A bank anti-fraud Executive's open memo to the Justice Department is a too-rare example of plain talk on regulation
During the past several years that I have covered corporate compliance, auditing, accounting, and other functions that intersect with government regulation the executives and company representatives I've talked to have always chosen their words very carefully. That is, when they choose to talk at all.
I understand the discretion. You can't be too cautious when you're speaking to a journalist about how you may or may not be dealing with all the many issues that can get you in trouble with the government. I generally don't expect too much candor when companies are talking about how they handled an internal fraud, an instance of potential corruption, or whether or not they are doing all they can to combat inhumane practices by suppliers around the globe. Those are not going to be free-wheeling conversations.
Still, companies that have good strategies for keeping their noses clean will generally want to talk about them. What has always struck me, though, is how quiet an interview with just about any compliance officer, CFO, or chief audit executive gets when the subject turns to the regulators themselves.
These executives have an extreme aversion to saying anything even remotely critical about such agencies as the Securities and Exchange Commission, the Department of Justice, and even quasi-regulators like the Financial Accounting Standards Board and the Financial Industry Regulatory Authority. And it’s not even that they are afraid of criticizing these agencies; they usually won’t say much at all about how those offices carry out their duties unless it’s proceeded by the words “off the record.”
It’s as if executives at companies—even those that are doing the right thing—fear that government agencies will come after them if they say the slightest negative thing about how those regulators enforce the regulations they are tasked with enforcing. Whether or not it is warranted, this silence says something important about our system: Company representatives fear retribution from government agencies so much that they are unwilling to speak out about how regulations are enforced, even if they think the enforcement tactics or the regulations themselves are unfair, inefficient, or just plain stupid.
Are we really to think that agencies such as the SEC, DoJ, and others are so petty that they would be more prone to investigate a company that complained about how they enforce the law or that they would treat them more harshly for a potential compliance violation. Are these executives just paranoid? I'm not sure, but something is clearly out of alignment here.
This fear and silence is also the reason companies hire lobbying firms and pay hefty dues to industry associations to do the talking for them. But that system doesn’t work either. Paid mouthpieces don’t speak openly and honestly about reforms that work for both sides, they just oppose everything and often add more noise than light.
The Rusch Memo
Enter Wells Fargo’s head of anti-bribery &corruption governance, Jonathan Rusch. Last week, Rusch penned an open memo to the compliance counsel of the U.S. Department of Justice, Hui Chen, published by the Harvard Business Law Review Online. In it, he called on the Department of Justice to use more precise language in its guidance on compliance with the Foreign Corrupt Practices Act (FCPA), and to be more purposeful in establishing guidance on following the law. Ironically, Rusch takes issue with Justice Department officials speaking publically about FCPA enforcement, and establishing willy-nilly compliance expectations.
“The problem here is not the quality or good intentions of the speakers, but the randomness of the creation of additional fragments of guidance, especially when different officials make different points about compliance at different times,” Rusch writes. “Public remarks by Departmental officials of various ranks must be scrutinized and compared with numerous press releases and supporting documents for criminal prosecutions while exploring the Department’s more general public guidance, ranging from the Fraud Section’s FCPA published opinions to the Antitrust Division’s Business Review Letter process.”
Rusch’s courage to take the bold step of advising the Justice Department on how it could do a better job of communicating what it wants from companies in terms of compliance may stem from his former roll as deputy chief for strategy and policy at the agency’s Fraud Section, but it is courageous all the same. His 18 page memo is a breath of fresh air in an otherwise stifling environment for dialogue between companies and government agencies on complying with regulations.
More Dialogue, Less Monologue
Apart from Rusch’s memo, communication about compliance with complex regulations is mostly a one-way street. Regulators tell companies what they expect—which, according to Rusch, they don’t do a good job of keeping to a coherent, unvarying message—and company representatives stay quiet and try to decipher the message. They rarely weigh in on how the two sides could create better systems of compliance and enforcement that would uphold the law and keep companies from running themselves ragged to do it.
Let’s hope others take Rusch’s example and speak more openly about what companies need from regulators to do a better job on complying with regulation. We may even get to the point of where executives aren’t afraid to talk about when regulators are being stupid…and they may even leave out the obligatory “off the record” when they tell it to guys like me.