CEOs Under the Criminal Spotlight – More C-Suite Misconduct

We live in a bizarre time — an information age where lines are blurred between truth and lies — a strange era in which our daily doses of information are dominated by scandals, corruption, and repeated claims of “fake news.”  One of the unfortunate consequences is that otherwise important issues often fade in competition with these ever-pervasive scandals.  Please do not misunderstand me – the focus of the media on corruption, scandals, government misconduct and ongoing criminal investigations are important.

However, we have seen a very interesting series of criminal prosecutions that require notice – the Justice Department in three significant criminal cases has targeted CEO misconduct.  These prosecutions highlighted criminal misconduct by the CEO/President of Panasonic Avionics, the indictment of former CEO of Volkswagen for his role in the emissions cheating scandal, and the indictment of Bumble Bee’s CEO for his involvement in a criminal price-fixing conspiracy.

Each of these cases revealed blatant criminal conduct by CEOs of major companies.  I have repeatedly reminded compliance professionals that basic risk assessments and internal controls have to address C-Suite risks.  While it may be politically difficult to subject the C-Suite to such an examination, the calculation is obvious – misconduct by a member of the C-Suite while remote can have a devastating impact on a company.  This idea appears to be obvious but yet Chief Compliance officers often turn their political eye away from the C-Suite and feel more comfortable dealing with risks in the trenches. This strategy has to stop and CCOs have to address C-Suite risks.

The Panasonic Avionics case provides a perfect example of why C-Suite controls are critical for effective compliance programs.  The CEO/President of Panasonic Avionics maintained a President’s Account that was used to pay bribes to various third parties and government officials.  This account was not monitored nor was it subjected to Panasonic Avionics’ financial controls.  The risk of misconduct using this fund was high.

In the criminal case against former CEO Winterkorn, a senior executive meeting, which Winterkorn chaired, reviewed and approved continuation of the emissions cheating scandal and communicating false information to California and US regulators requesting information about emissions performance of VW’s diesel cars.  Not only was the CEO made aware of the ongoing scandal, but he ordered the illegal conduct to continue and to affirmatively mislead regulatory officials.

In the recently announced criminal indictment, Bumble Bee’s CEO was charged with participating in a criminal conspiracy to fix prices for packaged seafood products.  The Bumble Bee CEO is the fourth individual charged in this ongoing antitrust investigation.

The indictment charges Bumble Bee’s CEO with participating in a conspiracy from November 2010 until December 2013 and agreeing to fix the prices of packaged seafood during meetings and other communications.  The co-conspirators issued price announcements and guidance in accordance with these agreements.  Bumble Bee already plead guilty to participating in a criminal price fixing conspiracy and agreed to pay a $25 million fine.

It is hard to say whether CEO misconduct is increasing.  Our history is replete with examples of CEO misconduct and this recent spate of CEO misconduct is significant but not unprecedented.  Nonetheless, the instances of CEO misconduct remind CCOs of the importance of focusing compliance and financial controls to the C-Suite.

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  1. May 23, 2018

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