Flint Sues JPMorgan Amid Water Crisis (2014-2020)

Flint Michigan sues JPMorgan Chase over water crisis (2014-2020)

JPMorgan Chase & Co. is a relatively new bank founded in 2000, and it is an American multinational investment bank and financial services holding company that is ranked by S&P Global as the seventh-largest bank in the world and largest bank in the United States based on total assets. But even banks like JPMorgan Chase are not always perfect. They might be far from it mainly because of a lawsuit from the city of Flint Michigan. Flint had been using the same water supply as Detroit had been using, but after JPMorgan underwrote a bond sale that financed and enabled Flint’s participation in the Karegnondi Water Authority pipeline instead, things started to go downhill for Flint residents. This water compared to the water that Detroit was receiving was significantly different; the flint river water was unfiltered, untreated, and contained dangerous components like legionella bacteria along with lead. 

Through the analysis of this case, this paper will describe JPMorgan Chase’s actions that cost some people their lives, while looking at the case through a few different ethical theories, which includes Individualism, Utilitarianism, Kantianism, and Virtue Theory. This will be done to decide if the case is ethical or unethical according to each different view. For example, an Individualist could claim that what JPMorgan Chase did was ethical because underwriting a bond sale to make more of a profit is a completely legal action to take. On the other hand, a Utilitarian would argue that what they did was unethical because not even the majority of people were happy with the actions that these banks took, in fact, the majority of people were not happy with these actions. Similarly, a Kantian would agree that JPMorgan was unethical, they treated the city of Flint as a mere means to profit off of them. Lastly, using the virtue theory, it would also deem banks actions to be unethical, because JPMorgan was not honest, they did not have the courage to tell people, and they knew what they were doing was wrong.

Ethics Case Controversy:

            

     

       

            On April 25, 2014, Flint, Michigan officials switched the water supply from Detroit’s Water and Sewerage Department to the Karegnondi Water Authority, claiming to be for a cost-cutting measure for an economically struggling city. But before going more in-depth with what happened, the background information for the city of Flint is vital to the story. It was said that the Flint River had essentially been a waste dump for many industries nearby, and as most people know, the automobile industry was centered around Michigan, which means during those times, profits and income continually were rising. But by the 1980s, oil prices and automobile imports were rising, which meant incomes had been slowly dropping, and that led to many houses being deserted, people fleeing the city, and Flint being in millions of dollars in debt.

Since the city was in so much debt, officials had to find a way to start cutting costs and get the city back on its feet. So, in the early 2010s, the decision was made to switch the city’s water supply from the treated water of Detroit to the unfiltered water of Flint River until a new pipeline was created. When this switch occurred, families started receiving the unfiltered, untreated water and many people were exposed to chemicals that were not safe to be in the water. Although this switch was supposed to save the city millions of dollars, this water supply, as stated previously, led to countless cases of lead poisoning, kids were exposed to legionella bacteria, and many lives were permanently changed (this ultimately led to many residents filing lawsuits against each of the three banks). 

           

            So, according to the lawsuit, it states that without the money from the banks, Flint residents still would have to use Detroit water because they would not be able to afford this deal. With the money from the banks, Flint was able to join the Karegnondi Water Authority; the KWA would construct a 63-mile pipeline from the water in the lake to Flint and two pup stations, in total the cost would be around $300 million, and the bond allocated was $85 million. In other words, residents say that without the bond financing, Flint wouldn't have been able to join the KWA, in turn meaning the KWA would not have been able to commence construction, and these cases of lead poisoning and so on would have been easily prevented. Ultimately, more than 2,000 victims of the Flint water crisis sued J.P. Morgan Chase & Co, Wells Fargo and Stifel, and Nicolaus & Co in Flint federal court for their alleged role in the Flint water crisis. From the lead leached pipes, 12,000 children had been exposed to dangerous levels of lead and caused at least 12 deaths.

Stakeholders:

            

            Stakeholders within this controversial mess would include JPMorgan Chase, Wells Fargo, Nicolaus & Company, people who had shares in either of the three banks, officials of Michigan like the governor, and pretty much the entire city of Flint (whoever had to use the unsafe water supply)

(Jamie Dimon, CEO of JPMorgan)

            First of all, residents of Flint easily suffered the most because of the actions taken by the three banks. As stated before, if these banks did not provide Flint with the extra needed money, then they would have kept using the Detroit water supply, and in turn, there would have been no cases of lead poisoning or legionella bacteria. Also, the governor played a major role, because he had to of known about the waste dumping that occurred in the Flint River, in other words, that the water was simply not safe for people to be consuming. As for the banks themselves, every higher-up employee ranging from the top of the chain, or CEO’s, to any other employee that is involved in making decisions, must have been involved in this specific decision. It was said that the banks and the governor knew that the water was untreated and that it could hurt many people, yet everyone involved in this decision still seemed to be okay with that. Along with the banks’ decision-makers, people involved with the banks’ finances and accounting were likely involved because they manage the money aspect, so without involving them they wouldn’t be able to supply the money. 

Individualism:

Friedman’s individualism states that “the only goal of business is to profit, so the only obligation that the business person has is to maximize profit for the owner or the stockholders within the law of the land.” From this view, it is easy to say that JPMorgan Chase was well within the requirements of Individualism, as the only goal of the business is to profit, as long as it is within the law. It is not against the law to underwrite a bond sale or provide money to eventually gain money, and they are trying to make a profit for themselves and their stockholders, so when thinking of it that way, it is completely ethical. On the contrary, if people deem supplying unfiltered/untreated water as against the law, or that because JPMorgan knew the risks of their actions and still proceeded with them, then it is against the law, then yes this could also be seen as unethical and not following the idea of Individualism. 

