“THAT’S HOW THEY TAUGHT US TO DO IT”: Learned Deviance and Inadequate Deterrents in Retail Banking

ABSTRACT

The recent reports of Wells Fargo and Morgan Stanley being engaged in widespread fraudulent sales practices in the retail banking industry make this field a timely and interesting area of study. The current study expands upon previous research examining retail banking deviance and seeks to further explore potential causes of such conduct. Specifically, the current study seeks to explore whether the underlying deviance is being taught by senior employees and also whether current ethics and compliance policies are adequate deterrents. To achieve this goal, the current study utilizes an approach mirroring a qualitative case study. Results indicate that new employees are being taught these fraudulent practices and that current ethics and compliance practices and policies are largely ineffective in curtailing such conduct. Informed by these findings, policy recommendations are presented.

Notes

¹ Retail banking is the provision of services by a bank to individual consumers, rather than to companies, corporations or other banks. Retail banking services include savings and checking accounts, mortgages, loans, and the sale and maintenance of debit cards and credit cards.

² See another similar example from Morgan Stanley, who is accused of running contests which urged employees to unethically push the sale of loans. http://www.reuters.com/article/us-morganstanley-massachusetts-idUSKCN1231KD.

³ Organizational Control theory was first developed by Ouchi and Maguire (1975) to examine types of control used by organizations to manipulate employee behaviors and to identify the social conditions in which different forms of control are used. Boss et al. (2009) added the concept of mandatoriness, which is “the degree to which individuals perceive that compliance with existing security policies and procedures is compulsory or expected by organizational management” (151). Boss et al. (2009) found that company measures perceived as mandatory do indeed increase compliance to such measures. Further, Boss et al.’s (2009) research suggested that the higher the perceived mandatoriness, the higher the compliance. Companies can elevate the perception of manditoriness by using more concrete and more diverse formal controls (Boss et al. 2009).

⁴ See also Gottschalk (2016) proposing a convenience theory for white collar crime which states that ethics and compliance measures are vital to combat white collar crime.

⁵ Interestingly, Stafford and Warr (1993) reconceptualized general and specific deterrence into a single theory in which tendencies to commit crimes are based on both personal and vicarious experiences of being punished and avoiding punishment. Studies such as Sitren and Applegate (2007) have found partial support for this reconceptualized version.

⁶ Case studies generally use a variety of data sources to examine a case. Here, only interviews are utilized.

⁷ There was no evidence of similar patterns in the group of three at the same location.

⁸ Model Penal Code Section 224.1. Forgery. A person is guilty of forgery if, with purpose to defraud or injure anyone, or with knowledge that he is facilitating a fraud or injury to be perpetrated by anyone, the actor: (a) alters any writing of another without his authority; or (b) makes, completes, executes, authenticates, issues or transfers any writing so that it purports to be the act of another who did not authorize that act, or to have been executed at a time or place or in a numbered sequence other than was in fact the case, or to be a copy of an original when no such original existed; or (c) utters any writing which he knows to be forged in a manner specified in paragraphs (a) or (b).

⁹ Model Penal Code Section 224.4. Tampering with Records.A person commits a misdemeanor if, knowing that he has no privilege to do so, he falsifies, destroys, removes or conceals any writing or record, with purpose to deceive or injure anyone or to conceal any wrongdoing.

¹⁰ Model Penal Code Section 224.14. Securing Execution of Documents by Deception.A person commits a misdemeanor if by deception he causes another to execute any instrument affecting or purporting to affect or likely to affect the pecuniary interest of any person.

¹¹ National banks are required to file a suspicious activity report (SAR) with the federal government whenever they detect a known or suspected violation of federal law or a suspicious transaction related to money laundering. (12 C.F.R. § 21.11(a) (2005). Union Bank of California v. Superior Court, 29 Cal. Rptr. 3d 894 – Cal: Court of Appeal, 1st Appellate Dist., 3rd Div. 2005

¹² See also Gottschalk and Tcherni-Buzzeo (2017) proposing methods to increase identification and reporting of white collar crime by companies’ internal compliance personnel.

¹³ Remember also the principle of mandatoriness from organizational control noted above. Participant statements clearly indicate a lack of mandatoriness.

¹⁴ See Akers (1990) discussing the intersectionality of deterrence/rational choice and social learning theories.

¹⁵ See also Engdahl (2009) discussing how white collar crime opportunities arise in situations where people by virtue of their positions build up barriers that prevent others from foreseeing and becoming aware of any deviant activity. Such a concept certainly applies to employees possessing both sales and compliance responsibilities.

Additional information

Notes on contributors

Peter Leasure

Peter Leasure J.D. is a Ph.D. candidate in the Department of Criminology and Criminal Justice at the University of South Carolina. His research focuses on corporate compliance, experimental design, and collateral consequences of conviction. His work has appeared in journals such as the Journal of Financial Crime, Journal of Money Laundering Control, and Yale Law and Policy Review Inter Alia.

Gary Zhang

Gary Zhang is a Ph.D. candidate in the Department of Criminology and Criminal Justice at the University of South Carolina. His research interests include crime prevention, environmental criminology, and crime analysis.