A List of Recent Major Ethics & Compliance Issues
The last two years have seen a steady volume of ethics and compliance headlines detailing major failures among organizations large and small, domestic and international. As Ethisphere continually monitors the latest trends in business integrity, we see opportunity in every setback for organizations to restore, revise, and reenergize their ethics and compliance efforts. And, we also know that when certain news events hit a certain magnitude, it benefits the entire E&C community to know about these compliance failures.
In this article, we present many of the biggest E&C headlines from the last two years. Each of these stories provides a compelling example of the value of a robust culture of ethics, the risks of regulatory oversight, and the high cost of failures of integrity.
Ethics & Compliance Headlines 2024, Q4
TD Bank to pay a record-setting $3 billion to settle historic charges that it conspired to fail to uphold anti-money laundering (AML) controls, thereby processing some $670M in illegal proceeds from narcotics cartels. Watch our special Ethicast episode on it here.
RTX (formerly Raytheon Technologies Corporation) will pay $200 million to resolve 750 violations of the Arms Export Control Act and the International Traffic in Arms Regulations. (Read more here and here from Radical Compliance.) In much bigger news, however, RTX subsidiary Raytheon will pay more than $950 million to resolve charges of defective pricing fraud and violations of the Foreign Corrupt Practices Act.
A federal judge rejects a plea deal between Boeing and the DOJ to resolve extensive legal issues that go back to a deferred prosecution agreement involving two fatal 737 MAX crashes in 2018 and 2019 (for which Boeing paid a $2.5 billion settlement). This stems from a dramatic incident in January 2024, when an incorrectly installed door plug on an Alaska Airlines Boeing 737 Max blew out and depressurized the cabin shortly after takeoff. No passengers were killed, but three filed a $1 billion lawsuit against Boeing, citing PTSD and injuries from the event. The incident prompted a major leadership shakeup at the company and a Department of Justice criminal investigation into the door plug incident.
At the heart of these difficulties are two related phenomena:
- First: whether Boeing failed to live up to its promise to overhaul its quality control procedures in the wake of its earlier 737 MAX crashes.
- Second: That ever since the company’s 1997 acquisition of McDonnell-Douglas kicked off a long-running erosion of the aerospace giant’s once-vaunted “engineer culture” that placed a premium on safety. Recent news that Boeing apparently ignored numerous whistleblower safety complaints around the 787 Dreamliner suggest that Boeing’s ongoing challenges really come down to culture.
The now-rejected plea deal would have required Boeing to:
- Spend at least $455 million over the next three years to improve its safety and compliance functions
- Plead guilty to fraud charges
- Go on a three-year probation period
- Hire an independent compliance monitor for three years, and
- Pay $243.6 million in criminal penalties. The plea deal had been strongly opposed by families of the 737 MAX crash victims, who felt it was too lenient. Watch our special Ethicast on this here.
Clearview AI to pay Dutch regulators $34M for violating European privacy law by collecting biometric information through nonconsensual use of facial imagery in an “audacious attack on anonymity.”
Austral USA, an Alabama-based shipbuilder, to pay $24M for defrauding shareholders in an accounting fraud scheme, and for obstructing a financial capability audit.
Boston Consulting Group disgorges $14.4 million as part of its Department of Justice declination to prosecute over Foreign Corrupt Practices Act violations involving bribes paid to win business in Angola.
Trinh Van Quyet, one of Vietnam’s most prominent billionaires, sentenced to 21 years in prison for defrauding stockholders after he inflated the value of his company by $150 million ahead of its IPO in Vietnam.
Caroline Ellison, former CEO of Alameda Research, will face two years in prison and forfeit $11B for her role in the FTX cryptocurrency debacle, for which Sam Bankman-Fried is currently serving a 25-year sentence.
New Jersey Sen. Bob Menendez (D) found guilty on 16 counts of bribery, fraud, and extortion as part of a wide-ranging bribery scheme to benefit agents of the Egyptian and Qatari governments, and faces up to 222 years in prison. Undeterred, Menendez is still seeking a fourth Senate term.
Carlos Watson, former cable news host and CEO/co-founder of Ozy Media, faces up to 37 years in prison for fraudulently inflating the value of his startup to investors, including touting fictitious deals with Google and Oprah Winfrey. Update: He’s going away for nearly 10 years.
Martin Winterkorn, former CEO of Volkswagen, finally faces trial for his role in the Dieselgate emissions scandal that cost VW some $33B in fines, penalties, and settlements nine years ago. Winterkorn faces up to 10 years in prison. Watch our special Ethicast episode on it here.
Boar’s Head under federal investigation for extensive food safety violations after a listeria outbreak from one of its meat plants killed 10 people. Boar’s Head faced numerous misconduct allegations and is so secretive, that even its CFO admits that nobody really knows who is the CEO.
McKinsey and Company Africa, which operates in South Africa as a wholly owned and controlled subsidiary of international consulting firm McKinsey & Company Inc., will pay over $122 million to resolve an investigation by the Justice Department into a scheme to pay bribes to government officials in South Africa between 2012 and 2016.
McKinsey & Company will also pay $650 million to resolve a criminal and civil investigation into the firm’s consulting work with opioids manufacturer Purdue Pharma L.P., in which a former McKinsey partner was charged with obstruction of justice.
