Compliance Culture

Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Must-read ICIJ investigative project reports

The International Consortium of Investigative Journalists (ICIJ) is an independent, international network of over 200 investigative journalists in more than 70 countries worldwide. Their reporting focuses on international crime, corruption, and transparency of political and financial power held by governments and corporations. ICIJ works worldwide with local media partners to publish complex investigative reports often focusing on organizational corruption at the highest levels of power and the impact their activities have on people and communities in their home countries as well as in the developing world.

Like this blog’s earlier feature on the work of the Organized Crime and Corruption Reporting Project (OCCRP), reporters associated with ICIJ often follow highly complicated financial trails at major banking institutions and supporting organizations in the financial services industry, in order to uncover tax evasion, theft of national assets, bribery, and other financial crimes.

  • Luxembourg Leaks (2014): This blog has previously discussed the Luxembourg Leaks in the feature post on whistleblowers in the financial services industry. This investigative report was based on documents provided to ICIJ by, among others, a French employee of the Big 4 accounting firm PricewaterhouseCoopers. The ensuing investigation showed that Big 4 firms were facilitating registration of multinational companies in Luxembourg in order to evade local taxes and take advantage of banking secrecy laws that would prevent disclosure of even the existence of their offshore accounts to their home countries. Companies named in these papers included IKEA’s Australian operations, Pepsi, Disney, and the Koch Brothers’ business empire. 
  • Swiss Leaks (2015): Continuing in the vein of uncovering undisclosed accounts and financial arrangements maintained under the protection of a banking secrecy regime, this investigation revealed HSBC Private Bank (Suisse) maintained banking relationships with clients connected to arms trafficking, blood diamonds, and bribery. Many of the clients serviced by HSBC were connected to discredited political regimes in countries such as Egypt, Tunisia, and Syria. These were clients who due to their illegal or sanctioned activity would not be accepted for banking services in other countries. The documents showed that HSBC not only accepted them but repeatedly assured them that their wealth would be shielded from tax authorities or other inquiring government entities. 
  1. Evicted and Abandoned (2016): This investigation ran an external audit on projects supported by the World Bank. The International Finance Corporation, which provides private sector loans on behalf of the World Bank, has given financing to governments and corporations accused of egregious human rights violations. In some cases these financing activities continued after evidence of the violations was made public. Funds from World Bank projects were subsequently misappropriated and diverted by local governments to fund violent and harmful campaigns against the people who were supposed to be helped, and social and environmental impact was disregarded. 
  • The Panama Papers (2016): Receiving widespread media attention and igniting local investigations in many countries and by many financial institutions, the Panama Papers project was one of the biggest stories in money laundering investigation of recent years. ICIJ worked on this project in collaboration with OCCRP and Suddeutsche Zeitung, the German media organization which originally received the cache of documents from Mossack Fonseca, a trust company in Panama that facilitated legal incorporation of offshore shell entities for many of the world’s wealthiest people and powerful political figures. Many of these shell entities were later involved in illegal activities including tax evasion, fraud, and money laundering. 
  • The Paradise Papers (2017): The most recent of ICIJ’s reports, like the Paradise Papers, this details the facilitation of secret financial arrangements by offshore service providers, this time including one of the world’s most high-profile law firms working in this industry. This time the focus was on legal incorporations in Bermuda, Singapore, and Mauritius. The Paradise Papers differ somewhat from the Panama Papers in that they do not purport to uncover widespread illegal activity, but rather legal activity that is secret or inconsistent with representations otherwise made to the public. Political figures in the US, the UK and Canada, and their donors or other financial supporters, were included this time with information exposing their previously undisclosed offshore arrangements and ownership stakes. The Paradise Papers also provided great detail on the “tax engineering” of many major companies, including Apple, Nike, Allergan, and commodities giant Glencore.   While currently legal, it is expected that the public controversy over these increasingly “creative” tax arrangements may lead to deeper regulatory inquiry as to whether they should remain legitimate practices going forward. 

Like OCCRP, ICIJ has become a highly-regarded media organization in the twenty years since its formation. The work that the journalists of ICIJ do to investigate and expose corruption and crime is critical for the effort to enforce expectations that those in positions of power be held accountable for their actions, which even if legal, can be ethically unacceptable and abusive of the people they purport to serve. These investigations serve a crucial public service in exposing both criminal activity and legal arrangements which nonetheless may not meet society’s standards for transparency or lead later to the facilitation of illegal activity.

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Whistleblowers from significant scandals in financial services

This is the first of a three-part series profiling whistleblowers in different industries. This starts with today’s post, focused on the financial services industry, describing events where whistleblowers came forward to expose misconduct in investment banking, wealth management, and accounting. Tuesday November 7th’s post will cover the pharmaceutical industry, including AstraZeneca, Pfizer, and more. The post for Tuesday November 14 will be about whistleblowers who exposed high-profile corporate fraud in diverse companies such as WorldCom and Archer Daniels Midland.

Whistleblowers in the financial services industry have sparked reform for investor protection and shed light on the often secretive or mysterious culture within banking organizations, where trouble can be hidden from competitors and the public alike, as cultural problems deepen inside the organization completely unchecked by controls or encouraged by business strategy.

