US agencies probe big banks on China nepotism

US investigations into the hiring by large banks of the children of powerful Chinese officials are heating up, people familiar with the probes told AFP.

The US Securities and Exchange Commission has subpoenaed JPMorgan Chase for its communications with some 30 senior Chinese government officials, according to these sources.

At least six other banks have received written demands about dozens of hires, according to these people and bank securities filings: Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS.

The US Department of Justice and the Federal Reserve Bank of New York are also involved in the investigations.

The banks are suspected of having hired the well-connected youth in exchange for other business in China, including with government-controlled corporations.

Such a quid-pro-quo could run afoul of the Foreign Corrupt Practices Act, a US anti-bribery law.

The probes are a lingering cloud over JPMorgan, which has paid billions of dollars in penalties over the last two years to settle probes into its bundling of mortgage securities, its foreign exchange trades and other matters.

The investigation centers on a JPMorgan hiring initiative between 2006 and 2013 informally known as the "Sons and Daughters" program.

Regulators have been troubled by the 2007 recruitment of Gao Jue, who was considered by bank officials the "worst candidate" according to sources. Gao is the son of Chinese Commerce Minister Gao Hucheng, who has authority to approve or block mergers.

The SEC subpoena includes JPMorgan correspondence with Wang Qishan, who heads the Chinese government's anti-corruption campaign, sources said.

The SEC has also demanded JPMorgan provide a list of any Chinese government officials who have recommended so called "princelings," the children of Chinese officials.

At least three senior executives at JPMorgan have left the bank in the wake of the probes, including Fang Fang, the former vice president of investment banking in Asia, who was considered a key link between the communist party and Wall Street.

A JPMorgan spokesman said the bank is cooperating with the probes and is in the process of responding to queries.

- Other banks probed -

Credit Suisse from 1999 to 2001 employed Wen Ruchun, the daughter of former Chinese Prime Minister Wen Jiabao, who went by the alias "Lily Chang". Credit Suisse also paid Wen Ruchun's firm, Fullmark Consultants Limited, according to sources.

Wen Ruchun and her firm were later employed by JPMorgan.

Other well-connected Chinese youth that were hired by big western banks include the grand-daughter of former Chinese President Jiang Zemin, Jiang Zhicheng, who worked at Goldman Sachs.

Tang Xiaoning, the son of the president of the China Everbright Group, a state-controlled financial company, worked at JPMorgan, Citigroup and Goldman Sachs.

UBS told AFP it was cooperating with the SEC. Citigroup, Credit Suisse, Deutsche Bank and Goldman Sachs declined comment.

Morgan Stanley also declined to comment for this story, but the investment bank's chief executive James Gorman told CNBC in late May that "you shouldn't indict the kids simply because of the circumstances they grew up in.

"The question is: Are they qualified to do the job they've been asked to do? You should treat them on their own merits."

Jacob Frenkel, a former government prosecutor now at the firm Shulman Rogers, said the recruit's qualifications would indeed be very important.

"If the purpose of the hiring was for the sole purpose of obtaining business, particularly if the sons and daughters are showing up for work merely as a charade, then there is a compelling argument for why the US government is considering bribery charges," Frenkel said.

"For the US to prove an anti-corruption violation, it must demonstrate a corrupt payment with an intent to influence a decision by a government official in order to obtain or retain business.

"Each case that is under investigation related to a son and daughter issue will be very fact- and case- specific. We easily could see charges in one case and not in another."