Utilitarianism:

(Flint/Detroit Water Appearance)   

            Utilitarianism is said to be an ethical tradition that directs us to make decisions based on the overall consequences of our acts. In other words, a Utilitarian believes that the most ethical choice is the one that will be the most beneficial for the greatest number, or the choice that makes everyone happy with the result. So, if someone is not happy, then a Utilitarian would most likely not deem the act as ethical. On the business side, everyone is happy that they are going to be making money because of the actions committed. When only looking at the businesspeople impacted, then it would be considered ethical. But that is not the case, the whole picture is needed in this case especially. Yes, maybe the banks and people involved are happy with the result of making more money, but the entire city of Flint is unhappy with this decision to switch water supplies from a safe source to a deadly source. Put differently, JPMorgan and the other two banks would not meet the Utilitarian requirements, and a Utilitarian would easily deem JPMorgan’s actions to be unethical. In this case, not even a majority of the people would be happy with the end result.

Kantianism: 

            

            Kantianism is an ethical theory that states everyone should be treated as an end, and not as a mere means, and it uses the formula of humanity to supply its structure. JPMorgan Chase and the two other banks decided that in order to make a profit here, they essentially have to use the city of Flint. These banks knew the Flint River was not safe, yet they still supplied the money to make this switch happen. In short, a Kantian would mark this case as unethical because the banks used Flint to profit off of them, or they used the city as a mere means. Banks and businesses around the world are always just trying to profit, and in this case, to a large extent, is just JPMorgan trying to make money despite knowing the possibilities of people’s lives permanently changing. As for the city, they were trying to do what is right, but at the cost of saving money, so when this opportunity to cut into the debt arose, city officials had to jump in and join the decision. In conclusion, a Kantian would say that the banks’ actions were unethical because they treated the city of Flint as a mere means to profit off of them, knowing the consequences that would potentially come with it. 

Virtue Theory:

           

            Virtue theory uses the four cardinal virtues of courage, honesty, justice, and temperance to evaluate if an act was ethically correct or not, and also uses these virtues to determine the development of good character traits. In using the four virtues to determine if JPMorgan Chase was within ethical boundaries, it was discovered that what the banks did was greatly unethical. First, using the virtue of courage, the banks showed this in the wrong way. Flint officials had courage because they wanted to cut the amount of debt that they were in to help the city of Flint, and even banks had courage because they knew the consequences that would occur if they were to supply the money, but they did not have the courage or will to tell people that this water was not safe to use. Additionally, and similarly, the banks showed no bit of honesty, as they all knew that the water was unsafe for people, yet they still did not tell anyone and kept denying any claims against them, even if they were true. In terms of temperance, JPMorgan Chase did not refrain from supplying the money for the pipes to be built, or for the water source to switch from safe water to unsafe water, when they easily could have stepped back and realized that what they were doing was wrong. And lastly, the banks provided people with absolutely no justice, as many Flint residents, especially younger residents, were severely hurt because of the actions these banks went through with. 

Justification Ethics Evaluation:

           

            It does not take the smartest human on earth to realize that what JPMorgan did was completely out of line and unethical. Everyone involved in this decision knew the risks that came with switching the water supply while building the new pipes, yet no one seemed to care enough to stop this transaction from taking place. These banks had a decision to make, either one, provide money now and profit off of it later, or two, find somewhere else to invest that money, and save Flint residents the terrible times that would be ahead of them using water that was not safe. 

(Causation of Unsafe Water)

Most people, and definitely enough people, knew that Flint River was a waste pile. So how could companies like these banks still go ahead with this decision of temporarily switching to the Flint River as a water supply? Money. As stated earlier, most banks and businesses just want to profit, and they don’t care what the side effects may be from their actions. In this case, it cost Flint residents a lot more than just a few dollars. 

Company Action Plan: 

           

            Flint at the time (before the bond was written) was a struggling city that was in millions of dollars in debt, and they couldn’t stay in debt for too long. This led to the city governor having the difficult task of cutting the city’s debt fast, and when the opportunity popped up, it was increasingly hard to say no to cutting into that debt. Obviously, no one wants to harm people just because, but with cutting debt came the issue of what happens because of this action. Well, it must not have been discussed very much, because the only focus at the time was to save money, and at the same time that this would help the residents of Flint because the city would hopefully be debt-free much sooner. 

JPMorgan Chase is one of the most trusted and elite investment banks, and it would come as a shock if they intended for people to get hurt because of a bond they underwrote. Either way, they were involved in a huge crisis, and as a leading bank in the world, that cannot help the company overall very much. From this, customers could easily lose all trust within the bank, because JPMorgan was not honest to the people of Flint, they did not provide them with anything but a small donation as of lately, and each of the three banks still try to deny the claims set against them. The only way for them to turn this massive negative into a positive is to use it as an example of what not to do. Below are two of the business principles of JPMorgan Chase:

EXCEPTIONAL CLIENT SERVICE 

-       We focus on the customer

-       We are field and client-driven; we operate at the local level

-       We build world-class franchises, investing for the long term, to serve our clients

A COMMITMENT TO INTEGRITY, FAIRNESS, AND RESPONSIBILITY

-       We will not compromise our integrity

-       We face facts

-       We have fortitude

-       We foster an environment of respect, inclusiveness, humanity, and humility

-       We help strengthen the communities in which we live and work

JPMorgan Chase must admit to their fault if they stand by these principles, as they say, they face facts, have fortitude, focus on the customer, and help strengthen the communities in which they live and work. JPMorgan did not admit to their wrongs, they have not faced facts, and they definitely did not strengthen the community of Flint by allowing them to drink unsafe water. Although in 2016, they made a $150,000 donation while offering to match donations up to a total of $350,000. This is a step in the right direction, but still not enough for the Flint residents, or even people who are apart of JPMorgan. For them to make things right, they would need to admit to their wrongs, use this as a reason in the future not to put people at any type of risk, and help the city of Flint climb out of their debt. This would provide Flint residents and JPMorgan customers with the needed trust they may have lost during the crisis and would allow JPMorgan to say; look at what we did to help the city of Flint after admitting what we did was wrong, we did not shy away from our wrongs, and we will improve every day for our customers knowing that we can always be better. This would keep customers, and even attract new ones, as they would be seen as a bank that makes mistakes like every other human, but does not run away from it, and instead makes things right because of it. Whether it be providing more money to flint, or cleaning the river to make it safe, JPMorgan owes a public apology for harming so many lives. 

