What does it take to build an ethical culture of ‘doing the right thing when no one is watching’?

THE JOURNAL OF PRACTICAL BUSINESS ETHICS
MARCH/
APRIL 2018
Vol. 32 | No. 2
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
ethikos March/April 2018 23

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
24 March/April 2018 ethikos

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
ethikos March/April 2018 25

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.
•
OVERALL A COMPLIANCE PROGRAM
IS ABOUT SETTING THE RIGHT
CULTURE, TONE AND REDUCING
UNETHICAL CONDUCT...
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.
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.
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.
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). •
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
ethikos March/April 2018 27