JP Morgan is paying $264M to settle allegations of bribery

over its hiring of children of key Chinese decision makers to try and secure

business. Aziz Rahman explains what constitutes bribery and how to prevent it.

United States prosecutors and regulators recently announced that

the bank JP Morgan and its Hong Kong subsidiary is to pay roughly $264 million

to settle allegations relating to large-scale bribery.

The allegations related to JP Morgan’s hiring practices in

China, where it employed children of Chinese leaders in an attempt to win

business. Some of the well-connected candidates employed were unqualified and

did the most basic tasks.

It is unlikely that JP Morgan was the only bank hiring

children of Chinese decision makers in order to secure deals. The US Securities

and Exchange Commission has indicated action against other banks is likely and

some have hinted that they may face investigation.

Corruption

In its defence, JP Morgan had claimed that the hiring of

well-connected people was routine in China and that its actions fell into a

“grey area’’ regarding bribery.

But prosecutors argued that such employment was linked to

concluding deals with Chinese government-run companies; with hired candidates

each having a direct link to a business opportunity for the bank.

In dismissing the bank’s “grey area’’ argument, US Attorney

in Brooklyn Robert L. Capers, who helped lead the investigation, said: “The

common refrain that this is simply how business is done overseas is no defence.

This is no longer business as usual; it is corruption.’’

Bribery Act

Mr Capers’ statement certainly backs up the widespread

belief that practices involving bribery and corruption, which may have been

ignored or tolerated in the past, are now likely to lead to prosecution. The

authorities worldwide are looking to eradicate bribery – and this is seen no

clearer than in the UK’s Bribery Act.

Under the Act, it is an offence for anyone to pay, receive

or request a bribe, either directly or indirectly, to have a relevant function performed

improperly. There is also an offence of using a bribe to influence a foreign

official to gain a business advantage.

A bribe, for the purposes of the Act, does not have to

involve money. It can be any kind of advantage, such as a gift, special

treatment or favours (which may have applied to what JP Morgan did had the

matter been prosecuted by UK authorities).

The bribe can also be in connection with a wide range of

activities: to secure or retain a contract, to gain a trading advantage over a

competitor or to receive favourable treatment when it comes to the issuing of,

for example, a health and safety certificate or permit.

Liable

Companies fall foul of the Act if a bribe has been given on

its behalf by an employee, agent or other party acting for it.

Under the Act, which came into effect in 2011, a company is liable

for the corrupt activities of all its representatives anywhere in the world;

from the most senior executives down to lower-level staff, agents and third

parties. Its punishments include unlimited fines and up to ten years’

imprisonment for individuals.

The bribery does not have to be carried out in the UK but

the person committing it must have a UK connection. Being a British citizen,

national, subject or resident or working on behalf of a company that trades in

the UK are all classed as a UK connection.

Defence

The scope and significance of the Act is huge. The only

possible defence to it is to argue to the authorities that you have done all

that you could have done to comply with the Act.

But this is not an argument that can be won simply by

claiming to have done what you could to prevent bribery. Such a defence is only

available to a company that has taken time and effort to introduce the most

appropriate compliance procedures. These procedures must take into account the

nature of the company’s business, where it carries out its business and all the

associated bribery risks.

The geographical

areas where it trades, the business sectors in which it operates, its use of

third parties and agents, its trading partners and the local laws where it does

business must all be considered carefully if a company is to have any chance of

recognising all the potential for bribery.

Anti-bribery procedures must reflect all such factors and be

implemented, publicised, monitored and reviewed from the top down – they have

to be seen as a core part of a company’s way of working by all its staff and

associates. Such procedures must also cover all eventualities; for example, the

use and payment of extras such as facilitation payments and the scope of

corporate hospitality.

Only then can a company argue that it did all it could to

prevent bribery.