References: 

Alcorn, Chauncey. “Flint Residents Sue Investment Banks over Water Crisis.” CNN, Cable News 

Network, 8 Oct. 2020, www.cnn.com/2020/10/08/business/jpmorgan-wells-fargo-flint-

water-crisis/index.html. 

Bennett, Courtney. “Lawsuit Filed on Behalf of Flint Residents Claiming Banks Contributed to 

Water Crisis.” WEYI, 7 Oct. 2020, nbc25news.com/news/local/lawsuit-filed-on-behalf-of-

flint-residents-claiming-banks-contributed-to-water-crisis. 

Dimon, Jamie. “Business Principles.” Who We Are: Business Principles, 2020, 

www.jpmorganchase.com/about/our-business/business-principles.

DesJardins, Joseph R. An Introduction to Business Ethics. McGraw-Hill/Irwin, 2014. 

Malo, Sebastien. “Flint Water Crisis Victims Sue Chase, Wells Fargo.” Reuters, Thomson Reuters, 

7 Oct. 2020, www.reuters.com/article/usa-environment-lawsuit/flint-water-crisis-victims- sue-chase-wells-fargo-idUSL1N2GY2I3. 

Palmer, Gianna. “Flint Water Crisis: Living One Bottle of Water at a Time.” BBC News, BBC, 22 

Jan. 2016, www.bbc.com/news/magazine-35376517. 

Ruble, Kayla. “Flint Residents Sue Investment Banks, Accuse Them of Helping Create Water 

Crisis.” The Detroit News, The Detroit News, 7 Oct. 2020, www.detroitnews.com/story/news/michigan/flint-water-crisis/2020/10/07/flint-residents-blame-water-crisis-investment-banks-lawsuit/5912871002/. 

 

 

 

JPMorgan Chase: Making Profit off Suspicious Money (2011-2020)

 

JPMorgan Chase: Making Profit off Suspicious Money (2011-2020)

Abstract

            JPMorgan Chase Bank is one that has been a powerhouse in the banking industry for quite some time. The company has recently been exposed as leaked reports show that JPMorgan processed transactions from criminals and other illegal sources. The suspicious activity reports are filed to a department of the U.S. Treasury known as FinCEN. There are thousands of the reports each year, and JPMorgan was one of the companies that filed the most of these reports from 1999-2017. The suspicious money that is reported is linked to money laundering and other financial crimes. In 2011,2013, and 2014 JPMorgan had to promise that they would improve their anti-money laundering policies after being fined for poor AML policy. JPMorgan filed numerous reports over the years about money from North Korea, Malaysia, and Venezuela. They also processed transactions of Trump’s 2016 campaign strategist Paul Manafort.

            Ethical theories would analyze JPMorgan’s actions differently. Indivualists belief is that a business actions should maximize profits within the law. They would agree with the actions of the bank because technically JPMorgan did nothing illegal, and they were making a profit. Utilitarians, who believe that happiness should be maximized for everyone involved, would disagree with the actions because there were people, like some in Venezuela, who were left broke and helpless. Kantianism values rational decision making, fairness, and respect. Kant would not have agreed with the actions because the people involved were not fully aware of the situation. JPMorgan treated people as a mere means and did not make the decision based off of good will. The final ethical theory, virtue theory, states that to be ethical you need to have 4 cardinal virtues (temperance, justice, courage, prudence). JPMorgan’s actions do not embody the four virtues; instead they embody primary vices like greed and selfishness. This means that the actions would not be supported by the virtue theory.

Research

(Timeline of events related to crisis)

The global banks have ignored numerous attempts from the U.S. trying to decrease illegal money going through the financial system. The U.S. tried to issue fines and warnings to these banks, but they were not impacted by them. One of these global banks is JPMorgan Chase. JPMorgan Chase was founded in 2000 and has been a powerhouse in the banking industry since then. They deal with billions upon billions of dollars’ worth of transactions every year. The thing about these transactions is that not all of them are legitimate or legal. Some of the money and transactions come from suspicious people, accounts, or are just suspicious in general. When these transactions come across a bank, they are required to fill out something that is called a Suspicious Activity Report and the banks are to submit it to the Financial Crimes Enforcement Network at the Treasury (FinCEN). These Suspicious Activity Reports are supposed to be kept confidential, but thousands of them were leaked and now the big banks, like JPMorgan, are left exposed.

The FinCEN at the US Treasury is responsible for going through all the SAR reports that are sent in from financial institutions. There are roughly 14,000 banks that file the suspicious activity reports. The leaked files cover from 1999-2017 and the reports question around $2 trillion (ICIJ). The reports are nothing major for the banks, all they have to do is report a transaction that they think is suspicious. An important note to point out is that the Suspicious Activity Reports do not prove any crime; they just focus attention on people/transactions that could be from illegal sources. When the banks file the reports, they are acknowledging that the transaction is linked to a potential crime. The loophole (and it’s an important one) is that the banks are only required to file the report. Once the report is filed, their duty of preventing money laundering is done, from a legal standpoint (Leopold). So, what the big banks like JPMorgan Chase were doing was submitting the reports, and the continuing to do business with the people because they were not required to stop the suspicious activity or to stop working with skeptical customers.

