Ethical Decisions – Why Bankers Fail At It?

Last week I read the US Senate’s Permanent Subcommittee of Investigations report on “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History“. Since I am ex-HSBC I felt bad that an organization’s senior management took decisions for growth and profitability at the expense of world security.

I was personally horrified on the thought process of Christoper Lok, former Global Head of Bank Notes  relating to relationships with Al Rajhi Bank, Islami Bank Bangladesh Ltd and Social Islami Bank Ltd. The Compliance department in most of the cases had identified direct or indirect terrorist links with these banks. However, the business teams approached Mr. Lok to maintain relationships and sign off on the Know Your Customer documents. The logic given was that approximately $100,000/- per annum could be earned from these customers. Hence, approval was granted to pursue and maintain the relationships and most of the objections raised by Compliance department were over-ridden.

Bank Notes division had 800 customers. So if I assume that approximately  $100,000/- was earned from each customer, the total revenue would be $80,000,000/-. Though now the bank notes division is closed, but does a bank of HSBC level, need to pursue high-risk business for such immaterial amounts in respect to its total earnings.

With the controls so weak on transaction checks, even a single transaction of these three banks processed by HSBC, could result in terrorist funding. One doesn’t know, but there is a always a possibility that some funds may have been utilized for a terrorist activity somewhere in the world. A few people may have lost their lives. How does a person justify that his/her decision may result in death of some unknown person?

In the report it is mentioned that decisions were taken on Reward versus Risk parameter. Risk was generally considered about reputation damage and legal fines. As before none of the bankers were personally held liable, the maximum negative repercussion is job loss. The legal fines are paid by investor money. Hence, job loss is hardly a penalty, when after a time, the person joins another bank or financial services company. The rationalization given by bankers to self, I assume, is that the million dollar salary and bonus is worth the risk of death of someone else. Ruining life and happiness of some people, causing fear and terror in their life, does not appear in the Reward-Risk analysis. Can one be successful and happy when standing on the graves of innocent people?

The world is asking why do bankers take these decisions? Even after the financial crises, which caused so much suffering and pain to the general public due to job losses, retirement savings loss, and home losses, why do bankers persist in taking these decisions? Why don’t they change and take socially responsible decisions?

Though I am not a psychologist, my guess is two main feelings – cynicism and fear – makes them behave so. With +15 years of working in the financial industry, I know how easy it is to lose one’s idealism. With the whole society running after money, bankers see the worst behavior. They are surrounded with unknown people, friends, relatives, customers, suppliers etc. who all compromise a little bit of their ethics to get the deal, the loan, and better terms and conditions. When a person is dealing with large amount of money, the person witnesses greed of others every minute. It just seeps through the psychology, and greed becomes the paramount emotion.

Viktor Emil Frankl, world renowned psychologist and survivor of the Nazi camp gave an interesting metaphor on idealism and ethics. He mentioned that when we fly a plane from A to B destination, we do not follow a straight line due to the cross wind. So when we fly East to West, we fly at an angle towards North. The wind pushes the plane down and we reach the Western point of our destination.

Similarly in life, if we take a practical decision to operate on a straight line, the negative influences push us down to make unethical decisions. When we get cynical, and say “the society is doing negative behavior so why not me” ,we have already compromised on following the straight line. Our behavior falls below the straight line. However, if we manage to keep our idealism, we aim for higher ethical behavior. With all the negative influences in life, we then just about manage to live an ethical life. Hence, idealism actually motivates us to live an ethical life.

The next point is fear. Why do I think bankers are fearful and that is why they take these decisions? They are living a life which amounts to nothing. It is just money, more money and more money. Money buys comfort and luxury, it cannot buy self-respect and self-esteem.

Human consciousness is such that sometimes consciously we can fool ourselves. We think we know ourselves, but we at a conscious level don’t know ourselves, it is others who understand our behavior better. Hence, feedback from people is required for us to monitor our behavior. However, the more money and power one has, the lessor is the possibility of receiving honest negative feedback. Therefore, a senior manager’s moral compass at a conscious level can become distorted and he/she will remain completely unaware of the same.

At an unconscious level, our brain processes more information and keeps analyzing our actions, behavior and thoughts. We cannot fool ourselves at an unconscious level. The regulator inside us monitors our self-esteem. The right decisions and deeds deep down add to our self-esteem and self-respect. While our negative thoughts and actions erode the same. We compensate the lower self-esteem at an unconscious level, with a bigger ego at a conscious level.

The dilemma of maintaining ego to protect a low esteem causes irrational fear of loss. If internally we feel hollow, then fear of losing the external trappings is higher. Reason is simple, because the trappings is all the person has got. The pressure to maintain the facade is so huge, that it scares the shit out of people if they think they are going to lose it. Hence, fear drives the person to get more and more of the same trappings that they are familiar with and allows them to breathe in their comfort zone. Sometimes, it is sheer terror of losing it all that makes them sink deeper and deeper in the mud instead of breaking the mold for a better life. This reduces the possibility of bringing about a change in behavior. They can’t let go.

Closing Thoughts

Compliance officers gave excuses that their department was under-staffed or business teams over-rode their decisions. These cannot be considered justifications for failing to perform core functions especially when the transactions relate to drug money or terrorist funding. Both internal officers or external regulators, need to be far more vigilant in ensuring that the world is safe place to live.

For bankers it is a wake up call. They need to decide for themselves, whether they want to live in fear of losing everything, maybe going to prison, or adopt a more ethical life for their own happiness and safety. Going downhill is always easier than climbing uphill.