MARCH/ APRIL 2018 Vol. 32 | No. 2 THE JOURNAL OF PRACTICAL BUSINESS ETHICS A PUBLICATION FROM THE SOCIETY OF CORPORATE COMPLIANCE AND ETHICS
Insights for modern ethics from Theodore Parker’s “Of Justice and the Conscience” page 1 The Paradox of Ethics: Why sincerity pays off page 35
corporatecompliance.org/ethikos
What does it take to build an ethical culture of ‘doing the right thing when no one is watching’? BY ROBIN SINGH
W
ith the growing web of the regulatory environment, attorneys face a lot of problems interpreting regulations, let alone the compliance officers. The buzzwords in today's economy are “compliance programs,” because this pretends to act as a euphemism for “survival” in the fight against regulatory compliance. There is an over-reliance placed on the words “compliance programs” rather than the substance of them. The pressure on the Compliance department With ever-growing regulatory, legal, and other internal rules, policies, and procedures, it is difficult to manage or adhere to compliance associated with these laws and rules. Furthermore, with the effects of the recession still prevailing over various economies, there are many people who are simply looking for an entry into a profession to commence their daily earnings. Only a limited handful of professions have grown in requirement, and if one removes the opportunities associated with information technology, then people are left with hardly any options. Compliance is a field in demand, and it is in its nascent stage to be a hardcore, technology-focused field. The impact of people
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not having adequate background, engaging communication skills, training capabilities, a keen eye for details, awareness of the company policies and local laws, and/or the ability to appropriately interpret regulations could be catastrophic for the organization that hires ill-equipped or inexperienced senior compliance officers. This can further lead to a false sense of security amongst the management and the board when:
§§ A program is developed but is not
tailored according to the local culture of the company and the land, or a generic program is taken off the shelf;
§§ Policies and risk assessments are
carried out, but employees are not adequately trained or made aware of their responsibilities;
§§ An induction/orientation program
is held for new joiners without any substance to convey the organization's values and conduct;
§§ An investigation is carried out, but without any concrete evidence;
§§ People are disciplined based on their hierarchal value in their chain;
§§ Management reports are made on the
number of investigations closed, only to later find out that half of them were closed because they were reported by anonymous whistleblowers;
§§ The “weight” of the department is
thrown around, only to discover that one senior compliance officer bullied the whistleblowers to reveal names; or
§§ Monitoring/spot checks are carried
out, but without any actual effect of compliance; and
§§ the list goes on and on. In 2014, SEC Enforcement Director Andrew Ceresney, mentioned the importance of compliance officers and, in the same speech, made mention that the SEC has brought and will continue to bring actions against persons who affirmatively participated in a misconduct, attempted to mislead regulators, or when they had clear responsibility to implement compliance programs
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or policies and wholly failed to carry out that responsibility.1 This goes to show the importance of compliance officers. One mistake with the hiring of a wrong person for the compliance officer position will take the organization down like a house of cards. False sense of pride, poor acumen, or just too smart In December 2015, a Goldman Sachs's employee working in the surveillance group in the Compliance department was charged by the SEC for insider trading. He traded on non-public information he obtained by the virtue of working at his employer when it was leading three major merger and acquisition deals. He used the surveillance system to gain access to the information. However, the charges were settled later on.2 Secondly, some time back, I read a very nice article on the SCCE Compliance and Ethics Blog when a compliance officer was arrested by the FBI. Roy Snell made a wonderful argument that spending a day in the field of Compliance cannot make you an actual compliance officer, or that a person from operations who has a compliance title cannot be construed to be an actual compliance officer.3 People without adequate training and certifications, at a minimum, should not be allowed to have the key responsibilities of a compliance officer. Perhaps it is better to hire such candidates as associates or trainees. Lastly, a known acquaintance of mine approached me seeking some guidance, because the Compliance department of his
company had initiated an investigation against him for some business development work he had carried out. My first response was, if you haven't done anything wrong, you shouldn't be worried about it. I asked him to refer to his company policy and procedures to prepare him for the course of the investigation. After he and his boss were interviewed, so was the client he was soliciting to acquire a legitimate business with appropriate documentation, such as Know Your Customers, etc. My acquaintance was issued a first-level warning letter. He was pretty upset. I asked him if any of the charges were proven, and he said none were and that his boss was supportive as well. Then I urged him to speak with the Compliance department on the basis of the warning letter. This is where the best part comes in. When he called the compliance officer twice, the officer said “How dare you call me twice.” After a good tussle, when he called the subordinates, the compliance officer told him that appealing against the letter would only cause problems at the receiving end, since the Compliance department would go to any lengths to maintain their reputation. My acquaintance decided to let it go, because job hunting is tough in recession times, and the validity of the warning letter is one year. This shows how important it is to have a working/implemented compliance program. This further goes to show that a compliance program is not only applicable to selected departments of an organization, but also applies to the Compliance department itself. Overall, a compliance program is about setting the right culture and tone and reducing
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unethical conduct. Compliance applies to each and every individual of an organization. Compliance and Ethics departments should naturally be held to a higher standard of ethical values, because they are entrusted with a responsibility to check that on behalf of the organization. A fully developed and implemented compliance program is the only way of doing the right thing or upholding the company’s values, especially when no one is watching. It reminds me of the movie Training Day where Denzel Washington’s character, a cop gone rogue, would go to any limits to prove his case. He finally served a bad fate against the hand of a fellow officer who was suppressed and was allowed to do partial good things and partial justice to his profession. I can only imagine what would happen if someone would approach the department with only a good-faith allegation.
