Fraud Summit – 2016

2016 Fraud Summit Features Bank Whistleblower

“What would you do if you saw illegal behavior in your office … [if] you knew there were clear violations of your corporation’s guiding principles?” This is the question Citigroup whistleblower Richard Bowen, now a UT Dallas faculty member, put to the audience in his keynote address to the Fraud Summit held on campus March 31 and April 1.

To a sold-out audience made up largely of accountants, auditors and risk managers, Bowen, a senior lecturer in accounting at the Naveen Jindal School of Management, recounted the misgivings he felt and actions he took after he discovered, early in 2006, that his Citigroup division, where he was senior vice president and business chief underwriter, had been out of compliance since at least 2005.

He discovered that mortgages the company prospectus said were in compliance, in fact, were not. “We were misleading investors,” Bowen said.

He sent an email to Citigroup’s board of directors and its top executives.

Despite the emails, closed-door testimony in Washington, D.C., and evidence provided to the Financial Crisis Inquiry Commission, Bowen said he found little interest among those above him to investigate his allegations of wrongdoing.

The commission, formed by Congress after the 2008 economic meltdown, did make referrals to the U.S. Department of Justice recommending a top Citigroup executive be looked at for violations of the law. But, Bowen told summit attendees, no action was taken. His testimony, recently released by the federal government has not been followed up on, to the best of his knowledge.

He recounted FCIC directions to edit his written submission to eliminate his most damning allegations and discoveries or he would be denied an opportunity to testify. Then, mysteriously, he wasn’t listed in online archives as an FCIC witness, nor were his submissions cataloged, he said. And despite the FCIC recommending a criminal investigation of Citigroup executive Robert Rubin, there is no evidence that the U.S. Department of Justice ever took action.

“If you don’t truly expect people to act ethically, you won’t get ethical behavior,” Bowen said. “When people see others who they think are similar to them cheat, they are more likely to cheat.”

No one wanted to hear the warnings, and no one took action, Bowen said, adding that the entire scope of the financial crisis cost the U.S. economy $20 trillion.

“If you don’t truly expect people to act ethically, you won’t get ethical behavior,” Bowen said. “When people see others who they think are similar to them cheat, they are more likely to cheat.”

The saga continues as Bowen, along with former SEC investigator Gary Aguirre, former bank regulator William Black and former Countrywide Financial executive Michael Winston have formed Bank Whistleblowers United. Since their whistleblowing days, the four say, they are unemployable in their chosen professions. Bowen told the audience that in retrospect, he should have taken his concerns outside Citigroup faster.

But, he warned, “if you don’t truly have commitment from the top, you are going to be frustrated.”

Other 2016 Fraud Summit Speakers

Breakout session speakers at the 2016 Fraud Summit included:

Courtenay Thompson, who spoke about construction fraud, said if auditors kept their eyes on a handful of “tools,” construction fraud would be detected more often. These include:

• Check to see what’s really going on.
• How do you know? (Have you visited the job site?)
• Ask for details. (Do 50-pound bags of dirt really have 50 pounds?)
• Whose job is it to ensure the bags do contain 50 pounds of dirt (or whatever the issue is)?
• How is that done?
• Go look (for all of the above).
• Is management siding unreasonably with the vendor?
• Did the contractor miss the first milestone? (Fraud likelihood has been shown to increase dramatically when first milestone is missed.)
• Run data analysis specific to the environment.

Thompson said relatively low-tech tools — such as video cameras at the job site or GPS tracking devices on trucks — have been shown to be particularly effective.

In another breakout, Vanessa Salinas Beckstrom and Shanna St. Martin, with PwC, discussed fraud and the challenges of doing business in Latin America. Of 167 nations on the Corruption Perception Index of 2015, seven Latin American nations have scores greater than 100 (indicating more corruption). Venezuela and Haiti are tied at 158. Mexico is at 95; the U.S. is at 16. Chile, Beckstrom noted, historically has been stable and has a relatively low CPI of 23.

This is important to U.S. companies as they adhere to the federal Foreign Corrupt Practices Act, which makes it illegal for companies and their supervisors to influence or bribe anyone with any personal payments or rewards. Beckstrom and St. Martin said it can be a challenge to ferret out corruption in overseas operations, but there are ways to do it.

“Spend your resources where fraud is most likely,” St. Martin said, noting that 85 percent of FCPA cases involve third-party payments. She said a lot of the issues boiled down to strong corporate governance.

Both advised companies doing business in Latin America to ensure their policies and procedures were clear, that they were in locally understandable terms and that data analysis was being done when possible. “You need to understand the corruption risks,” Beckstrom said.

The 2017 Fraud Summit will be March 30-31 at UT Dallas.

Media Contact: The Office of Media Relations, UT Dallas, (972) 883-2155, newscenter@utdallas.edu.