  • Bradley Birkenfeld, UBS: Brad Birkenfeld is an American banker. His disclosures regarding actions by UBS Group AG that enabled US tax evasion led to a $780 million fine from the US Department of Justice against UBS and publication of information that exposed the previously mysterious world of Swiss private banking. Indeed, Switzerland amended its federal banking law in 2009 and over the years subsequent made significant contributions to cooperation with other countries regarding reporting of tax data of their citizens. In 2013, Switzerland signed the Convention on Mutual Administrative Assistance in Tax Matters, cementing this obligation to roll back banking secrecy in this treaty which over 60 countries signed. For more on Brad Birkenfeld, who both did jail time and received a $104 million reward for his disclosure, check out this Bloomberg profile of him.
  • Rudolf Elmer, Julius Baer: Rudolf Elmer worked for the Swiss private bank Julius Baer for almost twenty years. In his last role, he was the head of the bank’s Caribbean operations for eight years. In 2002, the bank discovered that internal data had been stolen and subjected all employees to a lie detector test. Elmer declined the test once and then took it and failed, leading to this termination. Following this Elmer spent several years trying to share the information he had taken, culminating in releasing a cache of documents to WikiLeaks in 2008 and again in 2011. These documents provided evidence supporting allegations that Julius Baer had facilitated clients’ tax evasion through banking practices in the Cayman Islands. Elmer was tried several times in court for breach of banking and business secrecy laws, which historically have been notoriously tough in Switzerland, but have begun to be rolled back or scrutinized in the wake of cases such as Julius Baer’s.   Elmer also faced charges of harassment and other nuisance offenses for public disputes he got into with the bank and its employees, which demonstrates the complex and sometimes problematic emotional impact whistleblowing can have on people and their relationships with their ex-employers and ex-colleagues. In 2016, Julius Baer settled a deferred prosecution agreement, related to aiding US citizens in the commission of tax evasion, with the US Department of Justice for $547 million. For more information on this, check out this Forbes article from 2016.
  • Richard Bowen, Citigroup: Richard Bowen was a senior executive at Citigroup in the period leading up to the 2008 global financial crisis. He was the chief underwriter of the Consumer Lending Group unit, and in this capacity he was responsible for evaluating and maintaining the creditworthiness of the unit. From June 2006 on, Bowen warned the board of directors of Citigroup about major issues in the risky mortgages being bought and sold by the unit. Bowen reported evidence to the board that many of these mortgages were defective, fraudulent, or both. Despite Bowen’s weekly warnings via required reporting throughout 2006 and 2007, the board did not take action. Bowen requested outside investigations of the Consumer Lending Group unit which substantiated his reports and showed that the unit had been operating with insufficient controls against these risks since 2005. This information should have been provided to shareholders per the Sarbanes-Oxley Act, but it was not, despite the fact that the bank claimed compliance with the Sarbanes-Oxley Act during this period. In exchange for his whistleblowing, Citigroup took away most of Bowen’s responsibilities and eventually fired him. Bowen offered crucial testimony to the Financial Crisis Inquiry Commission in 2010. He is now a motivational speaker on ethical leadership and corporate culture within the banking industry. For a look at what happened to Richard Bowen after he blew the whistle on Citigroup, check out this New York times article from 2013.
  • Antoine Deltour, PricewaterhouseCoopers: Antoine Deltour was a French employee of PricewaterhouseCoopers who was involved in providing information to the press related to tax rulings in Luxembourg for multinational companies. The documents became known as the Luxembourg Leaks and were the focus of a global investigation conducted and published by the International Consortium of Investigative Journalists. The investigation showed that PwC and other major accounting firms were facilitating registration in Luxembourg by multinational companies in order to benefit from advantageous tax rulings for revene reallocation. The legality of these practices is questionable on a number of grounds, including anti-trust, market abuse, and tax deals as illegal state aid. As a result of the disclosures, Deltour and his fellow PwC employee who also released documents, Raphael Halet, received prison sentences (later changed to suspended or overturned) and fines, but have also received a lot of credit for helping to shed light on the secretive practices surrounding these Luxembourg tax rulings and brought greater attention to the need to identify and prevent state-sponsored tax avoidance and evasion. In this sense, like the Julius Baer case, the whistleblower helped to ignite an open dialog about whether banking secrecy laws serve the public interest. For more on this sentiment, check out this piece about the role of citizens in holding the EU accountable.

Individuals like the above speaking up about misconduct they suspect or observe in the financial services industry have brought much-needed exposure and change to business practices. They have also often been punished, fired, criticized, or doubted for their bold decision to expose wrongdoing by their employer and/or colleagues. The 2009 US Dodd-Frank Wall Street Reform and Consumer Protection Act, which was intended to promote transparency and prevent fraud in the financial services industry, now prohibits retaliation against whistleblowers and expands the powers of the Securities and Exchange Commission in order to provide for other protections and rewards for whistleblowers who speak up about corporate malfeasance. Nonetheless, whistleblowers in the US continue to face retribution for their actions, and in Europe they remain open to legal liability in addition, as their disclosures break laws that some may say are designed to enable the concealment of other fraudulent or illegal practices.

Check back in two weeks, on Tuesday November 7, for the second post in this series of three about whistleblowers in historical events. Next Tuesday’s post will discuss individuals who exposed fraudulent business practices in the pharmaceutical industry.

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