(Patricia Wexler, CCO of JPMorgan)

JPMorgan Chase was one of the banks that reported the most SARs to FinCEN. JPMorgan is a global leader in the banking industry and claims that they have sufficient anti-money laundering reform. A JPMorgan spokeswoman by the name of Patricia Wexler (pictured) said in a statement to Bloomberg News, “We have played a leadership role in anti-money laundering reform that will modernize how the government and law enforcement combat money laundering, terrorism financing, and other financial crimes.” JPMorgan made it seem like they were trying to change the anti-money laundering approaches and that they wanted to make things better, when in fact these leaked reports show that they were doing the opposite (Scheiber). In 2011, JP promised to improve their money laundering controls after they paid almost $90 million for violating economic sanctions. Then in 2013, they promised again to improve their controls after Treasury Officials ordered a “cease and desist” due to systemic deficiencies in their anti-money laundering efforts. Once more in 2014 JPMorgan offered again to improve their AML controls after they paid $2.6 billion in investigations related to Bernie Madoff (ICIJ).  The reports show that JPMorgan approved of over $500 billion in transactions between 1999 and 2017. JPMorgan Chase, a trusted bank, has taken part in suspicious money activity for years without anyone knowing.

JPMorgan obviously filed numerous SARs to FinCEN, and each one can’t be analyzed in full but there are a few that definitely should be mentioned. One of these involves suspicious money activity in Venezuela. Venezuela is a struggling country, and part of the reason for the struggle is because there were tycoons that made fortunes in business dealings with the Venezuelan government. These tycoons are known as Boligarchs. They moved various amounts of money that belonged to the public even as the economy was struggling (Chavkin).

(Venezuelan Citizen Apartment)

They were actually taking money from the people of Venezuela and making their own profit from it. Now, for every 3 people in Venezuela, one of them is hungry and millions of them have had to flee the country due to unsafe living conditions. JPMorgan Chase bank was one of the main banks that processed the suspicious transactions from the tycoons in Venezuela. Banks reported roughly $5 billion in SARs between 2009 and 2017 in Venezuela (ICIJ). JPMorgan reported the transactions, but then still processed them anyway, knowing that there was most likely something illegal with the money. JPMorgan processing these transactions took money away from the citizens of Venezuela and left them broke and helpless.

Another example of JPMorgan participating in money laundering acts is with North Korea. The reports show that in 2015, JPMorgan Chase informed the US Treasury about suspicious transactions linked to North Korea. The banks claimed that they oversaw $89.2 million in transactions between 2011 and 2013 that benefited numerous companies/individuals that had ties to North Korea (Lehren). JPMorgan had actually already previously filed reports on some of the companies and individuals that the transactions were going to. Even though JPMorgan had filed reports about almost everyone involved in the transaction, they still approved all of them to go through. When asked to comment on the reports, JPMorgan said that they were prohibited by law from commenting on them.

The leaked reports also showed that JPMorgan processed a lot of suspicious money from Malaysia. There was a Malaysian state fund called 1Malaysia Development Berhad (1MDB) that was originally just a government fund but was uncovered to be one of the biggest scandals in the world. It is believed that more than $4.5 billion was stolen (Ellis-Petersen). There were huge sums of money that were borrowed through government bonds and then were siphoned into foreign bank accounts. At the heart of this were some huge banks, one of them being JPMorgan Chase. One man, Jho Low, made immense profits off of this scandal and he is believed to be in China today. The people of Malaysia were furious and criticized the 1MDB plan as the main people involved in the scandal were making millions while they left the other people in Malaysia wondering where all the money is that is supposed to be improving their government/conditions.

The final example that I would like to highlight are the reports that were filed by JPMorgan Chase on Paul Manafort. For those of you who aren’t aware, Paul Manafort was President Donald Trump’s campaign/political strategist. JPMorgan processed more than $50 million in payments for Paul Manafort. Banks started to flag Manafort as early as 2012 for suspicious activity but nothing really happened until 2018 when he was convicted of fraud. It was also reported that JPMorgan filed a SAR on transactions worth roughly $300 million that involved companies that dealt with Manafort (Duffy). They also process around $7 million after Manafort had resigned from the Trump campaign. Some of the money that was reported after Manafort resigned was linked to his work with a Russian political party in the Ukraine. Mr. Manafort was convicted of tax and bank fraud and is serving a prison sentence, but JPMorgan still processed his transactions. There is no one from JPMorgan that is sitting in jail due to processing the transactions. The one question that really matters and remains here is why. Why did JPMorgan, along with many other banks, go through with these transactions? The answer is very simple and pretty obvious; they did it to make money.

Stakeholders

            JPMorgan, if they want a successful future, needs to rebuild the relationship with some of the stakeholders involved here. JPMorgan deals with all kinds of people, money, and transactions throughout their business operations. The relationship that JPMorgan has with its stakeholders is essential and they need to maintain it. The money that was reported as suspicious comes from countries all across the world, and JPMorgan has many customers outside of the ones that were reported. These reports can steer some potential customers away from JPMorgan because it might make them suspicious as to what JPMorgan will do with their money. Patricia Wexler, the Chief Communications Officer at JPMorgan Chase is the one person that so far has made a comment on the matter. JPMorgan’s top 3 shareholders are Jamie Dimon, Mary Callahan Erodes, and Daniel Pinto and each of these three works for JPMorgan. JPMorgan needs to maintain they shareholder value and in order to do that, they are going to have to deal with this issue head on.

Individualism

            This case that was mentioned above can be analyzed in various different ways. There are 4 main ethical theories, and I am going to analyze the case through the eyes of the four different theories. The first ethical theory is known as individualism. Individualism states that business actions should maximize profits for the owners of a business within the law. The primary values of individualism are the business, the owner’s choices, and the business profits. Individualism differs from the other 3 theories as it is the only one that is business focused; there is no other considerations outside of the business (Salazar).

