Singling out J.P. Morgan for investigation into hiring Chinese ‘princelings’ to gain access to investment banking deals is a “farce”, because the practice is so engrained in the recruitment process in the region, according to banks in Asia. However, banks are still likely to draft the compliance teams into the recruitment process to ensure the hiring process is above board.
J.P. Morgan is under investigation by the Securities & Exchange Commission (SEC) in terms of the Foreign Corrupt Practices Act for recruiting Chinese candidates and whether the appointments helped the bank win lucrative mandates from the new hires’ family connections.
Melissa Shadforth, director of policy, research and engagement at ASRIA, the Association for Sustainable and Responsible Investment in Asia, said banks in the region are raising their eyebrows at the investigation.
“The banks’ general view is that this issue is so pervasive globally, that it is a farce in the industry that J.P. Morgan is being investigated,” she said.
The practice of hiring the sons and daughters of influential Chinese politicians and bureaucrats was not limited to J.P. Morgan or US banks. Goldman Sachs, Credit Suisse and Merrill Lynch, for example, have all hired the offspring of influential officials, while the next generation have often taken roles at international banks in the U.S. and Europe.
According to one recruitment insider, banks often asked candidates about their contacts and experience in areas related to the banks’ business areas, and details about personal connections were part of the decision during the interview process.
“It is common practice. Every bank does it, but they only talk about it in terms of where the person worked before,” said one senior human resources manager working in an international bank in Hong Kong.
Despite the SEC inquiry – which has now also attracted the attention of the US Department of Justice – suggestions of improper appointments to secure banking business would probably not force changes in recruiting practices in Hong Kong, industry sources said.
But the impact may be already being seen. Barclays recently announced it had hired Zhou Bo, son of Zhou Jiping, who was named in April as chairman of China National Petroleum Corp (CNPC), the nation’s largest oil producer. His appointment would have been put in place before the J.P. Morgan investigation came to light. Nonetheless, Barclays insisted the hiring decision was taken on merit.
“We are convinced that people who join us come with a track record and proven technical skills from their prior experience in investment banking,” she said. However, Barclays helped arrange a $2 billion bond sale for CNPC in April, and also advised on a December transaction where a CNPC company bought 49.9% of an Alberta shale-gas project from Encana Corp.
Pending the outcome of the SEC’s investigation, firms were likely to continue to increase oversight and background checks, says Pallavi Anand, Director of Robert Half in Hong Kong, even getting the compliance teams involved in the recruitment process.
“We believe the compliance and risk management teams will be getting more involved in the pre- and post- recruitment process in the future,” says Anand. “Candidates should anticipate a rigorous due diligence system during a hiring or interviewing process.”