CIBC Sets Up Ethics Hotline for Staff

By Rob Ferguson
Business Reporter

Part of settlement with regulators
All workers to be trained on legal risks

Fallout from its loan deals with disgraced Enron Corp. took another bite out of CIBC's pocketbook as the bank announced yesterday $50 million in spending for an "ethics hotline," staff training and other steps to help prevent trouble.

The measures were required as part of an $80 million (U.S.) settlement with American and Canadian regulators in December, when CIBC was accused of contributing to the collapse of Enron, an energy trader that inflated profits and hid debts.

The bank — which has already stopped doing some types of financial transactions as required under the settlement one observer has called a "short leash" — was acting under a Feb. 28 deadline to implement the programs.

"Our reputation is at the core of everything we do," chief executive John Hunkin said in statement. "We see this investment as critical to CIBC's success."

With the hotline, employees at the Canadian Imperial Bank of Commerce will be able to make anonymous calls any time to blow the whistle on anything suspicious.

"It is far better to learn about these situations from a hotline than from a surprising telephone call to the CEO, or, worse, from a headline," says a fact sheet from The Network Inc., an Atlanta-based company hired by CIBC to run its hotline.

The country's third-largest bank has been hit with a series of embarrassments in recent weeks, including the high-profile departure of vice-chairman David Kassie and the arrest of former executive Paul Flynn, who was charged with fraud in a U.S. mutual fund scandal for which the bank itself and some former employees remain under investigation.

Flynn pleaded not guilty in a New York City criminal court yesterday, Reuters news agency reported.

It all comes as Hunkin has reduced riskier corporate lending, which hobbled profits a couple of years ago thanks to a run of bad loans, and nursed the bank to dramatically improved profitability.

CIBC shares are up 57 per cent in the last 52 weeks. But that is not enough, said one mutual fund manager who follows the banks.

"Reputation is very important," said Juliette John of Bissett Investment Management in Calgary.

"With all the scandals, how can they not put an emphasis on this?"

The damage to its reputation could also hurt CIBC when it comes to potential bank mergers this year, making CIBC less attractive in terms of price and strategy, Merrill Lynch analyst Heather Wolf said in a report to clients.

The $50 million (Canadian) CIBC is spending will largely be a one-time cost, bank spokesperson Rob McLeod said.

It will cover an online training program for the bank's 37,000 employees on global reputation and legal risk and advanced training for 1,200 employees involved in "complex financial transactions," plus the ethics hotline.

Also covered are the hiring of an independent firm to monitor certain aspects of the bank's business and the establishment of a financial transactions oversight committee of senior executives.

The Network Inc., which runs similar hotlines for Citigroup Inc., Coca-Cola Co., Kmart Corp. and dozens of others, operates a call centre open 24 hours, 365 days a year where 150 employees are trained to take detailed reports by following questionnaires on their computer screens.

"A typical ethics-related call will last about 15 minutes," spokesperson Adelle Erdman said from Atlanta.

The process is thorough to help establish if there is any evidence or documents CIBC investigators could seize. Reports are quickly sent to the bank by e-mail or telephone for follow-up, mentioning names of suspected parties as well.

Whistle-blowers are also given an opportunity to make a subsequent anonymous call in case more information is needed.

Tips from employees typically uncover about 26 per cent of frauds, compared with 19 per cent discovered by internal auditors and 2 per cent discovered by police, according to the U.S. Association of Certified Fraud Examiners.

About 19 per cent are discovered by accident, the association says.