JP Morgan stands as the poster child for how not to interact and resolve issues with the federal government.
After what appeared to be a difficult set of negotiations, the Justice Department and JP Morgan reached a record $13 billion financial settlement to resolve government claims against JP Morgan relating to its actions in the mortgage-backed securities market. The government stood its ground on an important issue – it reserved the right to seek criminal penalties against JP Morgan and its officers and employees.
You can second-guess JP Morgan on this settlement but you have to give them credit for moving the company forward, closing a chapter on its past and developing a positive story for the future.
Whatever positive gain JP Morgan earned with the settlement, it has quickly dissipated with two new events. These events confirm what DOJ probably continues to believe – JP Morgan still has not heard the message, much less incorporate it into its company culture. JP Morgan believes that it is somehow the “victim” of government enforcement. Such an attitude, which could permeate an organization, makes it difficult – if not impossible – for JP Morgan to turn around its ethics and compliance culture problems.
The failure of JP Morgan to learn anything from its past string of misconduct and problems was recently confirmed in a panel presentation at which JP Morgan’s General Counsel suggested that escalating corporate fines were unjustified. JP Morgan’s General Counsel rhetorically asked, “At what point does this stop?,” referring to record-setting fines for J.P. Morgan and other large banks. “We should all be concerned,” he added, “because at a certain point people become immune to the numbers.”
To suggest that JP Morgan, banks and other companies have become “immune” to the record fines sends the wrong message to the government, and more importantly, to JP Morgan and other banks. His comment also serves to confirm what many policymakers believe that only criminal penalties against individual corporate actors wills end the right message of deterrence.
It was even more surprising for JP Morgan’s General Counsel to make such comments three days after the announcement of the bank’s $13 billion settlement with the Justice Department.
Perhaps it is no surprise that within weeks of this announcement, JP Morgan’s troubles grew when it became clear that JP Morgan engaged in an orchestrated campaign to hire relatives of foreign officials in China. The scope of this campaign is just becoming known publicly but it is clear that JP Morgan has even more to answer for when it comes to compliance.
The buck should stop at the corporate board but unfortunately JP Morgan’s board is controlled by the same person who is the CEO and who orchestrated the settlement with DOJ. Many governance experts have suggested that such an arrangement, by definition, breeds governance and compliance problems. Whether there is a cause and effect between the governance structure and JP Morgan’s difficulties, only time will tell and I am sure studies will be conducted to answer that question.