The case of Karen Chon holds virtually every element and example of where poor ethical behavior in the workplace can lead. She is now behind bars after embezzling about $1.4 Million from an Englewood Cliffs, New Jersey bank. This is a clear example of banking ethics gone awry.
Ms. Chon was an assistant vice president and operations officer at BankAsiana and as such, she had unrestricted access to accounts, records, the entire computer system and important for this discussion, the vault. That is correct; Ms. Chon could help herself to the vault. Now before we get into the meat of the story, from a banking ethics and internal control perspective doesn’t it seem a bit lacking that an assistant vice president has so much access?
What led Ms. Chon to prison was 27 counts of theft, misapplication of funds and a count of bank fraud thrown in for good measure. Over several years, Ms. Chon developed a system. She made unauthorized transfers from customer CD accounts into the BankAsiana vault cash account. Then, as if plucking out samples from her own treasure chest, she helped herself to cash from the vault. Guess Ms. Chon failed banking ethics 101!
Banking Ethics: Fraud discovered
Ms. Chon’s downfall began after BankAsiana was in the process of being sold, and after a bank client discovered problems with a particular customer’s account records. Upon further examination it was discovered that Chon accessed the computer system to make unauthorized transfers from the customer CDs to the vault and then physically taking the cash.
How did she escape scrutiny for so long? She was clever enough – and unsupervised enough – by making false entries and transferring funds back to the CDs before they were set to reach maturity. How did she do this? By creating her own little Ponzi scheme. She had to transfer funds from newer CD’s back to the old. Chon would convert as much as $100,000 at a time. As her time at the bank was coming to an end, she made multiple transfers to cover her scheme. It wasn’t enough. The walls caved in on her as they always do in a ponzi scheme. The question however of banking ethics is what do other officers and directors have when it comes to responsibility to detect fraudulent schemes?
She could be facing a life sentence given all of the counts against her plus a fine of $1 million. There is already some pity for Ms. Chon as she has children. The children may very well be adults before they see their mother.
Banking Ethics: Fraud enabled
Scandals of this nature never occur in a vacuum. It was created by a lack of banking ethics and a lack of oversight.
We might start with the most basic question of all: who taught Karen Chon banking ethics? Did BankAsiana have regularly scheduled classes on banking ethics? I would somehow tend to doubt it. It never ceases to amaze me that individuals responsible for handling millions of dollars on a daily basis do not receive ongoing ethics instruction.
What were the systems in place (or the lack of them) that enabled Ms. Chon to transfer funds out of CD’s and then to walk into the bank’s vault and physically remove money? Early on, this assistant vice president and operations officer saw an opportunity to steal. She obviously seemed to have a need for the money, but those details did not come to the surface.
We should focus on the lack of oversight and poor policies that “encouraged” Karen Chon to steal. Even further, if this scheme went on for several years how did it occur that no internal audit ever took place that might have discovered these discrepancies?
The lack of training, combined with no oversight, a lack of internal checks and balances and lax policies aided the Ponzi scheme. While we cannot blame the bank for a lack of moral character of an employee, we can blame them for creating an atmosphere that would allow an employee with poor character to flourish. Banking ethics is something that requires consistent training.
Finally, did anyone ever take the time to observe Ms. Chon? Over the years did she seem to dress in a more affluent manner? Did she buy new cars? Go on expensive vacations? Send her children to expensive schools? Or, were the signs always present but no one ever bothered to question?
One thing seems certain. Her current outfit, most probably gray or orange, will need no accessorization. Her apparel will be simple and demeaning.
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