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Bus212 Ethical Violations Within Business

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Ethical Violations Within Business

Jasmine Coney


Jeanette Carney

December 18, 2017


        Most people have heard about the great banking scandal at Wells Fargo bank that happened in 2016.  This is one of the biggest ethical violations to occur to the banking industry in recent memory.  A basic overview is that employees opened fraudulent accounts to meet their quotas at work.  To get deeper into the violation, explaining the ethical violation and what made it unethical is necessary.  Answering whether or not the moral contravention broke the law has to be completed.  What consequences came about from the ethical violations?  Finally, explaining how a set of ethical standards in Wells Fargo could have prevented the creation of the fraudulent accounts.

Wells Fargo's Ethical Violation

 During the period of 2011 to midway through 2016, possibly even going back to 2009 or later, Wells Fargo employees created over 1.5 million unauthorized deposit accounts and issued more than 500,000 illegal credit card applications, with the May 2017 estimates being closer to 3.5 million fraudulent accounts.  The customers did not consent, nor were aware that the accounts were opened.  During this time, the accounts gained up to 2.6 million dollars in fees for Wells Fargo.  Most are probably wondering, what led to the employees opening these fraudulent accounts?  Initially, there were reports that blamed branch workers and managers for the problem, as well as sales incentives associated with selling multiple financial products or solutions.

        Cross-selling, the concept of attempting to sell consumers multiple products that the bank offers, an example of cross-selling is encouraging a consumer with a checking account to take out a mortgage, sign up for credit cards, or set up online banking.  This cross-selling was the primary catalyst for the fraudulent activity.  In Well Fargo’s situation, “lower-level bank branch employees were under intense pressure to cross-sell additional products to the bank’s customers: if you had a checking account, they would try to sell you a mortgage loan or a credit card for example.  The goal was to sell each bank client eight different products” (Kolhatkar, 2016).  Those employees were encouraged to order credit cards for pre-approved customers unknowingly, using the employee’s information to prevent customers from discovering the fraud.  This process was also completed with checking and savings accounts, sometimes using money from legitimate accounts to fund them.  Employees also issued life and renters’ insurance policies.

What made it Unethical

        Ethics are defined as “standards of moral behavior, that is, behavior accepted by society as right versus wrong” (Nickels, McHugh, & McHugh, 2016).  Most people grow up being thought by their parents what is the right and wrong thing to do.  Not having consented to open the accounts for the customers is an illegal action.  Each customer entrusted the employee to do the right and ethical thing with their personal information but was deceived.   Most of the employees knew what they were doing was wrong.  Unfortunately, when people get into survival mode; and think about how their kids will eat they throw ethics out the window to comply with their survival skills.

Why their Ethical Violation Violated the Law?

 Wells Fargo's ethical violation was a violation of the law because all the accounts were opened fraudulently.  Meaning the accounts were opened using deception and not having the proper consent.  In the United States, there are laws against bank fraud.  Those rules can lead to arrest.  If convicted, a criminal can receive a fine up to one million dollars, imprisoned no longer than 30 years, or both.  As of now, there have not been any employees arrested for bank fraud, even though it is illegal.  There also has not been any executives that have been charged either.  That does not mean that no charges will not come as more information is discovered down the line.

Consequences of Ethical Violation

        For every action, there are consequences.  The implications for the employee of Wells Fargo was approximately 5,300 employees were terminated between 2011 and 2016.  Wells Fargo’s Chief Executive Officer, John Stumpf, had to resign his position on October 12th, 2016.  Wells Fargo had to pay a fine to the Consumer Financial Protection Bureau of $185 million for the illegal activity.  The penalty was broken down with the Consumer Financial Protection Bureau receiving $100 million, the Los Angeles City Attorney getting $50 million, and the Office of the Comptroller of the Currency receiving the remaining $35 million.  Another consequence of these actions was that Wells Fargo stock prices dropped.   The dropping of their stock prices caused the revenue to fall; this is causing Wells Fargo to close 400 branches of their bank through 2018.

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