qtq80-DhpIrGWhat is risk and how should it be evaluated? What is the data that should be reviewed to determine if an increase in sales is based on unethical or even illegal behavior? Finally, what happens when you migrate company personnel who have been involved in such illegal or unethical behavior to other locations, does their nefarious conduct spread throughout the organization or is it curtailed? I thought about those questions and some others when I read a recent article in the Wall Street Journal (WSJ) by Emily Glazer, entitled “Wells Fargo’s Troubles Flourished in Arizona”.

Every Chief Compliance Officer (CCO) and compliance practitioner understands that the sales side of a business is where the highest risk is located because that is most generally the side of the business which generates the most money and potential profit. Yet looking at sales numbers are not something which compliance professionals will generally have access to as a part of a compliance program. Once again the Wells Fargo fraudulent accounts scandal provides useful lessons for the anti-corruption compliance practitioner in any best practices compliance program.

Glazer reported, “Arizona was one epicenter of questionable practices at Wells Fargo that led to regulatory enforcement action against the bank”. This came to light when “A Wells Fargo & Co. employee letter to top executives cites allegedly questionable practices in its Arizona region. The letter, sent anonymously, suggests how bad behavior in one part of the bank may have spread to other parts of the country, fueling its sales-practices scandal. The letter, reviewed by The Wall Street Journal, claims that regional executives who oversaw bank branches in Arizona encouraged bankers to lead customers to open multiple products or to find ways to open accounts without customers’ specific knowledge.”

Wells Fargo offices in Arizona, which had “once ranked last in terms of sales among roughly 35 national Wells Fargo regions. The state climbed in about two years around the start of this decade to No. 1 through the use of what current and former employees say were aggressive sales goals and questionable training programs pushed by regional managers who were related or close friends, according to the letter and current managers. The top rank became a source of pride for managers in Arizona. “The satisfaction of being ‘#1, second to no one,’ has [evolved] into an addiction,” according to the letter.”

The tactics laid out to engage in these illegal and unethical actions were about as bad as it can get and, according to Glazer, “The push to drive new product and account openings came from top executives in the Arizona region, the employee letter said.” One tactic included the creation of “laminated fliers for employees across the state to be used as a “tool” if a customer didn’t give branch workers an email address necessary to open certain products, according to the letter. The flier suggested the employee create an email address using the customer’s cellphone number and their carrier, allowing the product sign-up to move forward, according to the letter and people who described the fliers.”

Yet the conduct which led Arizona to becoming a top sales region for the company did not end at the Four Corners. Glazer reported, “The Arizona managers were later recruited to other parts of the country where their tactics proliferated, according to the employee letter. That “enabled the culture to spread through the nation like cancer,” it added.”

Sales spikes in low performing regions can and should be reviewed by a wide variety of disciplines within an organization, including compliance. One would think that companies would want to know and understand the reasons for any sales increase so that it could be determined if such strategies might work in other areas of a company’s operations. This is true for the compliance function as well. As far back as the December 2012, in the Eli Lilly Foreign Corrupt Practices Act (FCPA) enforcement action brought by the Securities and Exchange Commission (SEC), I raised the issue that a dramatic sales increase should be reviewed by compliance to determine if there were any corruption issues involved. This same logic works for sales in the US over products as benign as debit cards. Moreover, if you consider whether the issue should be reviewed by a Board of Directors, it certainly would be material for one state region going from worst to first in sales.

One CCO told me that every time he hears an employee who wins a sales award for making numbers wildly far above plan, he wonders what might have led to such remarkable attainment. Sales spikes is data that increasingly becomes more important for compliance to consider. Just as the Key Energy FCPA enforcement specifically mentioned transaction monitoring around massive increases in gift giving in a geographic region where sales had spiked, a similar analysis is appropriate in the Wells Fargo sales condition in Arizona.

Another issued raised by Glazier’s piece is the “cancer” which spread across the company when employees who had such success in Arizona were transferred to other areas outside the state. This provides another clear lesson for the compliance function as well, which is to follow and track the results of those who had such spectacular success. This issue is more than simply tracking those high result employees but also delivering more focused training to those who might be considered high risk, even if that high risk is for increasing sales through a nefarious manner. This Wells Fargo example show why ethics and compliance training is so critical. If a company has a few bad apples and they spread; it can literally be like a cancer for the organization.

The monetary fines and penalties assessed against Wells Fargo have been well documented. However, the real costs only now seem to be becoming realized. In a Bloomberg article, entitled “Wells Fargo New Accounts Tumble 44% in Wake of Sales Scandal, Jennifer Surane reported that credit card applications dropped by 200,000 and new account openings dropped by 300,000 in the month of October, down almost 50% from the previous year. Mary Mack, the bank’s new head of community banking section was quoted ““It takes time to rebuild trust,” said Mack, who visited 19 cities to listen to retail bank employees for ideas of how the company can move beyond the scandal. “The actions we’re taking will be reflected in more positive trends as we move forward, but in the near-term, I expect many of these trends to continue, including relative stability in our customer base and lower account openings.” Indeed.

Furthermore, Glazer reported one other item which should concern every CCO and compliance practitioner. It concerned the letter to Wells Fargo management which led off her article. Glazer noted the letter was sent from a bank manager in Arizona to Ms. Mack and “Employees are waiting to see how the bank responds and whether there will be any attempts at reprisals to the letter”. One might think that with all the microscopes aimed at Wells Fargo right now, retaliating against internal whistleblowers would never happen. Yet that concern was one of the top ones mentioned in the Glazer piece. What does that tell you about the ethical culture and the culture of compliance at Wells Fargo?


This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016