Enforcement: Change the Record

Written by Jason Morris on Thursday November 20, 2014

It’s the same old song. Not The Four Tops classic (although you’ll probably be humming the tune for the rest of the day now) but my feelings about an article I recently read that has resulted in a depressingly familiar stance by an international organisation.

The story involves the Department of Financial Services (DFS) in New York imposing a financial penalty of $315 million against Bank of Tokyo Mitsubishi UFJ (BTMU) for misleading regulators regarding its transactions with Iran, Sudan, Myanmar and other sanctioned entities.  This latest action follows a $250 million penalty BTMU paid in June 2013 over its sanctioned transactions.  The full article can be read here.

The all too familiar stance I referred to earlier is the BTMU statement issued following the ruling, in which they said that it is “committed to conducting business with the highest levels of integrity and regulatory compliance, and to continually improving its policies and procedures”.    This seems to be the ‘go-to statement’ used by every financial services organisation caught in the glare of regulatory headlights. 

I mean, if you really are “committed to conducting business with the highest levels of integrity and regulatory compliance”, your own compliance officers wouldn’t have pressured auditors to remove reported key warnings about the sanctioned activity in the first place would they?

There are two additional things that concern me about this story:

1. In the recent Libor and Forex scandals it has predominantly been traders who have been involved in the dodgy dealings.  The BTMU case demonstrates that even those who are directly responsible for ensuring that an organisation complies with the required rules and regulations are not immune to becoming engaged in wrongdoing.

2. The fact an auditor of PricewaterhouseCoopers (PwC) size and scale can be “pressured” into removing key warnings in their own report.

It makes me wonder if organisations may start to see external audits as an area they can exploit to their own advantage.  I also fear that the, largely, positive progress global regulation has made in the last few years, particularly around cultural changes within organisations that, in many ways, form the foundation of effective compliance practices, may be concealing a wider problem regarding the integrity of the compliance function.

What is pleasing is that DFS have not only imposed a hefty penalty on the organisation itself, but they have also ensured the individuals directly involved have been suitably punished by banning them from engaging in employment that involves them working with any New York banks or other financial institutions regulated by DFS.

Mind you, I’m not sure I’d feel comfortable with them working in the UK jurisdiction either.  Maybe it’s time a central register was held listing the details of those individuals who have overstepped the mark in this way, bringing into question the integrity upon which the compliance function has to operate?  Regulators in all jurisdictions can at least then make informed decisions regarding individuals holding such crucial positions.  In a truly global market, this is food for thought perhaps.

Anyway, enjoy the humming