A Year After Dodd-Frank, Too Big To Fail Remains Bigger Problem Than Ever

A Year After Dodd-Frank, Too Big To Fail Remains Bigger Problem Than Ever

Terrific article by Shahien Nasiripour, senior business reporter from the Huffington Post. He writes frequently about Wall Street/corporate fraud issues and attempts at government regulation. In this piece, Shahien takes a critical look at the Dodd-Frank Wall Street Reform Act a year after its passage. He writes that, in spite of all of the hoopla surrounding the enactment of the legislation, little has really changed. The nation's largest banks and brokerage firms are getting bigger; the structural deficiencies and incredible financial incentives that motivated unethical decisions still remain; and the ability of regulators to "mind the store" continues to erode to the point of absurdity. He concludes that, in spite of the new regulations, the economy simply cannot afford to let these banks fail, and they know it. The knowledge that any behavior will ultimately be tolerated creates a kind of institutional arrogance that perverts even the most conservative of free market economy theory, which hold that in a true capitalist system, those institutions which violate the rules of order will pay the ultimate price and will not survive.

One of the problems with the way we have approached banking and finance regulation is that it is almost predominantly reactive in its focus. Legislation creates a set of rules; a whistle blower reveals a violation of the rules; and the regulators must take some kind of punitive action. Unfortunately, those actions often fail to have any deterrent effect, because economic interests are seen to outweigh ethical and legal considerations. In my view, regulators need to focus on proactive, preventive measures by (1) requiring companies to establish genuine business ethics and compliance programs, and have them regularly assessed by an independent third party, (2) leveraging the use of independent corporate compliance monitors, at company expense, to regularly evaluate corporate internal controls and compliance with the most critical regulations that can negatively impact consumers and the economy, and (3) integrating integrity agreements into every administrative, deferred prosecution, and non-prosecution agreement that call for even more intrusive monitoring of company practices on a regular basis, before violations occur.

UK anti-corruption drive has US companies sweating | Reuters

UK anti-corruption drive has US companies sweating | Reuters

Now is definitely the time for companies to do an "Ethics check-up". An external, independent assessment of corporate ethics and compliance activities can help improve a company's ethics and integrity posture, and proactively demonstrate to government agencies, regulators, oversight bodies, and customers that they are committed to ethical behavior BEFORE a crisis occurs.

In Shift, Prosecutors Are Lenient as Companies Break the Law - NYTimes.com

In Shift, Prosecutors Are Lenient as Companies Break the Law - NYTimes.com


Fascinating NY Times piece on DOJ's increasing use of deferred or non-prosecution agreements as an alternative to more aggressive prosecutions of corporations. Although the article is cynical in places, I don't believe that long, expensive prosecutions of companies are always in the public's best interests. In fact, many large corporations conduct a risk/benefit analysis to determine whether a particular business decision, if close to or over the ethical line, would ultimately be in the company's best financial interest if discovered by the government. Aggressive prosecutions, which almost always end in a fine and settlement, are merely part of this calculus.

The effectiveness of deferred prosecution agreements (which save the taxpayer an enormous amount of money) would be greatly enhanced if they routinely included independent corporate compliance monitoring as a condition of the agreement.In this model, the company agrees to an independent monitor looking at books and records, talking to employees, inspecting factory floors - - anything that is germane to the offense being investigated. The government identifies the items to be monitored (such as the accuracy of billings, for example), and the frequency and duration of the monitoring. The Independent Monitoring firm provides technical experts, ensures there are no conflicts-of-interest, and prepares reports on the company's compliance to the government. Typically, the monitor will also assess the company's Corporate Ethics and Compliance Program to ensure it is robust, effective, and actually ensuring an ethical corporate culture. The monitor would also assess a company's internal controls and identify process deficiencies that may have led to the initial offenes, making recommendations to the company along the way.

Independent monitoring helps protect the taxpayer; extends the oversight capability of government agencies and regulators; and (if done properly) helps the contractor remedy many of the bad processes that led to their problems in the first place.The government receives regular monitoring reports, but the total cost is borne by the company, not the taxpayer. At a time of severe budget austerity and increasing demands for accountability of government funds, the expanded use of deferred prosecution agreements that contain requirements for independent monitoring is simply a "no-brainer."