In the case, JPMorgan is the business that is the focal point. JPMorgan processing these suspicious transactions is an action that would have been supported by an individualist. The actions of JPMorgan helped them to make a profit. “…the bank paid $2.6 billion to U.S. agencies to settle investigations over its role in Madoff’s scheme. JPMorgan posted profits of more than double that amount in just that quarter on its way to nearly $22 billion in profits for the year” (ICIJ). So, as far as making a profit goes, the decision of the company to process the transactions is supported by individualism The other important value of this is that the profit is earned within the law. Although the actions of JPMorgan can be considered wrong, what they did was completely in the law. They are only legally required to report the suspicious money through the SARs. They do not have to (legally speaking) stop the transactions and money from being processed. So, JPMorgan ignoring U.S. crackdowns and allowing the money to flow through their banks is an action that could be supported by Individualism, since JPMorgan was making a profit and doing so within the law.

Utilitarianism

            The second ethical theory that will be used to analyze this case is called Utilitarianism. The ethical rule that pairs with Utilitarianism says that business actions should aim to maximize the happiness (in the long run) for all conscious beings that are affected by the business action. The key value to this theory is the happiness of all conscious beings. Happiness can be interpreted as the satisfaction of desires of the presence of pleasure/pain. This theory is the one that covers the most people, since it considers every person that is involved in the decision process (Salazar).

            The actions of JPMorgan would not have been supported by Utilitarians. For years, JPMorgan was reporting these transactions and then continuing to process them. This allowed for a few key players, like the tycoons in Venezuela, Mr. Manafort, or Jho Low (1MDB scandal), to make immense profits while everyone else was receiving nothing. JPMorgan processed transactions that had Venezuelan citizens money in there, and now in Venezuela 1 out of every 3 people are not getting enough to eat. There are even some people that leave their stoves on for hours because matches are too expensive to buy (Chavkin). Had JPMorgan decided to not process all these transactions, then there would have been more overall happiness. The few people that profited would not be as happy, but almost everyone else would be happier if JPMorgan didn’t process the transactions. The situation in Venezuela could be a lot better than it is now, and countries wouldn’t have mysteriously lost huge sums of money. Since JPMorgan did not do this, then their actions are not supported by Utilitarians. The Utilitarians would see these actions as unethical and wrong to do.

Kantianism

            The third ethical theory that this case can be analyzed through is referred to as Kantianism. This theory states to always act in ways that respect and honor individuals and their choices. Use informed and rational consent of all parties to make decisions rather than lying, manipulating, cheating, or harming others to get your way. The important values to Kantianism are rational decision making, the autonomy of individuals, honesty, and freedom. Under Kantianism, decisions must be made under good will, which guarantees that people have good intentions and good reasoning to make decisions (Salazar). A huge aspect of this theory is the formula of humanity which essentially says that people should be treated as an end and not simply as a mere means (exploiting them).

            The actions under consideration here would not have been supported by Kantianism. Kantianism has heavy focus on making rational decisions that are fair and come from good will. JPMorgan’s actions do not support these values, which is why they would not be supported by Kantianism. The decision to continue to process the transactions after reporting them is one that does not come from good will. JPMorgan was continuing to go through with the transactions because they were making a profit. JPMorgan was also using the people involved in the transactions as mere means. If JPMorgan was truly concerned about the money, then the least they could have done was not process the transactions, but they also could have looked into where the money was really coming from. Instead, they chose to ignore that and use the criminals and/or illegal money to make some more quick profit. They used them as a mere means and did not look to use them as an end.

Virtue Theory

The virtue theory is the final ethical theory that this case will be analyzed through. This theory encourages that people act so as to express a variety of good character traits and so as to avoid a bad character trait. This theory values character traits that promote wellness of individuals within a society. There are four main virtues that are known as the cardinal virtues. They are courage, (Risk taking, and willingness to take a stand for the right ideas and actions) prudence (good judgement), temperance (reasonable expectations and desires), and justice (Hard work, quality products, good ideas, fair practices). These are traits that every person should have, and to be ethical you need to show more than just these traits.

 JPMorgan’s actions would not have been supported under the virtue theory. Their actions went against the cardinal virtues, especially prudence and justice. The virtues that JPMorgan are displaying are not what a business wants to display to the public. The main ethical rule that pairs with the virtue theory is that something embodies various good virtues and to avoid bad virtues (Salazar). JPMorgan’s actions were selfish and greedy, two virtues that are very bad and are known as primary vices. Although JPMorgan hasn’t admitted to knowing that the transactions that they pushed through were illegal, they reported the transactions so they were inferring that there was most likely something wrong with the money. Even knowing this information, JPMorgan passed the transactions and made profits off of them. This was selfish; they weren’t concerned about anyone else, they just wanted to make their money. Whether it be the money from Venezuela, Bernie Madoff money, Paul Manafort’s money, or the Malaysian money JPMorgan was selfish and greedy. The actions of JPMorgan do not embody the good virtues that a business should have, instead they embodied primary vices like greed and selfishness.

Ethical Justification

            Personally, the actions of JPMorgan were both unethical and deceptive. The bank was fully aware that the money or people that the money was coming from were suspicious, because they filed a report on them. Continuing to process the money made it very easy for money to be laundered and it almost made them appear as if they were fully supportive of the money laundering. Each time that they were fined or warned from the Treasury, they paid the fine and then said that they were going to change their policies. It didn’t happen. Now I think JPMorgan is at the point where they really do need to change their policies and they need to take a leadership position in anti-money laundering policies. The one thing that I can say is that the actions of JPMorgan were quite intelligent, in their own way. They were not doing anything illegal, and had these reports never been leaked they would have continued to make huge profits without anyone really knowing.

