Wells Fargo’s Code of Conduct Didn’t Prevent Alleged Dodd-Frank Violations

Educate employees about the code of conduct and vigorously enforce it

Allen Smith, J.D. By Allen Smith, J.D. September 14, 2016

The existence of a code of conduct isn't enough to stop bad behavior. The code must be enforced and supported by company culture, too. And if a company's upper management isn't enforcing the code, then it is HR's job to do so.

Wells Fargo has recently agreed to pay $190 million in settlements after complaints that thousands of its employees created unauthorized accounts using existing customers' credentials.

HR professionals should stand up to the C-suite when they first hear of code violations from whistle-blower employees within the company, so that a culture of compliance and ethics trumps an environment of hitting sales goals at any cost. However, that's easier said than done in some organizations, as the practice of flouting laws may be deeply ingrained, rendering codes of conduct ineffective.

"HR and compliance professionals have a very hard job because they often have to tell upper management what it does not want to hear," surmised David Marshall, an attorney with Katz, Marshall & Banks in Washington, D.C., who won a whistle-blower case involving Deutsche Bank.

In recent years, thousands of Wells Fargo employees allegedly set up 2 million deposit, credit card and debit accounts without consumers' knowledge—in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act—to earn more pay and meet sales goals. The Dodd-Frank Act prohibits unfair, deceptive, and abusive acts and practices by financial institutions.

The bank agreed to pay a $100 million fine to the Consumer Financial Protection Bureau's Civil Penalty Fund, $35 million to the Office of the Comptroller of the Currency and $50 million to Los Angeles. (Mike Feuer, Los Angeles city attorney, brought suit against Wells Fargo.) The bank also will pay $5 million to customers who were wrongfully charged annual or overdraft fees.

Wells Fargo has fired 5,300 employees—1 percent of its workforce—from January 2011 to March of this year for "inappropriate sales conduct," according to Aimee Worsley, a spokeswoman for the bank.

"We regret every interaction that was not handled properly," she said, adding, "The number of instances and team members involved represent a very small portion of our business."

Code of Conduct Updated

"Like other big financial institutions, Wells Fargo has long had a code of conduct that clearly prohibits this kind of behavior," Marshall said. "It also maintains an internal reporting mechanism that purports to allow employees to speak up about such wrongdoing. The bank has a compliance department that is supposed to review such complaints and take them to upper management, which should put an end to unlawful practices like this."

Wells Fargo has rolled out an updated, enterprisewide code of ethics and business conduct from its Office of Global Ethics and Integrity, Worsley said. "The updated code resides on a specific ethics site on Wells Fargo's internal team member portal. It allows for interactivity, including links to more detailed policy information. The code defines details on core and common expectations across all businesses and at all levels." Wells Fargo also has annual training on ethics and teaches its employees methods for reporting their concerns, such as by using the company's anonymous ethics line, Worsley noted.

However, Marshall said, "The bank's widespread violations of consumer-protection laws and its gross abuse of customer trust show that this system was not working at all. This is often the case in financial institutions, where upper management puts more emphasis on pressuring employees to hit their sales numbers than it does on training them to obey the law."

Culture Matters

He urged HR professionals to be responsive to complaints and sensitive to corporate culture.

"When a very large bank with millions of customers ties its employees' compensation to production without regard for compliance, large-scale harm to consumers is an inevitable outcome," Marshall said. "That's what happened at Wells Fargo: The bank pressured employees to sell, it rewarded them for setting up accounts and it had no one watching to make sure that its customers authorized these actions. This is a textbook case of a corporate culture of abuse and deception of customers, for which responsibility extends into the C-suite and all the way to the board of directors."

Complaints from whistle-blowers within the company most likely were communicated to Wells Fargo's HR professionals many times over the years, Marshall asserted. While standing up to the C-suite takes resolve, he said that if employees complain about feeling pressure to engage in unlawful conduct or about others violating the law, "there are whistle-blower protection laws in place that provide strong protections for HR and compliance professionals who face retaliation for reporting these issues up the chain of command."

And if upper management ignores HR, the Consumer Financial Protection Bureau has an online complaint portal that lets individuals challenge violations of federal consumer financial laws. The bureau can be reached at 855-695-7974 or whistleblower@consumerfinance.gov. "People who submit whistle-blower tips may request confidentiality or remain anonymous to the extent permitted by law," according to the bureau.



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