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Protecting Whistleblowers since 1977

Xe (Blackwater) Hires Disgraced AIG "Compliance Czar" Suzanne Folsom

Bea Edwards, September 16, 2011

Last week Corporate Counselreported that infamous military security firm Xe (previously Blackwater) has hired Suzanne Folsom as its first chief regulatory/compliance officer and deputy general counsel.

The article quotes Folsom crony and former AIG General Counsel Anastasia "Stasia" Kelly, gushing about her friend's talents:

Stasia Kelly brought in Folsom [to AIG] as deputy GC and chief compliance honcho. "She is a terrific professional and great compliance officer," Kelly said last week. "If I had another job for her, I'd hire her in a second." Kelly, now a partner at DLA Piper, adds: "She is the perfect person to accomplish Xe's goal of a turnaround" from the dark days of Blackwater.

Perfect! Because XE has quite a turnaround to accomplish. Widely known as the State Department's deadliest private security contractor, investigations of the company found that overbilling was potentially widespread in Afghanistan, and that Blackwater's mercenaries used lethal force "recklessly" in Iraq. The habitual misconduct of Blackwater personnel in Iraq, in fact, led Congress to pass legislation making U.S. contractors in combat zones subject to prosecution in U.S. courts.

But Kelly has faith in Folsom because these two have worked on tough assignments before. They supervised compliance functions at AIG in the lead up to the 2008 implosion, and then bailed themselves out with severance packages so generous that Senator Charles Grassley requested the details of them.

On Folsom specifically, Corporate Counsel observes:

Wherever Suzanne Folsom goes, it seems that trouble swirls around her.

Here at GAP, we picked up Folsom's trail when trouble roiled the water around her at the World Bank in 2006. As the Director of the Office of Institutional Integrity (INT), she created such distress that then-Bank President Paul Wolfowitz contracted an external panel headed by Paul Volcker to review the investigative practices of her office. The panel handled her delicately, however. In fact, one of its members systematically informed her of the names of those who criticized her, and what they said. She then stifled these staff members' complaints and retaliated against them, effectively subverting the entire Volcker exercise.

In its own unflappable style, the World Bank proceeded to implement the Volcker Panel's "recommendations" with great fanfare as if nothing had happened, although Folsom's conduct was a matter of public record. Sixteen INT staff members filed grievances with the Bank's internal Administrative Tribunal. Testimony quoted in one Tribunal ruling revealed how Folsom and her insider on the Volcker panel operated:

[The Applicant] makes reference to sub rosa conversations [Ms. X] regularly had with a member of the Volcker Panel during which she would receive information on the INT staff who registered concerns about INT management with the Panel. [Ms. X] indeed told me that she engaged in these meetings and even informed me of the name of the specific panel member. ... [Ms. X] indeed told me and [the Applicant's supervisor] that [the Applicant] was among the staff who spoke ill of [Ms. X] and that she would punish him, that he would never get promoted (AT Decision 419, para. 45)

Ms. [X] was Suzanne Folsom.

The statement was provided by Wayne Nardollilo, the witness for the Bank, when he spoke before an ad hoc Grievance Panel convened to review the complaints about Folsom and the Volcker process:

Considering that Mr. Nardolillo was the designated INT management representative before the Grievance Panel and thus de facto representative of the Bank, the Tribunal is bound to accept his account of the events which in effect supports the Applicant's allegations of retaliation (AT Decision 419, para. 46).

Related Administrative Tribunal rulings also revealed:

[...] That the overall scope and nature of the grievances reviewed and their concentration in the Bank's own investigative unit was highly unusual because there was (i) a pervasive abuse of authority by former INT management [i.e., Folsom]; (ii) a prolonged period during which this abuse continued; (iii) no effective action to prevent the abuse; (iv) a significant number of INT staff who suffered personal and professional harm; (v) corroboration of the events reported by INT staff in the written submissions of INT management and by other well-informed Bank officials (AT Decision 408 – 423, para. 22).

