How JPMorgan Chase avoided prosecution over Sons and Daughters

[nitpicker]

https://www.complianceweek.com/blogs/tom-fox-tom-fox/how-jpmorgan-chase-avoided-prosecution-over-%E2%80%98sons-and-daughters%E2%80%99#.WE_ammzrtKY

How JPMorgan Chase avoided prosecution over ‘Sons and Daughters’
Tom Fox | December 13, 2016

In November 2016, JPMorgan Chase (JPM) and its subsidiary, JPMorgan Securities (Asia Pacific) Limited (JPM-APAC) resolved its long running Foreign Corrupt Practices Act investigation and enforcement, obtaining a non-prosecution agreement (NPA) from the Justice Department with a penalty of $72M, agreeing to a cease-and-desist order (Order) from the Securities and Exchange Commission, with a penalty consisting of profit disgorgement and interest of $135 million, and reaching an agreement with the Federal Reserve Bank for a consent cease-and-desist order (Fed Order) to put in place a best practices compliance program and pay a penalty of $61M.

The conduct involved JPM-APAC’s Client Referral Program, named the “Sons & Daughters Program,” which targeted children of high Chinese government officials and employees of state owned enterprises, together with other close family members and even close friends and associates of these officials and employees, for hiring in a blatant attempt to win business. It was designed, created, and implemented by the top management of JPM-APAC, which went so far as to keep a tally of those persons hired by JPM-APAC and JPM to specific business development. As noted in the NPA, “certain senior executives and employees of (JPM-APAC) conspired to engage in quid pro quo agreements with Chinese officials to obtain investment-banking business, planned and executed a program to provide specific personal benefits to senior Chinese officials in the position to award or influence the award of banking mandates, and repeatedly falsified or caused to be falsified internal compliance documents in place to prevent the specific conduct at issue.” The language quid pro quo is replete throughout the settlement documents because that is the specific language used by JPM-APAC personnel when discussing Sons and Daughters.

This enforcement action did not involve the odd, one-off hiring of a family member of a foreign government official. In a speech at the ACI 2016 National FCPA Conference, SEC Director of Enforcement Andrew Ceresney noted that over the life of the Sons and Daughters hiring program, JPMorgan hired approximately 200 interns and full-time employees at the request of its APAC clients, prospective clients, and foreign government officials. Added to this were nearly 100 candidates referred by foreign government officials at more than twenty different Chinese state-owned enterprises.

Furthermore, JPM-APAC was well aware that these hires potentially violated the FCPA, since the subsidiary engaged in specific, intentional conduct designed to subvert the internal controls around the company’s hiring process. Business justifications were provided, which were either inaccurate or outright falsehoods. In the NPA, it cited as an example of collusion with the subsidiary’s compliance and legal group a revised business justification from an unacceptable reason to one which would pass muster in the unsuspecting corporate human resources department.

The matter also included what has come to be known as “the spreadsheet,” where JPMorgan documented each hire, the referring client, the relationship of the candidate, and the amount of revenue generated attributable to the hire in U.S. dollars. The purpose of the spreadsheet was to track deals that resulted from the hires and measure revenue associated with Client Referral Program hires. So the corruption scheme and the benefits obtained therefrom were fully documented.

Result achieved by JPMorgan. Yet as bad as the conduct engaged in by JPM-APAC may be, one clear lesson is the superior result achieved by JPM in its FCPA resolution. Not only did it receive a 25 percent discount off the bottom of the U.S. Sentencing Guidelines fine range, but it received an NPA (not even a deferred prosecution agreement) and no outside monitor was required of the company going forward. While some of this result is due to having excellent defense counsel, a large part is due to the cooperation by JPM and the remediation engaged in by the company. The NPA, Order, and Fed Order all lay out how the penalties under this matter follow this framework, even though the case arose far before the implementation of the Justice Department’s FCPA Pilot Program.
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[think]

1. k&r