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Welcome to the ACAMS Web Seminar

LIVE CHAT Know Your Employee (KYE):

Ensuring Integrity in the Workplace April 24, 2013

12:00 Noon– 1:00 pm ET

The web seminar has not yet started.

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Welcome to the ACAMS Web Seminar

LIVE CHAT Know Your Employee (KYE):

Ensuring Integrity in the Workplace April 24, 2013

12:00 Noon– 1:00 pm ET

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Kieran Beer Editor-In-Chief

ACAMS MoneyLaundering.com

Jeff Kearney Executive Director, Fraud, Security and Investigations

Ally Financial Services

Michael S. Schidlow, Esq., CAMS VP, Sr. Global Financial Crimes Compliance Specialist

Bank of America, N.A.


Aspen Study

• Study conducted at the “top” 13 business schools in the country

• Study attempted to show that business schools actually weaken student ethics

• Education fails to improve moral character • Over 1/3 of the students said that if there was a 1%

chance they would be caught for committing a crime that resulted in a $100,000.00 profit for their company they would proceed to commit the crime


Rationalization

Pressure

Opportunity

Performance Pressure

Operationality of Control

Opportunity

Individual and Corporate Models for Fraud Behavior


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Integrity in the Workplace

Fraud and Culture The Inescapable Link


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Why does culture matter? • Eighty years ago, Owen D. Young, the founder of RCA and NBC identified

the “shadowed space” or “penumbra” that exists between the clear

light of right doing and the clear light of wrongdoing, where the spirit of

the law is open to interpretation.

• Criminal verdicts over the past several years indicate that management

can be convicted not only for direct acts, but for policies and practices

that may not be incontestable violations of the law.

• Management should not expect to escape responsibility for the devious

or deceptive acts of others, even though they were not present at or

aware of the offending acts.

Bottom Line, the “shadowed space”, often obfuscated by arcane and complex

rules, must be regarded as a “danger zone” for managers.


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“Corporate fraud comes about not as sudden inventions of criminal masterminds, but as the

gradual culmination of small ethical compromises.”

Ron Chernow, Business Author

“People do not commit corporate crimes because they lack knowledge on the difference

between right and wrong. They are more likely to commit crimes because they have talked

themselves into believing some type of excuse for their actions, and they have found a social

environment in which this sort of excuse is accepted or encouraged.”

Joseph Heath, University of Toronto

Why Do we Sweat the Small Stuff?

Difference between Fraud and Mistakes


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The Insidious Nature Of Fraud and Ethical Misconduct

• “People don’t wake up and say ‘I think I’ll become a criminal today’.

Instead, its often a slippery slope and we lose our footing one step at a

time.” Cynthia Cooper, VP Internal Audit, WorldCom

• “We didn’t think of it as fraud, just as part of our experience. Committing

fraud was just another part of life.” Sam Antar, Crazy Eddies

• “The evidence we have today indicates we have been deceived and

betrayed for a number of years by a highly respected and trusted

individuals.” US Rep. Tom Cole, NRCC

• "In looking for people to hire, you look for three qualities: Integrity,

Intelligence, and Energy. And if they don't have the first, the other two

will kill you." Warren Buffet


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Preet Bahara on Corporate Culture - US Attorney, NY

• “Is corporate culture becoming increasingly corrupt?

• At the very least, in too many places there seems to have taken root a culture of minimalism- by that I mean a culture of aspiring to the minimum: doing merely the minimum required to avoid an enforcement action or a criminal charge, rather than focusing affirmatively on doing the right thing, staying comfortably clear of the line, and earning a robust reputation for integrity and honesty.”

Perception is our Reality… Reputational Risk and Financial Risk

Federal Sentencing Guidelines


Fraud Framework

Prevention • Promoting a “Culture of Integrity” • Training (All Employee, Lob)

• Ensure uniform fraud and security prevention, detection, and response via a best-in-class Global Anti-Fraud Policy/ Physical

Security Policy

• Fraud/ Security Risk Assessment

• Vendor Risk Assessments

•Background Investigations Detection • Insuring robust stakeholder reporting • Development of Fraud/ Security Strategies • Employee Activity Monitoring • Management of Fraud/Security Reporting Tools

DELIVERABLES

•Reporting with transparency

•Culture fixes •Conduct comprehensive assessments to identify both culture and control issues that require

remediation to limit the likelihood of re-occurrence.

Investigation/Incident Handling

• Robust investigative response to allegations or

indications of fraud or ethical misconduct • Stresses promptness thoroughness, and maximum possible transparency in the communication of results • Search for underlying integrity lapses and control failures

• Recognizes that corporate fraud is rarely the result of a criminal mastermind, but generally results as the culmination of a series of ethical missteps. We sweat the “small stuff • Disposition of offenders • Fraud/ Security Incident Reporting Statistics


Aerospace Corp. in El Segundo, paid $2.5 million last week to settle Justice Department allegations that the company defrauded the Air Force for several years by billing for employee William Hunter's time when it knew he was rarely at work


• Hunter submitted fraudulent timecards and billed work for more than 24 hours in one day on 2 different contracts.

