Corporate Compliance Essay

Part 1: Connecting Concepts (25 points, 800 words total)
Below are 4 pairs of concepts that we have studied.  Explain how concepts in each pair are connected to each other and provide specific examples of how they may interact with each other.  Respond to three of the pairs.
 
1.     Auditors and Standards

2.     Capture and Cooperative Enforcement

3.     Privatized regulation and Gatekeepers

4.     Whistleblowers and Culture of Compliance

 
 
 
 
 
Part 2: Short Answer (25 points, 800 words total)
Respond to two of the essay prompts below.  Explain your answers with references to the reading.
 
1.     What is the the board of directors’ role in compliance? What should it be?

2.     Regulations often require that companies post the relevant legal requirements where employees can read them.  For example, restroom often have signs reminding employees to wash their hands before returning to work; breakrooms often have signage detailing wage and hour laws.  From the perspective of a regulator, what role do these requirements play?

3.     From the perspective of front-line employees, are internal investigations different from investigations led by regulators, and if so how?

Part 3: Essay (50 points, 1500 words)
Answer one of the essay options below.  Be creative.
 
Wells Fargo, one of the nation’s largest banks, has admitted to opening 3.5 million unauthorized accounts on behalf of its customers.  Wells Fargo employees faced intense pressure to “cross-sell” customers new products and had mandatory sales goals to meet.  The news of the unauthorized accounts came not from regulators but from an investigation conducted by the Los Angeles Times in 2013.  Only after the Times broke the story did the L.A. city attorney launch an investigation.  The city attorney sued Wells Fargo in 2015.  Federal regulators did not bring charges until later.  In late 2017, CFPB settled with Wells Fargo for a $100 million fine, although the CFPB may have been able to fine Wells Fargo $5,000 for each unauthorized account.
 
Even before the small fine was announced, several Senators from across the political spectrum were disappointed that Consumer Financial Protection Bureau (CFPB) did not discover and stop Wells Fargo’s wrongdoing sooner.  For example, at a hearing on the matter on September 20, 2016, the Chairman of the Committee on Housing, Banking, and Urban Affairs, Richard C. Shelby (R-AL) said:
 
I have often said that banking is based on trust, and that trust was broken at Wells Fargo. While much has been written about these events, I believe there are several questions that warrant answers. First, when did this conduct start at Wells Fargo and why were the regulators unaware of this growing problem? Second, when did Mr. Stumpf and his senior management become aware of these activities and how did they respond? Third, have all of the appropriate Wells Fargo employees been held accountable and to what extent? Finally, where were the Federal regulators while certain Wells Fargo employees were taking advantage of unsuspecting customers over a period of many years? Here is what we do know: Wells Fargo’s internal review only covers unauthorized accounts dating back to 2011. News reports and court documents suggest these problems might have existed long before then. The 2013 Los Angeles Times articles led to the LA City Attorney’s Office investigation into Wells Fargo’s sales practices. Thousands of man-hours by a dozen dedicated LA City Attorneys culminated in a lawsuit filed against Wells Fargo in May of 2015. This timeline begs the question: Where were the Federal regulators during those years? If the OCC and the CFPB were aware of these issues before the LA City Attorney’s lawsuit, why did they wait until 2016 to bring an enforcement action? Why did it take a Los Angeles Times reporter to uncover what should have been uncovered by Wells Fargo’s regulators? If there were ever a textbook case where consumers needed protection, this was it. How many millions of unauthorized accounts does it take before the CFPB notices? And while the Bureau is billing this as the largest settlement in its history, it is unclear whether it had any significant role in discovering or investigating the bank’s conduct. Just as it is fair to ask Mr. Stumpf what he knew, when he learned it, and what he did about it, it is also fair to ask those same questions of Wells Fargo’s regulators. These are simple facts-and-circumstances
 
The CFPB has reason to believe that the same practices that occurred at Wells Fargo happened at other banks, including LocalBank, a regional bank that serves the working-class suburbs of San Francisco.  LocalBank has managed to remain independent notwithstanding a long trend towards bank consolidation.  Indeed, only two other banks conveniently serve its customers.  While LocalBank is in good financial shape given its size, it would likely have to sell itself to a larger bank if it faced any significant unexpected expenses.  It’s unclear how any potential merger would impact LocalBank’s employees.
 
LocalBank has quietly cleaned up its practices and refunded affected customers but has not publicly disclosed its prior wrongs.  When it refunded customers, it explained the refund as “due to a prior, one-time error in your account” without more detail.  LocalBank has not made any personnel changes as a result of the wrongdoing.  In deciding not to fire management when it learned of the scandal, the Board reasoned that any high-level turnover would draw unwanted attention.  Moreover, it believed the CEO was sincere when he explained that “industry standards have changed making our prior cross-selling practices incompatible with new norms.”  LocalBank’s employees are relieved to be free from the high-stress sales practices and most appreciate the renewed focus on customer service. 
 
Option 1: You are an attorney with the CFPB tasked with investigating LocalBank for potentially opening unauthorized accounts.  You have confirmed that LocalBank opened accounts without customers’ permission from 2010-2016.  Some customers incurred fees as a result of these accounts, but LocalBank has preemptively refunded all potentially affected customers.  Write a memo describing what you will weigh when considering an enforcement action against LocalBank and make a preliminary recommendation for how to proceed.  What do you need to know?  What facts are good/bad for LocalBank?  Are any external considerations shaping your recommendations?  Please use specific references to the relevant sources and explain how that source shapes your ultimate recommendation.
 
Option 2: You are a high-level manager of LocalBank.  You suspect that a disgruntled employee is about to become a whistleblower.  What should the company do and why?  What should you do and why?  Please use specific references to the relevant sources and explain how that source shapes your ultimate recommendation.