1. Corruption and fraud becomes acceptable due to the non-compliant behavior of supervisors and managers

2. Compliance department is unable to identify certain categories of illegal actions

3. Corporate cultures in banks affects the probability of whistleblowing

4. Emergence of non-compliance is connected to the underlying norms and values shared among employees

All these conclusion lead to the understanding that in certain situations such factors as shared values and beliefs can lead to major scandals concerning the actions of the commercial banks. What is more important, the activities realized by the compliance department, such as, for instance, trainings or obligatory tests do not reduce the probability of the risk taking initiatives and non-compliant behavior. Compliance department manages to inform the employees of the adverse effects of non-compliant behavior but it fails to change the cultural norms and values deeply integrated into the group mindset.

1.3.2 Culture of compliance as a renovated management tool in banking

In the sense of modulation of the underlying values and principles shared and accepted among the bank employees, the culture of compliance acts as an apparent solution. Indeed, the identified cases as well as the general state of economy signify the need for a universal framework that could be utilized to ensure the holistic nature of compliance in commercial banks.

According to Luc Boltanski and Laurent Thevenot (2006), the phenomenon of cooperation and coordination among the social groups can dramatically affect the process of the cultivation of a new culture. These scholars proposed the “Theory of Convention” which postulates that behavioural types of individuals in close social groups are constantly being influenced by the behaviour of their peers, supervisors and other individuals. Each time an employee makes a choice in favour of a certain action, he compares it against the cultural norms which are being appreciated in the company. Hence, it is crucial to change the general mindset of the organization in order to incorporate an effective compliance culture.

The culture of compliance can be cultivated with the deployment of a number of managerial tools; the process is never straightforward as the management has to ultimately ensure the alteration of values on the individual level. To simplify the analysis of the implementation procedures it would be worthwhile to define the mechanisms by which the compliance function can be implemented in each and every components of the corporate culture.

1. Vision

As mentioned previously, management of the organization not only defines its portrait but also affects and determines behaviour of its employees. For that reason, the process of instillation of the culture of compliance requires actions taken by the top management [89, Orem, 2016].

Indeed, compliance should be incorporated and accepted as a part of the strategic vision of the bank. And this incorporation has to constantly be demonstrated and supported via the means of the status meetings, lectures and other activities organized by or with the help of top managers. It is crucial to set observable goals associated with compliance and transmit the information of these goals through the top management as managers are being traditionally accepted by the employees as the “voice” of the company.

2. Values

As mentioned previously, the essence of the culture of compliance is the instillation of such values as integrity, transparency and honesty into the mindset of the organization. Unfortunately, the basic educational procedures initiated by the compliance department seem to act somewhat insufficient. To effectively alter the shared values of the employees, the management of the bank has to modulate policies concerning remuneration and education of the staff.

According to the 2015 Deloitte Global Risk Management Survey [92], only half of the managers consider risk management initiatives while developing the sales staff rewarding systems. The Wells Fargo case is evidential of the fact that inadequate requirements and rewarding procedures act as the main factor for fraud acceptance among the sales staff. Corporate culture of compliance dictates that the employees should understand what they are being paid for, as it affects their understanding of what the bank actually “values” in them [92, Orem, 2016].

Consequently, the rewarding system under the culture of compliance has to target the quality of the transactions rather than their quantity. This would allow the bank's governance to align the Enterprise Risk Management (or the ERM) initiatives with the remuneration procedure.

The quality of transactions has to take account for the risk level of the transaction itself and the counteragent in question. Contemporary ERM solutions can provide banks with an opportunity to measure the risk of working with each individual client faster, thus, the management of the bank would be able to build a model of remuneration with such underlying factor as the overall risk level of the transactions performed monthly [92]. On the one hand, this particular solution might negatively affect the total income of the bank as it is directly correlated with the amount of issued credits. On the other, it would eliminate the need for fraud and fake transactions as the sales staff will have altered KPIs, thus, it will hinder the possibility of the emergence of the culture of corruption.

3. Practices

The educational element in the process of instillation of new values is arguably the most crucial one. As mentioned previously, obligatory trainings and tests organized and implemented by the compliance department have now become an a universal standard of banking practices. Nevertheless, the culture of compliance requires deployment of different practices concerning education as it becomes apparent that the current methods fail to influence the latent processes that affects employees' behavior.

Firstly, education in banks has to be supported by appropriate technology [reuters]. This requirement works on two different levels:

· The usage of modern technologies in order to gain access to more efficient ways of information distribution, such as, for instance, gamification of the test material, direct communication with business and compliance trainers and etc. [89, 92, 92]

· The usage of appropriate methods of employee engagement to ensure effective instillation of values.

