J.P. Morgan Chase (JPM) agreed to a $264 million settlement with U.S. officials Thursday to make a three-year investigation into alleged nepotism in its Chinese operations go away. What a joke!
JPM settled allegations that it hired so-called Chinese "princelings" -- sons and daughters of prominent politicians or executives from China's state-owned enterprises -- to curry favor with powerful people. The agreement allowed the bank to avoid prosecution under the U.S. Foreign Corrupt Practices Act, but the settlement ultimately penalizes JPM shareholders. Deutsche Bank (DB) , Goldman Sachs (GS) , HSBC (HSBC) and other banks are reportedly next on U.S. regulators' firing line. Shareholders beware.
Now, J.P. Morgan did indeed hire Chinese "princelings" -- but not only are these kinds of practices common in China, they're common in America as well.
How many children of Senator X or Congressman Y have been hired by large companies? What if the company then wins a government contract or benefits from some legislation? I'd like to see an investigation into that.
And what are we to make of President-elect Donald Trump appointing his own children to his transition team's executive committee while also hiring them to run his businesses? Those are businesses that the president-elect can still profit from, but won't his kids be getting any heads-up on pending federal legislation?
But wait, there's more. What are we to make of Trump's daughter Ivanka and son-in-law Jared Kushner sitting in on the president-elect's first meeting with a foreign leader, Japanese Prime Minister Shinzo Abe? Trump's daughter and son-in-law were there on Thursday -- as you can see in these photos from the Daily Mail -- but it's not clear why.
Trump's 90-minute chat with Abe was just an ice breaker, but the two leaders' relationship will be key to the future of U.S.-Japanese relations -- and yet, two rookie non-politicians get to sit in. Abe rolled in solo, bringing along only an interpreter.
Now, I once spent a memorable weekend at The Greenbrier, the West Virginia resort where Dwight D. Eisenhower used to holiday. I ended up playing tennis with a U.S. senator who shall remain nameless, and at dinner I sat next to one of the senator's daughters and her husband. The son-in-law seemed not so bright to me, but had a plum job running the port system back in the largest city of the senator's home state.
I'd like to think Americans live in a meritocracy, but I'm not an idiot. Yes, you can get ahead in America if you work hard and are smart -- but you can probably go farther faster if you have some sweet political pull.
And in the J.P. Morgan case, the issue involved the bank hiring the children of Chinese executives to win business. The bank crossed an international border and hired the children of foreign politicians and big businessmen, but that still opened the door for U.S. authorities to go after JPM under America's Foreign Corrupt Practices Act.
As a result, U.S. banks are now playing with one hand tied behind their backs when attempting to win business in China. They can't hire "princelings" who could truly help them break into a market that was closed to foreign banks until China entered the World Trade Organization a few years back.
And as an aside, I don't know why Deutsche Bank is on the list of companies that are potentially in trouble over this issue. I seem to remember from my German class that "Deutsche Bank" has a pretty clear meaning, and it's not "American Bank."
So, the whole matter looks ridiculous to me. Frankly, no Chinese company would ever face punishment for hiring kids of politicians or heads of companies that a firm hoped to do business with. In fact, such practices seem highly sensible to many people in China (and the rest of Asia, too).
Is nepotism a crime? Maybe it should be -- but in much of the world, it's not.
