Business Law Report: Wells Fargo's Ethical and Legal Violations

This business report examines the Wells Fargo scandal, focusing on the bank's ethical and legal violations. The report details how Wells Fargo violated financial privacy laws and consumer protection acts through aggressive sales tactics, including opening unauthorized accounts and charging customers for unrequested services. It analyzes the roles of the bank's board of directors and regulatory agencies, such as the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve, in addressing the scandal. The report highlights ethical violations such as ethical egoism, ethical relativity, utilitarianism, and Kantian ethics, comparing the bank's actions to ethical standards in the military and business. It concludes with recommendations for strengthening corporate governance and regulatory oversight to prevent future financial misconduct and restore customer confidence. The report emphasizes the importance of ethical business practices and the need for regulators to ensure financial institutions adhere to consumer protection laws.

Running head: Business Report
1
Business Law Report, Wells Fargo
Name
Institution

Business Report
2
Summary
According to the Federal Reserve of the US, Wells Fargo violated the Financial Privacy Act
by using customers’ data to advance the banks goals and objectives. Investigations reveal that the
laws were deliberately and intentionally broken by bank. This business report will deal with the
actions that lead the bank to deliberately act against the various financial obligations it has to its
customers. Details of the role of the bank’s board of directors and regulators in ensuring
compliance rules are enforced will be analyzed and suggestions provided to strengthen the
financial industry.
Wells Fargo was accused and found guilty for violating Consumer Protection Act between
2008 and 2009. The scandal can be attributed to an aggressive marketing strategy by the
financial institution to meet its sales targets. Through cross-selling, the bank employees urged
customers to purchase additional financial products offered by the bank. Incentives were offered
to employees who surpassed their sales targets. The unethical violations can be attributed to
greed by the employees when they opened accounts for their customers without the customer's
consent. Customers were charged fees for accounts and financial products they had not taken.
This business report assignment will highlight the ethical violations committed by Wells Fargo.
These violations will focus on how business targets and strategies should not be used to
undermine financial compliance and consumer protection by financial institutions. This report
will also focus on the role regulators played in protecting consumers in the Wells Fargo scandal.

Business Report
3
Laws Broken by Wells Fargo
According to the US Federal Reserve, banking rules are controlled by both the federal and
state governments. The laws violated by the bank were consistent in different states and applied
the same pattern. Wells Fargo was found to have intentionally broken the following laws
1. Financial Privacy Act: This act was formulated in 1999 to protect customers’ information
(Taylor & Cedrone, 2010). Wells Fargo used the privacy of its customer’s data for selfish
gains. The law dictates that the information stored by the financial institution should not
be used by the bank to advance its agenda without the customers' consent.
2. Consumer protection: The laws on consumer protection deals with mortgages and credit.
The bank was found liable to have used a vacuum in the law to its advantage (Mims,
2017). There is no legal obligation that prevents banking institutions from opening
additional accounts for their customers. Fair business practices were overlooked and the
bank exploited the lack of stated laws. The customers were not protected by the bank but
used for financial gain by Wells Fargo.
3. Transparency: Wells Fargo failed to be open in its dealings with its customers.
Businesses are required to be open and honest in their dealings. This act is assumed to be
automatic to all business transactions but unfortunately, Wells Fargo failed.
4. Financial Reporting: Financial institutions are mandated by the law to adhere to set
financial reporting standard. This includes all the happenings including business strategy
and financials. Wells Fargo failed to report its aggressive marketing strategy to all its
stakeholders. If this could have been done, measures could have been put in place to
prevent the massive opening of fraudulent accounts.