Action Plan

The current issue at hand here is that JPMorgan Chase Bank has been processing transactions that come from suspicious sources and that they have ignored numerous attempts from the U.S. trying to improve their anti-money laundering policies. This issue can be resolved given time and if the company follows some steps. First, the company will have to admit that what they did was unethical and that it was a mistake. Then, the company needs to work through and actually develop a better AML policy. If JPMorgan wants to win this battle before it starts, they need to have this prepared and should consider some reform to the SAR process.

A set of core values that this company should look to embody are honesty, responsibility, and reform. These values would show that JPMorgan acknowledges that they made a mistake, but that they are trying to move on and improve situations. Currently, JPMorgan’s mission statement is to be the best financial services company in the world. They need to shift their focus from just being a financial service to being a great financial service AND a great ethical company. Their new mission statement for the company could be along the lines of being the most secure, trusted, and best financial bank in the world. This mission statement is an improvement because it now shows that JPMorgan values people and trust as well as being the best financial bank. Shifting their focus just a little bit can truly help JPMorgan.

JPMorgan also needs to focus on ensuring ethical productivity. To do this, obviously they have to make changes to their anti-money laundering policies so that when transactions are reported as suspicious, something needs to happen. If JPMorgan edits the policy so that when a transaction is reported, it can’t be approved until the FinCEN department looks over it and determines that the money is not illegal. JPMorgan can still make some changes that will allow them to flourish coming out of this controversy. As far as firing goes, there is any one specific person that takes the blame for all of this, so firing people isn’t the best solution. If JPMorgan follows new policies and changes the company to become a stronger company then this can help them bounce back. I do think that JPMorgan could hire some of their own people that can work with the FinCEN department in order to speed up the process of determining the sources of the suspicious money.

 Right now, JPMorgan hasn’t really faced any bad publicity over the issue. The stock price took a minor hit of 3.5% and other than initial articles there hasn’t been much talk since (Rapier). JPMorgan can start to market their new mission statement and market how they are going to become a leader in anti-money laundering are things that can be done to promote that they are changing. This plan will promote business profits and productivity because JPMorgan will appear as a bank for the people. If they follow this plan than it will help them to profit because people will be more attracted to them. There won’t be any secrets in the company and this makes a company more attractive. When it comes down to a decision between choosing one of two places, most would prefer the one that provides me the best services and has the best reputation. Promoting good ethics will make JPMorgan a more attractive company and will help them to make profits coming out of this case.

References

Chavkin, Sasha, and Patricia Marcano. “How Banks Helped Venezuela's 'Boligarchs' Extract Billions.” OCCRP, Sept. 2020, www.occrp.org/en/the-fincen-files/how-banks-helped-venezuelas-boligarchs-extract-billions.

Duffy, Kate. Banks First Flagged Paul Manafort's Activity as Suspicious in 2012, the FinCEN Files Show, MSN, 21 Sept. 2020, www.msn.com/en-us/news/politics/banks-first-flagged-paul-manaforts-activity-as-suspicious-in-2012-the-fincen-files-show/ar-BB19g2lD.

Ellis-Petersen, Hannah. “1MDB Scandal Explained: a Tale of Malaysia's Missing Billions.” The Guardian, Guardian News and Media, 28 July 2020, www.theguardian.com/world/2018/oct/25/1mdb-scandal-explained-a-tale-of-malaysias-missing-billions.

Lehren, Andrew W., and Dan De Luce. “Secret Documents Show How North Korea Launders Money through U.S. Banks.” NBCNews.com, NBCUniversal News Group, 21 Sept. 2020, www.nbcnews.com/news/world/secret-documents-show-how-north-korea-launders-money-through-u-n1240329.

Leopold, Jason. “What Are The FinCEN Files? Here Are 8 Takeaways.” BuzzFeed News, BuzzFeed News, 3 Nov. 2020, www.buzzfeednews.com/article/jasonleopold/fincen-files-8-big-takeaways.

Rapier, Graham. “What Are the FinCEN Files? Here's What to Know about the Leaked Documents Tying Wall Street Banks to Possible Money Laundering.” Business Insider, Business Insider, 23 Sept. 2020, www.businessinsider.com/what-is-fincen-files-documents-money-laundering-concerns-explained-2020-9.

Salazar, Heather. The Business Ethics Case Manual. n.d.

Scheiber, Noam, and Emily Flitter. “Banks Suspected Illegal Activity, but Processed Big Transactions Anyway.” The New York Times, The New York Times, 20 Sept. 2020, www.nytimes.com/2020/09/20/business/fincen-banks-suspicious-activity-reports-buzzfeed.html.

JP Morgan – Top trading exec costs company and stakeholders billions of dollars (2012)

Based on a paper by: Andrew F. Roberts

            JP Morgan Chase & Co. is one of the largest banks in the world. Often referred to as the shortened JP Morgan, the corporation has leads all American banks in terms of assets, and is the second largest bank worldwide. The size of the company can be attributed to a merger in 2000 between Chase Manhattan Corporation, founded 1799, and JP Morgan & Co., founded 1871. In the wake of the merger, JP Morgan Chase & Co. has raised their total assets to $2.5 trillion, making it the second largest public company in the world (Forbes, 2012). The bank, which is headquartered in Manhattan, offers a wide array of services from credit card services to private banking to asset management. As a result of its size, JP Morgan is recognized as being one of the “Big Four” banks, alongside Bank of America, Wells Fargo, and Citigroup. Furthermore, the bank has been the most successful of the big four in avoiding the major impacts of the recession in the banking industry.
          However, in 2012 it became clear that one of the bank’s key traders, Bruno Iksil, had been practicing assertive and risky trading for quite some time. In fact, traders in another branch of JP Morgan made such bets against Iksil, who came to be known in the media as the “London Whale” because of the widespread effects of his trading. By April, reports began to surface about the magnitude of the losses. Initial estimates put the total losses at $2 billion. However, as the breadth of the scandal unfolded, the loss count was nearly quadrupled, reaching over $7 billion (Silver-Greenburg, 2012). Although the company looked to downplay the widespread effect of the poor trades, it quickly became clear that even the highest executives felt influence of Iksil’s negligence. In the end, the billions of dollars lost by Iksil led to the London Whale being forced to resign from his position as a trader at JP Morgan.
         Before evaluating the case through the lenses of the normative ethical theories, it is crucial to understand the stakeholders in the JP Morgan crisis. The stakeholders in this particular case include executives at the bank (including Iksil, the top trader), other employees, competitors to JP Morgan, and those who have accounts, funds, stocks, etc. associated with the bank.