For instance, obligatory trainings organized for the newcomers traditionally comprise of lectures and tests aimed at the distribution of information concerning formal regulatory requirements and jurisdiction of compliance as of a department. Instead, it might be much more beneficial to alter the practice of “onboarding” and add such activities as, for instance, games in which recently hired employees have to learn of the values of the organization and present their understanding of these values and their applicability (Sampson, 2014). In case of the implementation of the culture of compliance all the practices should be aimed at cultivating an understanding of the values and goals of compliance and engaging entry-level employees into the process of their development.

Secondly, educational topics have to go beyond the matter of compliance itself (Orem, 2016). There is a need to instill such values as integrity, honesty and transparency which do not necessarily concern the actual requirement of external regulators that compliance tends to work with. Thus, it might be quite beneficial in terms of the cultivation of compliance culture to organize collaborative events and activities. Compliance function should not be the only source of initiatives aimed at the instillation of the values in question [89, Orem, 2016]. Moreover, in certain cases such departments as HR or Controlling can cause a much more significant influence on employees in terms of their mindset.

The most appropriate practices supporting the strategy of operational alignment with the values of compliant behavior include:

a) Transmission of values by the top-management of the company

As signified by a number of researches, supervisors and managers cause the most significant influence on the ground mass of employees [92, 89]. Accordingly, it will be more beneficial to deploy linear and top management in the process of transmission of corporate culture and perspectives. Such practices as daily of weekly meetings appear to be of great applicability,

b) Instillation of values into the mindsets of the newcomers

On the other hand, the newcomers constitute the future management of the organization and, hence, should be subjected to direct communication with culture propagandists. According to the institutional theory (Mйnard, Shirley, 2005), deeply assimilated patterns of behavior prevalent in institutions and organizations can be modulated through the mindsets of the future leaders. From that perspective, such initiatives as introduction weeks, onboardings and specifically designed trainings have to be aimed directly at the modulation of the perspectives and norms of the future employees and managers.

c) Engaging employees into the process of development of the culture

Indeed, engagement of the employees would guarantee that values of compliance will be assimilated and accepted by the employees as their own. In that sense, such initiatives as, for instance, presentation of the employee ideas concerning compliance development will be of great importance; especially, if supported by some pecuniary incentives.

All the practices enumerated work on the level of informal internal governance, according to Peter Verhezen (2010). The diagram below represents the types of governance observable in most of the companies.

Figure 1 Types of Internal Governance (Verhezen, 2010)

Initiatives attributed to the informal type of governance comprise activities aimed directly at the modulation of latent perspectives and values shared by the employees. Hence, these is the exact type of practices compliance department should introduce in order to cultivate the culture of compliance (Sampson, 2014).

4. People

This component of the corporate culture should be modulated by the implementation of changes into the bank's employee structure as well as the alteration of the portrait of the compliant employee.

In 2013 JP Morgan Chase, an American international investment bank, hired 3 000 new employees for its compliance department and spent nearly 1 billion dollars on the development of controlling and risk management [96]. Such initiatives acted as the countermeasure to the recent changes of the AML policies in the United States. The hiring of the additional compliance officers enabled JP Morgan to increase the proportion of the managerial staff transmitting the values of compliant behavior and, thus, affect significantly more employees. In accordance with the general implications of the concept of corporate culture, increase in the absolute numbers of employees caring the desirable mindset will directly affect the average portrait of the employee.

The desirable image of an employee from the perspective of the culture of compliance is immediately connected to the notion of whistleblowing. Whistleblowing in the organizational context is the act of wrongdoings being reported by employees directly and, most frequently, anonymously to the managers or compliance officers in case of the banking institutions (Szegedi, 2016). Whistleblowing is crucial as it provides the opportunity to detect and prevent non-compliant actions in some cases that are not observable to the compliance department itself (Szegedi, 2016). On average, almost 50% of the non-compliance activities are being detected with the help of whistleblowers (Szegedi, 2016).

Taking into account obviously positive effects of whistleblowing in organizational context, it should be mentioned that the process of adaptation of whistleblowing as a standard of behavior is quite complicated. That is due to the fact that in most commercial banks whistleblowers had been fired for a long period of time (Naheem, 2015). Hence, employees currently share a perspective that whistleblowing can be hazardous for their future career prospects. It is of great importance for the compliance function to instill the value of whistleblowing into the mindset of the bank. To do so, the justification of the whistleblowing as an act of appropriate and desirable behavior should be settled on the corporate level with the utilization of the organizational code and rules of employee behavior.

