The US Department of Justice is probing Morgan Stanley for its hiring practices in China, according to a person familiar with the matter.
The move comes as US authorities expand their investigation into whether banks’ hiring of politically connected Chinese employees may have breached US bribery laws.
US authorities’ interest in the hiring practices of banks operating in China first came to light in August when media reports disclosed that the US Securities and Exchange Commission (SEC) was looking at whether JPMorgan Chase & Co’s Hong Kong office hired the children of powerful heads of state-owned companies in China with the express purpose of winning underwriting business and other contracts.
The US Department of Justice is working closely with the SEC, which has launched a sweeping investigation that has widened from JPMorgan to look at whether a number of financial services companies have been violating bribery laws through their hiring, said the person and another individual familiar with the probe.
Apart from JPMorgan and Morgan Stanley, Reuters could not determine which other banks are under scrutiny.
The SEC has asked firms across the global financial services industry to provide information about their hiring of the relatives of government officials in China, said the two people, who were not authorized to speak publicly.
As part of that broader sweep, the SEC passed along information to the Department of Justice about Morgan Stanley, one of the people said, while declining to provide details about what investigators uncovered.
Another source confirmed Morgan Stanley did receive a letter from the SEC asking for information about its China hiring practices. The source said the firm has not been contacted by the Department of Justice, which may indicate that the department’s criminal probe is at an early stage.
It is unclear if the Department of Justice’s interest in Morgan Stanley and other firms will lead to any action against them.
Authorities’ scrutiny of Morgan Stanley’s dealings in China comes after Department of Justice officials repeatedly praised the bank’s “rigorous compliance program” to prevent corruption. In various speeches encouraging firms to better police for bribery, officials have pointed to Morgan Stanley’s vigilance as the reason why the bank did not face charges after its former top real-estate dealmaker in China pleaded guilty last year to conspiring to evade internal controls to enrich himself and a Chinese government official.
Morgan Stanley was early to spot China’s economic promise, purchasing a stake in an investment bank there in 1995. It now has more than 20 dedicated China investment bankers, the most among foreign banks, and has worked on some of the largest IPOs there in recent years.
JPMorgan said in a regulatory filing earlier this month that it is cooperating with requests for information, including subpoenas, from the SEC and the Department of Justice about its hiring practices in the Asia-Pacific region.
One source said that probe began, based on information provided by a JPMorgan insider.
The investigation has sent chills across global banks. It has become a common practice for investment banks to hire people with government connections, but this is especially prevalent in China due to the role the Chinese Communist Party plays in the country’s business.