Compliance and Ethics: Ideas & Answers. Edition 65

Dear friends,

Welcome back to another edition of Compliance and Ethics: Ideas & Answers.

This week, I have two pieces for you. We start with a piece on the concept of 'Malicious Compliance'. Followed by my reflections on an in-depth study Alyson McDevitt produced on the Epstein money laundering cases involving Deutsche Bank and JPMorganChase.

As always, we finish with a bit of fun in our regular feature Compliance Lite.

And don't forget there's more content on our website so please do visit us there to read our other articles.

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Thank you, Joe.

Malicious Compliance

By Joe Murphy, CCEP

Courtney Willenzik, writing in Ethikos in 2017, came up with one of the cleverest comments I have seen in our field.  In an article titled “Malicious Compliance,” she talked about how people can get petty revenge on rules they don’t think make sense.  This is an important concept for us in compliance. 

I saw this when Pennsylvania first mandated continuing legal education, and required an ethics class for all lawyers. When I attended I described it as the largest collection I had ever seen of lawyers all reading the newspaper at the same time.

Courtney recounts the story of a landlord who was required to place 3 smoke detectors in an apartment.  He attached all 3, right next to each other, on the floor.  

An example you might have experienced or be experiencing in your organization is how people are dealing with increased expectations to get employees to spend more time in the office.  An increased expectation and tracking in-coming badge swipes has resulted in us hearing stories of employees who are walking in, swiping their badges and then walking back out to go work elsewhere.  

Consider what can happen if you require training that is not engaging.  Or what can happen if the state requires 2 hours of compliance training (e.g., in California for harassment training).  Today almost everyone has a smart phone, pad, and/or computer.  And if they don’t like your training they will spend their time online.  I once stepped into the back of a seminar, and sat next to a young lady who had 2 phones and a pad all open at the same time.  Whatever else was happening, nothing was being learned by this student. 

So Courtney’s advice?  One of my favorite points: “listen to feedback.”   Check what is going on, ask people, listen to what they say, and then take corrective action.  Otherwise, as she describes the consequences, you will face “death by a thousand cuts of malicious compliance.”

The Epstein Money Laundering Case: Understanding Why It Happened . . . and Why It Will Probably Happen Again

By Joe Murphy, CCEP

Alyson McDevitt of Compliance Week has produced a stellar in-depth study of the money laundering cases involving Deutsche Bank and JPMorganChase tied to their relationships with the sexual predator, Jeffrey Epstein. McDevitt, The Banks Behind the Epstein Enterprise. 

What happened? 

This is the story of a despicable sexual predator who exploited vulnerable women and girls – children – for his own gratification. In 2008 he entered into a plea deal resulting in a conviction and a sentencing of 18 months’ prison time for prostitution charges including procurement of a minor to engage in prostitution. He was forced to register as a sex offender in two states as part of the conviction.  Other allegations followed after that.  By 2011, 40 underage girls offered testimony about Epstein sexually assaulting them.  A grand jury in 2019 found he abused many minor girls from at least 2002 through at least 2005.  After his death by suicide while in prison, a victim compensation fund received over 200 claims.

It is also the story of the banks whose financial services facilitated his international exploitation scheme. 

JPMorganChase 

According to the article, Jeffrey Epstein first banked with JPMorgan from about 1998 to 2013. He opened accounts at the bank, plus promised to bring in wealthy clients.  

As Alyson’s report makes clear, during the time Epstein used JPMorgan there were certainly indications that not all was as it seemed. It is obvious that for both banks there were enough red flags to justify more intensive review.  For example, the earliest public allegations regarding  Epstein’s solicitation of prostitution occurred in 2006. But JPMorgan had already filed multiple Suspicious Activity Reports (“SARs”) regarding Epstein transactions as early as 2002.  After Epstein was arrested and indicted, the bank classified him as high risk. 

James Staley, then head of JPMorgan’s private bank, befriended Epstein in 2002. Staley was promoted to Chief Executive of JPMorgan asset management the next year.  He had what was considered a close relationship with Epstein. According to allegations in a Jane Doe lawsuit “Staley used his clout within JPMorgan to make Epstein untouchable.”

This same Staley was the investigator and decision-maker regarding Epstein’s accounts.  According to a suit brought by the US Virgin Islands, the bank did not pursue questions regarding Epstein.  Staley even visited Epstein while in jail in 2008-09. He also visited Epstein’s private island in the Virgin Islands. 

The government provides financial institutions with red flags/indicators of human trafficking, including sexual exploitation. These indicators can be seen in the Epstein case, such as unusual withdrawal patterns. Epstein made large cash withdrawals to pay hush money and finders’ fees.  The red flag lists note that human traffickers use multiple accounts.  At JPMorgan, for example, Epstein had about 55 accounts. The banks were aware of the media coverage dealing with this client.  

Continue reading on our website...

The late Mayor Daley defended his having directed a million dollars of insurance business to an agency on behalf of his son John with the immortal words:

“If I can’t help my sons, then [my critics] can kiss my a**. I make no apologies to anyone.”

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