(MENAFN - AFP) Foreign investment banks in China were taken by surprise by a US bribery probe into JPMorgan's hiring of Chinese "princelings" -- in part because the practice is so widespread.
The anti-bribery unit of the Securities and Exchange Commission (SEC) is reportedly investigating claims the company hired at least two children of powerful Chinese officials to help win investment banking business in the hugely lucrative market.
Now industry insiders say other firms will be reassessing the practice of recruiting "princelings", as rich young Chinese with powerful family connections are known.
JPMorgan said in a statement it was "fully cooperating" with regulators and had publicly disclosed the issue in a filing to the SEC. A spokeswoman declined further comment.
The key question is whether such hires amount to an illegal bribe, in violation of America's Foreign Corrupt Practices Act.
The issue is that there may be a blurred line between recruiting the best person for the job, choosing the candidate with the best connections, and picking someone as a trade-off for effectively winning the company business through the back door.
"Everybody is involved in stuff like that. It's pervasive," said Andy Xie, an independent analyst and formerly Asia economist for Morgan Stanley.
"So many people have power (in China). You hire this person's son. I hire this person's daughter. It ends up like a Chinese game."
In the JPMorgan case, authorities are looking at the recruitment of the son of Tang Shuangning, a former banking regulator who is now chairman of the state-run financial conglomerate China Everbright Group, the New York Times said.
Everbright declined to comment to AFP.
An unnamed official at Everbright Bank, one of its units, told Chinese state media the selection of JPMorgan as an underwriter for a planned Hong Kong listing was "normal and open".
The US investment bank also hired the daughter of a Chinese government railway official around the time a rail firm was seeking an underwriter for a listing, the New York Times said.
Both worked from JPMorgan's office in Hong Kong.
The New York Times, which broke the news of the SEC investigation, said a government document on the case did not show a clear link between JPMorgan's hiring policy and its ability to secure business.
The records also did not suggest the hired employees were unqualified, or that they necessarily helped JPMorgan secure business.
"Investment banking in China is all about connections," said a former investment banker who declined to be named.
"The banks will have a bunch of people who can do the numbers, but if you don't have the deal then the numbers are irrelevant.
"It's a lot easier just to hire people with the right connections."
Other so-called "princelings" include Margaret Ren, the daughter-in-law of a former premier and Communist Party chief Zhao Ziyang, who is now at Bank of America Merrill Lynch after working at several other banks.
Alvin Jiang, the grandson of former Chinese president Jiang Zemin, worked for Goldman Sachs before leaving for private equity firm Boyu Capital.
The SEC's move against JPMorgan came as a surprise, but follows public anger and tighter regulation of Western banks, blamed in large part for the 2008 financial crisis.
Recruiters said foreign firms in China would now be reviewing their policies.
"Practices that have perhaps been accepted or tolerated are coming under a lot more scrutiny," said Simon Lance, China regional director for global recruiting firm Hays.
"I would see JPMorgan as sort of along the same theme really. Companies in general would be looking at the risk associated with their business."
The recruitment of Chinese officials' relatives also happens in other sectors.
British pharmaceutical giant GlaxoSmithKline, which is now facing a bribery investigation in China, previously employed the daughter of late party chief Hu Yaobang, reports say.
The daughter of China's former finance minister Xiang Huaicheng works for global accounting firm PricewaterhouseCoopers, according to a regulatory filing.
The revelations about JPMorgan have also inflamed long-held resentment towards the children of China's leaders, who are viewed as profiting from their family ties in the one-party state at the expense of those who may be more talented but lack connections.
One microblog poster said: "Today's China is an era of comparing fathers, in which a powerful father trumps all individual merits."