US probes JP Morgan's hiring in China

US authorities have launched an investigation as to whether JP Morgan Chase hired the children of powerful Chinese officials to help it win business in China. The investigation is the latest in a series of legal headaches for JP Morgan's CEO Jamie Dimon. Dimon led the bank through the 2008 financial crisis, but is now facing at least a dozen investigations including the 'London Whale' trading scandal that cost the bank over $6 billon.

In the latest probe, the US Securities and Exchange Commission is investigating JP Morgan's hiring practices in China. The SEC is looking at whether the bank's Hong Kong office hired the children of China's political elite with the sole purpose of winning business contracts in China.

According to the New York Times, JP Morgan hired Tang Xiaoning, the son of former Chinese banking regulator Tang Shuangning, who is now the chairman of China Everbright Group, a state-controlled financial conglomerate. After he joined JP Morgan, the bank won several assignments from China Everbright.

JP Morgan also hired Zhang Xixi, the daughter of one of China's most powerful railway officials Zhang Shuguang. JP Morgan went on to help advise his company, which builds railways for the Chinese government, on its plans to become public.

The practice of hiring relatives of key officials in China was commonplace in the early 2000s. Wall Street firms engaged in so-called 'elephant-hunting.' It's a term used to describe the chasing of mandates to manage the multi-billion dollar stock offerings of China's big State-owned enterprises.

Under the US Foreign Corrupt Practices Act or FCPA, hiring people in order to win business from relatives can be classified as bribery. According to a report on the FCPA published by law firm Gibson, Dunn & Crutcher, the report notes "The Department of Justice and SEC will examine circumstances of the engagement to determine whether the purpose of the relative's hiring is to improperly influence the foreign official."

JP Morgan's Hong Kong-based spokeswoman Marie Cheung said, "We publicly disclosed this matter in our 10-Q filing last week and are fully cooperating with regulators." Both JP Morgan and the SEC declined to comment.

The SEC probe coincides with a bigger focus by the US government on China-related corruption and nepotism and the impact it has on US businesses. For many children of the Chinese elite who are hired by Wall Street, it's not just their business school credentials that get them a foot in the door, it's their family connections too. Fortune, after all, often favors family.