blink nod nod, can we find a place for his son (they have only approached us in this regard)?"

First of all: Traditionally the way to communicate a sneaky surreptitious intent is winking, not blinking. (Blinking is involuntary and therefore hard to use as a code.) Second: The reason to communicate by winking, or blinking if you must, is to avoid saying out loud the thing that you're not supposed to say. Actually saying "blink blink nod nod" defeats the entire purpose. 1 Third: All of this is extra true over e-mail. It lasts forever. They can search it. 2  

Yesterday JPMorgan Chase & Co., and its Asia Pacific ("APAC") subsidiary, settled with the Securities and Exchange Commission, the Department of Justice and the Federal Reserve for hiring a lot of children of Chinese government officials, which you are not supposed to do. It looks a little too much like bribery. JPMorgan will pay a total of about $264 million, and of course the settlements are full of dumb e-mails. Here's a good one:

In a 2008 email regarding a Referral Hire request from a senior executive with a private sector JPMorgan APAC client in China, APAC Banker A told another investment banker seeking his approval for the hire, copying the head of JPMorgan APAC investment banking, that: “I am supportive of bringing [the referral candidate] on board given what’s at stake… A couple of points to discuss and agree prior to any offer being made to [referral candidate]: how do you get the best quid pro quo from the relationship upon confirmation of the offer.” The banker seeking to make the hire responded “[t]he client has communicated clearly the quid pro quo on this hire and the team should start working on the [upcoming] IPO asap.”

Here's another:

APAC Banker A later sent an email titled “client referral” to other investment bankers in the United States in September 2010 in which he wrote: “[w]e have a very good [private sector] client in Taiwan who has asked that we find an IB analyst role for his son in NY…. We are being offered now a [mandate] and the quid pro quo, is an analyst IB job for his son… Can we in [an investment banking group in New York] adopt him, or can you recommend a safe place for him where he won’t get too scarred.”

Guys, no, come on. This is not how e-mail works, but more than that, it's not how banking works. When we first talked about JPMorgan's "princelings" scandal, way back in 2013, I said

Investment banking is a business of relationships. Relationships are like quid pro quos but fuzzier: Rather than an exchange of "I give you Thing X, and you give me Thing Y," the deal is more like "oh you like Thing X? Here, have it, it looks great on you. Nonono, no charge, just happy to help."

You're supposed to take the client out to dinner, play golf with him, ask him about his family. When he mentions his shiftless son, you're supposed to say "he sounds like a lovely young man, we'd be lucky to have him." Then you're supposed to hire the son as an intern, preferably in a group "where he won't get too scarred" by being asked to do actual work, or yelled at for not doing it. 3 Then you're supposed to play some more golf with the dad. You ask, "how's Junior fitting in at JPMorgan New York?" Dad replies: "Great, no visible scarring, he says everyone is super friendly." Then you say: "I hear you are mandating banks for a big stock offering." And he says: "We sure are." There is a meaningful pause. This is where you wink. Then you gracefully sink your putt.

Honestly, I was never a very good investment banker but I'm pretty sure that's the good way to do it. The bad way is, like, the client calls you up and says "we're mandating banks for a big stock offering," and you say "we will do anything for that mandate," and he says "the quid pro quo is you hiring my lazy son," and you say "done, we're in, let me just memorialize the deal in a quick e-mail." That way gets you fined $264 million.

But more importantly it is cheating. The art, the pleasure, the joy in investment banking comes from building deep meaningful relationships over time, from being the person whom clients trust completely with their business decisions and, sure, with their personal lives. Getting to know the client's son as a way to expand and deepen your relationship with the client? Sure, yes, this is a people business, and you have to know the client as a whole person. Just chucking the client a transactional bribe to win some business? Illegal, yes, but also dim and joyless. You cannot feel good about your client relationships if they are transparently bribe-driven. There is nothing solid about them. Junior's internship ends, and you are back to square one with Dad. You have earned no goodwill, only a mandate. You have built no trust, no relationship, no web of favors and warm feelings and vague obligations that you can call on in future dealings. You gave him what he wanted, he gave you what you wanted, and you're square. You both moved on to the next deal. If you want a mandate on the next deal, he'll want a further bribe.

By the way this isn't legal advice; I'm not saying that hiring the son would be legal if you covered it in mountains of feel-good language about deepening relationships rather than just calling it a "quid pro quo." But at least the e-mails in your eventual settlement will be less embarrassing. And you'll feel better about yourself along the way. And you might build a more stable and successful business.

Here's another thing that is not legal advice, but is sort of interesting. Those embarrassing e-mails I quoted, the "nod nod blink blink" and "quid pro quo" ones? Those were fine. JPMorgan is in trouble here for violating the Foreign Corrupt Practices Act, which forbids bribing foreign government officials, including -- apparently -- if the bribes are gifts for their children. But the FCPA doesn't forbid banks from hiring children of corporate executives to try to win business from those executives' companies. The problem in China is that many of the most attractive corporate clients are state-owned enterprises, and the senior executives of state-owned enterprises are, yep, foreign government officials. JPMorgan's "Sons & Daughters Program" -- yes, it was literally called that -- applied to all sorts of potential clients, including the private-sector clients mentioned in those e-mails. But the state-owned enterprise clients are the ones who got JPMorgan in trouble. 4  (This doesn't exactly mean that bribing private-sector executives with jobs for their children is strictly legal -- we talked just yesterday about two guys arrested for an alleged corporate bribery scheme -- but it's more complicated, and not an FCPA violation anyway. 5 ) On the other hand, if you illegally hire the children of state-owned enterprise executives, the SEC and DOJ are going to look at all your embarrassing nepotism e-mails. And if you settle, they're going to release the most embarrassing e-mails, not the most illegal ones. 