Finally, in order to get back to him, they had no choice but to equate it to an equivalent issue of anti-money laundering. Now, what in the world were they thinking when they have a Public Relations department and they don’t have adequate policies to cover such an issue? This goes to show how important it is to have comprehensive, well-written (simple language) policies and guidelines when it comes to a serious issue involving a company’s operation. The above issue is something that I see going downhill for the company, because they equated the offense to an issue which the incident is not, and then the consequences applied will not be equivalent to the actual incident. Definitely, sooner than later, the employee will bring in a court case against the company, and so on and so forth.
n OVERALL A COMPLIANCE PROGRAM IS ABOUT SETTING THE RIGHT CULTURE, TONE AND REDUCING UNETHICAL CONDUCT...
Conclusion We as compliance officers take pride in building a culture of compliance where the simplest definition of compliance is following the laws, regulations, policies and procedures, and other non-regulatory rules. Compliance should be the pinnacle to uphold company’s values and mission. Compliance officers need to be well trained and should require further hand holding till they come up to speed on the company’s processes and the actual working culture. The above examples also show that it is not so good to have a oneor two-person Compliance department, because it means no checks and balances for the monitoring authority, and it is subject to threats and manipulation.
Another incident which I encountered was when a person who worked in a Public Relations department accidentally released a press statement with his name on it instead of the CEO’s name, which should appear on the press release by default. The CEO got irate over the issue and I understand this is a grave mistake; however, when the Compliance department came in, they could not equate it to any policy or violation under their current laws, regulations, and rules. 26 March/April 2018 ethikos
Part-time compliance officers, or a single person, or a conflated party managing the department — people will see only as far as they want to see. The best examples may be:
§§ Charlie Shrem, a compliance officer
for BitInstant, who was arrested and charged with failing to file suspicious activity reports (SAR) in accordance with an anti-money laundering law for the transactions that he allegedly helped counterpart and facilitate through BitInstant;4
§§ Oliver Schmidt, Volkswagen’s regulatory compliance officer, who was arrested on the charge of conspiracy to defraud the United States;5
§§ William Michael Quigley, the former
chief compliance officer of a registered broker-dealer in Woodbury, New York, was charged with conspiracy to commit wire fraud and money laundering conspiracy in connection with a fraudulent investment scheme;6 and
§§ Peter Madoff, brother of Bernie
Madoff, who was also the chief compliance officer, and was sentenced to imprisonment, because he chose to stand and see from a distance.7
Peter Madoff, as a compliance officer, should have been a gatekeeper and was supposed to guard against any unethical conduct or fraud. Instead, he acted as an accomplice by doing only minimum necessary (under the English common law, an accomplice is defined
as a person who actively participates in the commission of a crime, even if they take no part in the actual criminal offense). Records reflected that he did compliance reviews when no such reviews took place. It was a tactic to throw off the regulators and investment advisory clients and keep the auditors off-guard in order to keep the currents stable between the two brothers. I can only begin to imagine, what would happen if compliance officers started to experience schadenfreude (i.e., a feeling of enjoyment that comes from seeing or hearing about the troubles of other people8). n Robin Singh, MS (Law), CCEP-I, CFE (robinsingh002 @ yahoo.com) is Compliance & Fraud Control lead at Abu Dhabi Health Services Company in Abu Dhabi, UAE. www.whitecollarinvestigator.com @ wcinvestigator
bit.ly/li-RobinSingh
ENDNOTES 1 U. S. Securities and Exchange Commission: Keynote address by Andrew Ceresny. May 20, 2014. http://bit.ly/2mS9nUy 2 SEC v. Yue Han, SDNY, November 24, 2015. http://bit.ly/2Bdow7B 3 SCCE Compliance & Ethics Blog: “The FBI Arrested a Compliance Professional???” January 10, 2017. http://bit.ly/2Dl4GJn 4 Kim Zetter: “Bitcoin Exchange CEO charged with laundering $1 million through Silk Road. Wired, January 27, 2014. http://bit.ly/2DKQnPb 5 The New York Times: “FBI arrests Volkswagen executive on conspiracy charges in emissions scandal” January 9, 2017. http://nyti.ms/2DMqw9y 6 U.S. Attorney’s Office, Eastern District of New York, press release: “Former Chief Compliance Officer of Long Island Brokerage Firm Indicted on Fraud and Money Laundering Charges” May 28, 2015. http://bit.ly/2mOGMyR 7 FBI New York Field Office, press release: “Peter Madoff, Former Chief Compliance Officer…Sentenced to 10 Years in Prison” December 20, 2012. http://bit.ly/2DNSEcn 8 Definition of schadenfreude at http://bit.ly/2iFIoXr
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