US authorities have extended their investigation into banking recruitment in China to cover Morgan Stanley, following revelations that JPMorgan is being probed for its commercial relationship with the daughter of former Chinese Prime Minister Wen Jiabao.
According to Reuters, which cited an anonymous source familiar with the Department of Justice (DoJ) investigation, Morgan Stanley is now part of the broad probe by US authorities into banks' hiring practices in China amid concerns of politically-motivated appointments. Morgan Stanley declined to comment.
It is not clear what other financial firms are under investigation by the Securities and Exchange Commission (SEC) or DoJ, but Reuters said it was told that banks across the global system had been asked to hand over information relating to their hiring of relatives of Chinese officials.
In November it emerged in a New York Times report that US investment banking giant JPMorgan hired the daughter of Wen Jiabao, the former Chinese prime minister, through her little-known consultancy business and under an alias in a relationship being probed by financial regulators.
Wen Ruchun, or "Lily Chang" as she was known, was paid $75,000 a month by JPMorgan through her firm Fullmark Consultants, which only had two employees.
Wen Jiabao was China's prime minister for a decade until 2013, before stepping down. From 2006-08, Fullmark made $1.8m from JPMorgan. While he was prime minister, JPMorgan won the contract to underwrite the $5bn IPO of state-run China Railway Group, which builds rail infrastructure in the country.
A confidential letter from Fullmark to JPMorgan, which NYT said it had seen, claimed the consultancy "introduced and secured" this business for the bank.
JPMorgan faces no allegation of wrongdoing over the contract with Wen Jiabao's daughter, but it forms part of a broader corruption investigation by the SEC into links between the bank and Chinese officials and businesses.
NYT added that from its investigation the decision to take out a contract with Fullmark appeared to have been made by JPMorgan's Hong Kong office rather than its headquarters in New York.
Regulators' enquiries into JPMorgan are centred on the US Foreign Corrupt Practices Act, under which companies are not allowed to seek improper advantage with firms abroad with gifts of "anything of value".