Earlier this week Richard Bistrong and Marc Hodak, writing for the FCPA Blog, considered how the Wells Fargo incentive system got so out of whack, and how this out-of-whackness contributed to the scandal around fraudulent account openings that has engulfed the bank since last August.
Such incentives systems, without proper monitoring and oversight, can indeed become perverse and lead to legal violations. Now Emily Glazer, reporting in the Wall Street Journal, has added another reason such sales incentives at Wells Fargo got so out of whack: branches were given a heads-up before company internal monitors arrived for inspections.
While it’s not unusual for some companies to provide a heads-up that a branch or business unit is going to be monitored or audited, it would appear that local Wells Fargo branches took the opportunity to hide evidence of illegal acts.
Glazer noted that the early warning “gave many employees time to cover up improper practices, such as opening accounts or signing customers up for products without their knowledge. More than a dozen current and former employees of the bank across California, Arizona and New Jersey, for instance, said they forged or saw colleagues forge signatures on documents or shred papers that could have indicated accounts were opened without authorization.”
This information reveals how Wells Fargo may have missed the many red flags that were present, including lack of appropriate customer signatures on new accounts and products, hiding and destroying evidence of fake account openings, and filling out wire transfer forms and back dating of account openings to match closing dates. Or worse, it shows how the bank went out of its collective corporate way to look the other way and hide such illegal conduct.
One former Wells Fargo employee was quoted that regarding such actions, “You become numb to it. It became pretty normal.”
This part of the Wells Fargo saga indicates several different story lines. It confirms the wide-spread knowledge of the scandal throughout the organization. It also ties into Bistrong and Hodak’s perception that even a sales incentive program can become aberrant without proper oversight controls.
Oversight through monitoring and auditing is one of the Ten Hallmarks of an Effective Compliance Program. However, if employees are given the opportunity to destroy evidence of illegal conduct or even worse — see also Arthur Andersen and Enron — oversight will fail.
Tom Fox is a Contributing Editor of the FCPA Blog. He has practiced law in Houston for 30 years. He’s the creator of the award winning FCPA Compliance and Ethics website. He is the Compliance Evangelist. His best-selling seminal book, “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program” (available from Amazon here) is widely viewed as one of the top volumes on the nuts and bolts of compliance.
While I agree that it is poor practice to give advance notice of audits, two additional points bear noting.
First, employees always have "the opportunity to destroy evidence of illegal conduct." And, as we know, even the most rigorous of controls can't prevent misconduct if the opportunity – and what is more, incentive – to engage in illegal conduct is endemic to the enterprise. Just as with the point or mission of the organization as whole, incentives need to be structured to build in ethical and positive results. (If, for example, a pharmaceutical company pays its reps on their market share for a type of drug, off-label marketing will likely be a problem. Pay them only for on-label use, and that problem is largely avoided.) Employees can always find ways to hide evidence of misconduct, and sometimes they'll do so successfully, no matter how rigorous or stealthy the controls. They have nothing to hid and no reason to do so when the company's mission and its incentives are properly aligned.
Second, and perhaps more to the point, I believe the correct term is not "out-of-whackness" but "out-of-whackitude."
I gave legal documents to govt employees in LA, and LA City filed a law suit against Wells Fargo Bank. Their suit contained the same issues as a suit I had pending against WFB. For reasons still unknown, LA City settled with WFBank for $188 million, while my case still languishes in the court system. My case, since one fraudulent acct ended up in my house being foreclosed upon by WFB, had much more illegalities contained therein. My case was ILLEGALLY DISMISSED, then Miraculously,Reinstated when the court told my attorneys they had "mistakenly dismissed my case. However, WFB had already settled with LA City, so my case, The Original Case, that even ended with the loss of my home, did not get settled "as it was Temporarily Dismissed" when WFB settled with LA City. I have copies of fraudulent, forged, altered, backdated notarized documents, etc, and would love the opportunity to testify at a congressional hearing. Since my research began the City filing against WFB, I think I am an appropriate person to testify, with much more damning written and recorded evidence. Sincerely, Clark Davis, LA CA.
Issues raised in this post as well as earlier posts are procedural and tactical with respect to implementation and monitoring of incentives programs. Instead, the major cause of issues faced Wells Fargo is fraudulent and ill motives of the bank's leadership. Alongside employees, the leadership benefitted the most and they let the wrong practices continue unchecked.
Very well said by Wayne Brody that it is "out-of-wackitide' by the bank's leadership that caused issues at Wells Fargo.
Comments are closed for this article!