J.P. Morgan: Illegal Bribery or Legal Networking?

Katherine Brown

The case of J.P. Morgan and their integration into China is a controversially divided one.

Both sides have equally compelling and interesting points as to if J.P. Morgan’s practices were

definitively morally or legally wrong. And still, there is no direct or correct answer yet as to the

legality of J.P. Morgan’s actions alone.

However, before delving into the controversial case of J.P. Morgan’s difficulty of

practice in China, I think it is extremely important to recognize the effect of the FCPA on

businesses attempting to expand internationally, specifically to China. Chinese companies have

a large advantage over American companies in that they have no need to follow the rules the

FCPA creates. This is especially important in a country where bribery has become a sort of social

and political norm; 35% of companies in China pay bribes in order to operate (Levick). It has

become what some have been calling “an unspoken rule.” While China has laws against the

illegal bribery of officials, many of the bribes exchanged are considered “gifts” that are offered

as a means of good business loyalty and networking (“China Corruption Report”).

So, then, with Chinese companies having this ability as an advantage, it is obvious the

kind of pressure the FCPA must put on a company that may otherwise have had all the

necessary components to become very successful in China. The addition of the FCPA to the

other extensive rules and regulations placed on incoming companies make it extremely difficult

to excel in the face of Chinese companies, especially after the setback of the inability to follow

norms in countries by which companies get their advantage.

 This is not meant to be an excuse. I personally believe the FCPA is a very important part

of the upkeep of our country’s common morals. However, this may explain why so many

American countries fail in China, and thereby attempt to use bribery as a last-ditch effort to

save the company’s plan to internationalize. I believe this is exactly what happened to J.P.

Morgan. Because they were losing so many deals to competitors who were using the practice

of hiring the children of Chinese officials, they felt an inherent need to implement these

practices as well in order to stay competitive.

Given this, I do believe that these practices were considered bribery. In cases like this,

the intention behind the actions is imperative. In the Chinese companies who had previously

used these practices, the hiring of officials’ children and other relatives had been used as an

obvious bribe in order to gain deals, and eventually, money from officials. Because J.P. Morgan

implemented the “Sons and Daughters” program in order to stay competitive with these firms,

it is obvious that bribery was the intent, as the company was desperate to thrive in such a

demanding environment.

In the example of the son of a chairman of the China Everbright Group, the

conglomerate only began making deals with J.P. Morgan after the chairman’s son was hired.

While I am sure the company is stating that they had done nothing wrong, I believe this was

blatant bribery, especially with regard to the first major component of the FCPA, which states it

is “illegal to provide anything of value to officials of foreign governments with the wrongful or

‘corrupt’ intent to obtain business” (Cavico 32). A lot of the controversy in this case comes from

one question: is hiring considered a legal bribe? Many would say no, because it is not a

monetary bribe. However, the FCPA does not specify the legality of money alone. Instead, it
says “anything of value.” I would argue that a job, especially high-level jobs, are of great value,

as the salaries for those jobs are extremely high. So, then, the hiring practices would be

considered an illegal bribe.

Not to mention, in the article from the New York Times, it says that “some of the well-

connected candidates were unqualified and often ‘performed ancillary work.’” This is a large

sign that they may have attempted to cover up illegal monetary bribes in this way.

In the article by Tim Gocher, which outlines ways in which a company can succeed in

frontier markets while avoiding corruption, he states four steps that would help with the

avoidance of corruption: Build trust in the workforce, deal with the governments, source local

partners, and look down the supply chain (Gocher). While I agree that these are great starting

points for internationalization into any country, it fails to integrate an understanding of the

pressure placed on companies entering foreign markets, as previously explicated. For

companies attempting to expand into countries like China, where bribery is such a social norm,

these four steps would not be enough to help the company succeed. The company would likely

fail to Chinese corporations, who do not have to follow FCPA guidelines.

However, I believe there are some parts of this article that may have prevented some of

the turmoil that came along with the bribery that occurred in J.P. Morgan’s case, particularly

because there were many steps the company could have taken before jumping to the extreme

that they did. The biggest part that J.P. Morgan could have used was to source local partners.

Had the company found a local partner that already had a ton of business, J.P. Morgan could

have had an advantage that allowed them to grow without the use of bribery. Along with the
already-present business, this partner could have also used the partnership to gain insight into

the Chinese culture of business and had an even greater advantage.

Overall, while this case is very polarized and decisive, I believe that J.P. Morgan’s

recruiting and hiring practices were, in fact, bribery. I also think that the company could have

taken many steps to avoid such bribery. However, in any case similar to this one, it is extremely

important to look at the social and political pressure placed on companies entering new

international markets. This should not be used as an excuse for failure to comply with rules and

regulations, but it should instead be used as a learning point for future companies who may be

attempting to enter the Chinese market. We can take this information and use it to help

companies do better in the future.

 Works Cited

Cavico, Frank J., "JP Morgan Recruitment Practices in China: Legal Networking or Illegal Bribery"

(2015). HCBE Faculty Articles. 521.

“China Corruption Report.” Business Anti-Corruption Portal, www.business-anti-

corruption.com/country-profiles/china/.

Gocher, Tim. “How to Succeed in Frontier Markets While Avoiding Corruption.” London

Business School, www.london.edu/faculty-and-research/lbsr/how-to-succeed-in-

frontier-markets-while-avoiding-corruption.

Levick, Richard. “New Data: Bribery Is Often 'An Unspoken Rule' In China.” Forbes, Forbes

Magazine, 21 Jan. 2015, www.forbes.com/sites/richardlevick/2015/01/21/new-data-

bribery-is-often-an-unspoken-rule-in-china/#16e3dd3179c6.