Criminal Enforcement Against Senior Executives: The Fish Rots from the Head
The compliance community is well aware of the risks in the C-Suite. As you move up the corporate ladder, the level of risk from executive misconduct increases. A rotten executive can quickly bring down a company, destroy its reputation, and raise a host of legal and reputational problems. I have written numerous times on the importance of assessing C-Suite risks and building compliance and financial controls to mitigate such risks. Somehow the C-Suite continues to dodge the compliance bullet and companies continue to suffer from senior executive misconduct.
The past year has demonstrated once again the damage of senior executive misconduct. Here is a list of some significant cases:
Rolls Royce – Two former Rolls Royce executives were indicted for FCPA violations in relation to bribery payments made to Kazakh officials in exchange for a $145 million contract for supplying equipment and services to a Kazakh-China joint venture supervising the construction of a large gas pipeline from Central Asia to China.
Telia – The CEO and senior executives were involved in bribery scheme involving payments to Uzbekistan President’s daughter. The CEO and senior executives were charged criminally in Sweden. Telia’s entire board was replaced as part of an overall remediation plan.
SBM Offshore – The CEOs (two) managed and directed global bribery scheme that was recorded on spreadsheet maintain in CEO’s office safe (and known only to CEOs and Administrative Assistant).
Socieded Quimica Y Qui de Chile – Senior Executive orchestrated bribery payments using funds maintained in CEO account.
KPMG – Two Senior KPMG National Auditing leaders were indicted and charge with fraud and conspiracy involving use of confidential schedule from the Public Company Accounting Oversight Board (“PCAOB”) for auditing KPMG’s reviews of issuers.
Volkswagen – Two senior executives including the former head of the Volkswagen brand, and the head of engine development were charged with conspiracy to defraud and related counts for their involvement in the emissions scandal. Four other individuals were charged in the same indictment.
Och-Ziff – a former executive managing director at Och-Ziff was charged with conspiracy, fraud and obstruction of justice in relation to material misrepresentations and omissions to a firm client in order to complete the purchase of stock. The executive later enlisted a co-conspirator to create a false backdated document and allegedly made false statements to law enforcement agents and an SEC attorney.
These are just some of the major examples of rotten C-Suite conduct.
Chief compliance officers know the importance of tone-at-the-top to an overall ethics and compliance program. It is bad enough when the top of a corporation ignores the importance of ethics and compliance. But it is even more devastating to a company when senior executives themselves engage in misconduct. Without the support of the C-Suite – and most especially as reflected in senior executive conduct – an ethics and compliance program will face serious challenges.
Chief compliance officers need to push their way into the C-Suite for many reasons. First, CCOs have to push for a formal position in the C-Suite. Such an elevation is consistent with the requirement for authority and independence. Second, as a member of the C-Suite, the CCO can require that the company’s risk assessment and compliance program assess and address the C-Suite risks for misconduct. Both of these requirements are essential to an effective ethics and compliance program.