Stop Harming Customers: A Compliance Manifesto

By David Silverman

Since the year 2000, banks have been fined almost a third of a trillion dollars. Yet, every year billions more are imposed. Why? This book explains why banks break the law (it’s not just the money), explains the challenges facing Compliance functions, considers that the majority of financiers don’t want to do wrong, and puts forth a proposal to stop banks from harming customers.

The lessons in this book are applicable to any business where profit motives can conflict with customer benefit–in short, every business. (And if you’re interested in cryptocurrency, this book’s for you too!)

• Language: English
• Publisher: Business Expert Press
• Release date: Dec 8, 2023
• ISBN: 9781637425404

David Silverman

David Silverman has been an executive at banks including JPMorgan Chase, Wells Fargo, Citi, Morgan Stanley, and CIBC. He has seen firsthand how the largest financial institutions operate and worked with thousands of other Compliance officers who daily toil to protect customers. David has a BA in mathematics and computer science from Drew University and is working towards a masters in computer science from the University of Illinois at Urbana Champaign. He is the author of Typo, The Last American Typesetter.

Book preview

CHAPTER 1

A July to Remember

A total of 6,952 violations between 2000 and 2022 is a significant number, and by the time anyone else reads this sentence, there will have been more. Remember, this is also only in the United States. Nevertheless, humans are notoriously innumerate, we are OK with keeping track of three and possibly five or seven items. Here’s a picture with 10,000 dots I found with a box I added covering about 6,952.

How about some specific examples? That always helps. I could cherry pick the largest or most egregious or some other curated subset. But what I want to convey is the banality, the pervasiveness, the commonplaceness of financial crime at all levels from small companies to large companies to companies you thought of as dubious to those you, maybe, respected.

And to do that, I’m not going to pick. I’m going to let pure-ish chance select. As I write this it is July 2022. I could have written this chapter in June or August or any other month or year. It’s a bit like throwing a dart blindfolded or letting your financial adviser pick stocks—no, don’t do the second one (that’s called foreshadowing). Also, it is the summer time, and people in finance and government are on vacation, so I may come up empty—no financial crimes this month.

Nope.

The Menagerie of Regulators

To look at the fines, we need to know the players. We will start with the United States and then explore the world. This is because the United States has, for a long time, held a leadership position in terms of financial regulation because of the outsize influence of Wall Street combined with the scale and relative openness of our capital markets. We also have more financial regulators than anyone else. Go USA!

Let’s start with a list, and then we will look at each of their activities in July 2022. The list is, I expect, as dull as an airplane butter knife, so I will give you a fun fact for each. Feel free to use them at a cocktail party if you wish to end a conversation.

U.S. Regulators and Hangers on

Regulators Outside the United States

The rest of the world is often just that: everybody else. These are your D-list celebs who sometimes get the attention, but most often are looking to be in the photo with the Fed. Think the entourage in Entourage. You can pick who you want to be Turtle.

Most other nations suffice themselves with a single regulator or maybe two if they’re feeling spicy. Imagine that! Also, most of the regulators are the same as the national bank, like the Fed in the United States. Anyway, here are some of the big ones:

OK, with all that out of the way, we can see what happened in July.

Time to Run the Numbers: July 2022 Fines and Penalties

U.S. Department of Justice

Note, all text in italics in these sections on penalties are direct cut and paste from the relevant agencies’ web pages. Also note, some of these are fines, some are criminal with no fines (but maybe jail time), and some are just the start of the process where the DOJ is filing charges.

Trident is owned by Berkshire Hathaway, which is Warren Buffet’s company. More details when we get to the CFPB, including some amazing e-mails. Are you excited to find out?

Also, the medical ones are not fully financial in nature, but they have a large portion of monetary fraud involved, so I think we can keep them in the party.

The Office of the Comptroller of the Currency

Merely one consent order for the OCC, and they had to share with the CFPB. Still better than nothing, though. I’ve pasted the full text as follows, because I think it’s important to be able to see what regulators actually say. However, it’s as dry as crackers in my son’s backpack.

The too long, didn’t read (TL/DR) here is: Bank of America was responsible for unemployment payments to, well, unemployed people. Unemployed folks are notoriously unlikely to buy new cars or invest in stocks and so weren’t of value to the bank. Thus, they fell to the bottom of the customer base, got their payments delayed, had their accounts frozen, were the victims of fraudsters stealing their money—you know, poor people stuff.

July 14

The Office of the Comptroller of the Currency (OCC) today assessed a $125 million civil money penalty against Bank of America, N.A., for violations of law and unsafe or unsound practices relating to the bank’s administration of a prepaid card program to distribute unemployment insurance and other public benefit payments. […]

The OCC’s civil money penalty and remediation requirement is separate from, but coordinated with, the Consumer Financial Protection Bureau (CFPB).

I’m saving the CFPB fine for the next section. Consider it a very short cliff hanger.

Consumer Financial Protection Bureau

You may be confusing the U.S. Bank fake accounts with Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts, but that was a different bank and back in 2016. And that $100 million fine fixed things in the industry, or apparently not.

However, as promised, let’s look at Trident, which, as mentioned, is owned by Berkshire Hathaway. This is Warren Buffet, aka the Oracle of Omaha and a paragon of responsible investment and middle-class values.

When I first skimmed the complaint, I saw that it stated, From 2015 through 2019, Trident operated 53 offices, of which 51 were in majority-white neighborhoods. And I thought, a business needs to make money and if giving loans where the rich white people lived worked, that’s not the most ethical, but also not the most unethical either, is it?

The history here is about redlining, the practice of not giving mortgages in minority communities that dates back to the 1930s in America. The Federal government sponsored Home Owners’ Loan Corporation (HOLC) published maps literally classifying neighborhoods by color and black areas were labeled red meaning hazardous. If you were black you could not get a