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Transcript of FRAUD & REGULATORY ENFORCEMENT - RGL … REVIEW • FRAUD & REGULATORY ENFORCEMENT ... BDO Risk...
FRAUD & REGULATORY ENFORCEMENT
A N N UA L R E V I E W 2 0 1 3
Published by
Financier Worldwide
23rd Floor, Alpha Tower
Suffolk Street, Queensway
Birmingham B1 1TT
United Kingdom
Telephone: +44 (0)845 345 0456
Fax: +44 (0)121 600 5911
Email: [email protected]
www.financierworldwide.com
Copyright © 2013 Financier Worldwide.
All rights reserved.
Annual Review • April 2013
Fraud & Regulatory Enforcement
No part of this publication may be copied, reproduced, transmitted
or held in a retrievable system without the written permission of the
publishers.
Whilst every effort is made to ensure the accuracy of all material
published in Financier Worldwide, the publishers accept no
responsibility for any errors or omissions, nor for any claims made as a
result of such errors or omissions.
Views expressed by contributors are not necessarily those of the
publisher.
Any statements expressed by professionals in this publication are
understood to be general opinions and should not be relied upon as
legal or financial advice.
Opinions expressed herein do not necessarily represent the views of the
author’s firm or clients or of any organisations of which the author is
a member.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
XX • XX • XX
F i n a n c i e r Wo r l d w i d e c a n v a s s e s t h e o p i n i o n s o f l e a d i n g p r o f e s s i o n a l s a r o u n d t h e w o r l d o n t h e l a t e s t t r e n d s i n F r a u d & Re g u l a t o r y E n f o r c e m e n t .
F ra u d & Re g u l a t o r y E n fo rc e m e n tA P R I L 2 0 1 3 • A N N U A L R E V I E W
UNITED STATES ........................... 04Randall WilsonRGL Forensics
CANADA ..................................... 08W. Michael G. OsborneAffleck Greene McMurtry LLP
CAYMAN ISLANDS ...................... 12Martin LivingstonMaples and Calder
BRAZIL ........................................ 16Eduardo SampaioFTI Consulting Brasil
ARGENTINA ................................ 20Andrea ReyErnst & Young Argentina
COLOMBIA .................................. 24Laude FernándezFTI Consulting Colombia
UNITED KINGDOM ...................... 28Lil ia SantosCRI Group
GERMANY ................................... 32Benno SchwarzGibson, Dunn & Crutcher LLP
FRANCE ...................................... 36Philippe GoossensAltana
THE NETHERLANDS ..................... 40Martijn HinBDO Consultants B.V.
SWITZERLAND ............................ 44Marcel MeinhardtLenz & Staehelin
AUSTRIA ..................................... 48Claudine VartianDLA Piper Weiss-Tessbach
LUXEMBOURG ............................. 52Sandrine PeriotKPMG Luxembourg S.à r. l .
AUSTRALIA ................................. 56Owain StoneKordaMentha Forensic
CHINA ........................................ 60Harvey PackhamAlvarez & Marsal Consulting
SINGAPORE ................................ 64Matthew FlemingKordaMentha Forensic
MALAYSIA ................................... 68Joyce Lim Wan CheakErnst & Young
PAKISTAN ................................... 72Muhammad SohaibCRI Group
UNITED ARAB EMIRATES ............. 74Zafar I . AnjumCRI Group
SOUTH AFRICA ........................... 78Pierre Kil ianBDO Risk Advisory Services (Pty) Ltd
KENYA ........................................ 82Peter KahiErnst & Young Kenya
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
UNITED STATESRANDALL WILSONRGL FORENSICS
WILSON: We have seen a noticeable rise in the discovery and resulting
prosecution of fraud, bribery and corruption cases. Interestingly, with the
increase in awareness of the potential, magnitude and pervasiveness of
these crimes, it is surprising that these crimes continue to be discovered
at alarming rates. One of the primary factors in my view is the continuing
effect of the economic recession in the US that began in the late 2000s.
The lingering slow economic growth since the recession of 2008 and
2009 coupled with the continuation of relatively high unemployment
has provided ongoing motivation for fraud and corruption, especially in
the occupational fraud categories such as misappropriation and financial
statement fraud. Although, greed and need remain as ongoing motives for
the commission of these crimes. Another factor that we have seen as the
fallout of the economy and reductions in workforce that have occurred
since the recession began is the strain on segregation of duties and resulting
reduction in functionality and effectiveness of internal control systems.
WILSON: Fraud appears as it is discovered and investigated. In that
context, we are continuing to see large scale mortgage fraud cases
dominating the landscape. Similar to a bankruptcy situation, the entity
that is upside down due to significant reductions in property values
(or income) as compared to the outstanding debt (or expense) on the
property too often leverages today on the anticipation of tomorrow’s
improvement in property values. When that value or income increase
doesn’t materialise, the result is an inability to meet one’s debts as
they come due and the situation is ripe for the prospect of motive to
commit fraud. Another alarming trend is the continuing discovery of
Ponzi schemes. The incidence of discovery of Ponzi type investment
schemes is seemingly unabated with large magnitude cases continuing
to occur. One such case discovered just last year was a massive internet
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN THE UNITED STATES IN
RECENT YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 5
continued...
8
UNITED STATES • RANDALL WILSON • RGL FORENSICS
Ponzi scheme that was reportedly in excess of $600m. There also
does not seem to be an abatement in the volume and magnitude of
occupational fraud cases such as embezzlement and financial statement
fraud. Collusion of employees with outside parties such as vendors and
suppliers also continues to be a category of concern.
WILSON: The Dodd-Frank Act continues to dominate the landscape of
regulatory changes in the United States in that it provides the SEC with
the authority to reward tipsters whose information leads to significant
monetary sanctions against entities and individuals committing such
frauds. In addition, mortgage securities fraud has prompted regulatory
changes to address those issues. One such change that is notable is a
renewed vigour and frequency on the part of regulators in enforcing
existing laws such as Antitrust or the Foreign Corrupt Practices Act (FCPA)
which seems to be experiencing an increase in suits and prosecution.
WILSON: The US Justice Department and the current presidential
administration have clearly stated that fraud prevention is a priority,
which has resulted in an observed increase in cases that are filed and
won against perpetrators. The administration created a Financial Fraud
Enforcement Task Force which has augmented the resources in this
area. There is a contemporaneous battle going on in the fight against
cyber-crime, which is a significant threat and corollary to the fight
against fraud and corruption. It appears that these battlegrounds are
testing the available resources of the system to combat them, yet it
appears that the US government has the resolve to continue the fight
with appropriate resources.
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN THE
UNITED STATES THAT ARE
DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
Q DO REGULATORS IN
THE UNITED STATES HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
UNITED STATES • RANDALL WILSON • RGL FORENSICS
WILSON: With the advent of the Office of the Whistleblower (OWB)
established by the Dodd-Frank Act, companies are clearly at more risk
of regulatory investigation and its resulting probability for prosecution.
Generally speaking, the penalties range from written warnings that
may be released and covered by the media to financial penalties, suits
filed against both corporations and the individuals involved, restrictions
in abilities to operate in non-compliance areas, as well as the subjective
financial consequences that come from high-profile corruption impact
on a company’s reputation and revenues.
WILSON: The Dodd-Frank Act provided the SEC with the authority
to provide financial rewards to whistleblowers and the Office of
Whistleblowers (OWB) has been playing an important role in the fight
against fraud and corruption. As is the case with fraud hotline programs,
reports of suspicious activity or information from the general public
is a viable and cost-effective way to expedite discovery of fraudulent
activity. Given that the OWB is relatively young, having only been
established in 2011, it is actively looking into ways to effectively
encourage these anonymous reports of fraud or questionable activity.
WILSON: We must begin with the premise that fraud cannot be
prevented in its entirety. Where individuals or business owners have a
motive and the propensity to commit fraud they will find opportunity.
Minimising the opportunity to commit fraud as well as maximising
the prospect of discovering fraud or corruption if attempted must be
the objective of any fraud prevention system. This system would of
course be even better where there is ethical management or regulatory
control that takes seriously its steps and action to fight against fraud.
This includes the investigation and prosecution where appropriate of all
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 7
continued...
