High Performance Boards, 2nd Edition

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 US$185 million in fines and US$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 behaviour’. 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 2023 global survey of 400 senior executives worldwide, 69% of respondents anticipate a rise in financial crime risk within the upcoming 12 months.³ And according to the 2022 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 2022 Gross World Product of US$101.33 trillion gives a projected potential total fraud ...