          The executives of JP Morgan had one major interest in their positions—to maximize profits for the bank. Major profits in both 2007 and 2008 allowed the bank to establish itself as one of the most powerful in the world. The executives looked to continue this profit-streak, and keep finding large profits each quarter. This is the leading reason why some traders, particularly Iksil, pushed themselves to make dangerous and ill-advised moves. Simply put, the executives’ focus was on making money. Employees not in the high-end “money making” positions (e.g. bank tellers, tax preparers, etc.) had a main interest in working in an environment that offered job security. These employees had a focus on working in a position that offered rewarding duties while providing the comfort of knowing that they could have a steady job. However, as the scandal unfolded, employees were unsure whether or not they would have a job in the aftermath. In fact, in the months following the crisis, JP Morgan found itself laying off 19,000 employees to offset losses caused by the London Whale (Carey, 2013). Perhaps the most important players in this scenario are those who have invested money in any way at JP Morgan. The main interest of these stakeholders is to find a safe way to protect and grow their savings. Those customers at the bank saw the once trusted bank lose $7 billion dollars in a shockingly quick manor. This left many customers wondering how this would affect interest rates, investments, and more. Unfortunately, they found that this simply was not true in the case of Iksil. This idea rings true in the four normative theories; Individualism, Utilitarianism, Kantianism, and the Virtue theory.

         From the individualist standpoint of business ethics, JP Morgan Chase & Co. would have been performing ethically had the trading tactics been successful. This normative theory does not focus on the general population and its happiness, nor does it have its roots in good will. Instead, the individualist theory views decision-making as being strictly based on maximizing benefits (profits) for the company and its stakeholders. Had Iksil’s trades succeeded, these risky moves would have benefited all stakeholders, keeping the bank from violating the individualist view of ethics. However, since the trades failed atrociously, the company can easily be viewed as violating individualist beliefs. Not only did the company not maximize their profits, they lost billions of dollars in the process. Furthermore, these losses did not only affect the company, but also its stakeholders as well. Investors, employees, those with bank accounts, etc. at the bank all felt the ripple effect of the poor trading.
          In looking at the utilitarian theory of ethics, the main focus of all actions should come in maximizing utility. In the field of business ethics, utility is most easily described as aiming to reach extreme happiness, while lowering the level of suffering. That is to say, total happiness for the company and the public as a whole should be the main factor in decision-making. In this view of business, Iksil’s actions on behalf of JP Morgan were extremely unethical. As a direct result of the risky trading, huge amounts of money were lost, thus leaving those within the company quite unhappy. Furthermore, because of the widespread effects, the scandal left people worldwide discontented. If the trading did indeed work out to the benefit of the bank, then the utilitarian view of ethics would have been satisfied. However, the company did not only fail to increase happiness, they effectively damaged the level of happiness that already existed. To compound the issues caused by Iksil, the executives also acted in ways contrary to Utilitarianism. In their efforts to minimize the suffering caused by the poor trades and subsequent money loss, executives such as Dimon and CIO Ina Drew “sought to hide the extent of the losses from regulators and the public” (Puzzanghera, 2013). Once the news broke to the public, there was an obvious feeling of distrust for said executives. In all, the company accomplished exactly what it had sought to avoid; there was an extreme lack of utility, with the suffering multiplied by careless cover-ups from Dimon and Drew.

          Kantianism is another theory that was clearly not considered by JP Morgan during the trading scandal. In his thoughts on ethics, Kant follows four main principles including: acting consistently as well as rationally in decision-making, assisting others in making rational choices, respecting all others’ needs and the differences each person possesses, and (perhaps the most basic, yet most important) acting out of good will. The last principle, acting in good will, essentially speaks to the idiom of “the ends do not justify the means”. In other words, acting out of good will does not mean doing something because it is convenient or easier, but instead doing it because it is the right thing to do. This ideology is represented in Kant’s Formula of Humanity, which suggests that one should treat all others and themselves as an end, or something that has value in itself. If one has done this, they have practice the idea of humanity (Salazar, 2013).
          In relation to JP Morgan, Iksil’s risky trading violated all four of Kant’s basic principles. The London Whale was most definitely acting irrationally when looking to maximize profits off of deals that had a high likelihood of failure. In turn, his actions (that were unknown to the vast majority of stakeholders) left others in a position where they were unable to make rational decisions themselves. In other words, JP Morgan’s actions did not encourage rational decision-making in others, but instead prohibited it. Additionally, the company obviously did not respect the needs of others, instead choosing to focus on the needs and desires of a few top traders, especially Iksil. Finally, there was absolutely no evidence of Iksil and JP Morgan acting out of good will, as the decisions to take part in risky trades were far from doing what was right. Even if the trades had gone well, the ends would not have justified the means whatsoever. This relates back to the Formula of Humanity, which Iksil’s deceit and greed clearly violates. His risky trading attempted to use the ends to justify the means, and even had he succeeded, would not have been acting humanely. Overall, a Kantian ethicist can clearly recognize that JP Morgan did not follow any of the principles laid out in Kantianism.        