UNITED STATES • RANDALL WILSON • RGL FORENSICS
suspected incidents of fraud or corruption reported. The best an entity
can hope for is to improve its probability of discovering fraud in the
normal course of business or through anonymous tips from employees,
vendors, suppliers or the public. This requires physical, software and cyber
safeguards, division of duties of employees with access (or constructive
access) to assets, surprise audits as well as routine comparisons of actual
to recorded transactions and other internal control measures designed
to detect fraud. We also see that assertive and ethical leadership within
entities and governments further improves the likelihood that fraud
will be discovered and dealt with assertively thus improving the overall
effectiveness of the fraud prevention program.
RANDALL WILSON
Partner, Director of Fraud and Fidelity Services RGL Forensics+1 636 537 [email protected]
Mr Wilson has been involved in the field of forensic accounting for more than 25 years. He works with
insurance companies and attorneys on matters involving forensic accounting, financial damages and
litigation support. Mr Wilson has testified as an expert witness in state and federal courts, depositions,
arbitrations and mediation on behalf of both plaintiffs and defendants. He has participated in seminars,
presentations and has lectured regarding investigative accounting, fraud, insurance claims analysis and
measurement of damages to members of the insurance and legal profession. He also teaches a graduate
course in forensic accounting at Webster University in St. Louis.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN CANADA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
OSBORNE: Increased anti-corruption and anti-fraud enforcement by
Canadian federal and provincial governments has had a dramatic impact.
In recent times, Griffiths Energy International has been fined $10.35m
and Nikko Resources, $9.5m, for bribing foreign officials. Engineering
giant SNC-Lavallin was raided twice in connection with investigations
into alleged bribery of foreign officials, and its former CEO has been
charged with domestic corruption. A judicial commission in Quebec
is investigating allegations of corruption and kick-backs in Quebec
municipal contracts, and the Competition Bureau is investigating and
prosecuting alleged bid-rigging in the construction industry in Quebec
and Ontario. In addition, frauds aimed at businesses have been targeted
by the Competition Bureau, including the operators of the ‘Yellow Page’
international scam, who were fined $8m.
OSBORNE: Corruption, both domestic and international, has recently
received a lot of attention from enforcers and the public in Canada.
Other types of fraud that have been encountered in the current climate
include: retail securities frauds that have come to light as a result of
falling markets; financing scams aimed at start-up businesses; business
directory scams, and other scams that bill businesses for services they
did not order or are of little or no value; and frauds aimed at lawyers.
CANADAW. MICHAEL G. OSBORNEAFFLECK GREENE MCMURTRY LLP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 9
continued...
8
Q DO REGULATORS IN
CANADA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN CANADA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
OSBORNE: Major regulatory changes have recently been proposed
or enacted, including a bill currently before Parliament that proposes
amending Canada’s Corruption of Foreign Public Officials Act by
assuming nationality jurisdiction; including dealings by not-for-profit
entities; creating an offence for falsifying books and records to hide
bribes; repealing the facilitation payments exception; and increasing the
maximum sentence to 14 years. A new offence of making misleading
representations in an electronic message will also shortly be added to
the Competition Act. The legislation has received Royal Assent but is
not yet in force. In addition, penalties for certain white-collar crimes,
including price fixing, bid rigging, and misleading advertising, have been
raised to a maximum 14 years in jail. Tough penalties for importing and
selling counterfeit goods have also been proposed in a bill currently
before Parliament.
OSBORNE: In 2008, the Royal Canadian Mounted Police set up an
International Anti-Corruption Unit. This unit has already had a number
of notable successes, including the successful prosecution of Nikko
Resources and Griffiths Environmental, and the laying of charges
against a business executive for allegedly bribing an Indian cabinet
minister. However, in the current environment of government spending
restraints, enforcement agencies are either experiencing cutbacks or
tighter spending controls, which can affect how many cases they are
able to investigate fully.
CANADA • W. MICHAEL G. OSBORNE • AFFLECK GREENE MCMURTRY LLP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
1 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
CANADA • W. MICHAEL G. OSBORNE • AFFLECK GREENE MCMURTRY LLP
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
OSBORNE: The risks of getting caught have probably never been
higher. Enforcement is aggressive, and penalties are severe and rapidly
becoming more severe. Penalties for white-collar offences in Canada
include maximum custodial sentences of five years for corruption
of foreign and domestic public officials, and maximum custodial
sentences of 14 years for conspiracy, bid rigging, false advertising, and
fraud greater than $5000. For each of these offences, maximum fines
are at the discretion of the court, except for conspiracy, which fetches
a maximum fine of C$25m.
OSBORNE: Whistleblowing can take several forms. For internal
whistleblowing, when an employee reports a fraud or another offence
internally, a whistleblowing hotline can be an effective way for companies
to fight corporate fraud. External whistleblowing, where employees
report a corporate fraud to the authorities, is protected in the Criminal
Code and the Competition Act, both of which make it an offence to take
reprisals against whistleblowers. Corporate whistleblowing, where a
corporation reports on itself and other associated with it, is encouraged
by the Competition Bureau, which offers immunity for the first to report
a price-fixing conspiracy but authorities generally do not offer formal
incentive programs for other corporate wrongdoing.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 1 1
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
W. MICHAEL G. OSBORNE
PartnerAffleck Greene McMurtry LLP+1 416 360 [email protected]
Michael Osborne leads Affleck Greene McMurtry’s competition and regulatory law team. His practice
also includes commercial litigation and arbitration. Mr Osborne advises and represents clients involved
in competition and regulatory inquiries, criminal and administrative prosecutions, class actions and
complex commercial litigation. He has acted as counsel in numerous trials and administrative hearings,
including the first successful actions against fraudulent grey marketing. Mr Osborne was called to the
Bar in 1998, after clerking for Justice John Sopinka of the Supreme Court of Canada. He received his LL.B.
from Dalhousie University in 1996. He lectures and writes frequently on competition, regulatory, and
commercial law topics.
OSBORNE: Companies should maintain clear anti-corruption policies,
based on a risk analysis, as part of their program of compliance with all
relevant legislation, train employees in these policies, and enforce them
through disciplinary sanction. They should also make timely advice
available to employees in the field who face questionable situations.
Firms must maintain and enforce robust accounting standards designed
to detect corruption and fraud, and consider an internal whistleblower
tip line. Finally, firms can require partners, suppliers, and agents to
comply with anti-corruption laws and best practices, and include anti-
corruption clauses in their contracts.
CANADA • W. MICHAEL G. OSBORNE • AFFLECK GREENE MCMURTRY LLP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
1 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
CAYMAN ISLANDS
LIVINGSTON: We have seen an increase in detected corporate fraud,
bribery and corruption in past years, but this may not necessarily equate to
an increase in the incidence of fraud, etc. Although there have been some
notable allegations of fraud involving investment funds, virtually all of the
alleged fraudulent conduct is committed, usually by the fund manager,
outside of the Cayman Islands. Similarly, over the past 12 months there
have been some significant actions brought locally in relation to domestic
corruption and abuse of office, including the recent arrest and charging of
the ex-Premier for theft, misconduct in public office and breach of trust,
offences under the Penal Code (2010 Revision) and Anti-Corruption Law,
2008.
LIVINGSTON: Since the financial crisis, there has been a marked
increase in board and investor diligence, as well as regulatory supervision
and investigation. The crisis unveiled a number of elaborate fraudulent
schemes that essentially boiled down to a misappropriation of company, or
counterparty, assets. Most simply involve theft or conversion of property,
whereas some (fewer now than before) involve elements of a Ponzi scheme.
On the domestic front, a variety of schemes have been detected recently
ranging from credit card fraud, internet and email fraud, through to the
attempted forgery online of Cayman incorporated companies’ registration
documents.
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN THE CAYMAN ISLANDS IN
RECENT YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
MARTIN LIVINGSTONMAPLES AND CALDER
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 1 3
continued...
8
LIVINGSTON: The most significant development would be the introduction
of the Anti-Corruption Law, 2008, which came into force in 2010. The
Anti-Corruption Commission (ACC) created under the law has been very
active in vetting reports of potential misconduct and offences involving
domestic and foreign corruption. These reports have led to investigations
and criminal proceedings against the public officers involved. Cayman
Islands residents, including corporate vehicles, also need to be wary of
the extra-territorial provisions of the UK Bribery Act and the US Foreign
Corrupt Practices Act (FCPA). On the regulatory front, there were recent
amendments to the Monetary Authority Law (2010 Revision) to permit
the Cayman Islands Monetary Authority (CIMA) to, first, apply to the
Grand Court for an order to protect the interest of investors, depositors,
policy holders or beneficiaries of trusts, including orders to freeze assets
or accounts, or suspend dealings with equity interests; and, secondly, to
permit overseas regulatory authorities to carry out on-site inspections in
relation to an entity in the Cayman Islands that is subject to its supervision.
