22 February 2014, 00:03

New scandal involving JPMorgan Chase

New scandal involving JPMorgan Chase

PMorgan Chase is embroiled in another scandal involving top mainland officials and jobs for well-connected individuals. China Insurance Regulatory Commission chairman Xiang Junbo had asked JPMorgan chief executive Jamie Dimon to do him a "favour" by hiring a young job applicant, a family friend of Xiang, who now worked at the bank. The Voice of Russia talked to Stanislav Korsakov, market strategist at IND Capital.

Speaking about the ongoing investigation and the JPMorgan-Chase case – are we talking about a high profile case? Is it really exceptional?

Yes, it is a high profile case because western financial institutions usually do their best to protect from prosecution the people who are bringing in lucrative contracts in markets especially if those people are connected with important political decision makers. Actually the situation is without precedent. For the first time relatives of high ranking Chinese official are involved in such a scandal and are being targeted although indirectly by the US investigators. It should be understood that this whole situation most likely has nothing to do with justice of fairness. In the beginning of merchant international banking banks have used such political connections to get deals done so most likely this whole investigation is the pure political instrument designed to give the US an edge in diplomatic negotiations with China. So more or less this is a blackmail tool.

 The US regulators are not currently investigating JPMorgan's practices for signs of bribery, may that change?

 Yes, this may change depending on the behavior of the targeted Chinese officials. If they appear in the US then the charges will be dropped. If they don't this whole scandal will likely escalate and then the investigation will switch to proving that JPMorgan bribed those officials. Right now it seems that this is a purely political decision.

 Some experts are saying that this is an example of difficulties foreign firms face in doing business in China. The problem for the foreign firms is that local practices may be different from and at times in conflict with the legal and ethical rules under which they are required to operate. Do you agree with that?

Yes and no. It is more complicated than simply stating that there is a problem in China. It is not so black and white. The problem is that there is always a difference between the real rules of the market and the formal legal rules of this market. In each instance the difference between those two sets of rules may or may not amount to bribery. It is always a judgement call based on perception of events in the absence of any other measurement. This is true everywhere in the world, not only in China, it is true in the US, it is true in the UK, it is true in Europe. This is not an Asian issue, this is not a problem specific to an emerging market. For instance a foreign bank operating in the US will have to find and use political connections because otherwise it will not have any success. It is absolutely the same in China. The forms of paying for those political connections may be different in various countries but the essence is always the same. Money buys power. In China a foreign bank hires relatives of political decision makers, in the US a foreign bank pays lobbyists and donates money to political campaigns. The forms of bribery are different but the essence is the same.

What might be the consequence of this case on the banks' global practices?

I think there will be no consequences. Because finding the right people with political connections then paying those people to use their connections to get lucrative deals or preferential treatments has always been the third method of operations practiced by the global companies especially if we are talking about financial institutions like JPMorgan. The best known similar scandal was the scandal involving Marc Rich in the 1990es. Rich was a legendary commodities speculator who use his financial company and his political connections to trade oil with countries which were under international embargoes and sanctions. When he got caught the scandal was tremendous in scale. He was convicted but in the end Marc Rich got a pardon from president Bill Clinton on the last day of Clinton’s term in office. So nothing will change because nothing ever changes in this industry because of its political connections. It has been true for Marc Rich, it remains true for JPMorgan .

Voice of Russia

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