The Bank's Administrative Tribunal heard the cases and awarded substantial damages to all sixteen staff members harmed by Folsom. These rulings, and one other case (also against Ms. [X] for mistreatment and harassment), cost the Bank nearly $3 million in damages.

During the Tribunal's fact-finding process, Bank witness Nardolillo told the judges:

[Ms. X] displayed behavior that was unethical, including: being manipulative; engaging in acts of deception; and habitually making willful material misrepresentations of fact to her staff ...; being verbally abusive; ... engaging in tactics of intimidation; retaliating against staff ....

Having led the Internal Investigations function within the Bank Group for the last nine years, I have received and reviewed hundreds of allegations of staff misconduct. Among the cases have been scores of complaints from staff who allege abusive, hostile, harassing, and/or retaliatory conduct on the part of their supervisors or managers. To help put [Ms. X's] apparent behavior and actions in perspective ... in my professional judgment, none of these workplace misconduct cases as allegedcompared to the level of egregiousness, intensity, and frequency of the apparent abusive, hostile, harassing, and retaliatory behavior [Ms. X] subjected INT staff during her tenure as INT Director (AT Decisions 408 – 423, Para. 19, emphasis added)

This is the "terrific professional" that Kelly so breathlessly endorsed.

From the World Bank, Folsom moved on to AIG to work with her buddy Stasia. There, she soon headed the Office of Compliance, where she did not distinguish herself either. The independent monitor (IM) placed by the Securities and Exchange Commission (SEC) in AIG's Office of Compliance wrote in October 2009:

[...] AIG has not yet established a mature compliance function throughout the world. To do this, they would have to go to greater lengths to assess and augment their staffing needs, establish more fulsome policies and procedures than the interim ones that have been put in place, ensure that the policies account for local legal requirements, and are harmonized with the overarching corporate policies, refine and develop the risk assessment process; and develop contemporaneous monitoring procedures for the various compliance policies that are in place[P. 3].

This draft report to the SEC on the compliance function at AIG chronicles the IM's difficulties in dealing with Folsom, who exaggerated the impact of the compliance work she'd done, juggled numbers, withheld information, and ignored appeals for better data. At the time, Folsom either could not or would not reveal how many people actually worked in compliance at AIG worldwide. Some "compliance officers," apparently had other jobs, too, and Folsom wasn't certain that her part-timers performed their compliance assignments with any degree of independence from their day jobs. Over one year after the corporation had imploded and been salvaged by a federal bailout, Folsom's operation still left open the real possibility that many compliance officers had conflicts of interest.

One whistleblower at AIG referred to Folsom's international compliance program there as "a joke." According to this source, who clearly feared retaliation for speaking out, "Her compliance program consisted of a list of about 400 e-mail addresses around the world, many of them dead, which she'd send her messages to from time to time."

Here at GAP, we represent whistleblowers who have suffered retaliation at the hands of abusive managers, and we can safely say that we know of no single person who has driven so many employees to whistleblowing as Suzanne Folsom.

So now the question is: Will Folsom improve her record at Xe, a.k.a. Blackwater? As many will remember, Blackwater provided the security guards who killed 17 Iraqi civilians in Baghdad in 2007. Initially, manslaughter charges were filed against the guards, but then charges were eventually dropped. After an outcry in Iraq at the impunity of those responsible for the massacre, the FBI investigated. The resulting report concluded that Blackwater officials who claimed employees fired in self-defense had lied.

So it makes perfect sense for Xe to hire Folsom. For the past six years, she has represented herself variously as a compliance officer, ethics attorney and investigator. In reality, she is none of these things. Folsom allows wrongdoing to continue by making sure no employees speak out against her organization. Effectively, she's a one-woman "plumber's unit," shoring up the status quo by plugging leaks and silencing whistleblowers.

It's hardly surprising then that Ms. [X] and Xe have found each other.

 

Bea Edwards is Executive Director and International Reform Director of the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.