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.