LEGAL/REGULATORY The New York Times,
JPMorgan’s Fruitful Ties to a Member of China’s Elite
BY DAVID BARBOZA, JESSICA SILVER-GREENBERG AND BEN PROTESS
Wen Ruchun
To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm run by a 32-year-old executive named Lily Chang.
Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank.
But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.
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Graphic: Tracking the JPMorgan Inquiries
JPMorgan’s link to Ms. Wen — which came during a time when the bank also invested in companies tied to the Wen family — has not been previously reported. Yet a review by The New York Times of confidential documents, Chinese public records and interviews with people briefed on the contract shows that the relationship pointed to a broader strategy for accumulating influence in China: Put the relatives of the nation’s ruling elite on the payroll.
And the Wen family’s sway was not just political. After Ms. Wen’s father joined the inner circle of China’s rulers as vice prime minister in 1998, the family amassed a secret fortune through a series of partnerships and investment vehicles, a 2012 investigation by The Times found.
Now, United States authorities are scrutinizing JPMorgan’s ties to Ms. Wen, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned Chinese companies, according to the documents and interviews. The bank, which is cooperating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing.
The investigation began with an examination of the bank’s decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate. The contract with the consulting firm of Ms. Wen, 40, indicates that the bank’s hiring practices also touched the highest rungs of political power in China. Her father was prime minister from 2003 until earlier this year. Her mother has served as a government official with oversight of the nation’s gem and diamond industry. And since 2006, Ms. Wen’s husband has been an official at the China Banking Regulatory Commission, according to China Vitae, an online database.
For Ms. Wen’s consulting firm, Fullmark Consultants, the JPMorgan deal was lucrative. While many Hong Kong investment bankers were earning as much as $250,000 a year, JPMorgan paid Ms. Wen’s firm $900,000 annually from 2006 to 2008, records show, for a total of $1.8 million.
JPMorgan appeared to benefit from the relationship as well. Fullmark claimed in a confidential letter to the bank that it “introduced and secured” business for JPMorgan from the state-run China Railway Group, a construction company that builds railways for the Chinese government. The bank was an underwriter in the company’s 2007 initial public offering, which raised about $5 billion.
Jason Lee/ReutersWen Jiabao, China’s former prime minister, at the National People’s Congress in Beijing earlier this year.
It is not known whether Ms. Wen’s father, Wen Jiabao, played any role in that deal. But as prime minister, he would have had ultimate responsibility for state-owned companies and their regulators.
Efforts to reach Ms. Wen and other members of her family were unsuccessful.
A spokesman for JPMorgan declined to comment. In a previous regulatory filing, the bank disclosed that authorities were examining “its business relationships with certain related clients in the Asia Pacific region and its engagement of consultants.”
Executives at JPMorgan’s headquarters in New York did not appear to be involved in retaining Fullmark, a decision that seemed to have fallen to executives in Hong Kong. And 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, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws.
The Securities and Exchange Commission and the United States attorney’s office in Brooklyn, which are leading the investigation, both declined to comment on the case.
Underpinning their investigation is the Foreign Corrupt Practices Act, which effectively bars United States companies from giving “anything of value” to foreign officials to obtain “an improper advantage” in retaining business. In recent years, the S.E.C. and the Justice Department have stepped up their enforcement of the 1977 law, which is violated if a company acts with “corrupt” intent, or with an expectation of offering a job in exchange for government business.
It is unclear whether JPMorgan ever had such an upfront agreement. But the bank did briefly keep a document that tied some of its well-connected hires in China to revenue it earned from deals with Chinese state-owned companies, according to interviews and records that JPMorgan turned over to federal authorities.
The investigation comes at a difficult time for the bank, which is already under scrutiny from a number of agencies in Washington and abroad. JPMorgan recently reached a tentative deal with the Justice Department to pay a record $13 billion over its sale of troubled mortgage securities. It is also facing an investigation into its role as Bernard L. Madoff’s primary bank. The bribery investigation could take years. The S.E.C. and prosecutors have expanded their focus to other Asian countries, including Singapore and South Korea, looking at whether hiring practices that have become commonplace on Wall Street crossed a line at JPMorgan.
For the last two decades, Wall Street banks and multinational corporations operating in China have sought out so-called princelings as employees, consultants or partners in major Chinese business deals. Many banks talk freely about the ability of princelings to open doors and offer insights into government policies and regulations.
