Compliance Officer Bends to Broken Corporate Culture 17:57, May 25, 2017

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Compliance Officer Bends to Broken Corporate Culture

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Compliance professionals occupy unique positions of trust in our financial system,” wrote Jamal El-Hindi, Acting Director of the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). “Compliance officers perform an essential function, serving as the first line of defense in the fight against fraud and money laundering,” echoed Joon H. Kim, the Acting United States Attorney for the Southern District of New York.

But they weren’t saying nice things just to give compliance officers a pat on the back. On the contrary, these words were written to underscore the importance of integrity in the profession despite a serious breach of trust by one of its members. El-Hindi went on to say that FinCEN took action against one compliance officer “so that the reputations of thousands of talented compliance officers are not diminished by any one individual’s outlying egregious actions.”

Who was this compliance officer, and what did this individual do that was so bad?

Egregious Actions

Thomas Haider, the compliance professional in question, admitted the following in a settlement order of May 3, 2017:

Haider was the chief compliance officer of MoneyGram International, Inc. from 2003 through 2008. He also headed MoneyGram’s Fraud Department and Anti-Money-Laundering (AML) Compliance Department. MoneyGram is a global money transfer service business that lets customers transfer money to or from any authorized MoneyGram outlet. Owners (called “agents”) independently operate MoneyGram outlets.

MoneyGram’s Fraud Department became concerned that 49 outlets posed a high fraud risk. So members of the Fraud Department drafted a policy to close or discipline these outlets. However, MoneyGram’s Sales Department objected to this policy. Haider caved and did not implement the policy, even though he had the authority to terminate or discipline risky agents and outlets.

Haider also admitted that he knew that many MoneyGram outlets had accumulated disproportionate numbers of consumer complaints of fraud on transactions over $2,000, and that MoneyGram analysts who became aware of these complaints were legally required to file Suspicious Activities Reports to FinCEN. However, Haider had structured the AML program poorly. As a result, analysts did not get the information they needed and did not file the Suspicious Activity Reports.

In essence, Haider ignored fraud at MoneyGram, and by doing so allowed fraudsters to perpetrate scams on tens of thousands of victims during his watch. As part of the settlement order, Haider must pay $250,000 and may not work in a compliance function for any money transmitter, such as MoneyGram, for three years.

Broken Corporate Culture

But Haider wasn’t alone in his misconduct. The widespread fraud under Haider’s watch also led to a Deferred Prosecution Agreement (DPA) in 2012, in which MoneyGram consented to pay $100 million to compensate fraud victims.

MoneyGram as a company had failed to respond to thousands of consumer complaints about scams that used MoneyGram outlets and agents to target the elderly and other vulnerable groups. Scams included fake claims that a relative was in distress and needed cash, false promises of cash prizes, and bogus offers of employment for “secret shoppers.” Perpetrators told their victims to send money through MoneyGram outlets in order to complete the transactions.

In announcing the 2012 DPA with MoneyGram, Assistant Attorney General Breuer of the Department of Justice (DOJ) wrote that:

MoneyGram’s broken corporate culture led the company to privilege profits over everything else. MoneyGram knowingly turned a blind eye to scam artists and money launderers who used the company to perpetrate fraudulent schemes targeting the elderly and other vulnerable victims.  

Because internal compliance processes failed at MoneyGram, the DOJ subjected the company to five years of government monitoring for compliance, and required the company to create an independent compliance and ethics committee of the board of directors with direct oversight of the chief compliance officer and compliance programs, among other structural changes intended to improve compliance.

Ethical Leadership, Ethical Culture

It is unlikely that Haider single-handedly created a culture that fomented fraudulent activities at certain MoneyGram outlets. For example, he admitted that the Sales Department had resisted policies to discipline or terminate agents and outlets that had engaged in dubious practices. But Haider’s position as chief compliance officer must have helped to set the tone at the top that lead to widespread fraud.

Poor ethical leadership — especially from a compliance officer whose job description entails watching over and embodying organizational ethics — led to a toxic corporate culture. Conversely, ethical leadership can create ripples through an organization that foster an ethical culture. It’s also true that a toxic company culture can drive talent away, but an ethical culture attracts talent, which in turn strengthens the business.

The MoneyGram DPA and Haider’s settlement illustrate what compliance officers and other leaders should not do. But what should leaders do to avoid these ethical pitfalls? As my colleague Douglas Kelly writes in his article, “Are Ethical Managers Mythical Creatures?,” ethical leaders take responsibility for embodying their company’s values and rely on objective guidelines (not just their own experiences and impressions) to implement organizational ethics programs.

By contrast, Haider admitted in his settlement agreement that he had not followed through on policy recommendations to terminate or discipline high-risk outlets, nor had he utilized available data about widespread consumer fraud to facilitate required Suspicious Activity Reports to the authorities. Had Haider and the MoneyGram Sales Department taken responsibility for appropriate policy implementation, and had the company and compliance personnel relied on evidence to combat fraud, the story might have been much different.

Ethical leadership and ethical culture can be self-perpetuating, so long as you have robust policies in place, implement them in practice, and communicate them through training. When done right, training reinforces company culture. But even the best training, practices, and policies will be ineffective if leaders are not visibly and explicitly committed to an ethical and compliant company culture.

LawRoom (powered by EverFi) delivers online training to help your business meet compliance requirements both dynamically and scalably. In addition to our award-winning online courses, LawRoom delivers a robust, cloud-based learning management system to help you easily deploy and track our growing library of ethics, anti-harassment, data security and employee conduct courses.

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Steve Treagus
Stephen Treagus, JD's, previous practice as an attorney specializing in employment litigation exposed him to the rough-and-tumble world of employment relationships gone awry. Today, this experience informs his articles and courses, helping employers avoid costly litigation and get employment law right. Stephen earned his JD from John F. Kennedy University School of Law and his BA from Sonoma State University.

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