Gathering Storm Against “Corporate Corruption”
Could it get any worse for companies and public perception of corrupt business practices? I know it is a rhetorical question but the wave of public opinion and news reports has been pretty bad for business. In the wake of the financial crisis of 2008-09, the last thing businesses needed was a new whipping post for public outrage.
In the wake of a perceived slow down in FCPA enforcement, the government has found plenty of other culprits to flog for corporate misdeeds. This is a significant trend and only underscores American distrust of business ethics. For companies it increases enforcement risks and increases pressure to ensure compliance.
Unfortunately, businesses have been supplying plenty of material.
1. The LIBOR Scandal – Public reports relating to this scandal and the recent settlement involving Barclay’s has reignited some of the passionate arguments against corrupt business practices. You know you are in trouble when estimates of the impact of the LIBOR scandal reach into the trillions of dollars. The allegations center on manipulation of bank submissions used to calculate the LIBOR rates. It has far-reaching implications because of the impact such conduct could have had on interest rates paid by the American public for mortgages, vehicles and other basic items.
2. Lending Discrimination – The Obama Administration has been aggressively pursuing financial institutions and other lenders for discrimination in the rates and charges involving African-American customers and other minorities. Wells Fargo recently settled a significant case with the Justice Department over its lending practices. More of these settlements are likely to occur in the future. Fair lending settlements only reinforce perceptions that financial institutions charge higher prices based on racial factors.
3. GSK Off-Label Settlement – GSK recently settled a major off-label investigation resulting in fines and penalties of over $2 billion. While the business community attacks the Justice Department’s FCPA enforcement program, there is little complaint from the business community on Capitol Hill about the off-label marketing enforcement program. Drug companies and medical device companies have always been on the Justice Department’s enforcement list and continue to be a priority.
4. ING OFAC Settlement – ING paid a settlement of $619 million in fines and penalties for violations of sanctions involving Cuba, Iran, Libya (at the time was sanctioned) and other prohibited countries. The scheme as outlined in the settlement papers was blatant and the absence of internal controls to prevent such conduct led the government to impose a record-high settlement. More major OFAC actions are in the pipeline and will only reinforce many of the perceptions of corruption.
Companies cannot ignore the fact that politics and public perception have a significant influence on government enforcement actions and priorities. Politics is everywhere and public perception and influence can be a significant factor in which companies or industries are investigated, how they get investigated, and the resolution of these enforcement actions.
The Obama Administration has been criticized (rightly or wrongly?) for failing to prosecute officials in the financial industry for the financial crisis of 2008-09. As a result, the Obama Administration has to demonstrate its commitment to justice in order to “make up” for the public perception of lax enforcement. Unfortunately, that is the way the systems works.