Such components of the corporate culture as “narrative” and “place” do not get under the direct influence of the culture of compliance. Mainly that is due to the fact that the narrative of the overwhelming majority of commercial banks already includes stories and examples of appropriate and “righteous” behavior. The element of place transmits the overall attitude of management towards the external outlook of the organization and, thus, does not provide the grounds for direct associations with compliance function.

With the successful realization and incorporation of the enumerated procedures, compliance transforms the overall corporate culture of the bank and effectively eliminates the conflict of interest between compliance department, external regulators and bank's employees. As long as the values of compliance are cultivated and implemented into the organizational mindset and, hence, into the mental projection of each and every employee, the probability of non-compliant behavior and other unlawful or conspired actions decreases in dramatic fashion.

1.3.3 Formation of the corporate culture of compliance in developing countries

As long as the culture of compliance is being considered as a managerial tool enhancing the bank's ability to tackle operational and regulatory risks, the greatest applicability of this concept is evidently connected to the level of non-compliance acceptance (Sampson, 2016). From that perspective, it would be most beneficial to incorporate the culture of compliance into the bank's corporate code on condition that it operates in developing countries.

Mainly, that is to do with two factors: the peculiarities of the national cultures of developing countries and the relative backwardness of the financial systems built there.

There is a large body of contemporary literature identifying the fact that the corporate culture of the bank can and will be affected by the national country of its country of residence (Ashraf et al., 2016). The influence of the national culture can be quite versatile; it influences the overall performance of the bank as well as such components of the corporate culture as, for instance, shared values and practices. Most importantly, several features of the countries' national cultures affect the risk-taking behavior of the banks residing there.

Considering the jurisdiction of compliance and banking regulators, such feature of national cultures as the acceptance of bribery and corruption constitute the greatest threat to the economic stability of financial institutions in question. The Corruption Perceptions Index (CPI) provided yearly by the Transparency International e.V. represents the opinions of a number of experts on the matter of the level of corrupted activities attributed to the countries' economies [70]. The index is provided for 176 countries worldwide. Each countries' corruption level is measured on the scale of 0 to 100 where 0 represents extremely high corruption and 100 stands for completely clean economies.

Unsurprisingly, developing countries systematically get much lower scores than developed ones. Hence, the risk of acceptance of bribery or corrupted operations in banks is much higher in underdeveloped countries due to the fact that the acceptance of corruption in each individual bank is influenced by the norms and standards of behavior prevalent in the county's national culture.

Paul Wilhelm (2002) states in his research “International Validation of the Corruption Perceptions Index: Implications for Business Ethics and Entrepreneurship Education” that the CPI score of each county is significantly correlated with the black market activity and the overabundance of regulations and business restrictions prevalent there. In the sense of economic peculiarities, black market activities include bribery, “gray” salaries, tax-dodging and non-observable illegal operations. The acceptance and prevalence of such operations in developing countries inevitably influence the standards of behavior instilled into the corporate cultures of the organizations working there. Hence, commercial banks in developing countries require a much more efficient compliance functionality in order to ensure riskless compliant behavior of employees.

In contrast, the overabundance of business regulation stands for excessive amounts of legal restrictions imposed on different organizations. Correspondingly, the banking sector, traditionally placed among the most controlled spheres of economy, suffers colossal regulatory damage in developing countries. Usually such damage comprises fines, reputational flaws, public mistrust or even deprivations of the banking licenses. Excessive regulations adapted and prevalent in developing countries trigger emergence of new sophisticated methods of restriction-dodging, hence, they act as one of the major factors for the development of cultures of corruption and acceptance of non-compliant behavior in commercial banks.

Another contribution to the low quality of compliance functionality in developing countries is constituted by the fact that the governmental institutes of finance there are relatively underdeveloped (Schmukler, 2004). In developing countries, regulatory policies and standards of banking are being adapted as a part of the experience of developed countries. Due to the fact that national cultures and historic backgrounds of such countries differ on a number of levels, the adaptation of the “best practices” appears to be somewhat counterproductive. The regulatory systems have to match the current state of economic development as, for instance, sudden changes in capital requirements or AML-policies can negatively affect the overall lending and usage of bank services in certain countries (Noss, Toffano, 2015). Thus, the absence of adequate regulatory systems in developing countries can be hazardous for the development of the compliance function that has to tackle risks of external sanctions. This in turn can negatively affect the banking sector itself and even the overall economic stability.