In 2006, JPMorgan established a program, called Sons and Daughters, according to interviews with people in New York and China, to have better control over such hires. But documents that the bank turned over to investigators showed that there were less stringent hiring standards for applicants from prominent Chinese families.
The children of China’s ruling elite, according to experts, have occasionally used government-approved aliases to protect their privacy while studying or traveling abroad. Ms. Wen used her alias for both schooling and business. According to government records, Ms. Wen holds two national identity cards with matching birth dates, one issued in Beijing under the name Wen Ruchun and a second issued in the northeastern city of Dalian, as Chang Lily.
Lily Chang was the name she used while studying for an M.B.A. at the University of Delaware, where she graduated in 1998, and also when she lived in Trump Place, the luxury apartment complex overlooking the Hudson River in Manhattan, according to public and university records.
Like the children of other senior Chinese leaders, she was courted by Wall Street. After securing her M.B.A., regulatory records show, she worked at Lehman Brothersand later Credit Suisse First Boston as Lily Chang. Separately, she held a stake in several private companies.
Ms. Wen’s work for JPMorgan was tied to her company, Fullmark Consulting. According to the documents reviewed by The Times, Fullmark was located on the ninth floor of Tower C2 at Oriental Plaza, a high-end retail and office complex in central Beijing.
Over the last decade, corporate filings show that the location also housed private companies that were either controlled by or affiliated with the Wen family. Some of those companies have held indirect stakes in Baidu, China’s biggest Internet search engine, and Ping An Insurance, the financial services giant.
Ms. Wen’s apparent partner at Fullmark, and a signatory to the JPMorgan consulting agreements, was a woman named Zhang Yuhong, a longtime Wen family friend and business partner who at one time held a large but indirect personal stake in Ping An. She also helped control Wen family assets in other industries, including diamond and jewelry ventures.
Little else is known about Fullmark or its other clients. When JPMorgan hired the firm in 2006, people briefed on the contract said, the consulting firm had already worked with at least one other major financial institution.
JPMorgan’s contract with Fullmark called for the consultant to “to promote the activities and standing” of the bank in China. According to Fullmark’s letter to JPMorgan, the consulting firm had three main tasks. One, it helped JPMorgan secure the underwriting job on the China Railway deal. It also advised JPMorgan about forming a joint venture with a Chinese securities firm and provided counsel on the “macroeconomics policy in mainland China.”
In that letter, which was undated but almost certainly sent to the bank once the contract had expired, Fullmark declared that it did not “have the intention to continue the consultancy service.” The letter, signed by Lily Chang and Zhang Yuhong, cited “personal reasons.”
During her two-year consulting stint, JPMorgan executives struck a series of deals with Chinese companies closely affiliated with Ms. Wen and her family. Like other big banks, JPMorgan held a stake in New Horizon Capital, a private equity firm co-founded by her brother, Wen Yunsong.
JPMorgan also invested its clients’ money in Ping An and served as an adviser to the giant company. Today, on behalf of clients, JPMorgan owns nearly $1 billion worth of the company’s shares. At the time of JPMorgan’s initial investment for clients, members of the Wen family held a large, hidden stake in Ping An through a complex network of Chinese investment vehicles, a stake that in 2007 was worth more than $2 billion, according to corporate filings reviewed by The Times.
JPMorgan also won an assignment in 2009 to help underwrite an initial public offering of BBMG, a large Chinese building materials company. BBMG’s largest shareholders included New Horizon Capital, the private equity firm of Ms. Wen’s brother, and Beijing Taihong, an investment vehicle controlled by a longtime business associate of the Wen family. After the shares rose after the company’s I.P.O., Ms. Wen became the largest shareholder in Beijing Taihong, according to a filing.
There is no indication from the documents reviewed by The Times that Ms. Wen brokered any of the deals or investments between JPMorgan and companies affiliated with her family. And it is unclear whether JPMorgan employees even knew about her family’s ties to some of those companies, because the Wen family often held secret stakes in companies through little-known investment vehicles.
Ms. Wen also kept some distance from the Fullmark documents. Her name does not appear in the contract, though she was a signatory on the undated letter concluding the relationship with JPMorgan.
The letter, sent around the time of the financial crisis, struck an optimistic tone. “We hope JPMorgan Chase will grasp the opportunities and become to be the winner in the financial crisis,” it read.
