Implementing Enterprise Risk Management. Lam James

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      • The following year, 13 mortgage servicers, including Bank of America, Wells Fargo, and JP Morgan Chase, paid $9.3 billion to settle similar charges.31

      Department of Justice Prosecutions are risks that any U.S. company faces not just for intentionally fraudulent behavior, but also as a result of unintended negligence.

      • Anadarko Petroleum paid a record $5.15 billion in 2014 to settle a DoJ prosecution over toxic waste at about 4,000 locations over decades caused by a company it had acquired in 2006.32

      • In 2012, BP paid $4.525 billion and pled guilty to 11 counts of manslaughter, two misdemeanors, and a felony count of lying to Congress and agreed to four years of government monitoring of its safety practices and ethics over the 2010 Deepwater Horizon spill. In 2015, the company paid an additional $18.7 billion in fines.33

      SEC Actions: Though it has been criticized for not coming down hard enough on financial institutions whose risky behavior triggered the 2008 meltdown, the SEC is still a force to be reckoned with, pursuing violations of disclosure and other regulations.

      • In 2010 Goldman, Sachs & Co. paid $550 million and agreed to reform its business practices to settle SEC charges that the firm misled investors in a subprime-mortgage product just as the U.S. housing market was starting to collapse.34

      • In 2012 BP paid a $525 million penalty to the SEC for securities fraud stemming from the Deepwater Horizon spill. The SEC charged the company with misleading investors by significantly understating the oil flow rate in multiple reports filed with the commission.35

      Trading Losses: Organizations trading in the financial (and energy) markets can suffer large losses due to unauthorized activities or trades executed beyond reasonable limits.

      • In January 2008, the French bank Société Générale lost approximately $7 billion due to fraudulent transactions created by a trader with the company.36

      • In the infamous “London Whale” incident, a team of JPMorgan Chase traders bet on derivatives in 2012 that ultimately cost the bank $6.2 billion. Moreover, JPMorgan Chase later paid about $920 million in fines to U.S. and U.K. regulators for engaging in “unsafe and unsound practices.”37

      Anti–Money Laundering has become a hot-button issue for governments with the growth of terrorism and illicit drug trade. Financial institutions that turn a blind eye to suspicious behavior (or actively solicit it) face heavy fines and tremendous reputational damage.

      • In 2013, HSBC, Europe's largest bank, paid $1.9 billion in an agreement with the United States to resolve charges it enabled Latin American drug cartels to launder billions of dollars. HSBC was accused of failing to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from its Mexico subsidiary. The bank was also accused of violating U.S. economic sanctions against Iran, Libya, Sudan, Burma, and Cuba.38

      • In 2014, France's largest bank, BNP Paribas, pleaded guilty to concealing billions of dollars in transactions for clients in Sudan, Iran, and Cuba in violation of U.S. sanctions and agreed to pay $8.9 billion in fines. Prosecutors say BNP, France's largest bank, went to elaborate lengths to disguise illicit transactions with sanctioned countries.39

      Market Manipulation on a global scale seems like the stuff of James Bond movies or wild conspiracy theories. But at least two major cases show that large financial institutions are exposed to significant financial and reputational damage by the actions of their employees.

      • In 2012, Swiss banking giant UBS agreed to pay U.S., U.K., and Swiss regulators $1.5 billion for its role in a conspiracy by multiple banks to manipulate the LIBOR rate that banks charge each other for short-term loans. The banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were.40

      • In 2015, five global banks including Citigroup were fined $5.7 billion for fixing benchmark foreign exchange rates by colluding in online chat rooms to make transactions minutes before rates were set. When it comes to crime, Citibank has a lot to learn about risk vs. reward: The bank suffered about $2.5 billion in fines for illegal activity that netted a mere $1 million.41

      Tax Evasion, typically via financial privacy-friendly havens such as Switzerland, the Cayman Islands, Bermuda, Panama, and Luxembourg (among many others), can lead to reputational damage even when legal. But pressure from governments across the globe has led some jurisdictions to name names, so to speak, resulting in fines and other penalties.

      • In 2009, in a deal to avoid its criminal prosecution, UBS agreed to pay $780 million in fines, penalties, and restitution to the U.S. government and provide names of suspected U.S. tax cheats. UBS had an estimated 19,000 U.S. customers with undisclosed Swiss accounts.42

      • In 2014, another Swiss bank, Credit Suisse, pled guilty and paid $2.6 billion to settle U.S. tax evasion charges in addition to the $196 million penalty it paid the SEC earlier that year. A Senate subcommittee report detailed malpractices by the bank's employees to earn more business from U.S. citizens looking to hide income and assets.43

      • In 2016, the Panama Papers data leak of 11.5 million files from the database of the world's fourth biggest offshore law firm, Mossack Fonseca, revealed the secretive offshore tax-avoidance schemes of thousands of individuals, ensnaring 12 national leaders, including Vladimir Putin and David Cameron, in embarrassing scandal.44

      Government Bailouts: During the 2008 financial crisis the U.S. federal government took the controversial decision to bail out some of the country's largest financial institutions and manufacturers amid fear that their failure could lead to an even more catastrophic economic meltdown. The bailouts, while they may have saved many companies from extinction, came at the price of greater public and government scrutiny (or outright control), reputational damage, and costly financial terms, not to mention additional regulation and the threat, as yet unrealized, of breaking up institutions deemed “too big to fail.”

      • In 2008 AIG's $85 billion bailout package left the U.S. government with a 79.9 % equity stake in the insurer. The two-year loan carried an interest rate of Libor plus 8.5 percentage points.45

      • Later that same year, General Motors and Chrysler received a total of $13.4 billion in federal loans. As a result of the bailouts, GM emerged from bankruptcy as a new company majority owned by the U.S. Treasury, and Chrysler emerged owned primarily by the United Auto Workers union and Italian automaker Fiat.46,47

      Sustainability: As public

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