Another potential drawback of the internal regulatory policy inadequacy of developing countries is the fact that the overabundant requirements there fail to ensure sufficiency of capital ratios and riskless behavior of the banks' employees and managers (Bougatef et al., 2016). The 2016 longitudal study of 24 banks operating in the MENA (Middle East and North Africa) region signifies the absence of significant effect of governmental regulations on the risk-taking behavior prevalent among the financial institutions in question.

Summarizing the enumerated factors, the cultural propensity for corruption and the backwardness of the financial systems combined with ineffectiveness and overabundance of the regulations that are prevalent in developing countries inevitably lead to:

· The generally low quality and untrustworthiness of banking in developing countries

· The extremely high probability of crises in commercial banks

Such factors constitute threats to both the financial institutions themselves and, most importantly, their clients. The penchant for non-compliant and opportunistic behavior prevalent in banks residing in developing countries might lead to the introduction of negative sanctions against them. Such sanctions, as mentioned previously, can vary from petty fines to license deprivation in worst cases. If a banks is being deprived of its license and, hence, cannot continue its operations, the situation in which its clients will not be able to receive their deposit money back appears to become highly probable.

The consideration of the enumerated risk factors leads to the apparent understanding of immediate necessity of incorporation of the corporate culture of compliance into the mindsets of commercial banks operating in developing countries. As mentioned previously, the ability of the culture of compliance to eliminate the conflict of interest between the employee and the compliance department and, hence, the regulators themselves appears to be a very convenient solution in case of high probability of crises in banks. Nevertheless, there is a number of specific modulating factors attributed to the process of formation of corporate culture of compliance in developing countries. Such factors include the mediating roles of: the traditions and other distinctive features of national cultures; the ownership structure of the bank; the regulations adapted in the countries in question.

Before the analysis of the enumerated factors, it should be mentioned that their influence is most distinctive and observable in case of cultivation of the culture of compliance in branches of the international commercial banks operating in developing countries rather than local banks functioning there. Nevertheless, this assumption is not devoid of theoretical justification. The main reason for that is the already mentioned fact of adaptation of the experience of developed countries on the matter of regulations and, hence, compliance itself. There is evidence that banks operating in one country but having their maternal organizations residing in different areas cultivate distinctively different types of corporate culture (Bagirova, Vavilova, 2015). The cultures of local banks residing in developing cultures have long been influenced by the peculiarities of the national cultures, specifically, prevalent penchants for bribery and other corrupted operations. Thus, subsidiaries of multinational banks possess much greater potential to cultivate the culture of compliance as they have a possibility to deploy compliance and HR officers from the maternal organization to duplicate at least the most distinctive features of corporate culture.

As mentioned previously, national cultures affect corporate cultures of banks in versatile ways, the most distinctive of which can be attributed to the level of CPI. However, a number of resent researches on that matter illustrate the correlation between the banks' risk-taking behavior and some peculiarities of the national culture of their country of residence. For instance, according to Binay Adhikari and Anup Agrawal (2016), bank's risk-taking behavior can be dramatically influenced by the religiosity of the area of its residence. In religious countries, especially those that have Islam as the official religion, banks' appetites for risk-presuming operations appears to be significantly lower in comparison with the penchant for risk-taking opportunities identified in banks residing in secular countries.

Acting as an ultimate stage of development of such phenomenon, such type of cultural code as Shariah compliance is currently being identified and investigated by a large number of researchers (Ullah, 2014). The Shariah compliance introduces religious values and principles of Islam into the corporate culture of banks operating in Islamic countries and, thus, ensures not only riskless and compliant behavior of employees but also the alignment with national cultural code that allows banks to gain public trust and approval and, hence, positively influences its financial results. It should also be mentioned that the introduction of Shariah compliance appears to be a quite straightforward and efficient process due to the fact that all the local employees are familiar with the values in question and, what is more important, share them unconditionally. Accordingly, banks and, more specifically, multinational banks have to consider the most distinctive features of the national cultures while cultivating the culture of compliance.