These amendments support the provisions agreed in memoranda of
understanding entered between CIMA and foreign regulators, including
the SEC, FDIC, OSFI and the PRA/FCA and the Bank of England, as the
prudential regulatory successors to the FSA.
LIVINGSTON: The Cayman Islands is well placed to demonstrate
compliance with internationally accepted principles on the detection
of fraud, money laundering, bribery or corruption. This is the case for
criminal purposes, where the ACC, the Cayman Islands Financial Reporting
Authority and the Royal Cayman Islands Police may take action, as well as
for civil/regulatory purposes, in which case CIMA or the TIA may handle
matters. Each of these agencies has sufficient powers under their enabling
legislation to, where necessary, investigate, compel production of and
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN THE
CAYMAN ISLANDS THAT
ARE DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
Q DO REGULATORS IN THE
CAYMAN ISLANDS HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
CAYMAN ISLANDS • MARTIN LIVINGSTON • MAPLES AND CALDER
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
1 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
share information, freeze and seize the proceeds of these crimes, as well as
to assist in the prosecution of subjects involved in the commission of such
crimes by the newly formed Office of the Director of Public Prosecutions.
LIVINGSTON: Although some of powers under this legislation are
relatively new, the agencies have had fundamental powers of investigation
and enforcement for some time. It may be that we are now seeing an
evolution in the use of the enforcement powers, so as to better assist in
cross-border investigations involving Cayman vehicles. Each of the relevant
laws have serious penalties where liable for an offence, which may include
the failure to report an offence to the relevant authorities. Such penalties
may include imprisonment or the imposition of a substantial fine. Each
of these laws have provisions for personal liability and vicarious liability,
which includes offences by consent or connivance of a director or officer
of a company. The Proceeds of Crime Law also permits civil proceedings
to freeze and recover assets. As a regulatory matter, CIMA have a full suite
of enforcement powers available for regulatory infringements, including
suspensions of directors or senior management, fines and restrictions,
suspension or revocation of licences.
LIVINGSTON: Each of the relevant laws will have a mandatory reporting
obligation on Cayman residents where knowledge or suspicion of an offence
arises. Most of the investigations and prosecutions have arisen from such
reports being made to the appropriate authorities, and the cooperation
of domestic and external authorities in the matter. There are specific
provisions protecting whistleblowers in the Proceeds of Crime Law and
Anti-Corruption Law. If the recent use of the Anti-Corruption Commission
as the reporting authority under that law is anything to go by, we should
see a distinct increase in the number of reports made under each of these
laws. It is important that businesses ensure that the mandatory reporting
obligations are made clear to all staff in their policy and procedure manuals,
as it could avoid costly investigations in the future.
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
CAYMAN ISLANDS • MARTIN LIVINGSTON • MAPLES AND CALDER
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 1 5
continued...
LIVINGSTON: Fraud is incredibly difficult to detect, especially when
merely relying upon fundamental anti-money laundering procedures.
Although each financial service provider should have a set of internal
control procedures tailored to detect and prevent fraud and other criminal
conduct, certain publications may be of assistance in starting the process
– for example, for anti-corruption or bribery, the US Department of
Justice and SEC recently issued a Guide on the FCPA in November 2012,
Transparency International issued a Guide on Anti-Bribery Due Diligence
for Transactions in May 2012, and Guidance on the UK Bribery Act has
been issued by the British Bankers Association in December 2011, and
the Ministry of Justice in March 2011. Once the policies and procedures
have been finalised it is imperative to train all staff on their statutory
obligations, as well as some practical typologies relevant to their line of
business.
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
MARTIN LIVINGSTON
PartnerMaples and Calder +1 345 814 5263 [email protected]
Martin Livingston specialises in all aspects of regulatory, licensing, risk management and anti-money
laundering. He also advises on duties of confidentiality and information exchange. Mr Livingston joined
Maples and Calder in 2002 and was made partner in 2008. He previously worked for Phillips Fox, Deloitte
& Touche and Barclays. He is a graduate of the University of Otago, New Zealand. Mr Livingston has been
President of the Cayman Islands’ Compliance Association since 2004 and is a regular contributor and
speaker on regulatory matters affecting the offshore market.
CAYMAN ISLANDS • MARTIN LIVINGSTON • MAPLES AND CALDER
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
1 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
BRAZIL
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN BRAZIL IN RECENT YEARS?
EDUARDO SAMPAIOFTI CONSULTING BRASIL
SAMPAIO: Corruption remains a hot topic in Brazil. Certainly a lot of
recent activity has marred the Brazilian landscape, but it is difficult to
establish a clear path. On the one hand, Brazilians have enjoyed some
unquestionable gains in the country’s fight against corruption and the
move towards greater transparency. Some of these victories include
the Mensalão judgement at the Supreme Court; the final hearings of
this very high profile case made daily headlines, as well as prime time
TV for most of the second half of 2012. After almost eight years of
investigation, 31 individuals were judged, the majority of whom were
found guilty and faced long-term sentences. The group included former
ministers, directors of commercial banks, congressmen and shareholders
of advertisement agencies, who were used as middlemen. Equally,
since 2010 congress has been discussing a new anti-corruption law
that will create tougher sentences. International pressure is increasing,
demanding laws with similar principles as the US FCPA and UK Bribery
Act. The Portal Transparencia is another significant step; in November
2011 the federal government enacted a new law which increases the
level of transparency in its public expenses. However, despite these
gains, we have, unfortunately, seen an increase in indicators which
still point to strong levels of corruption. In December 2012 the NGO
Transparency International (TI), which ranks perceived corruption in
the public sector, ranked Brazil 69th among 176 countries surveyed.
In TI’s 2011 Corruption Perceptions rankings, Brazil ranked 73rd out of
183 countries. In another ranking that lists bribes paid, the country
was in 14th out of 28 countries analysed. The fact that Brazil occupies
intermediate positions in corruption and bribery rankings clearly reflects
what is happening in the country: there are many cases of corruption,
but also many attempts to fight it. The perception of corruption in the
public sector has improved slightly year on year, but the problem is
still endemic according to TI’s analysis. Several powerful congressmen,
many of whom were involved in corruption scandals in the recent past,
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 1 7
continued...
8
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
BRAZIL • EDUARDO SAMPAIO • FTI CONSULTING BRASIL
still wield enormous prestige and power in congress. The current head
of the Senate, Senator Renan Calheiros, is often cited as one of these
figures. Several cases investigated by US authorities in recent years
have included Brazil as one of the countries where crimes of corruption
have been committed. Pharmaceutical company Eli Lilly and retail giant
WalMart are two such companies. Furthermore, the US Department of
Justice is also investigating Brazilian aircraft manufacturer Embraer.
SAMPAIO: This is hard to define precisely, given the limited amount of
available information. That said, crimes involving infrastructure projects
remain a highly debated topic. There are tens of billions of dollars worth
of projects being carried out across the country. Some of those relate to
sporting events due to be held in Brazil in the coming years, namely the
FIFA World Cup in 2014 and the Olympic Games in Rio de Janeiro in
2016. Others relate to basic infrastructure projects, such as sanitation,
roads, ports and so on. Moreover, in the case of these sporting events,
the Brazilian law that regulates the public bidding process was replaced
by a weaker law in terms of controls.
SAMPAIO: After 1.3 million Brazilian voters signed a public petition,
which was later approved by congress and upheld by the Supreme Court
last year, Brazilian voters have benefited from the Ficha Limpa – or
clean record – anti-corruption law. The law, which prohibits politicians
with criminal convictions or a record of political charges from taking
office for eight years, first came out in 2010.
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN BRAZIL
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
1 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
SAMPAIO: The pioneers on this front remain the public prosecutors,
particularly at the federal level. The 1988 federal constitution granted
enormous rights and latitude to allow public prosecutors to seek
and investigate cases with great autonomy. Further enforcement of
transparency has been carried out by the National Justice Council (CNJ),
a federal advisory council presided over by Supreme Court ministers.