Macy’s Inc. delays its 3Q earnings release after revealing that a former employee intentionally hid $151M in delivery expenses from 2021-2024. A Macy’s investigation revealed that the employee acted alone in the accounting scandal, and that their actions stemmed from a mistake they subsequently tried to cover up.
Ethics and Compliance Failures 2024, Q2
Sam Bankman-Fried, the former cryptocurrency tycoon, sentenced to 25 years in prison for fraud, conspiracy, and money laundering connected to the collapse of the now-defunct crypto trading platform FTX which collapsed dramatically in late 2022, erasing some $32 billion in value on the exchange. Prosecutors did not get the 40-50 year-sentence they hoped for, but during sentencing, Judge Lewis Kaplan chastised Bankman-Fried‘s lack of remorse for his misappropriation of funds, and said the risk of him committing future misconduct was high. Bankman-Fried was also ordrered to forfeit some $11 billion to offset the losses suffered by customers, investors, and lenders when FTX failed.
Texas Attorney General Ken Paxton (R) reaches a deal with prosecutors to avoid trial for criminal securities fraud charges connected to a 2011 incident when Paxton, then a state representative, promoted the stock of a tech comany called Severgy to investors without disclosing that he was being paid to do so. Paxton—who survived an impeachment trial last year over related charges—still faces an ongoing FBI corruption investigation. In the meantime, Paxton will pay $271,000 in restitution, complete 100 hours of community service and take legal classes.
The Panama Papers criminal trial finally begins, trying 27 defendants, including two owners of the Panamanian law firm Mossack Fonseca, for their roles in a global money laundering scheme that allowed the ultra-wealthy to hide their assets from taxation. The Panama Papers scandal began when a massive leak of some 11.5 million documents from Mossack Fonseca implicated numerous heads of state, prominent business leaders, politicians, and other notable figures who used the firm to hide their wealth. The Panama Papers also played a key role in one of the most impactful anticorruption investigations in living memory: Brazil’s Operation Car Wash.
Johnson & Johnson to pay $700 million to more than 40 states to resolve investigations that the company misled consumers on the safety of its talc baby powder, which consumers allege causes cancer. J&J faces thousands of consumer lawsuits involving its talc powder, which it discontinued last year, and it has tried unsuccessfully to use bankruptcy filings to shield itself from talc-based legal liabilities, at one point proposing $8.9 billion in payments to talc claimants.
Apple receives a nearly $2 billion antitrust fine in March from the European Union for its domination of the music streaming market. The fine represents less than 1% of the company’s annual earnings, but it comes on the heels of another antitrust case Apple settled with the EU in January over its tap-and-go mobile payment system. Meanwhile, the U.S. DOJ has filed its own antitrust action over Apple’s domination of the smartphone market in what appears to be a broader regulatory crackdown on tech giants such as Apple, Google, and Meta. In related antitrust news, Microsoft has announced it will unbundle its Microsoft365 and Office365 products from its business collaboration product Teams, due to EU regulatory scrutiny and complaints from rival Slack.
Andrew A. Wiederhorn, the former CEO and current controlling shareholder of FAT Brands Inc., a publicly traded casual-dining franchise company, indicted in California for orchestrating nearly $47 million in bogus personal loans from FAT Brands that were never meant to be repaid, and which funded Wiederhorn’s lavish lifestyle. FAT Brands itself as well as several officers of the company are also named in the indictment, which could potentially put the company into receivership. Learn more in our related Ethicast episode.
2024, Q1
Sen. Bob Menendez (D-NJ) faces allegations that he accepted bribes from Qatar from 2021-2023. In October, Menendez was accused of accepting bribes from Egypt. Menendez—who has been previously found to have been in possession of stolen gold bars also suspected to be bribes—has refused calls from within his own party to step down.
The Wall Street Journal published a bombshell report detailing a toxic workplace culture within the Federal Deposit Insurance Corporation, where sexual harassment and misogyny ran rampant, and where individual managers ran their regional offices as fiefdoms with little to no oversight. The FDIC subsequently launched an independent investigation into the allegations. Learn more in our related Ethicast episode.
Mike Wainwright, the former COO of international commodity trading company Trafigura, charged with corruption in Switzerland for allegedly bribing an Angolan official. Wainwright, who faces up to five years in prison if convicted, is perhaps the most senior commodity trader to face corruption charges. Learn more from our related Ethicast episode.
Trevor Milton, founder of electric- and hydrogen-powered truck-maker Nikola, to serve four years in prison for lying to investors over the company’s technology. Milton was found guilty last year of having lied about claims he invented his company’s battery, and that the Nikola-One semi truck worked when it did not. “There has to be a message that whether you are an entrepreneur, a startup founder, a corporate executive, when you go out there and talk about your company, you must be honest,” Matthew Podolsky, Co-Chief of the Securities and Commodities Fraud Task Force at the United States Attorney’s Office for the Southern District of New York, said during sentencing.
Further Reading
For helpful context and insights on important ethics and compliance news stories as they develop, subscribe to the Ethicast podcast. For a host of free resources on the many topics covered in these news stories, visit the Ethisphere Resource Center.