Business Report
4
The main challenge with Wells Fargo was that the management was aware of its actions
(Verschoor, 2016). This posed a challenge to the compliance department to do any enforcement.
Risk management is very important for any financial institution. Adherence to laid codes of
business standards enforces compliance. Wells Fargo has a well-established compliance
department that monitors and ensures employees comply to set rules.
It was reported during the investigations that employees were barred from reporting the
various actions by the bank. This point to the lack of proper corporate governance structures by
the bank. The board of directors and top executives were later found guilty of knowingly failing
to take action to prevent the opening of accounts by its employees. Issues of whistleblowing and
reporting were discussed during the investigations. It was found that there was no room for the
employees who discovered the malpractice to report because their seniors were aware of the
situation.
Wells Fargo Legal and Ethical Violations
The legal and ethical violations done by Wells Fargo are morally wrong and criminal in
nature. The banks’ ethical violations can be summarized into four categories that negatively
affected the bank. The violations made their customers to lose confidence in the financial
institution (Aspan, 2013). Some of the transgressions have been settled and others are still active
matters in court to date. The following are the ethical violations.
1. Ethical Egoism: The bank acted in good faith to increase its profit share but in
contravention of set business ethics and practice. The bank was required to inform its

Business Report
5
customer’s before levying fees to accounts not known by the customers. This can be
attributed to egoism where the bank was forcing the customers to acquire products they
did not need. This practice is both criminally and legally wrong.
2. Ethical Relativity: This aspect points to corporate culture and the theory of relativity. The
bank acted irrationally to only benefit itself at the expense of its customers. This can be
attributed to a culture that is deprived of integrity and fair business practices. The bank
was mandated to ethically notify its customers before issuing them with additional
accounts and financial products. More than 5,000 employees were found liable for having
knowingly participated in the financial scam. It was prudent for the bank to have taken
the customer's consent into consideration.
3. Utilitarianism: The actions by the bank were not done in consultation with its customers.
The bank is required by law to inform its customers before deducting money from
customers’ accounts. Utilitarianism theory demands that actions done by an individual or
organization need to be done for the benefit of all the stakeholders. In this particular case,
it’s only the bank that gained.
4. Kantian ethics: The bank did not take into consideration if its actions were either right or
wrong (Bianco, 2010). The bank acted on the assumption that its actions were right.
Kantian theory of business ethics demands decisions to be weighed before they are
implemented. Although the bank apologized, the damage had already been done. Due
diligence was required to ensure that the results of their actions were not based on the
assumption at the expense of the customers.
Wells Fargo Business Goals versus Business Ethics.

Business Report
6
The scandal that faced financial institutions can be attributed to the marketing strategy
employed by Wells Fargo. Cases of corporate greed have been linked to many businesses
making poor financial decisions (Glazer, 2016). Wells Fargo is one of the well-established banks
in the US. Analysts have argued that Wells Fargo acts were purely driven by corporate goals that
did not take reason into account.
Cross-selling is a sound marketing strategy that is used by very many organizations to
meet their financial targets (David, 2011). The issue with this strategy is that the bank did not
involve its customer. There are better strategies that the financial institution could have used to
meet its financial goals. These include enhancing marketing and advertising. The bank could
have also improved its products portfolio to meet its customer's needs. This could have made the
customers to willingly open the accounts with coercion by the bank. To sum it up, businesses
have to grow by employing ethical practices.
Role of Regulating Agencies in Wells Fargo Scandal
The Consumer Financial Protection Bureau fined Wells Fargo $ 100 million after the
financial scandal that happened in Wells Fargo between 2008 and 2009. The CFPB is legally
mandated by the law to protect customers who procure financial services from exploitation by
financial institutions. Analysts argued that CFPB could have acted before customers lost their
money in the scandal (Triplett, 2017). In its defense, CFPB argued that the financial institution
concealed all the evidence until individual customers started to complain.
The Federal Deposit Insurance Corporation is mandated to regulate financial institution
and protect customer's money from being lost. The same case that applied to CFPB was also
replicated to FDIC who also discovered the scandal after the customers had lost their money