SAMPAIO: Compared to previous years, it is probably fair to say that
the UK and US anti-corruption laws, which often reach companies
not headquartered in these countries, have increased in terms of their
enforcement, including against companies with operations in Brazil.
There are several industries that have specific regulatory agencies able
to issue penalties that can be very significant in terms of the impact on
operations and the size of fines. It is also worth mentioning that local
environmental laws are very strict and often carry large penalties for
firms. Curiously, environmental crimes are the only crimes that can be
committed by a corporation under the law, as all other crimes described
in the local penal code refer to individuals.
SAMPAIO: A number of firms have expanded their compliance
and transparency practices to include anonymous channels of
communication. Also, the recent change in the US FCPA processes that
reward whistleblowers financially is likely to have an impact in Brazil.
Some experts argue that this change is more likely to impact negatively
on corporations, as individuals with information about illicit acts now
have an economic incentive to report to public authorities at a later
stage, rather than internally and in order to prevent malfeasance at an
early stage.
BRAZIL • EDUARDO SAMPAIO • FTI CONSULTING BRASIL
Q DO REGULATORS IN
BRAZIL HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 1 9
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
SAMPAIO: A strong compliance program remains the best preventive
tool. Some of the elements include: adherence to local laws;
understanding local business practices; a strong and continuous
message from the top; strong channels of communications; involving
other stakeholders, such as vendors and clients; and adequate staff
training.
EDUARDO SAMPAIO
Senior Managing DirectorFTI Consulting Brasil+55 11 3165 [email protected]
Eduardo Sampaio is a senior managing director, leading the Brazil office’s forensic and litigation consulting
practice, and is based in Sao Paulo. Mr Sampaio has more than 15 years experience at risk and business
consulting firms in Brazil and abroad. Before joining FTI, he was managing director of i2Integrity in Brazil,
general manager of Marsh Risk Consulting in Australia, and managing director and country manager of Kroll
in Brazil, among other positions. Mr Sampaio has performed work on matters ranging from competitive
intelligence to internal investigations, business restructuring and corporate turnaround, corporate disputes,
litigation support, financial fraud, asset searches, due diligence, insurance dealings, among many others.
BRAZIL • EDUARDO SAMPAIO • FTI CONSULTING BRASIL
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
2 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
ARGENTINAANDREA REYERNST & YOUNG ARGENTINA
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN ARGENTINA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
REY: During the global financial crisis, Argentina demonstrated a high
degree of flexibility. The country has shifted from facing a crisis to
encountering and creating great business opportunities for both local
and international operators. However, within this context, the level
of acceptance of occurrences of bribery and corruption has increased
significantly in our market, standing at 68 percent in Argentina,
compared with 39 percent globally and 14 percent in the US. We are
aware that a growing market brings new risks, particularly in relation
to corruption and bribery. This is a view held by international business
people, 81 percent of whom see Argentina as a high-risk market. However,
local executives take a more optimistic view, with only 56 percent sharing
the views of the international business community. The economy is not
the only reason for these sentiments. The prevailing business culture,
coupled with a distinct lack of policies and mechanisms designed to
detect and prevent fraud, have also played a significant role.
REY: The most common types of fraud in Argentina are corruption,
through the payment of undocumented expenses or fees in order to
attract a business or to maintain the presence of a business; asset
misappropriation incurred by employees; and the misstatement
of financial statements or performance indicators. Though many
companies have intensified their efforts to combat bribery and
corruption, our research shows that one in four executives acknowledges
the possibility of accepting ‘cash payments’ as a way of injecting more
sustainability into businesses, reflecting the strong pressures exerted
by corporate goals. Even though the misappropriation of assets is a very
common type of fraud, fraudulent booking entails the highest costs for
companies.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 2 1
continued...
8
Q HAVE THERE BEEN
ANY REGULATORY
CHANGES IMPLEMENTED
IN ARGENTINA THAT ARE
DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
Q DO REGULATORS
IN ARGENTINA HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
REY: There have been some regulatory changes to fight fraud and
corruption in Argentina. Many international anti-corruption agreements
have been signed over the years. For example, the Inter-American
Convention Against Corruption was approved by the Organisation of
American States. Also, Argentina signed the Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions
in 1997. The most significant, recent developments were related to anti-
money laundering laws, in keeping with the Financial Action Task Force
on Money Laundering and its relevant agency in Argentina. According
to local executives, domestic laws and local enforcement agencies are
not harsh enough. Furthermore, 80 percent of executives believe that
local enforcement agencies are not effective in their research processes
or in the determination and application of penalties.
REY: Local enforcement agencies have not carried out any major
initiatives in this regard. The most significant corruption cases involving
local companies were investigated and penalised by international
enforcement agencies. Government agencies do not allocate enough
resources to enforce the law in these areas, however, this does not
mean that government action is entirely missing. The emphasis falls
on tax avoidance and money laundering through new regulations and
prevention campaigns. It should be pointed out that over the past few
years there has been a strong increase in government intervention in
foreign trade transactions, payments and collections abroad, and the
setting of price caps, among others. However, these measures have
reduced the transparency of the overall economy and increased the
possibility of obtaining governmental approvals or authorisations on
a discretionary basis, thus increasing the risk of occurrence of illegal
ARGENTINA • ANDREA REY • ERNST & YOUNG ARGENTINA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
2 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
activities to avoid such controls. This is a pending issue that will
probably be addressed in the next few years as a result of increased
international pressure.
REY: As previously mentioned, governmental agencies focus on tax
avoidance and money laundering. However, the Argentine criminal
code imposes a two to six year custodial sentence on any person
who offers money or any other gift to, or accepts a direct or indirect
promise to exercise undue influence on, a public official so that the
latter performs, delays or refrains from doing something related to his
or her official duties. There are no local regulations such as the Foreign
Corrupt Practices Act or the UK Bribery Act establishing any other type
of requirements or penalties.
REY: Hotlines to report and warn about potential fraud in Argentina
are commonly used but are not widespread among employees. Better
internal communication and a greater awareness among employees
of the importance of those hotlines are paramount in the battle to
turn whistleblowing into a truly effective weapon against corporate
fraud. Based on our own experience, hotlines were the basis for an
investigation in only a few cases. There is much left to do. If hotlines
can be improved as an instrument, many potential fraud risks could
be identified and avoided. Whistleblowing is becoming more widely
accepted among businesspeople in Argentina and, it will, undoubtedly,
contribute strongly to more transparent business practices in the
future.
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
ARGENTINA • ANDREA REY • ERNST & YOUNG ARGENTINA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 2 3
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
ANDREA REY
PartnerErnst & Young Argentina+54 11 [email protected]
Andrea Rey is a partner at Ernst & Young Argentina. She is in charge of the Fraud Investigation & Dispute
Services (FIDS) practice of the firm. Ms Rey has over 25 years of experience and specialises in services related
to fraud investigation, anti-bribery & corruption (FCPA and UKBA), third-party due diligence, transaction
forensics, forensic technology and discovery services, compliance assistance, and dispute services. She has
provided assistance to several industries, such as the financial services, telecommunications, automotive,
consumer products, and more. Besides the FIDS practice, she has been partner in charge of financial
statement audits, internal control processes, risk assessment and business reviews for multinational
companies.
REY: Knowledge is the key to preventing fraud. Therefore it is
fundamental that corporations, from boards and c-suite executives to
associates, be deeply aware of anti-corruption policies and the risks
that entail. The development of policies and procedures, ongoing
control and prevention programs, as well as training programs, are the
proper tools to help prevent corruption and fraud. Although companies
are increasingly aware of the risks posed by these practices and most
of them are implementing a wide range of procedures to help mitigate
such risks, they are still strongly exposed to them. Accordingly, our firm
has designed new tools and technologies to help identify corruption
practices, and to enhance prevention and control techniques. Effective
corporate due diligence and oversight programs will also help clarify
these issues and pave the way for best practices.
