Algorithm May Spot Rogue Employees Before They’ve Gone Astray

By Dinah Wisenberg Brin May 20, 2015

Stepping up employee surveillance efforts, JPMorgan Chase & Co. has introduced an algorithm aimed at spotting potentially rogue traders before they’ve done anything wrong.

The program raises the question of what JPMorgan, one of the world’s largest banks, will do if the algorithm predicts a particular employee will violate the law.

A JPMorgan spokesman confirmed the accuracy of a Bloomberg news article published last month about the new program but wouldn’t provide additional comment.

Could the existence of such an algorithm have thwarted the Morgan Stanley hack that occurred earlier this year? Maybe. In that case, an employee of Morgan Stanley discovered that another employee had stolen information from 900 of its clients and posted the information for sale online.

In the Bloomberg story, Sally Dewar, regulatory affairs chief for JPMorgan Europe, said that the aim of the algorithm is to use potentially hundreds of data points to help predict behavior patterns.

JPMorgan, in an effort to avoid scandals and cut legal bills, is piloting the algorithm in its trading operation and plans to expand it to other divisions by next year, according to the Bloomberg report.

Observers liken the algorithm to the scenario in the futuristic Tom Cruise film “Minority Report,” in which would-be murderers are arrested before they commit the crimes.

The Bloomberg news article said that JPMorgan wouldn’t disclose the data points being fed into the predictive algorithm or say what it would do if the program flags an employee. Missing compliance training, breaking personal trading rules or exceeding market-risk limits are three of the many possible algorithm “inputs,” the Bloomberg article suggested.

Is This Legal?

Employers have the right to monitor work-related e-mails and phone calls, so the surveillance itself is probably legal, said L. Camille Hébert, an employee privacy expert at The Ohio State University’s Moritz College of Law. Employees who might have a grievance with the program would have to show that assembling all the data points in an algorithm made it more than an invasion of privacy, she told SHRM Online.

“The question would be really what they’re planning to do with it,” said Hébert.

“It’s just fascinating from a privacy standpoint. The issue with employee privacy is, for a lot of workers they’re at-will employees, meaning they can be fired at any time for any reason,” she said. If a company puts people under surveillance to figure out who might do something wrong, she asked, “How do you use that information?”

An employer is unlikely to tell an employee that he or she was fired or didn’t get a promotion because a surveillance algorithm predicted rogue behavior, according to both Hébert and Lewis Maltby, president of the National Workrights Institute.

“The people who are predicted to be rogues won’t know what hit them,” Maltby told SHRM Online.

“This is not quite as sexy as “Minority Report” but it’s the same principle,” he said. “And in some cases they wouldn’t have done anything wrong.”

Maltby wondered who would have access to the information on flagged employees. If the results get out, he said, “People’s careers could be ruined even if they don’t get fired. Once it gets out on the street that Charlie’s a rogue or he’s a potential rogue, his career could be damaged.”

Trying to Avoid Scandals

Errant employees can cost big banks billions of dollars and damage to their reputations. In a How We Do Business report in December, JPMorgan Chairman and CEO Jamie Dimon acknowledged “a series of legal and regulatory issues” the company has faced in the past several years involving company-specific mistakes and industry-wide practices.

He said the bank is committed to doing better and realized it needed to use “multiple preventive and detective levers in a coordinated way,” including expanded and enhanced surveillance. One effort, the report said, involves “moving to a more sophisticated predictive technology for surveillance by participating in a pilot assessment expected to be completed by mid-2015.”

JPMorgan has hired thousands of people, including compliance surveillance employees, invested hundreds of millions of dollars in new technology, and implemented training programs for all of its roughly 240,000 employees in more than 60 countries and 2,100 U.S. cities, Dimon said.

Cybersecurity and privacy attorney Michael Morgan, at the Jones Day law firm, noted that a company with even the most secure information technology infrastructure can be undermined by a rogue employee.

“Edward Snowden [the former National Security Agency contractor-turned-document-leaker] showed that even if you have a fairly locked-down, state-of-the-art infrastructure, an employee can cause a great amount of damage,” Morgan, who wasn’t familiar with JPMorgan’s algorithm, told SHRM Online.

“Employers have a real interest in identifying these issues early on and taking action to protect their information,” he said.

While “certainly you can’t object to people wanting to reign in rogue traders,” the National Workrights Institute’s Maltby expressed reservations.

“What happens when an algorithm predicts that a particular trader is about to go rogue but they haven’t done anything?” Maltby asked. “People are supposed to be punished for things they do wrong, not for things an equation predicts they might do wrong someday.”

Dinah Wisenberg Brin, a freelance journalist and writer based in Philadelphia, is a former staff reporter for Dow Jones Newswires, The Associated Press and other news organizations.


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