The Financial Industry: Ignoring Corruption Enforcement Risks

The old English proverb, “You can lead a horse to water but you can’t make it drink,” is particularly apt when you think of the financial industry and corruption compliance.  Maybe it comes from compliance overload, or maybe it is something else in the DNA of the financial industry.

One thing is for sure – the financial industry is going to get hit hard in corruption enforcement.  Why do I say that?

A recent survey of corporate leaders across industry sectors reported that financial industry leaders viewed their risks of corruption significantly lower than companies in the energy, telecommunications, high-tech and pharmaceutical and medical device industries.

The financial industry’s self-assessment is nothing short of perplexing. 

First, in the aftermath of the economic collapse in 2008-2009, the political winds against the financial industry are strong.  Politicians and the American public believe that our financial institutions were responsible for the financial meltdown, and the Obama Administration, rightly or wrongly, has taken it on the chin for failing to prosecute more financial companies and executives. 

As I often say, the American public wants to see headlines announcing huge fines and penalties against financial companies, and they want to see financial industry executives go to jail.  I am not saying this is right or wrong but it is the political reality.

The political atmosphere is reflected in the Justice Department’s priorities and actions.  While we all cling to notions of equal and fair justice, it is naive to think that politics does not enter into Justice Department priorities.  For that reason, when it comes to FCPA enforcement, the financial industry has been – and remains — a high priority to federal prosecutors.

Second, and even more important, is the fact that the Justice Department and the SEC already have launched several high profile FCPA investigations of the financial industry, including an ongoing industry investigation started in 2010 which focuses on interactions between financial institutions and investment banks and foreign sovereign wealth funds and public institutional investors. 

In the face of these two significant trends, it is difficult to understand why financial institutions have not raised anti-corruption compliance to a higher priority. 

Humans have a great ability to ignore problems and oncoming risks – it is called the power of denial.  Denial is often rooted in fear. 

But when faced with these two trends, I would expect responsible corporate leaders to respond to this pervasive risk – FCPA prosecutors are targeting the industry and you can expect that financial companies will be facing serious enforcement and compliance issues in the next few years. 

In anticipation, responsible corporate leaders need to focus, allocate resources, and lead a company’s enhanced compliance efforts.  Otherwise, financial companies and executives face a significant risk – serious criminal prosecutions based on willful blindness.

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1 Response

  1. Jon MY says:

    The financial industry is not worried because they do not understand the nature of their exposure under the FCPA. They understand money laundering and believe, rightly or wrongly, that they have implented those measures that will insulate them from prosecution, but until they are told how they couls face prosecution for bribing a foreign government official to secure business in the foreign venue, they won't get it.