SEC Is Shocked, Shocked by Business as Usual in China

SEC Is Shocked, Shocked by Business as Usual in China

According to a Bloomberg News report, the Securities and Exchange Commission is on the verge of figuring out how business is actually done in China. The key to this discovery is a spreadsheet that the SEC obtained from JPMorgan Chase & Co.. It includes two key sets of data: the names of the offspring of some of China’s most prominent families, and a list of “specific deals pursued by the bank.” According to the Bloomberg report, combining these two data sets has provided investigators with a Rosetta Stone-like insight into how the bank just might make money in the Middle Kingdom: The spreadsheet, which links some hiring decisions to specific transactions pursued by the bank, may be viewed by regulators as evidence that JPMorgan added people in exchange for business, according to one person with knowledge of the review.From the perspective of the SEC, these hiring decisions could be construed as bribery, and thus subject to prosecution under the Foreign Corrupt Practices Act. In time, that may turn out to be the case. But until then, the SEC is going to have a hard time convincing anyone who works in China — including foreign corporations operating here — that drumming up business by hiring the offspring of the rich and powerful is unusual. In fact, arguably, it’s a relatively ethical approach to competing in a country where no-bid contracts for government business are often won via means far more expensive than the cost of an analyst’s salary in Hong Kong.

For example, during the recently-completed trial of Bo Xilai, the fallen party secretary of Chongqing, testimony was offered suggesting that, in exchange for awarding an obscure Dalian businessman no-bid contracts, Bo’s family allegedly received real estate, private school tuition, airfares and, on an impulse, a Segway. In Chinese terms, that’s corruption, and — thanks to increased coverage by China’s state media — it’s well-known to be common and involve sums greater than the unrespectable $4 million in bribes that Bo allegedly accepted. By that standard, attempting to bribe someone with the equivalent of an analysts’ salary, and whatever prestige might be associated with a JPMorgan business card, is laughable.

According to the New York Times, JPMorgan began keeping track of well-connected Chinese job applicants in 2006, as a way to avoid precisely the type of bribery investigation that resulted in Bloomberg obtaining the firm’s suggestive spreadsheet. However, as unseemly as the bank’s hiring process might appear, it’s likely motivated by no higher — or lower — desire than the opportunity to obtain access, attention and empathy from power. If that’s illegal, then there are far more criminals walking around Wall Street today than anyone had previously thought.

(Adam Minter is the Shanghai correspondent for Bloomberg’s World View blog and a contributor to the Ticker. Follow him on Twitter.)

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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