ARGENTINA • ANDREA REY • ERNST & YOUNG ARGENTINA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
2 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
COLOMBIALAUDE FERNANDEZFTI CONSULTING COLOMBIA
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN COLOMBIA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
FERNANDEZ: Over the last five years there has been a noticeable
rise in the number of cases relating to bribery and corruption in both
the public and private sector. This trend is influenced by two notable
factors: an increased interest in the subject on the part of investigative
journalists and a growing presence of entities specialised in conducting
complex investigations. Journalists have been able to document
and divulge major corruption cases, thereby supporting government
activities related to this as well as fuelling the public opinion pressure
necessary to make corruption a priority. Specialised firms have in turn
provided expert advice on the development of both individual cases
and government units dedicated to addressing these crimes. Colombia’s
improved security situation has allowed the government to reallocate
law enforcement resources to address previously ignored white-collar
crimes. Given this, an increase in corporate fraud reports may actually
be understood to be a sign of the country’s improving fortunes.
FERNANDEZ: I will limit myself to outlining four types of fraud
which, due to their recurrence and severity, pose the greatest risk to
Colombia’s private sector and to the judicial authorities. The first of
these is technology-enabled internal fraud. This involves company
employees accessing privileged data which can be used to, among
other things, illegally transfer money from company accounts. We have
also seen a rise in the manipulation of company accounting records to
reflect a more solid financial footing. This is typically a precondition to
participate in certain government bids, and in some cases the practice
is a precursor to committing further frauds related to these contracts.
Additionally, we have identified asset management scams which rely
on complicated investment structures and lax accounting practices to
defraud investors. Equally worrying is the prevalence of complicity on
the part of public sector employees to rig public bidding processes.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 2 5
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN COLOMBIA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
COLOMBIA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
FERNANDEZ: Absolutely, and these have been very positive. There are
now harsher penalties for white-collar crimes; a number of laws have
been passed to criminalise additional activities associated with this
phenomenon; and restrictions have been put in place to make it harder
for those accused and convicted of white-collar crimes to serve their
sentences under house arrest. The current administration has adopted
three specific measures which have further facilitated investigations
of this nature. The first of these is the modification of the criminal
code to allow for negotiations between the prosecutor and defendants;
this seeks to facilitate white-collar investigations through voluntary
confessions and plea bargains. The Santos government has also
centralised a government strategy called Anti-Corruption Statutes to
review previous anti-corruption laws and implement modifications to
these. Lastly, the Attorney General recently created a Specialised Unit
to carry out data analysis relating to the matrix of criminal activity in
Colombia, which seeks to map out the most prevalent forms of fraud.
FERNANDEZ: Government resources in this area are lacking, and we
foresee this deficit will continue for some years to come. However, we
believe the country not only needs a greater deployment of resources in
this area, but a smarter one. There are still significant improvements to
be made regarding administrative techniques and personnel selection
processes in government departments and agencies that investigate
white-collar crime. Lack of communication between entities occasionally
leads to parallel investigations – such a waste of resources highlights the
need for these entities to seek a more cooperative working relationship.
On the other hand, we have seen valuable advances with regards to the
incorporation of technology tools in the investigative process as well as
vast improvements in accountability practices.
COLOMBIA • LAUDE FERNANDEZ • FTI CONSULTING COLOMBIA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
2 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
FERNANDEZ: At present, companies operating in Colombia
undoubtedly face a higher risk of being investigated by the authorities.
The aforementioned Anti-Corruption Statutes are a good example
of this; in addition to extending the number of activities covered under
white-collar crime laws, the statutes make it obligatory for the ‘revisor
fiscal’ – a figure in Colombian companies who acts as an internal
accounting auditor appointed by the board of directors, or ideally by
shareholders – to disclose any internal accountancy improprieties
he or she finds to the pertinent authorities. Failure to adhere to the
Anti-Corruption Statutes may result in penalties for a company’s
legal representative, its board of directors, and for the company itself.
Depending on the severity of the crime, these may lead to fines,
imprisonment for the individuals involved, revocation of professional
accreditations for lawyers, accountants, etc., and in extreme cases, the
forced closure of a company.
FERNANDEZ: This is currently a highly sensitive topic in Colombia.
The recent discovery of witness ‘cartels’, which specialised in the
fabrication of testimonies to be used in trials, has led to a discussion
on the overreliance of these as proof in all trials. Human intelligence is
undeniably valuable in any investigation or judicial process. However,
the measure of its effectiveness is the extent to which these are
administered correctly, built on solid grounds, and – to the extent
possible – corroborated through other means. If these three principles
are followed, whistleblowers may be more confidently relied upon to
guide investigations.
COLOMBIA • LAUDE FERNANDEZ • FTI CONSULTING COLOMBIA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 2 7
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
FERNANDEZ: The most important element to prevent these incidents
is the full support of the board of directors and the management
team in the implementation of preventive measures against white-
collar crime. Although we often hear business leaders expound on
the corrosive nature of fraud and internal corruption, when presented
with tangible and comprehensive fraud-prevention measures, they
often choose watered-down versions of these – usually with a heavy
emphasis on incident response measures. Such reactive measures fail
to deal with the nature of the problem, being limited to a ‘firefighting’
capacity each time a crisis arises. In Colombia there is not an engrained
culture of executive accountability, and this is still reflected in the lack
of legal requirements on the subject. For this reason, companies – and
more specifically shareholders – should require accountability practices
that go above and beyond the local norm in order to create safeguards
against white-collar crime.
COLOMBIA • LAUDE FERNANDEZ • FTI CONSULTING COLOMBIA
LAUDE FERNANDEZ
Managing Director, Forensic and Litigation ConsultingFTI Consulting Colombia+57 1 610 [email protected]
Laude Fernández is a Managing Director at FTI Consulting, leading the firm’s Forensic and Litigation
Consulting Division in Bogota, Colombia. He previously served as Director of Counterintelligence at
Colombia’s Department of Administrative Security. He has over 25 years of experience in investigations,
intelligence, and security matters.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
2 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN THE UNITED KINGDOM IN
RECENT YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
SANTOS: Recent months have seen numerous headlines about cases
of corporate corruption – both within the UK and globally involving
UK-based companies. This alone does not mean that corruption is
on the rise, only that stronger measures are being implemented. The
UK Bribery Act has now been implemented and is delivering daily
results. At present we can see a real increase in the detection of acts
of corruption, resulting in severe penalties for the companies involved.
Transparency International UK (TI-UK) says that, currently, 38,000
people are estimated to be involved in organised crime in the UK, and
that such activities cost the economy anywhere between £20bn and
£30bn per year.
SANTOS: According to the PwC global economic crime survey 2011,
cyber-crime is emerging as a serious threat to organisations. The report
contains some interesting highlights. Thirty-four percent of respondents
experienced economic crime in the last 12 months, a 13 percent increase
from 2009. Almost 1 in 10 who reported fraud suffered losses of more
than US$5m. Cyber-crime now ranks as one of the top four economic
crimes. Reputational damage resulting from cyber-crime is the biggest
fear for 40 percent of respondents. Forty percent of respondents don’t
have the capability to detect and prevent cyber-crime. Fifty-six percent
of respondents said the most serious fraud was an ‘inside job’. Senior
executives made up almost half of the respondents who didn’t know if
their organisation had suffered a fraud.
LILIA SANTOSCRI GROUP
UNITED KINGDOM
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 2 9
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN THE
UNITED KINGDOM THAT
ARE DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
SANTOS: The UK Bribery Act’s implementation and reinforcement
of control measures, guarantees that the law is deeply seated in the
day-to-day operations of most UK companies. The main regulatory
change in the UK has been the enactment of the Bribery Act which
came into force on 1 July 2011. The Act creates offences in relation to
offering, promising or giving a bribe; requesting, agreeing to receive or
accepting a bribe; bribing a foreign official to obtain or retain business;
and failure by an organisation to prevent bribery by those acting on its
behalf. Also the SFO has increased its focus on bribery and corruption
over the last four years. In addition, there has been an increase in joint
investigations taking place with authorities in different jurisdictions
working together through the framework of mutual legal assistance
to investigate and prosecute instances of fraud and corruption. One
notable development in the UK has been the recent consultation on
Deferred Prosecution Agreements, which have been used for some time
in the US, whereby companies could avoid prosecution by agreeing to
pay penalties and take remedial actions as an alternative to contested
criminal proceedings.
