10 months ago

What does it to build an ethical culture

» The journey of a compliance professional has undergone a sea change from working in the shadows to getting a seat at the table—the who’s who of the corporate world. » Compliance departments have moved from monitoring policies, rules, and regulations to regulating individual ethics. » Regulators have pierced the corporate veil to identify a living person responsible for any unethical act committed and ended up pointing fingers at chief compliance officers. » Increasing uncertainty, developments in regulation, lack of budget, and work pressure have transformed some inexperienced compliance officers to “the dark side.” » With the venerable force field over organizations to protect them from unethical conduct, there is no way around except to hire experienced compliance professionals. by #RobinSingh the #whitecollarinvestigator

FEATURE laundering (AML)

FEATURE laundering (AML) violations. Regulators have dramatically stepped up enforcement of AML and counter financing of terrorism (CFT) laws and regulations. Sometimes compliancerelated fines exceed many hundreds of millions of dollars, with a 2014 judgment reaching nearly $9 billion 3 (see Figure 1). With these enforcements and financial technology, the SEC, and DOJ have started to target individuals. In most cases, though, they have targeted top-level executives. At times, the compliance officers have faced the brunt of the enforcement agencies, such as: ·· Brown Brothers Harriman: The bank had a money-laundering problem. FINRA identified it and fined the organization $8 million. Nonetheless, they had to hold an individual responsible, and in this case, it was the chief compliance officer (CCO), who was fined $25,000 and suspended from practicing in the field of Compliance. ·· MoneyGram: The Financial Crimes Enforcement Network (FinCEN) investigated and held the CCO responsible for a lapse under the Bank Secrecy Act (31 U.S.C. § 5311). The lapse was facilitated by a lack of controls, framework, and safeguards, with a penalty of $1 million. However, the CCO countersued FinCEN, and the case was finally settled at $250,000 and a ban for 3 years. ·· BlackRock: An investment manager in charge of an energy portfolio invested heavily in an energy company. Over time, the energy company became 10% of the portfolio of BlackRock. The SEC held BlackRock responsible for not disclosing a material conflict of interest under Rule 38a-1 of the Investment Company Act. The CCO was caught in the crossfire. However, he also filed a lawsuit and got off the hook with a fine of $60,000. ·· Raymond James: The firm was fined $17 million because it did not implement a comprehensive AML program, and certain red flags went undetected and/or inadequately investigated. FINRA fined the compliance officer $25,000 under Rule 3310. ·· Banamex: Citibank was fined close to $250 million for not implementing an effective AML program. Four people were penalized, including the CEO and CCO. The CCO had to pay $70,000 and was barred from working in the same domain. ·· Wells Fargo: The bank was fined for aiding and abetting securities fraud. The regulator held the CCO liable for not being able to foster a culture of ethics. The regulator’s main argument was that the problem was systemic. The CCO filed a lawsuit, and the judge ruled in favor of the plaintiff. The verdict had language that it is not good to single out people for the crimes of an organization. However, the CCO will always carry a blemish of this in her work history. ·· SFX Financial Advisory Management Enterprises: SFX failed to adopt reasonably designed policies and procedures to prevent the misappropriation of client assets. The regulator concluded pursuant to Sections 203(e), 203(f), and 203(k) that the investment advisers failed to implement the policies it did have. The recent trends and regulatory conditions, such as the individual accountability in the Yates Memo, coupled with the requirements of U.S. Federal Sentencing Guidelines, AML, CFT guidelines, and deferred prosecution agreements (DPA) are examples of requirements that are creating pressure for Compliance departments. Another question raised is, cantoo many regulations” be used as an alibi for compliance Compliance & Ethics Professional ® April 2018 +1 952.933.4977 or 888.277.4977 47

FEATURE Compliance & Ethics Professional ® April 2018 officers to be less meticulous in carrying out their duties? 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. 4 People without adequate training and certifications, at a minimum, should not be given the key responsibilities of a compliance officer. Perhaps it is better to hire such candidates as associates or trainees. Compliance applies to everyone An acquaintance of mine approached me seeking 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’s policy and procedures to prepare him for the course of the investigation. After he and his boss were interviewed —so was the client he had been soliciting to acquire a legitimate business with appropriate documentation, for example, Know Your Customer, etc.—he 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, and 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,” and after a good tussle, the compliance officer told him not to appeal against the letter, because the Compliance department would go to any length to maintain their reputation. My acquaintance decided to let it go, because this took place during the recession when jobs were scarce and the validity of the warning letter was only one year. This shows how important it is to have a working/implemented compliance program. This further shows that a compliance program is not only applicable to select departments of an organization, but also to the Compliance department itself. Overall, a compliance program is about setting the right culture and tone, and reducing 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 the responsibility on behalf of the organization. A fully developed and implemented compliance program is the only way of doing the right thing or of 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 limit to prove his case. He finally got what he deserved from a fellow officer who was able to do partial good and partial justice to his profession. Comprehensive policies are key Another incident that I encountered was when a person who worked in a public relations department accidentally released a statement with his name on it, instead of the CEO’s name, which should appear on the press release by default. The CEO was irate over the issue, and I understand this is a grave mistake; however, when the Compliance department came in, they could not equate this error to any policy or violation under their current laws, regulations, and rules. Finally, in order to get back to him, they had no choice 48 +1 952.933.4977 or 888.277.4977

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