The second major factor of influence appears to be constituted by the ownership structure of banks. According to Barry et al. (2015), the level of corruption in the bank's operations depends on its ownership structure, specifically, on the main stakeholder. In terms of the named research, banks were divided into three main categories depending on their owner - family-owned banks, state-owned banks, banks with widely-held ownership structure and banks with controlled-ownership. The widely-held ownership stands for the common model of corporate ownership where shares are divided among diversified groups of shareholders without distinctively prevalent amount of shares held by one stakeholder. The controlled-ownership represents the situation where the bank operates as a subsidiary of the maternal bank residing in another country. It has been found that banks with controlled ownership structure perform significantly smaller proportion of corrupted operations in comparison with family- and state-owned banks. In case of developing countries, that is to do with the fact that the maternal organization controls the operations of its subsidiary utilizing the regulatory requirements of developed countries and, thus, leveling the potential adverse effects of the national culture peculiarities prevalent in the subsidiary's country of residence.

The third significant modulating factor is represented by the regulatory requirements prevalent in the banks' country of residence. As mentioned previously, inadequate and usually overabundant regulations prevalent in developing countries can cast negative effects on the effectiveness of the compliance function (Bougatef et al., 2016). Due to the fact that in developing countries compliance departments in commercial banks have to meet excessively high demands of the external regulations, most of the attention and potential of the compliance function becomes attributed to the formal internal governance, specifically, the unconditional and one-sided controlling of the employees' behavior (Verhezen, 2010) Such model of compliance management cannot be aligned with the mutual understanding and consent of the values of compliant behavior required to manifest the culture of compliance.

Summarizing the analyzed information, the cultivation of the culture of compliance can be of the greatest usefulness in developing countries where the adverse features of the national cultures lead to the appearance of opportunistic behavior among the employees, emergence of the culture of corruption and the magnification of the probability of banking crises. However, the management of the banks residing in developing countries has to take into account such factors as the cultural code, the ownership structure and the features of the banking regulations prevalent there as they can constitute significant obstacles for the process of the cultivation of the culture of compliance.

Summary

The extensive analysis of a large body of literature on the matter of corporate culture and, specifically, and idiosyncratic type of it - the culture of compliance - has confirmed that the applicability of such concept in terms if its potential influence on the bank's risk-taking behaviour and overall performance is supported by theoretical justifications.

According to the recent studies, the corporate culture of compliance constitutes the most substantial influence on the bank's performance if implemented in countries with corruption-prone national culture. That is to do with the fact that the corporate cultures of banks and, hence, the behavioural patterns of their employees are influenced by the national cultures of their countries of residence.

As an intermediate conclusion, the cultivation of the culture of compliance in banks operating in developing countries with large indications of bribery and corruption can be valuable in terms of assurance of the compliant behaviour of employees. In order to justify the applicability of this framework in the realms of the Russian banking sector, an empirical study of the most successful commercial banks of Russia is to be performed.

2. Assumptions and justification of the empirical study

2.1 Research design and methodology

The theoretical analysis of the matter of corporate culture of compliance and its benefits in terms of formation in commercial banks operating in developing countries leads to the understanding that the utilization of this managerial tool can be important and helpful for the financial institutions currently operating in the Russian Federation. The Central Bank of Russia - the unified governmental regulator of the Russian banking sector, continues to administer the policy of massive sanitation of the banking sector which started in 2013 and since then has led to enormous amounts of license deprivations and other regulatory sanctions against commercial banks [61]. As identified by the one of the Russian survey companies, the reason for the negative sanctions is predominantly associated with the AML misconduct and inadequate risk management in terms of crediting of unreliable counteragents [62]. The detailed analysis of the Russian banking sector and external influences it withstands will be introduced in the successive section of the present paper.

As can be seen, the reasons for the license deprivations and pecuniary fines could potentially be leveled by the introduction of the culture of compliance in commercial banks. The analysis of the market data reveled that there is a distinctive group of commercial banks that have so fat successfully adapted to the restrictions imposed by the Central Bank. This group comprises of the major local banks as well as almost all of the international banks operating in Russia. As stated in the previous section of this paper, subsidiaries of the multinational banks operating in developing countries possess the greatest potential to successfully cultivate the culture of compliance and ensure adequate risk-taking. This implication correlates with the observable success of banks with foreign capital operating in Russia.

Nevertheless, due to the fact that the notion of the culture of compliance itself appears to be quite unexplored even in developed countries, the present research is aimed at exploration and study of the experience of the most successful banks operating in Russia concerning practices and procedures of cultivation of the culture of compliance, the general understanding of compliance and the culture of compliance shared by the employees of the banks and the insights of the compliance managers on the matter of effectiveness of compliance-related initiatives. From that perspective, a number of research question were formulated in order to compile and produce potentially useful pieces of recommendations to commercial banks that do not quite meet the required quality of operations:

5) How do employees and managers of the commercial banks operating in Russia understand and interpret the notion of compliance?