        Yet another theory that was violated during the trading scandal is the Virtue theory of ethics. The theory essentially operates on the idea that there are numerous characteristics that permit everything to work correctly. Similar to Kantianism, the Virtue theory has four major characteristics. Within the theory, these four characteristics are vital to ethical business operations. The four are courage, honesty, temperance, and justice. While it did indeed take courage to make such risky trades, the extreme downfall came from the company lacking the other three characteristics. The fact that Iksil was making trades without the knowledge of other executives and almost all stakeholders completely ignores the idea of honesty. In fact, Iksil’s own supervisor was unaware of the true riskiness of his trades. Drew, the former CIO for JP Morgan told the LA Times that “she was deceived by traders working for her about the size of the risk they were taking in the bank’s Synthetic Credit Portfolio” (Puzzanghara, 2013). Furthermore, these actions do not exemplify temperance, in that the London Whale did not show any sort of restraint or self-control at all. The fact is that Iksil did not pay attention to any regulations and disregarded the risk limits that are in place for traders. Finally, although Iksil was technically acting within the law, his trading practices violated the laws of social justice. By essentially gambling on long-shot bets using the money of those utilizing the bank’s services (without their knowledge), Iksil was not acting in a way that reflected justice for all stakeholders. The only true justice came when JP Morgan chose to force Iksil to resign from the position in May of 2012.
         From a personal viewpoint, I feel that the London Whale’s actions were about as far from ethical as possible. My reasoning for this is simple: Iksil, along with Dimon and Drew were deceitful to the majority of stakeholders throughout the scandal. Iksil’s misleading information about the true risk of his trades meant that he was acting carelessly with other peoples’ money. What makes it truly unethical is the fact that the people whose money he was risking had no idea that this money was being used in such a way. Perhaps even more unethical are the actions of the bank’s top executive, Dimon and Drew. While they were not directly responsible for Iksil’s trading practices, the unethical attempts to cover up the true impact of his actions are sickening. I am not alone in thinking that any person who trusts a bank in handling their money should be treated honestly. This includes admitting mistakes on the part of the bank and its employees. Keeping the truth from those who hold stake in the company is simply inexcusable from an ethical standpoint. 

Overall, JP Morgan’s response to the plan was relatively successful, and the bank was able to regain the support and trust of their stakeholders. This can be easily seen by their recent quarterly profit of $6.53 billion, up from $4.92 billion last quarter (Kopecki, 2013). However, this solution could have been solved in a much smoother way had the company changed their approach slightly. First, the company should have avoided the attempted cover-ups by other executives, such as the CEO Dimon. These attempts were not successful, and only added to the negative representation in the public eye. Additionally, the bank should have disassociated itself with Iksil much quicker than they did. The top executives at JP Morgan were investigation the trades for a long time (over a month), yet kept Iksil on their payroll. Furthermore, rather than firing him immediately when news broke to the public, the bank chose to simply remove Iksil from his duties; this meant that he was still being paid by JP Morgan. By the time he was forced to resign officially, the damage was already done. The bank was seen as both protecting Iksil, as well as being indecisive about what should become of the London Whale. Had JP Morgan chosen to approach the situation while taking into account these two changes, the situation would have been viewed as a much more fair solution to the crisis. 
          As for preventing a similar scandal in the future, JP Morgan must put into place three key practices to ensure nothing of this magnitude happens again. The most important step is to refine the practices for monitoring the traders employed by the bank. As Drew said, she was unaware of the true risks of Iksil’s trades. Therefore, the management of the big-money traders must be dedicated to observing their subordinates more closely. By instilling the idea of a low-risk trading philosophy, the traders at JP Morgan will be less likely to begin trade practices similar to those of Iksil. Secondly, the bank should be more open about how and why money is being used. The open approach will not only gain the trust of the stakeholders, but will also force traders to be more conscious about the decisions that they make regarding said trades. Thirdly, if a problem arises and trades similar to Iksil’s occur, JP Morgan must immediately terminate the employee. Practicing this speedy disassociation will show that the company values justice and ethical practices, along with overall control over the situation at hand. If JP Morgan approaches the future with a plan of action seeded in these three practices, it will undoubtedly be better suited to avoid a future scandal of this size.

     

These facts and Analyses are based on a paper by Andrew Roberts, "JP Morgan Trading Scandal: Risky Trades, Greed, and Record Losses " (2013).

References

Carey, B. (2013, February 27). JP Morgan chase announces 19,000 layoffs. Examiner. Retrieved from http://www.examiner.com/article/jp-morgan-chase-announces-19-000-layoffs on April 5, 2013.

Forbes. (2012, April 15). The world's biggest companies. Forbes magazine, Retrieved from http://www.forbes.com/global2000/list on April 9, 2013.

Kopecki, D. (2013, April 12). JP Morgan 33% profit jump beats estimates on reserve releases. Bloomberg. Retrieved from http://www.bloomberg.com/news/2013-04-12/jpmorgan-profit-increases-33-beats-estimate-on-mortgage-fees.html on April 3, 2013.

Pollack, L. (2012, May 14). [Web log message]. Retrieved from http://ftalphaville.ft.com/ 2012/05/14/998601/two-billion-dollar-hedge on April 7, 2013.


Puzzanghera, J. (2013, March 15). Ina drew, who oversaw JP Morgan's 'London Whale,' saddened by losses. Los Angeles Times. Retrieved from http://articles.latimes.com/2013/mar/15/business/la-fi-mo-jpmorgan-london-whale-senate-hearing-20130315 on April 7, 2013.

Salazar, Heather. Kantian Business Ethics. Retrieved from https://kodiak.wne.edu/ d2l/lms/content/viewer/main_frame.d2l?tId=129594&ou=18408 on April 11, 2013.

Silver-Greenberg, J. (2012, July 13). New fraud inquiry as jpmorgan’s loss mounts. Wallstreet Journal. Retrieved from http://dealbook.nytimes.com/2012/07/13/jpmorgan-says-traders-obscured-losses-in-first-quarter/?ref=morganjpchaseandcompany on April 7, 2013.