SANTOS: The introduction of the UK Bribery Act raises the risk that
corrupt companies will be caught in the act when engaged in criminal
activity. The most common penalties that firms face are large fines
that can impact company cash flow and jail time for managers and
employees. Firms found to be connected with criminal conduct may
even find themselves being blocked from specific markets, curtailing
their firms ability to grow and expand. Since the SFO is adopting the
stance of putting the onus on companies where bribery and corruption
UNITED KINGDOM • LILIA SANTOS • CRI GROUP
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
3 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
are concerned, it seems that that they would be more under the
spotlight in respect to investigation and also prosecution. So far there
has been one prosecution of an individual for domestic bribery, R v
Innospec which remains the leading authority on how companies will
be treated for bribery offences under the Bribery Act 2010 and as at
the end of June 2012, the SFO was investigating four corporate self-
referrals and 11 other bribery cases.
SANTOS: We don’t have to look too far back to find examples of
criminal business cases brought to public knowledge by whistleblowers
– just think on the impact of the News Corp phone-hacking case. In light
of this case, the UK government seems to be developing legislation that
will regulate the confidentiality of investigative journalism. On the other
hand, some experts advise that UK law should become more in line with
that of the US following the Dodd-Frank Wall Street Reform Act, and
that formal protection for whistleblowers should be implemented. An
important issue to consider in the UK is whistleblower reward policies,
which at present are non-existent. Once again, US policy is under the
scrutiny of UK regulators and a decision will probably be made in the
near future. Since fraud is more likely to be detected by an insider – that
is, an employee within a firm – rather than external auditors, regulators
and the media, whistleblowers play a key role in rooting out fraud. So
a study in the Journal of Finance stipulates. The study examined a total
of 216 cases of alleged corporate fraud. Employee whistleblowers were
responsible for revealing the fraud in 17 percent of cases — more than
any other type of source — in which the fraud was not first brought to
light by a firm’s management.
UNITED KINGDOM • LILIA SANTOS • CRI GROUP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 3 1
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
SANTOS: The following steps must always be remembered: prevention;
detection; response; and following-up and updating. In the end, all
the details matter, even if they are not relevant at the moment, they
may become important in the future. Actively listen to employees
on the ground and check thoroughly through all documentation.
Understand the procedures and the actors involved. Executives should
attempt, where possible, to segregate responsibilities; implement
fraud awareness training; and maintain and up-to-date registry of all
employees, their positions, responsibilities and current projects. To
reduce the risk of prosecution under the Act, companies need to ensure
that they have adequate procedures in place to avoid falling foul of the
corporate offence of failing to prevent bribery. Devising an appropriate
and proportionate policy is not enough. Training is essential as is
commitment to it from the top, and a company will have to review and
overhaul its policies after seeing how they work in practice.
LILIA SANTOS
ManagerCorporate Research and Investigations Pvt. Limited+44 (0)207 038 [email protected]
Currently managing business development for CRI Group in European and North American markets, Lilia
Santos has consolidated experience in fraud, corruption and money-laundering detection. As a forensic
accountant specialist, Ms Santos has carried several due diligences in important insolvency and M&A
processes. Now, focusing on delivering the correct tailor-made investigative services to CRI Group clients,
Ms Santos has wide knowledge on market trends and state of art in our line of services.
UNITED KINGDOM • LILIA SANTOS • CRI GROUP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
3 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
GERMANYBENNO SCHWARZGIBSON, DUNN & CRUTCHER LLP
SCHWARZ: The published figures analysing the development of
corporate fraud, bribery, and corruption for Germany suggest a slight
decline in this category of crime. However, surveys show that the overall
amount of damages caused by these crimes has risen significantly. The
reason for this is that, in addition to the immediate damage caused by
the fraud itself, there are higher collateral damages. These collateral
damages result from the heightened scrutiny of the public and
enforcement agencies seeking full remediation or penalties.
SCHWARZ: Fraud committed by using or manipulating digitised
information has become a serious threat for businesses across all
industries. However, statistical data, which points to an increase in
both the number of crimes committed and the overall damage caused,
allows only a limited assessment of how widespread the problem
has become. Many companies are reluctant to report these crimes
for fear of the significant reputational damage they may suffer if
the data loss becomes public knowledge. However, companies rarely
report attempts to breach these systems, although attempted data
theft itself constitutes a crime. In the case of corruption, the fact that
many companies now operate compliance management and reporting
systems has led to a significant increase in reported corruption cases.
This has been reflected in a dramatic increase in corruption enforcement
in the past few years.
SCHWARZ: The Federal Chamber of Parliament resolved to amend
the Administrative Offences Act from 1 January onwards. First, it has
pledged to increase the current statutory maximum fines for offences
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN GERMANY IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 3 3
continued...
8
Q DO REGULATORS IN
GERMANY HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
stemming from a lack of management oversight, from €1m to €10m
for intentional conduct, and €500,000 to €1m for negligent conduct.
Second, in cases of universal succession or partial universal succession
under the German Transformation Act, it will permit administrative
fines to be imposed on the legal successors of a corporation, up to
the value of the assets assumed by the legal successor. Third, with
regard to assets of corporations, which are subject to administrative
fine proceedings, it will allow that these assets be confiscated as
soon as a regulatory authority has issued the administrative order for
such fines. The German legislature has rejected suggestions it should
acknowledge effective compliance management systems as a defence
or mitigating factor to decrease the amount of the fines. Rather, the
individual regulatory authority will retain discretion in each case, to
consider a company’s compliance efforts in mitigation. Since their
introduction, the proposed amendments have stalled due to objections
from the Regional Chamber of Parliament to other provisions contained
within the same legislation. In mid-December 2012, the Conciliation
Committee adjourned the matter to an as-yet undetermined session
in 2013. While it is uncertain exactly when the new provisions will
take effect, exposure for companies and management will most likely
increase significantly in the near future.
SCHWARZ: Under the German federal system, individual federal states
are responsible for enforcement. There are differences in the level of
enforcement activities among the states. Looking at the latest available
statistics from the Federal Criminal Agency, the number of corruption
enforcement cases ranged from six in the state of Mecklenburg-
Vorpommern to 313 in North-Rhine-Westfalia. Therefore, states’
experience in dealing with complicated corruption cases and the
GERMANY • BENNO SCHWARZ • GIBSON, DUNN & CRUTCHER LLP
IMPLEMENTED IN GERMANY
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
3 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
GERMANY • BENNO SCHWARZ • GIBSON, DUNN & CRUTCHER LLP
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
sensitivity local prosecutors have developed in handling such issues
obviously varies. In many states, such as in Bavaria and Hesse, the
prosecutor’s offices have created centralised departments within one
prosecutor’s office, in order to bundle corruption enforcement cases
and thereby increase the level of expertise and efficiency in enforcing
these crimes in one state. Munich-Bavaria and Frankfurt-Hesse are
known to be highly experienced and effective – but also aggressive
– enforcers of corruption matters.
SCHWARZ: In Germany, only individuals, and not companies, can be
the subject of a criminal offence. Companies are so called ‘affected
parties’ in the criminal enforcement procedures against the individual.
In this capacity, if the crime was directed by a representative of the
company – normally its management – or if the crime was a result
of a negligent lack of supervision by management, then the company
may face administrative fines. Administrative fines can have a penal
quality, or serve to ensure the disgorgement of any illicitly made profits.
Penalties for fines with a penal character are capped at €1m – soon to
be increased to €10m. The amount of the disgorgement is not capped
and is calculated on the basis of the full amount of the benefits received
as a consequence of the violation.
SCHWARZ: Whistleblowing is still the single-most effective way to
detect complicated fraud schemes. With many companies now having
in place compliance management systems, whistleblower hotlines have
become more frequent in larger German enterprises. However, there is
still some cultural reluctance to accept whistleblowing as a way to report
issues. This is largely to Germany’s past which, in the last century, saw
millions of people suffer under political regimes that frequently used
undercover police, agents, and whistleblowers to identify and prosecute
people for their political opinions or religious beliefs.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
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Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
SCHWARZ: The most effective and least expensive way to prevent
corruption is a strong tone at the top, which cascades through middle
management into all branches of the corporation. This tone must
be heard loud and clear, and employees should perceive it to be
uncompromising, strict and fair. To ensure that the tone from the top
drives a culture of compliance, violations of company policies must
be adequately sanctioned. Also, the robust and thoughtfully-planned
auditing of those company departments that are prone to corruption
is a strong deterrent for violators. Finally, regular rotation of employees
operating in sensitive areas will make it more difficult to create
fiefdoms within a company undetected by the corporate functions. A
company will never be able to completely rule out individual violations,
but proactively preventing systematic corrupt behaviour has become
manageable with today’s tools and experience.
