JPMorgan fined US$264 million for Asian jobs-for-business scheme

Author: Sara Lewis | Date: 30 Nov 2016

Whistleblower hotlines, better training and stronger links between HR and division heads can help avoid such problems, says expert

International investment bank JPMorgan Chase & Co faces a mammoth US$264 million in fines in the United States for operating an illegal jobs-for-business hiring scheme through its Asian business.
 
The bank will pay the US Securities & Exchange Commission (SEC) more than US$130 million for violation of the Foreign Corrupt Practices Act (FCPA) over charges that staff secured business from clients and bribed government officials by giving jobs and internships to their relatives and friends. JPMorgan is also expected to pay US$72 million to the US department of justice and US$61.9 million to the Federal Reserve Board of Governors over the same offences.
 
Investment bankers at JPMorgan’s subsidiary in Asia had skirted the company’s normal recruitment procedures to set up their own hiring programme that rewarded candidates referred by clients and influential government officials with well-paid jobs and internships. Over seven years, the client referral programme saw around 100 interns and full-time employees hired, allowing the company to gain or retain business worth more than US$100 million.
 
Andrew J. Ceresney, director of the SEC enforcement division, said: “JPMorgan engaged in a systematic bribery scheme by hiring children of government officials and other favored referrals who were typically unqualified for the positions on their own merit.”
 
Kara Brockmeyer, chief of the SEC enforcement division’s FCPA Unit, added: “The misconduct was so blatant that JPMorgan investment bankers created ‘Referral Hires vs Revenue’ spreadsheets to track the money flow from clients whose referrals were rewarded with jobs.”
 
Brockmeyer said: “The firm’s internal controls were so weak that not a single referral hire request was denied.”
 
Erman Tan, president of Singapore Human Resources Institute (SHRI), believes a strong HR policy can prevent similar problems at other businesses. “Being at the centre of developing and communicating company policies and standard operating procedures, HR professionals are integral when it comes to preventing workplace fraud,” said Tan.
 
“In certain economies, fraud and corruption can occur more easily than in others,” and while everybody shares responsibility for preventing workplace fraud in an organisation, HR “plays an integral role,” he said.
 
“HR is responsible for the overall design and implementation of preventive measures and fraud policies. Such policies should be clear, address desired behaviours and consequences, and be well-publicised to exert pressure on employees, vendors, clients and other parties.”
 
Tan’s advice for avoiding problems such as the JPMorgan case is for HR to work closely with division heads and the finance department in developing policies that ensure a corruption-free workplace. He said: “They have to ensure support of the top management in setting an example, and communicating zero-tolerance for unethical behaviour of any kind.”
 
Another recommendation was for HR to bring in a confidential whistleblowing hotline or similar tool so that people can report misconduct anonymously. “A whistleblowing policy can greatly improve and encourage responsible behaviour, and deter unethical behaviour.” But prevention is better than cure, and Tan added: “HR can reduce the opportunity for fraud by improving internal controls, for example by ensuring that no single individual has excessive financial power or control.”
 
And when the worst happens, “faced with incidences of corruption, HR should be involved in the investigation process as it will, besides other things, help to identify weaknesses in human resource procedures.” To do this effectively, Tan said: “It is critical for HR to undergo training on the nature and types of fraud, and ways to detect red flags.”