JPMorgan Might Have Conducted Some Marginally Effective Bribery in China

By
Wen Ruchun, IF THAT IS YOUR REAL NAME.

The Times has a monster story today about how JPMorgan Chase allegedly hired the daughter of former Chinese prime minister Wen Jiabao, a 32-year-old woman named Wen Ruchun, under the alias "Lily Chang," and paid her $75,000 a month in hopes that her business, Fullmark Consulting, could help the bank secure lucrative business in China.

It's a poorly timed story for JPMorgan, coming on the heels of both a spectacularly ill-advised Twitter Q&A and the never-ending settlement talks with the Justice Department over mortgage fraud. And parts of it (like the letter from Fullmark to JPMorgan that urges the bank to "grasp the opportunities and become to be the winner in the financial crisis [sic]") look amusingly sketchy. But I'm not sure it rises to the level of a crime.

I don't take the view, as some do, that hiring the sons and daughters of well-connected foreign officials is just smart business, akin to hiring Chelsea Clinton at your consulting firm. There's an anti-bribery law called the Foreign Corrupt Practices Act that prohibits payments to people like Wen if they're explicitly designed to curry favor with government officials (say, a chicken company putting the wives of its meat-certifying veterinarians on its payroll, even if the wives never show up for work) and if these payments can be proven to have been linked to specific business deals.

In JPMorgan's case, prong two of the FCPA test seems to be missing. ("[The] documents reviewed by The Times do not identify a concrete link between the bank’s decision to hire children of Chinese officials and its ability to secure coveted business deals.") So the bank may dodge the law. But, strict legality aside, there are some factors in the Wen Ruchun case that make it look more complicated than your average bribery.

First, unlike the questionable hires in other FCPA cases, Wen Jiabao's daughter is not blatantly unqualified to consult with JPMorgan Chase. As the Times story says, Wen got her MBA at the University of Delaware, then worked at Lehman Brothers and Credit Suisse before starting Fullmark, her consulting firm. She might not be CEO material, but she knows her way around a PowerPoint deck.

Second, $75,000 a month for a consulting contract might sound like a lot of money, but it's pennies compared to what Wen's "consulting" allegedly made for JPMorgan. The only concrete deal she provided for the bank, according to the Times, was securing it an underwriting spot for the 2007 IPO of China Railway Group, a government-tied construction company. The IPO raised $5 billion, but only half of that was part-underwritten by JPMorgan (it appears that China Railway IPO'd simultaneously in mainland China and Hong Kong, and that JPMorgan only underwrote the Hong Kong part). So, with some very rough math ($2.5 billion IPO, 4–5 percent fees), we can guess that the deal might have made JPMorgan something in the neighborhood of $100 million.

If you were bribing a Chinese official by hiring his daughter's consulting firm, with the explicit knowledge that she would help you secure at least one $100 million piece of state business, and probably many more like it, wouldn't you pay her a little more than $75,000 a month? I've got to think that grade-A wheel-greasing is worth more than a $900,000 annual cut, and that the (relatively) small checks that headed to Fullmark Consulting mean that Wen either (a) got totally shafted by JPMorgan, or (b) wasn't that crucial to the deal.

As for the "Lily Chang" alias, it's not uncommon for Asians to choose Anglicized names when they go to the U.S. for school or work, mostly for easier pronunciation's sake. Wen Ruchun may have also wanted to escape connection to her father, but it wasn't as if she assumed the alias for the express purpose of working for JPMorgan (she also used it while in college at Delaware, and at Lehman and Credit Suisse).

I'm not suggesting that JPMorgan was naive about how hiring the Chinese prime minister's daughter could help them win business in the country, or that Wen's consulting wasn't a case of bribery. I wouldn't be surprised if we see other, more seaworthy FCPA cases out of JPMorgan, given the apparent existence of things like the Nepotism Spreadsheet. I'm just saying that if hiring Wen Ruchun was bribery, it wasn't very good bribery. JPMorgan got one mid-sized deal out of it, and Wen got the salary of a 30-year-old investment banker. Corruptible children of the foreign elite: You can do better than this.