Business Report
7
(Tayan, 2019). The Federal Reserve regulates all the banks in the US. The Federal Reserve
placed the strict measure on all banking institutions in the US after the Wells Fargo scandal. It's
the responsibility of the regulators to ensure that customers' financial details are protected and
prevent any forms of exploitation.
Comparisons
The violation of ethical principles by Fargo Wells can be compared to the ethical codes
of conduct of the military. The United States Military has a code of conduct that is described as
better than the moral values of many individuals and businesses. The term ethics refers to the
actions of a person in respect to their values of being right or wrong. Any organization’s
definitive aspect lies in its ethical standards. Both military and business operates in some
particular sets of morals and values. The US military’s moral values include loyalty, obedience,
integrity, courage, considering the good of the unit and nation before one’s self. The moral
values of business fluctuate or vary between different professions with regard to interaction
levels of specific businesses with society in general. The core concepts of ethical standards in
any business includes integrity, dignity, fairness, justice and respect while interacting with
constituency of customers, suppliers, leadership, employees, investors, creditors and community.
It can be seen that the ethical values of both military and business call for honesty, respect,
loyalty, integrity and dignity. Another similarity between the two is the responsibility of placing
the needs and interests of the society as a whole above their own interests. Although both
military and business have similar ethical standards but the profession of military is held in a
higher position by the society. This is because of the reason that the military is accountable to the
society as a whole whereas a business is only accountable to its constituency. This difference in
the level of accountability is what requires the military professionals to conduct according to

Business Report
8
highest ethical standards. Another reason for the higher level of ethical standards by the military
is that because of the accountability of so many lives the breach of ethical conducts is seen as a
serious offence and is punishable accordingly.
In relation to the violation of the ethical standards by Fargo Wells it can be seen that the
bank violated all the ethical standards followed by the military and businesses. The bank put its
own interest over the interests of its customers. Thus violating not only the legal policies but also
the ethical codes of conduct. The bank violated the codes of loyalty, integrity, dignity, fairness,
justice and respect towards its clients’ privacy and certainly violated its obligations towards its
customers. There are many businesses that, like Wells Fargo, that do not follow the business
ethical conducts. It can be concluded that if like the military, the business ethical conducts were
implemented more strictly then businesses like Wells Fargo would have also attain a higher
ground.
Conclusion
The Wells Fargo financial scandal opened the weaknesses in our financial institutions.
The federal government and financial regulators like the Federal Reserve are responsible for
ensuring customer’s money is protected. Prudent corporate governance culture needs to be
enacted in financial institutions to prevent fraud. To recover Wells Fargo needs to restore
customers ‘confidence in their banking operations. This has been achieved through corporate
restructuring. Regulatory authorities need to be more vigil in ensuring banking regulations are
maintained in the financial industry.

Business Report
9
Reference
Aspan, M. (2013). Wells Fargo’s John Stumpf, the 2013 Banker of the Year’. American Banker.
Bianco, A. (2010). The Big Lie: Spying, Scandal, and Ethical Collapse at Hewlett-Packard.
ReadHowYouWant. com.
David, F. R. (2011). Strategic management: Concepts and cases. Pearson/Prentice Hall.
Glazer, E. (2016). How Wells Fargo's High-Pressure Sales Culture Spiraled Out of Control. Wall
Street Journal.
Mims, J. H. (2017). The Wells Fargo scandal and efforts to reform incentive-based compensation
in financial institutions. NC Banking Inst., 21, 429.
Verschoor, C. C. (2016). Lessons from the Wells Fargo scandal: the latest ethics scandal to hit
the banking world demonstrates the importance of ethical influences in regard to

Business Report
10
company culture, risk evaluation, employee incentives, and more. Strategic
Finance, 98(5), 19-21.
Tayan, B. (2019). The Wells Fargo cross-selling scandal. Rock Center for Corporate
Governance at Stanford University Closer Look Series: Topics, Issues and Controversies
in Corporate Governance No. CGRP-62 Version, 2, 17-1.
Taylor III, P. L., Pinguelo, F. M., & Cedrone, T. D. (2010). The Reverse-Morals Clause: The
Unique Way to Save Talent's Reputation and Money in a New Era of Corporate Crimes
and Scandals. Cardozo Arts & Ent. LJ, 28, 65.
Triplett, A. (2017). Incentive-Based Compensation Arrangements: An Examination of the Wells
Fargo Scandal and the Need for Reform in Financial Institutions. U. Balt. L. Rev., 47,
315.