6) Is there any evidence of the presence of the culture of compliance? Is it observable through the values shared by the employees?

7) How does the management of the banks cultivate the culture of compliance? What practices do they employ?

8) What are the “best practices” of compliance administration that managers consider as the predictors of the economic stability in terms of functioning in Russia? What perspectives do they have on the matter of effectiveness of the culture of compliance?

Additionally, an exploration of the differences in the policies and concepts instilled in local and foreign banks appears to be worthwhile as for the fact that, according to the theoretical analysis, the corporate cultures of the banks with foreign capital might be influenced by the national cultures of the countries of residence of their maternal organizations.

Considering the features of the research questions as well as the general exploratory nature of the study itself, the decision was made in favor of the qualitative research method. The concept of the corporate culture in general is always attributed to the “soft” characteristics of the organizations, meaning that it is usually quite complicated to “measure” the corporate culture and, even more so, to formally define some idiosyncratic feature of cultures. Since the introduction of the corporate culture into the managerial science, researchers managed to adapt a very limited set of possible approaches to measure and classify such features of corporate cultures as, for instance, innovativeness with the deployment of quantitative methods, specifically, surveys (Bagirova, Vavilova, 2015). Due to the extremely high level of scientific obscurity around the culture of compliance and the general absence of the quantitative methodology, the deployment of the in-depth interviews appears to be the most appropriate means of the data collection.

In terms of the appropriate set of respondents, a decision was made to perform two series of semi-structured in-depth interviews: one with the entry-level bank employees and one with the top-managers of the compliance departments. The semi-structured interviews give an opportunity to explore the first-hand experience of the respondents as well as contribute to the general understanding of the relatively unexplored concept of the culture of compliance. That is to do with the fact that there has not yet been any descriptive papers on the adapted practices of compliance management in Russia, thus, the information gathered from the compliance experts can be beneficial in terms of the conceptual broadening.

The interviews with the entry-level staff were mainly aimed at the identifications of the perspectives and values shared by the employees and the compliance-related activities they participated in. The approximated guide for this type of interviews is presented in the appendices (Appendix 1). The study of the personal experience of employees is effectively the only reliable way to indicate the presence of the culture of compliance in the organization. It also provides the chance to find out if the compliance-related initiatives do actually have an influence on the mindset of the employees. For instance, entry-level employees that normally constitute the “target audience” of the compliance procedures can be uninformed and unaffected of the values transmitted across the organization.

The second series of interviews targeted the officers of compliance departments. The essence of such interviews was concentrated around the actual practices compliance departments deploy in order to cultivate the culture of compliance, the subjective assessment of the effectiveness of such practices and, finally, the insights of the managers on the matter of the most efficient and appropriate practices of compliance management in the realities of the Russian banking sector. The approximated guide for this type of interviews can also be found in the appendices section (Appendix 2).

As for the actual object of the study, the employees and compliance officers have to work in the most “successful” commercial banks of the Russian federation. In that case, the actual value of the “best practices” of compliance management can be distributed among the organizations with far-from-perfect risk management procedures and penchants for non-compliant behavior. In terms of the present research, the successful banks were identified as those that were included in the list of Foundational banks of the Russian Federation. This list comprises 10 major commercial banks operating in Russian and was proposed by the Central Bank in 2015 in order to officially demonstrate the totality of financial institutions constituting the ultimate value for the economic development [3]. Not only these 10 banks possess more than 60% of the total amount of assets present in the Russian banking sector, they also consistently meet the constantly toughening demands of the regulatory policies. Hence, a decision was made to concentrate on the experience of banks enlisted as foundational.

Considering sampling procedures, the non-probability convenience sample was utilized. That is to do with two conditions. Firstly, the exploratory nature of the research dictates the necessity for the study of subjective opinions and perspectives on the matter of compliance culture. Thus, there is no scientific sense in attempting to study the overall population. Secondly, the second series of interviews targets the top-tier compliance officers - the type of respondents that are extremely difficult to access due to the nature of their job characteristics. Accordingly, the selective priority was given to the respondents that were easier to access yet possessed the desirable knowledge. Additionally, all the respondents had to be occupied by one of the foundational banks.

A decision was made to study the experiences of 4 foundational banks: Sberbank of Russia, Alfa-Bank, Raiffeisen Bank Russia and UniCredit Bank Russia. These banks combined constitute 40% of the totality of foundational banks; they are also representative of both the local Russian banks (Sberbank and Alfa-Bank) and banks with foreign capital (Raiffeisen Bank and UniCredit Bank). The description of these banks as well as the analysis of the Russian banking sector is to be given in the successive section.

