US authorities have opened an investigation into whether JP Morgan Chase & Co hired the children of powerful Chinese officials to help it win business in China, according to the New York Times.
Investment banks have a long history of employing the children of China's politically connected. While close ties to top government officials is a boon to any banking franchise across the world, it's especially beneficial in China, where relationships and personal connections play a critical role in business decisions.
The approval process for a stock offering in China, for example, is one area that has come under criticism inside and outside the country for being opaque and prone to cronyism.
For JP Morgan, the China hiring probe comes while the bank is under intense scrutiny following the $6 billion trading loss it suffered in the "London whale" derivatives scandal. Federal prosecutors on Wednesday brought criminal charges against two former JP Morgan traders - Javier Martin-Artajo and Julien Grout - accusing the pair of deliberately understating losses on the trades on the bank's books.
A report posted in the Times' online Saturday edition cited a confidential US government document as its source for the story on the China hiring probe. The Times said the probe is a civil investigation by the Securities and Exchange Commission's anti-bribery unit.
The Times said JP Morgan hired Tang Xiaoning, the son of Tang Shuangning, a former Chinese banking regulator. Tang Xiaoning is now the chairman of the China Everbright Group, a state-controlled financial conglomerate.
After the son joined JP Morgan, the bank secured several important assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, the Times reported.
The Hong Kong office of JP Morgan also hired Zhang Xixi, the daughter of a now-disgraced Chinese railway official, and went on to help advise his company, which builds railways for the Chinese government, on its plans to become a public company, the Times said.
A spokesmen for the SEC could not be reached immediately by Reuters for comment. Zhang and Tang both have left JP Morgan, the newspaper said.
JP Morgan made reference in its 10-Q quarterly