A version of this article appears in print on 11/14/2013, on page A1 of the NewYork edition with the headline: Bank’s Fruitful Ties to a Member of China’s Elite.
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- J. Von Hettlingen
- Switzerland
- Verified
No doubt JP Morgan was not the only one to employ this strategy. Vitamin C - C for connections - is a business tradition known to many cultures. China is no exception. Princelings and children of high-ranking officials captialise on the standing to enrich themselves by helping foreigners boost their business in the country.
Out of egalitarian point of view, it's not at all fair and should be condemned. Fortunately we have the means to probe into this kind of practices and penalise the culprits.- Prof.Jai Prakash Sharma,
- Jaipur, India
- Verified
Since an easiest way to do business in China is through state favor, JP Morgan too tried to make fortunes currying favors from elite family members and state officials. If this involves paying hefty packages to the concerned persons, so what? It's a chase for money.- Carolyn Egeli
- Valley Lee, Md.
- Verified
Put Chase out of business. Revoke corporate charters and only give them back if they can prove they benefit stakeholders, not just shareholders. While corporations get the benefit of American tax dollars at the cheapest rates possible, the rest of Americans suffer. I can think of lots of other bloated over sized, greedy and anti-trust laws suspects that need to be not only broken up into smaller companies, but whose officers should have years ago gone to jail. Some are foreign based, which matter little. None of them care about the people of the world, only their bottom lines. Break them up and quit giving them money. Send the officers to jail. These guys love the Chinese…they are so efficient at capitolism.- rmt
- Urbana, IL
This is the "meritocracy" all those right wing business journals are touting, saying that we should emulate more if we want to make progress in America. Here's a helpful translator for the politically stupid:
1) Meritocracy = the rule of a small group of people I am part of or have strong ties to
2) Tyranny = the rule of a small group of people I will never be a part of and who have complete control over my life or death
Which definition do you thing most Americans would identify with?- Vincent Amato
- New York City
Nothing Chase would do chasing a buck would surprise anyone. What is significant and rather chilling about this story is the extent to which so many members of China's current ruling class are not only suscepticble to corruption but go out of their way to invite it. China's lusty and rapid adoption of capitalism--warts and all--though perhaps inevitable after the demise of the Maoists, increasing raises the spectre of trouble ahead in a land where a numerically large but tiny percentage of China's 1.3 billion citizens sits atop an ever more restless populace. The consequences of a reaction would be far more devastating to the world's economy than even the debacle created by the panic in Western economies that befell us in 2008.- joe
- new jersey
So much for a culture of honesty Mr. Diamond.- Rob Campbell
- Western MA
This article represents what is wrong with both capitalism and communism as they have evolved in the East and West. Two ideological philosophies working in cahoots to the advantage of the few at the top with little or no care for the many.
Two sides of the same coin, think about it- I rest my case.- Jon Davis
- NM
The economic vision of the Chinese communist, the Iranian religious fanatic and the U.S. Republican are virtually identical.
And regardless of their stated differences, most of the time U.S. Democrats are little diferent from U.S. Republicans.
Take environmental protection, e.g., Obama is worse overall than Nixon, Reagan, Bush I or Bush II.
- JG
- Beijing
A well written article. I guess Ms Wen did not foresee the $2bn Ping An fortune the family will get in a few years time, otherwise, who would she put her name down for a paltry $1.8m. Oh well, the ordinary Chinese citizens can only sit back and enjoy Chinese government going crazy censoring this article in China.- Sharkie
- Boston
Violating the Foreign Corrupt Practices Act isn't the half of it. JP Morgan Goldman Sachs is making trillions in fees chopping up the United States into small pieces and feeding it China. These Central Committee children aren't getting money to help the banks in China; the banks are kicking back to China's officialdom viz. their kids (common practice) for all the sovereign wealth money the banks are using to buy up the parts of our economy the Chinese want - like, say Smithfield meat for a pork-fed China driving up prices here and not. The Chinese also paying for the privilege of buying and shutting down competition happening across the board in manufacturing and technology. The Chinese aren't stupid - not that they're so smart either - they know corruption when they see it and they know how to play. This article implies (though I doubt the author believes) that the banks are using the money to do business in China. They're not. Wall Street is getting fat transforming America into a second rate power.- Tony Burba
- The Rose City
You go!
