By Dick Carozza, CFE, Editor in Chief, Fraud Magazine
“The lesson in history in general and in corporate scandals specifically is that you can’t simply legislate a culture of integrity,” said Preet Bharara, the U.S Attorney for the Southern District of New York, during the Monday working lunch. “You cannot will it into existence by simply wishing for it, nor can you instill it in the workplace with even the best drafted compliance policy or the most thoughtful statutory regime or the best fraud examiners around.”
Bharara, who received the ACFE’s prestigious Donald R. Cressey Award for a lifetime of achievement in the detection and deterrence of fraud, challenged attendees to step back from merely concentrating on the law of fraud and help develop a culture of integrity that will deter it.
He said that simply “issuing periodic and formalistic admonitions” won’t necessarily encourage even good people in the workplace to come forward the moment they suspect the books are being cooked, the numbers are being faked or the customers are being cheated.
“Getting people to listen and report and sound alarms and seek advice requires more than email reminders,” Bharara said.
Dubbed “The Street Fighter” by TIME Magazine in 2012, Bharara has gained a reputation for vigorously prosecuting alleged insider traders such as Raj Rajaratnam, the billionaire investor who once ran one of the largest hedge funds and Rajat Gupta, the retired head of the consulting firm McKinsey & Company. He also prosecuted noted cases including a former Goldman Sachs board member and Peter Madoff for his role in his brother Bernard’s Ponzi scheme.
Those were satisfying convictions, but it would have been better for employees to come forward before these crimes came to light. He said in most of the big cases his office has prosecuted “there were many, many, many good people who were honest and law-abiding who expected something bad was going on and sounded no alarm.
“How do we encourage whistleblowers or sentinels, as I think you call them, to come forward?” Bharara asked. “All too often a human tendency is to look the other way … to not want to rock the boat … to conform, to get along, to be a team player … to avoid ostracism. … These social forces can overwhelm the impulse to do the right thing. Coming forward takes courage, some call it guts.
“We need to figure out … how to make people feel comfortable coming forward and make sure they’re not going to be punished. … And even be rewarded. How about that for a change?
“How will you satisfy yourselves that the institution you advise or work for is a place where people are comfortable elevating ethical issues?” Bharara asked. “A place where company protections for blowing the whistle are not just in a company manual but in the company’s marrow.
“How will you ensure that your colleagues will take their ethical obligations seriously? What will you say next time a whistleblower complaint has only been shallowly investigated? How will you react if you ever get the feeling that the client is not telling you everything?” he asked.
Bharara said the long-term solution for every firm is to create a corporate culture in which dissent is openly permitted, candor is duly fostered and integrity is cultivated and even rewarded. “That’s something easier said than done. … A corrupt corporate culture cannot be transformed overnight even with the adoption of policies and programs and training sessions. It’s long term and requires constant care and feeding.”
He said part of his job “but more importantly your job and the people you work with is to disable those [criminal] enablers and ring the alarm bell early by shouting from the hilltops that catastrophe awaits if attention is not paid and action is not taken.”