WOW Moments in Compliance (Part 1)

by Geert Vermeulen

This article is the first of a series of five articles and will be published in five parts. The second part will be published next week. Often ethics & compliance officers only end up in the news when things have gone wrong. Like in the recent money laundering scandals in the banking industry. In many of these cases, it was actually the management that decided that doing business was more important than being compliant and didn’t invest sufficiently in proper compliance controls and resources. Many people don’t realise that ethics & compliance officers also prevent numerous crimes.

Unfortunately, you usually don’t hear about the unethical practices that we prevent, for the simple reason that they don’t occur when we prevent them. Or because we can’t say anything about them, because they are too confidential or too sensitive. Or because the authorities or the secret services are involved. At the same time, I also know that we many times face fierce opposition when we try to prevent unethical practices. Some of us get fired for raising uncomfortable questions or for ‘preventing business’.

I even know a couple ethics & compliance officers who are so determined to fight corruption and terrorist financing, that they are prepared to risk their health or their lives.Therefore, I supported the initiative of the Netherlands Compliance Institute and Cora Wielenga last Summer to ask ethics and compliance officers to describe WOW moments in compliance by sharing a couple anonymised cases that made me proud of being an ethics & compliance officer. Below you’ll find the first case.

Due diligence in the aviation industry

Years ago, while working as a compliance officer, we conducted due diligence on a third party in the aviation industry. The business people proposed that we should work together with this third party to advise the client, an aviation company. Because of their special expertise, they would be entitled to a substantial commission. However, during the due diligence I discovered that the party did not have a license to advise clients, even though they were legally required to have one. When I gave this feedback to the business people, I was told that the party was not providing advice, they were more like a relationship manager.

My first response was that, in my view, the commission that the third party would receive was too high, if they were hardly providing any services. So the commission had to be decreased for the party to obtain approval. In the meantime, the pressure to approve the party was raised. The revenue of our local office would almost double if we would win the aviation client and it was not an option to lower the commission. Couldn’t the third party provide advice under our license? I did not think that was a good idea, because then we could be held liable for their advice. And by the way: wasn’t I just told that they were not providing advice?

In the meantime, a competitor had emerged and the time factor was starting to play a role. If we would not approve the third-party relationship within 1-3 days, the business would go to the competitor. And didn’t they also have a compliance department? So why didn’t the competitor have a problem with this relationship? The local business management even threatened to leave the company if we would not approve the third-party relationship right away.

While I was still trying to find a way out of this situation, together with my legal and compliance colleagues, the client chose to give their business to our competitor. My relationship with the country management deteriorated after this case and I have wondered quite a few times whether I had handled this case properly. Should I have been more flexible? After all, how much evidence did I have that there was something wrong with this relationship?

So, what was the WOW moment? Well, a few years later, I noticed that the competitor to whom we lost the business, had reached a corruption settlement agreement with the UK authorities because, among other things, suspicious payments had been made to a third party in the aviation sector in the very same location. I recognised the case immediately. This time we had saved our organisation a multi-million pound fine. Our objections were justified – years after the event.  Good for our organisation, but unfortunately the bribery had still taken place; it was not prevented. This was different in the second case that I’ll describe in my next post.

The author, Geert Vermeulen, is a teacher, trainer, consultant and interim ethics & compliance officer. His goal is to help organisations conduct business in an ethical and compliant way. He also writes and speaks on ethics and compliance.