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JPMorgan (JPM) has been beset with investigations in recent months regarding its operations and practices. For the most part, the Justice Department focused its queries on activities in the United States, but now the investigations are expanding to look at the company's actions oversees in hiring the relatives of prominent business leaders in Asia in order to gain financial advantage.

JPMorgan has had a presence in Asia for over 140 years, with interests in South Korea, China, Australia, India, Bangladesh and Thailand. However, as Asian countries gained pre-eminence over the past decades, JPM has actively worked to forge close financial relationships to increase their profitability. This aggressiveness has led to a number of actions that are now been scrutinized not only by the SEC but also by the U.S. Department of Justice.

JPMorgan instituted a "Sons and Daughters" program in 2006 to avoid an appearance of impropriety and bribery when forming business relationships in some of the highest levels of Asian industry. However, the program allegedly soon turned into a "fast-track program" serving to minimize the number of interviews and lowering standards, but providing JPM with significant connections to prominent businesspeople in many Asian countries. The Justice Department and SEC joint probe questions whether these were real jobs at all in any sense, or simply a way to win favors from business interests overseas. In the hiring process, JPM left a trail of paperwork showing how they benefited from these alliances with powerful families. One example is the 2007 hiring of the daughter of the former chief engineer of China's ministry of railways. The company used this connection to make significant financial interactions with a number of railway businesses in the months that followed. The number of examples may be difficult for JPM to explain away in a legal case against them.

At the heart of the Justice Department's case are violations of the Foreign Corrupt Practices Act of 1977. This law focuses on the incidence of bribery of foreign officials by U.S. companies in order to gain financial favor. The hiring of dozens of the children of prominent Asian businesspeople and officials would be a clear violation of the act if these hires were not actually doing any work for JPM. However, the Foreign Corrupt Practices Act can be interpreted rather flexibly. Overt bribery is not always required. A number of cases have already been prosecuted successfully regarding the hiring of relatives of prominent people to gain influence.

Conclusion
For JPMorgan, more news of investigations concerning their business practices is another blotch on their reputation as a successful financial institution and is a negative for the stock.

Already burdened with several substantial fines for actions during the mortgage crisis and lack of supervision of employees, the company is likely to continue struggling with a variety of legal and ethical issues for some time to come.

Investors should consider taking some profits in JPM.

Source: JPMorgan Loves Powerful Asian Families