2.2 Analysis of the Russian banking sector. Description of the banks under investigation

For the 2017, the Russian banking sector comprises 3295 financial institutions providing various services, 623 of which are constituted by commercial banks. The Central Bank of the Russian Federation acts as the unified regulator of the entire financial system of the country; it has the authority to modulate regulatory requirements and even introduce changes into the federal laws concerning banks and other financial institutions [2].

Considering the aggregated trends of development, there is an observable positive tendency in the amounts of deposited money held by commercial banks. The diagram below contains the data for the period between 2011 and 2016.

Figure 2 Russian bank's total deposit reserves in 2011-2016

The positive tendency signifies the fact that commercial banks are stably accumulating investment potential and, thus, can monetarily stimulate the most crucial industries of the Russian economy. The appearance of such trend is quite unexpected as for the fact that current economic conditions of the Russian Federation in terms of negative external influences (economic sanctions, etc.) should most likely have had the banking activity decreased.

The monetary inward-bound policies of the Central Bank have led the banking sector to this relative upswing; some major research agencies identify the positive effect of the policy of credit availability development in spite of the economic downturn [77]. This, in turn, has motivated both individual and corporate clients of banks to get credited and, hence, invest into the Russian industry.

On the other hand, the Central Bank of Russia continues its strategy of banking sector sanitation through banks enlargement [62]. The “bank enlargement” stands for the process of elimination of small commercial banks and the successive enlargement of the “average” banking institution present in Russia. The main goal of this approach is achieving significant decreases in the totality of risk-bearing operations initiated by banks and, thus, the reduction of the overall risk appetites of commercial banks. Riskless performance of banks would guarantee higher level of financial stability and security for the Russian population.

The methods deployed by the Central Bank in the course of its strategy implementation, however, have mostly been criticized for their aggressiveness and controversial results [61, 63]. Mass license deprivations of the small- and medium-sized banks that started in July 2013 has since led to almost 45% decrease of the total amount of commercial banks operating in Russia. The diagram below represents the yearly license deprivations in the period between 2001 and 2016.

Figure 3 License deprivations of the banks operating in Russia in 2001-2016

As can be seen, there is a significant upswing in the yearly amounts of deprivations that starts in 2013. That is to do with the fact that in July 2013 the post of the head of the Central Bank had been taken by Elvira Nabiullina [62]. The new head of the regulator has introduced the described policy and, hence, has put smaller commercial banks on the edge of license deprivation.

According to the federal law №395-1 “On banks and banking operations” [1], the reasons for license deprivations can be attributed to either:

· Systematic violation of the anti-money laundering requirements settled in the federal law №115-fz

· Delays of the obligatory data provisions on the matter of quarterly operations and yearly financial indicators

· Systematic commission of untrustworthy operations

· Inadequate risk estimation in context of credit provisions

The National Rating Agency [59], reports that the overwhelming majority of license deprivations were justified by the reasons of “inadequate risk management and excessively large amounts of low-quality assets.” The low quality of assets is associated with the systematic provision of credit services to untrustworthy clients. If a bank has a large proportion of such debtors, the probability of the non-repayment of loans might reach a dangerously high mark. If the bank fails to get its money back, will not be able to pay back the depositors and, hence, a large group of people will inevitably lose their deposits. And that is the Central Bank's responsibility to ensure security of the population through prudential regulation, thus, a decision was made to deprive banks with risky assets of their licenses. The inadequate risk management refers to violations of the AML requirements, conspired transactions and overall unreliable character of operations.

Despite the fact that the absence of such operations would definitely contribute to the security of the banks' clients, it has been stated that the actual results of the Central Bank's actions have led to dramatic reduction in the numbers of banks operating in remote locations as well as the banks providing services to a number of large-scale projects and organizations [61, 62, 63]. Considering the reasons for the license deprivations and the policy of risk appetite decrease, the implementation of the culture of compliance in small- and medium-sized banks appears to act as an apparent solution. Not only will it level the reasons for the deprivations, it might as well ensure regulatory stability of the banking sector in years to come.

To fully realize the necessity for implementation of the culture of compliance in the named banks, it would be worthwhile to examine the strategic group map of the banking sector in Russia. The grouping factors are as follows:

· Reliability of institutions. Reliability is measured on the basis of the capital ratios and the banks' abilities to meet the standards. For the largest commercial banks, ratings provided by Fitch agency were considered.