I assume that two articles in the past few days of the kind that are getting other news media barred from the Middle Kingdom are intended as a direct challenge to censorship by the current mandarins.
Bloomberg caved. You haven't. Keep it up.- AzTraveler
- Phoenix
The term Banksters never fit better.- MStone
- Boston
Isn't this a worldwide common practice for offspring of government officials and company executives? Check the following:
http://www.celebritynetworth.com/dl/chelsea-clinton-salary/
Chelsea Clinton net worth: Chelsea Clinton is the daughter of former President of the United States Bill Clinton and United States Secretary of State Hiliary Rodham Clinton and has a net worth of $15 million. Chelsea Clinton earned her net worth through her career at the consulting firm of McKinsey & Company, as well as Avenue Capital Group and is on the board of the School for American Ballet. Sh...- Emkay
- Greenwich, CT
For your next article, please focus on Goldman Sachs' fruitful ties to central banks and the highest levels of government in the developed world.- Patrick
- Long Island NY
The little story is the personal relationships.
The big story is that J. P. Morgan is investing Americans money in China instead of America to benefit Americans.
Isn't it great to know your pension money is spent in foreign lands to build factories that take your job and paycheck here in America?
I might do my banking with a small community bank that reinvests in the local community.- John
- Jones
It smells of a payoff by JP Morgan for contracts from China. That is called a bribe and is a criminal offense, The reason the Bo Xilai trial focused on murder and anti state activities and not on his massive financial holdings obtained through violence and payoffs, is that the entire top leadership of the PRC, the "princelings" are on the take on a massive scale. Bo Guagua, Bo Xilai's son, has control of an estimated $4 billion US in money spirited overseas and yet continues to placidly study law at Columbia University. Who hasn't' Guagua been arrested? A very good question. Probably a secret deal between Obama and the PRC, Corruption is endemic in China. And Jamie Dimon should be arrested for these shenanigans,- Money talks
- New York
I certainly hope that the three named authors on this article haven't any future plans to apply for a Chinese visa, because it would seem unlikely that the Chinese government would grant such a request...
http://www.nytimes.com/2013/11/10/world/asia/reporter-for-reuters-wont-r...- Someone else
- Somewhere else
More implication without facts. And a twofer. The times slamming China (why no free pdf this time?) and a bank. Red meat for the leftists. If they ate it.- Dr. Hawes
- New York
Don't they know that Goldman won the election? How dare they.- JK Han
- PA
I am wondering why NY Times has being specifically targeting the family of Wen Jiabao. I remember last year there was another article revealing the wealth behind this family. However as we can imagine, the corruption or power-money games would always exist in politics. If you look deep enough, more people at that level (ruling class) should come to the surface. The continuance report on Wen's family just reminds that this could be politics again with pointing fingers and image smearing.- W.Wolfe
- Oregon
75K a Month?? And only for insider connections?? To those folks, that's lunch money. I'm glad I no longer do business with that Bank, "American" as it may be. I boycott all Chinese gioods. The Chinese Government / CCP would cut anyone's throat in a heartbeat, just to further their own agenda. Let them pollute their own Country.- anonymous
- Beijing, PRC
The difference is that in the U.S. it's a crime, while in the PRC it's a way of life.- CKL
- NY
Come on, someone please indict these racketeers already. Foreign Corrupt Practices Act, Securities Fraud, rigging the markets (see gold & silver futures every single day), rate fixing, gaming the energy markets, mortgage fraud, etc. The list is enormous. This has got to be one of the biggest racketeering enterprises in all of bansterdom -- but obviously not the only one. Jamie Dimon has got to be the biggest crook this side of our large cohort of indigenous war criminals.- retired northernCA teacher
- Redding, CA
These just sound like some of the great deals Mitch McConnell's father-in-law was able to make which inflated Mitch's wealth considerably.
Business as usual.- pspiegel
- San Francisco, CA
I’m shocked, shocked to find that influence peddling is going on in here!- PC, MD
- Hilo, HI
What is so surprising?
http://www.forbes.com/sites/kerryadolan/2013/01/23/isabel-dos-santos-daughter-of-angolas-president-is-africas-first-woman-billionaire/
ResponderExcluirhttp://www.theguardian.com/world/2013/jan/25/isobel-dos-santos-africas-first-female-billionaire
Vale!