High Performance Boards

CHAPTER 14High-Level Fraud and Active Board Oversight

In September 2016, Wells Fargo reached a settlement with US regulators over alleged sales abuses at the bank, agreeing to pay $185 million in fines and $5 million to customers. In a fraud that extended over five years, Wells Fargo employees opened 1.5 million bank accounts and applied for 565 000 credit cards in their customers' names without the latter's knowledge. The objective was to meet sales targets for employees and generate fees for the bank. Democratic presidential candidate Hillary Clinton called the account openings ‘outrageous behavior’. During a Senate Banking Committee hearing, Senator Elizabeth Warren drilled Wells Fargo Chair John Stumpf pointedly on ethics and accountability in what has become a reference questioning,¹ and concluded:

You should give back the money that you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission. This just isn't right.²

Fraud happens. According to Kroll's 2017/2018 Global Fraud Survey of 768 senior executives worldwide, 84% of companies reported that they had fallen victim to a fraud incident, a significant increase from 61% in 2012.³ And according to the 2016 Global Fraud Study by the Association of Certified Fraud Examiners (ACFE), the median estimate of fraud loss was 5% of revenues. Applying this percentage to the 2014 Gross World Product of $74.16 trillion gives a projected ...