BENNO SCHWARZ
PartnerGibson, Dunn & Crutcher LLP +49 89 189 33 [email protected]
Benno Schwarz is a partner in the Munich office of Gibson, Dunn & Crutcher LLP. He is also a member
of the firm’s International Corporate Transactions and White Collar Defence and Investigations Practice
Group. Having been admitted as a lawyer in 1993, Mr Schwarz has nearly 20 years of experience advising
companies on national and international M&A, private equity transactions, joint ventures and other
investments. He also specialises in anti-bribery compliance, notably around the enforcement of the US
FCPA and the UK Bribery Act. Mr Schwarz regularly publishes articles and speaks at conferences about
issues of compliance.
GERMANY • BENNO SCHWARZ • GIBSON, DUNN & CRUTCHER LLP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
3 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
FRANCEPHILIPPE GOOSSENSALTANA
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN FRANCE IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
GOOSSENS: It is difficult to know exactly how much financial crime
has increased in recent years due to the confidentiality of investigations.
However, if we refer to the statistics of the Ministry of Justice, less
than 5 percent of penal matters are related to this type of offence.
Moreover, the number of crimes reported to investigating judges has
decreased, when compared to the number of preliminary investigations.
Nevertheless, the low number of this kind of matter is proportional to
the matter’s relative importance, and everything would suggest that
the economic crisis, combined with a reinforcement of the fight against
some financial crimes, has caused a significant increase in the number
of cases.
GOOSSENS: When it comes to criminal jurisdictions, some authorities
such as the AMF, the French Data Protection Commission (CNIL) and
the Competition Authority have developed a significant ‘almost penal’
approach, which impacts companies. For example, if there were few
cases related to unlawful agreements in front of the penal judge, their
case becomes stronger in front of the French and European authorities,
and the severity of any penalties becomes increasingly important.
Otherwise, anti-money laundering rules linked to embargos also
influence the functionality of companies. Finally, instances of computer
fraud or fraud committed on the internet have increased strongly. Their
greater number and the modus operandi of the crimes mean that they
impact both private individuals and companies alike.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 3 7
continued...
8
FRANCE • PHILIPPE GOOSSENS • ALTANA
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN FRANCE
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
FRANCE HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
GOOSSENS: Indisputably, anti-bribery legislation has been
strengthened in France in recent years. Besides the changes
implemented in this area, the extension of the application of bribery to
European or non-foreign agents has considerably modified legislation
as far as international trade is concerned.
GOOSSENS: The current state of public finances does not afford the
government the opportunity to provide resources to the prosecuting
authorities. Importantly however, this funding deficit is offset by the
number of vastly experienced investigators and magistrates who
specialise in the subject. Furthermore, we have seen in certain cases, a
tendency by regulators to move closer to the French and Anglo-Saxon
systems. The introduction of the system of leniency or plea-bargaining,
for example, is indicative of this shift.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
3 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
GOOSSENS: Since the institution of the criminal liability of legal
persons in France, companies can now be tried in criminal courts
and risk fines which are up to five times greater than those faced by
individuals. In the event of repeat offences, these fines can be up to 10
times greater. Companies can also face much more severe punishments,
such as the dissolution of the company, under the ‘death penalty’ or
article 131-39 of the French criminal code. Although the logic of the
UK Bribery Act has not yet been adopted by French law, everything
suggests that the slide towards penalties for non-compliance is more
than hypothetical. It remains to be seen whether such penalties will be
coupled with bonuses for effective compliance.
GOOSSENS: French law has protections, enshrined in labour legislation,
for any person who engages in whistleblowing when it comes to
instances of bribery or fraud. However, whistleblowing is not natural in
France. Our judicial culture does not lend itself to the process because
we can imagine the reaction of a French prosecutor to an individual
that has come to denounce an offence committed by his manager,
particularly if that individual is the only one witness to the criminal
activity. In France, the saying ‘fault confessed half forgiven’ does not
easily apply.
FRANCE • PHILIPPE GOOSSENS • ALTANA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 3 9
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
GOOSSENS: Companies must set up internal systems to fight against
acts of bribery. The first stage should consist of the implementation
of a code of ethics, firmly establishing the company’s position on the
matter. The second stage should consist of internal measures put in
place by the companies own fraud and bribery prevention agents.
Moreover, the structure of the company’s prevention protocols, as
experienced by employees, is an essential tool in the battle against
bribery and fraud because it enables employees to discover flaws in the
system. Finally, firms should ask themselves a delicate question: What
do we do if an offence is discovered?
PHILIPPE GOOSSENS
LawyerAltana+33 01 79 97 92 [email protected]
Philippe Goossens has extensive experience in litigation cases. He has developed a recognised expertise
in white-collar crime and assists his clients during all the pre-trial and trial stages, particularly on matters
involving white-collar crimes related to finance, labour and other business matters. Mr Goossens has
been a lawyer since 1995, after earning his double Masters’ degree in Business Law and Judicial Careers at
the University of Paris I-Panthéon Sorbonne. He is one of the pre-eminent practitioners in the world and
features in the Best Lawyers 2012 guide.
FRANCE • PHILIPPE GOOSSENS • ALTANA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
4 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
THE NETHERLANDS
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN THE NETHERLANDS IN
RECENT YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN THE
NETHERLANDS THAT ARE
DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
HIN: Due to the financial crisis, companies’ profit margins are under
pressure. Therefore, firms are reviewing their financial results in more
depth. This results in more identified cases of financial statement fraud
and the misappropriation of assets.
HIN: In at least 80 percent of investigated fraud cases, the organisation’s
employees are involved. Financial statement fraud is mainly carried out
by management. Financial statement fraud by management is often
motivated by increased pressure to improve a company’s financial
performance. However, employees also play an important role in cases
involving the misappropriation of assets. In these instances a fraudster
might rationalise his unethical behaviour based on a change in the work
climate arising as a consequence of the financial crisis. The absence of
bonuses and increased working pressure are important factors. With
respect to bribery and corruption we have observed a significant increase
in the number of investigations of Dutch companies carried out by
supervisory authorities in the US and UK.
HIN: The increased international focus of supervisory authorities has
resulted in Dutch and European regulations being brought in line with
those from the US and UK. In the short term, the impact of international
investigations carried out by supervisory authorities has been
underestimated by Dutch companies. Dutch organisations do not realise
they are susceptible to international scrutiny, nor do they fully comprehend
the size of the potential fines they will face for non-compliance with
MARTIJN HINBDO CONSULTANTS B.V.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 4 1
continued...
8
Q DO REGULATORS IN
THE NETHERLANDS HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
THE NETHERLANDS • MARTIJN HIN • BDO CONSULTANTS B.V.
regulations. Other more specific developments are discussions about tax
issues like tax evasion and tax avoidance. In case of bankruptcy fraud,
offenders can also be banned from being directors for five years.
HIN: In the Netherlands, financial economic crime is mainly combated
by the police’s financial criminal investigation department and the Fiscal
Information and Investigation Service (FIOD). In addition to the police
and FIOD, other authorities focus on specific types of fraud. As a result of
this fragmentation, fraud detection could be improved by using a more
efficient approach. A significant amount of information can be of interest
to multiple authorities; however, information is rarely shared due to
legal constraints. Lately, the police and FIOD have invested in hiring new
investigators with fraud and financial specific knowledge. Furthermore, a
large reorganisation took place within the Dutch police force last year.
HIN: There has been an increase in interest in Dutch multinationals
from foreign supervisory authorities. These foreign authorities currently
impose higher administrative fines than EU or domestic authorities. The
impact of the administrative fines from foreign authorities can be up to
10 percent of annual turnover. Therefore, the consequences of corruption
can be enormous in comparison to the misappropriation of assets or
financial statement fraud. Beside reputational risks, directors can be held
personally liable if the organisation did not implement adequate measures
to prevent bribery and corruption. Another trend is the increasing scope
of the European supervisory authority. The financial economic crisis has
made it necessary for stronger international supervision of financial
institutions and the financial system. Currently the European Union is
establishing European supervision of the financial markets through, for
example, the European Banking Authority (EBA) and the European and
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
4 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Securities Market Authority (ESMA). European regulation is harmonised
with current international standards from the US and UK. We expect that
foreign supervisors will extend their focus to multinational financial and
non-financial organisations and that the increased activity of European
supervisory authorities will lead to more administrative penalties.