· Quantity of assets. The quantity of assets is directly correlated with the importance of banks for the Russian banking sector as the more assets the banks has, the more clients it should be able to serve. Institutions with the largest amounts of assets are secured by the Central Banks as the damage for the population in case of their downfall would have been enormous.

The map itself can be seen in the appendices (Appendix 3).

4 distinctively different groups have been identified on the basis of the named criteria: project-related banks, small banks with foreign capital, medium-sized local banks and the group known as “foundational” commercial banks.

The project-related banks comprise financial institution that were specifically organized in order to serve some large-scale projects. After the project is closed, these banks continue to serve clients (usually, corporate ones). However, due to the small scale of these institutions and the inability to meet the regulatory requirements, project-related banks seem to constitute the group of organizations with the largest potential exposure to license deprivations. The most distinctive features of such banks are:

· A small group of clients under service; usually comprised of corporate clients only

· Relatively small quantities of assets (usually, under 100 mln. rub.)

The group of small banks with foreign capital consists of subsidiaries of international banks operating in Russia and having 100% of their shares held by maternal organizations. These banks, regardless their size, appear to be much more reliable as their maternal organizations would provide paybacks in case of the downfalls of their subsidiaries. This group comprises approximately 70 commercial banks.

The largest group, the local medium-sized commercial banks, includes approximately 400 organizations. The quantities of assets held by these banks vary from approximately 0,5 to 20 billion rubble; but the quality of risk management and overall unreliability of operations place them among the banks subjected to the possibility of license deprivations.

Finally, the group of foundational banks represents the most reliable and financially secure institutions of the Russian banking sector. The list of foundational banks was proposed in 2015 by the Central Bank itself and settled on the legal level [3]. The list included 10 major commercial banks and have not changed since [Appendix 5]. The reason for such initiative was the fact that these 10 banks combined hold more than 60% of the total quantity of assets of the Russian banking sector. Thus, the potential damage caused by the downfall of any of these banks would have led to irreparable negative influence on the entire Russian economy.

The group of foundational banks comprises institutions that would be most beneficial to be studied from the perspective of the culture of compliance. That is to do with several factors. Firstly, these banks have the financial independency and thus, have an ability to invest into their workforce and compliance-related initiatives. Secondly, foundational banks are constantly exposed to the public eye and have to cultivate the appropriate and reliable corporate culture in order to preserve public trust. Finally, foundational banks of the Russian banking sector have never been subjected to any regulatory investigations due to the fact that they consistently meet all the requirements regardless the scale of their operations.

Apart from the dangerously high rates of license deprivations, the features of the Russian national culture do also contribute to the necessity for implementation of the culture of compliance. According to the 2016^th rating, Transparency International nominated Russia with the score of 29 points in the CPI, thus, placing it among the most corrupted countries. This fact signifies the high probability of bribery and secrecy in terms of the banking operations. Thus, the exposure of the banks to the possible negative sanctions sourcing from the Central Bank is quite critical.

Summary

In terms of the empirical study, 9 entry-level employees and 3 top-tier managers of the 4 foundational banks of the Russian Federations were interviewed with the usage of the semi-structured in-depth interviewing method.

The foundational banks were chosen as the most suitable research objects due to the fact that their consistent financial success and regulatory stability allow signify the executive quality of their compliance officers' expertise on the matter of compliance management.

The analysis of the Russian banking sector identified that the current economic and regulatory conditions of the Russian banking sector constitute a necessity for the formation of a universal solution that would have eliminated or, at least, decreased the critically high exposure of the commercial banks to external sources of risks. Moreover, such features of the Russian national culture as penchants for corruption and bribery contribute to the validation of that perspective.

In order to formulate practically applicable initiatives that could be taken by compliance departments of the Russian banks, a number of compliance management principles have been studied.

3. Empirical analysis of the patterns of compliance management adapted in the Russian commercial banks

In course of the study, 3 compliance officers (from Raiffeisen Bank, UniCredit Bank and Sberbank of Russia) and 9 entry level employees (2 from Sberbank, 2 from Alfa-Bank and 5 from Raiffeisen Bank) were interviewed. The transcripts for the most informative and scientifically valuable interviews are present in the appendices [Appendix 6, 7, 8, 9. 10]. The analysis of the results includes information gathered on the matter of 3 categories: the conceptual understanding of the compliance itself, the practices employed by banks to ensure compliant behavior and cultivate the culture of compliance, the insights of the compliance officers concerning effectiveness of compliance initiatives and the success factors of their banks in terms of consistent achievement of the goals set by aggressive regulators.