• Held himself out as having a doctorate from Oxford


Takeaways:

• Aerospace spokeswoman Pamela Keeton said in a statement:

• “This person was hired before we had sophisticated methods to verify international degrees" . . . "He failed to disclose his other employment as required.”


• Foster allegedly transferred millions of dollars from various Citigroup accounts into his personal account at JPMorgan Chase on eight separate occasions between May 2009 and December 2010.

• According to the complaint, Foster transferred money from internal Citigroup accounts including its interest expense account and debt adjustment accounts, to the bank's cash account.

• From there, he allegedly wired the money to his personal account at another bank, according to prosecutors.


• Foster was forced to forfeit property he purchased with his ill-gotten gains. It included real estate in New York and New Jersey, and several luxury cars.

• Foster allegedly dropped $12 million of the embezzled money on properties in Midtown and New Jersey

• He would show up to hot spots like Greenhouse and NYC wearing eye-catching watches and dropping as much as $2,000 on bottle service.


• OPPORTUNITY - "My past investigation indicated it was leftover balances from the fourth quarter of 2001, when many of Citi's cash accounts and general ledgers were in disarray," he wrote in the statement.

• MOTIVE - At the time, Foster wrote, he was also upset because he had just discovered that a co-worker that he had trained earned $10,000 more than Foster. – "Perhaps it was the stress of the day, or the anger at

my boss, or just the annoyance of having to research this account," he wrote.

• ABILITY TO RATIONALIZE – "This horrible act of stealing had made me realize two things," he wrote. "I can clear any difference at work by taking the funds if possible because no one cared how you cleared or arrived at a number …. Also, with these funds, I could live the life I always wanted.“


• Takeaways:

• Bought a house for his parents and paid off a mortgage for his ex-wife and settled alimony debts.

• "I decided to take the funds," and transferred them into his own account, he wrote, adding that no one at Citibank — where the amount was "too small to worry about" — noticed.


• Frank Mendoza:

• Former employee of the bank was found guilty on 3 counts of bribery and one count of illegal disclosure of a Suspicious Activity Report (“SAR“)


• Mendoza, an officer of the company, was working as a loss mitigation specialist investigating delinquent mortgage borrowers.

• Per the FBI report (and enforcement action) Mendoza suspected fraud and filed a SAR in November 2008.

• Months later, Mendoza approached the delinquent borrower and suggested that the borrower pay $25,000.00 in exchange for Mendoza’s assistance with a possible federal criminal investigation.

http://www.fbi.gov/losangeles/press-releases/2011/la011111.htm


• Mendoza’s bribery solicitation in May 2009, caused the borrower to contact the FBI. After the borrower delayed paying any bribe money, Mendoza ultimately agreed to accept $10,000 in cash.

• During two meetings in the borrower’s car in the parking lot of the Mall of Victor Valley, the borrower made two $5,000 payments to Mendoza


• Takeaways:

• Code of ethics training and certification?

• Escalation process?


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Guide to Creating a “Culture of Integrity”

• Lead by example

• Use EVERY opportunity to convey your expectation of the

highest standards of integrity and ethical conduct

• Convey respect for our “Cornerstones of Integrity” • Code of Conduct IT Policy

• Corporate Anti-Fraud Policy Travel and Expense Policy

• Not all situations are clear-cut, so good judgment is essential. Companies expect compliance with not only the letter of laws and policies, but also the spirit behind them.

• When in doubt about the right choice, ask yourself: • Is it legal? • Does it demonstrate integrity? • Does it comply with our policies? • How would it look on the front page of the newspaper?


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Guide Continued • Quickly and decisively respond to allegations or indications of ethical

misconduct

• Encourage an atmosphere where employees feel comfortable speaking

up about ethical concerns

• Promote fair and consistent discipline for ethical breeches-MAKE THE

TOUGH CALLS • Be among the first to complete required integrity-related training. Send

positive messages to your staff to do the same and to take the training seriously

• Meticulously comply with all integrity related policies- even when it is not convenient

• Send messages carefully, what you say is not always what is heard. • Recognize positively good ethical choices • Report Concerns


If you have additional questions for today’s experts, or

suggestions for future web seminars,

please send those to:

[email protected]

Thank you for joining us today!

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mailto:[email protected]


Future Web Seminars APR 30 – FREE webinar (Sponsored by Verafin) The Rise of Organized Financial Crime: The New Mafia 11:00am to Noon EDT

MAY 01 – AML Essentials: Examining the Key Components of an Effective AML Risk Assessment Model (Part III) Level: Basic Noon to 2:00pm EDT

MAY 15 – Focus on AML Audit: Improving Practices and Procedures Level: Intermediate/Advanced Noon to 2:00pm EDT

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