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Ethics in the City and Wall Street at low ebb, suggests survey

Chris Hamblin, Editor, London, 3 June 2015

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The US law firm of Labaton Sucharow has conducted a survey of financial services 'professionals' that reveals a widespread disregard for ethics and an alarming predilection for 'secrecy policies' to silence the complaints of employees and other so-called 'whilstle-blowers.'

Labaton Sucharow, which established the nation's first practice exclusively dedicated to representing SEC (Securities and Exchange Commission) whistle-blowers, polled more than 1,200 Anglo-American financial services people to glean their views about workplace ethics, the nexus between principles and profits, the state of industry leadership and confidence in financial regulators. With findings pointing to a continued disregard for ethics and alarming new tactics to silence potential whistle-blowers, the industry appears to be faltering in its efforts to reform itself.

Profits, not principles

In one of the most concerning findings, 47% of total respondents feel that it is likely that their competitors have engaged in illegal or unethical behaviour to gain an advantage. Nearly one in five people feels that it is necessary at least sometimes for financial services 'professionals' to engage in illegal or unethical activity in order to succeed. A larger number, 32%, feel that compensation structures or bonus plans put pressure on employees to compromise their ethical standards or break the law. Among the respondents to the survey, 27% do not agree that the industry puts the interests of clients first.

How severe is the ethical problem? An astonishing 22% of respondents say they have observed or have first-hand knowledge of actual wrongdoing in the workplace. On a more personal note, one-quarter say that they would probably engage in insider trading to make $10 million if there was no chance of being arrested. Employees with less than 10 years of experience are more than twice as likely to use non-public information than those with more than 20 years of experience, reporting 32% and 14% respectively.

The co-author of the report, Ann Tenbrunsel, said: "Most disappointing is the lack of change in many of the results when compared to surveys from previous years. Despite significant energy and efforts, it appears we need to continue to think about how to improve the culture of ethics in the financial services industry."

The use of secrecy agreements to mask a 'culture of corruption'

Perhaps the most disturbing findings relate to efforts to stifle reports of misconduct. Despite the citizen's unwaivable right to report potential wrongdoing to law enforcers on both sides of the Pond, along with the US federal government's public efforts to identify and punish organizations that attempt to silence employees illegally, a shocking 16% of respondents to the survey say that their company's confidentiality policies and procedures prohibit the reporting of potentially illegal or unethical activities directly to law enforcers.

One out of every 10 respondents report that they have signed or have been asked to sign a confidentiality agreement that specifically prohibits the reporting of potentially illegal or unethical activities directly to law enforcers. For those who earn more than $500,000 annually, that number rises to 25%. Of the total sample, 19% think it likely that their employer would retaliate against them for reporting wrongdoing.

Jordan Thomas, chair of the Whistleblower Representation Practice at Labaton Sucharow and another co-author of the report, said: "When corporate whistle-blowers are prohibited, discouraged or retaliated against for reporting crime to cops, we should all be scared – very scared. The widespread, systematic and previously unknown scope of gag orders in Corporate America is a wake-up call for the SEC and other law enforcement authorities. These tactics are particularly insidious because they keep local, state and federal law enforcement organizations in the dark about all types of wrongdoing – everything from large-scale corporate frauds to environmental accidents and public safety concerns."

A dim hope for the future

According to both British and American respondents to the survey, financial regulators and law enforcement authorities play a crucial part in detecting and deterring corruption. In fact, 61% of all respondents feel that the authorities in their countries were at least “somewhat effective” at detecting, investigating and prosecuting breaches in securities law.

Even more promising is the 89% of financial service 'professionals' who indicate a willingness to report wrongdoing in response to the efforts of the SEC and others to protect and remunerate whistle-blowers. This result, coupled with the high percentage of people who report awareness of wrongdoing in the workplace, points the way to the industry's best hope for reform. However, as 37% of respondents say they are still unaware of the SEC's initiatives, Labaton Sucharow believes that it is imperative that regulatory and enforcement authorities and financial services firms step up efforts to educate employees and the public about the importance of reporting wrongdoing in the workplace, internally or externally.

The methodology of the survey

Between 22 December 2014 and 23 January 2015, the law firm interrogated 1,223 participants by means of an email-based online panel. Respondents were employed in the financial services/banking industry in the US and UK as account executives, financial/investment/wealth advisors, financial analysts, investment bankers, branch/operations managers and portfolio managers.

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