It seems fair to assume that bribing Chinese government officials with jobs for their children was not a JPMorgan innovation, and that JPMorgan will not be the last bank to settle charges like this. "The Justice Department is still investigating at least five other unidentified Wall Street banks" for potential similar violations, reports Bloomberg News. And within JPMorgan, the "Sons & Daughters" program seems to have been in part a reaction to the sense that other banks were way ahead on the nepotism front, starting with a 2009 e-mail from a senior banker to the head of JPMorgan Asia Pacific that said:

One specific item that we may need your help is how to run a better sons and daughters program, which has an almost linear relationship with mandates in China. People believe [other investment banks] are doing a much better job.  

People sometimes think of this as a cultural issue, in which U.S. banks ran up against a Chinese business culture that expects deep personal relationships among business partners. "When first disclosed three years ago, the investigation sent shivers through the global banking community because hiring well-connected people for financial jobs has been common in China where there is a strong emphasis on guanxi, or personal connections, in doing business," says the Financial Times. But reading the JPMorgan settlements, I am struck by how shallow many of the relationships were. This program really does not seem to have built strong personal connections between JPMorgan bankers and their Chinese clients. The bankers kept spreadsheets to track their referral hires, and how much revenue they converted from those hires. Normal people don't have spreadsheets to keep track of favors that their friends owe them.

My sense, instead, is that these problems came in part from a lack of relationships. Western banks rushed in to do business in China. There were a lot of them, all at once, all without deep long-standing trusted ties to Chinese executives and officials. Building up those relationships in the traditional way, with golf and sage advice, would take a long time, and competition was fierce. With no time to build relationships, the banks settled on a cheap facsimile of them. They settled on quid pro quos. Those are never as good.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. There is an exception for referencing the Monty Python "nudge nudge, wink wink" sketch. But that is aesthetic, not legal, advice. There's no legal exception for accurately quoting Python.

  2. Actually I assume that "wink" is a popular search term for these purposes. So maybe you should use "blink." Maybe these guys were just way ahead of me. Never mind.

  3. This requirement seems to have been well understood, at least in JPMorgan's Asia Pacific offices. From the SEC settlement:

    JPMorgan APAC employees commented on the lack of capabilities of many Referral Hires, with some employees referring to them as “photocopiers.” Referral Hires were sometimes given special consideration regarding work assignments and promotions and protected from rigorous work schedules. For example, in 2008, one senior JPMorgan APAC investment banker referred to a Referral Hire as a “protected species requiring [senior management] input. His reporting line to you is accountable but like national service.”

    There were even cushier versions:

    In order to accommodate more client referrals, in 2010 JPMorgan APAC also created an unpaid training program in Hong Kong (colloquially referred to as “summer camp”) for Referral Hires seeking summer employment or internships with JPMorgan APAC. The “summer camp” consisted mainly of social events, lectures, and classroom speakers. Although the participants were not employed by JPMorgan APAC and were not paid, participants could list the program on their resumes. APAC Banker B noted that one senior APAC investment banker said that he could “sleep better at night knowing that we now have a structured program to entertain the little darlings.”

    On the other hand, there were also sometimes ... misunderstandings? ... about what was expected from the little darlings:

    In July 2008, JPMorgan Banker D offered a position in his group to Referral Hire X. After he was hired, JPMorgan Banker D wrote to the JPMorgan APAC banker in Hong Kong that “I don’t have the details of the incident but apparently last Friday when I was out of the office, [Referral Hire X] sent out an email (which he inadvertently copied to an HR Person), where he made inappropriate … remarks.” In August 2008, JPMorgan Banker D wrote that there was a “general consensus among seniors in our group” that Referral Hire X was “immature, irresponsible, and unreliable” and that one banker was “no longer will to have [Referral Hire X] as part of the pool [of junior analysts on his deals]…there is also concern about his reliability on confidentiality of client records/documents which means that we may not be able to let him have access to sensitive transactional records/documents.” Referral Hire X remained in his position until it was eliminated 10 months later.

    Oh, one more dumb anecdote:

    Referral Hires were given contracts that would end in mid-December and then a new contract would re-start the following January, thus avoiding counting the Referral Hire on JPMorgan APAC’s internal, year-end headcount numbers which were reported as of December 31st. This allowed JPMorgan APAC to continue to make Referral Hires but not limit the number of non-referral junior investment bankers hired by JPMorgan APAC who were capable of functioning as junior investment bankers. 

    Get it? JPMorgan Asia Pacific had headcount limits on the number of analysts it could hire. If it blew all its spots on referral hires, it would have no one to do the actual work. So it hid the referral hires by not employing them over year-end, so no one would notice them on the headcount chart.

  4. Actually "Sons & Daughters" also applied to relatives and friends of "contacts within foreign government ministries," who were not potential clients so much as they were just, you know, regular government officials. Bribing them is obviously bad. 

  5. In fact, the Justice Department strongly hints that it is illegal:

    “Creating a barter system in which jobs are awarded to applicants in exchange for lucrative business deals is a corrupt scheme in and of itself,” said Assistant Director in Charge Sweeney.  “But when foreign officials are among those involved in the bribe, the international free market system and our national security are among the major threats we face."

    That first sentence suggests that even a "Sons & Daughters" program for private-sector executives would be illegal. (I suspect this would come as some surprise for a lot of bank recruiters.) But the focus of its non-prosecution agreement, and the SEC and Fed settlements, is mostly on FCPA violations. 

To contact the author of this story:
Matt Levine at

To contact the editor responsible for this story:
James Greiff at

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