HIN: In general, whistleblowing is one of the main means of detecting
fraud, bribery or corruption. Therefore, all organisations should have
whistleblowing procedures in place. A whistleblower’s report should be
followed up by an independent department within an organisation with
a direct reporting line to the supervisory board in order to prevent any
conflict of interest. Information is becoming more readily available and
is easily shared via the internet and social media. Disgruntled employees
may express their dissatisfaction via the digital highway. People are able
to inform a huge amount of users in a split second. As a result, the number
of company complaints, tips and anonymous reports will continue to
increase, leading to information being shared at the risk of reputational
damage. We advise our clients to mitigate these reputation risks and take
the exposure of digital information seriously. Companies should react
promptly to information that is exposed via social media.
HIN: Organisations should implement adequate measures to prevent
corruption and fraud. In the case of fraud risk assessment, companies
should evaluate the three types of fraud: financial statement fraud,
misappropriation of assets and corruption and bribery. When designing
and implementing controls, we advise companies to pay special attention
to striking a balance between hard and soft controls. Hard controls can
be identified by reviewing procedures and effectiveness can be identified
by checking specifically recorded transactions. Besides the establishment
of hard controls, issues such as culture, leadership and integrity play an
increasingly prominent role within the effectiveness of the organisational
structure. The effectiveness of hard controls within organisations depends
on the presence and operation of soft controls and the characteristics of
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
THE NETHERLANDS • MARTIJN HIN • BDO CONSULTANTS B.V.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 4 3
continued...
individual employees. It is a challenge for firms to identify existing soft
controls and to adjust them accordingly. Perception measurement among
employees and managers provides an insight into the effectiveness of soft
controls. For example, the perception of the soft control ‘tone at the top’
is assessed from the perspective of both employees and managers. Is the
behaviour of management in line with established rules of conduct? Is it
consistent? Do employees feel that their ethical behaviour is appreciated?
The extent to which soft controls can support the organisation in their
prevention, detection and response functions depends on how they
are perceived by employees. One of the most important preventative
measures for external fraud is to identify and verify the company’s
business partners. We advise companies to implement customer due
diligence and integrity due diligence on their business partners. As a
result, third-parties are identified and the company is made aware of any
undesirable behaviour.
THE NETHERLANDS • MARTIJN HIN • BDO CONSULTANTS B.V.
MARTIJN HIN
Head of Forensics & Litigation SupportBDO Consultants B.V.+31 (0)30 284 [email protected]
Martijn Hin is a chartered accountant, working for 15 years as a forensic accountant, and has solid
expertise in dealing with (cross-border) investigations and litigation support. He has completed a wide
variety of engagements for (multinational) corporations, lawyers, government, Dutch courts and arbiters.
His main focus within client cases is to investigate relevant facts and circumstances to provide answers on
questions related to: possible irregular transactions, potential breaches of procedures and/or regulations
and the potential misconduct of individuals. Mr Hin’s work spans many economic sectors, with particular
emphasis on financial services, NGOs, real estate and healthcare.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
4 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
SWITZERLANDMARCEL MEINHARDTLENZ & STAEHELIN
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN SWITZERLAND IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
MEINHARDT: Since 2008 we have noted a significant increase in white-
collar cases. This rise was caused on the one hand by an amended, more
rigid regulatory regime on bribery, corruption and white-collar crimes
in general. On the other hand, enforcement activities have increased
and specialised divisions for white-collar crimes within the public
prosecutors’ offices have been created. Today, Swiss public prosecutors
also investigate cases with an international dimension. In this context,
it is worth noting that approximately one year ago an international
group of companies was fined CHF 2.5m by the Swiss federal public
prosecutor due to bribery abroad. In this specific case, the corporation
had entered into agency agreements with third-party consultants,
namely in Latvia, Malaysia and Tunisia. These agency agreements
provided for contingency fees. In the case at hand, these contingency
fees were used to bribe foreign public servants.
MEINHARDT: The specific type of fraud varies based on the size of
the company, its geographic footprint and its business activities. Larger
corporations more often face cyber-crime – data theft and data abuse.
Many of these cases concern the financial industry as France, the US and
most notably Germany are increasingly active in pursuing tax. Foreign
whistleblower regimes incentivise employees to transfer protected data
to foreign authorities, but also to report on corruption and bribery. Also,
violations of trade and industrial secrets tend to occur more often within
larger corporations, in our experience. Within small and medium sized
companies, these types of white-collar crimes seem to be less frequent.
SMEs are typically faced with fraud and embezzlement cases.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 4 5
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN
SWITZERLAND THAT ARE
DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
Q DO REGULATORS IN
SWITZERLAND HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
MEINHARDT: The white-collar regime in general and corruption and
bribery laws in Switzerland specifically have changed, becoming more
rigid. Revision points included the introduction of corporate criminal
liability for certain white-collar crimes and bribery in the private sector.
In cases of bribery and corruption, the company can be held liable if it
did not have the necessary and reasonable systems in place to prevent
crime. Because it is not only unlawful to bribe Swiss public officers, but
also foreign public officers, the scope of the regime is broad. Despite
these broad rules Swiss law does not specify what organisational
measures are ‘necessary and reasonable’. In the case of the company
fined CHF 2.5m, the international group of companies had a compliance
program in place; however, the federal public prosecutor found that
the compliance department was understaffed, too inexperienced and
insufficiently educated.
MEINHARDT: Swiss public prosecutors still lack sufficient resources.
However, organisational measures have led to higher efficiency.
Specialised divisions within the public prosecutor’s offices and
also within police forces have been carved out. Also, the fact that
the authorities can outsource the time consuming e-search and e-
assessment processes to private IT experts has increased efficiency.
Efficient allocation of resources is key, as Swiss public prosecutors
have broad investigative powers, such as the right to question accused
individuals or corporations, potential witnesses and other informants,
and to obtain access to documents, reports and other written or
electronic information. The authorities may also involve experts,
conduct on-site inspections, surveillance or hidden observations, seize
assets, and monitor bank accounts.
SWITZERLAND • MARCEL MEINHARDT • LENZ & STAEHELIN
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
4 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
MEINHARDT: Given the revised bribery and anti-corruption regimes
in particular, internationally active companies are more at risk of
prosecution. Agency or consultancy arrangements may trigger such
exposure. Based on our experience, this has led certain international
companies to stop doing business in certain foreign countries. Not only
are the fines issued in these circumstances high, reaching millions of
Swiss Francs, but it is also almost impossible to have a compliance
program in place that can completely prevent violations in certain
countries. Failure to comply may involve criminal, administrative and
civil liability, which results in various sanctions. Criminal liability lies
not only with management and staff, but also on those individuals
that otherwise act on behalf of the company. Criminal sanctions
are custodial sentence and penalties. Penalties may include fines or
disqualification from certain professions, businesses or industries.
Courts may order the confiscation of assets. Administrative sanctions
may include occupational bans, or the withdrawal of licences. Finally, a
civil damage claim may be brought against the perpetrator.
MEINHARDT: Many, typically larger, Swiss corporations have introduced
whistleblower tools into their organisations and compliance programs.
These tools have already had an impact on detecting violations. As a
matter of fact, more law firms are maintaining whistleblower hotlines for
their clients, and in our experience this tool is rather effective and likely
to gain even more importance. Despite private whistleblower ‘rules’,
the Swiss legal system does not provide for a specific regime. The Swiss
government had submitted to the legislator two proposals for amending
the current system. The goal was to specifically protect whistleblowers
under Swiss employment law and to increase compensation for
wrongful dismissal, such as in the case of whistleblowing.
SWITZERLAND • MARCEL MEINHARDT • LENZ & STAEHELIN
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 4 7
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
MEINHARDT: Most Swiss companies apply a wide range of preventative
measures. However, the larger and more international the organisation
in question, the more complex the set of preventative tools. Often,
companies define their principles through codes of conduct. Such
codes of conduct are typically part and parcel of the employment
agreement, establishing direct consequences in the event of a violation.
Compliance programs and internal compliance organisations are
another widespread prevention tool. As the precedent mentioned above
shows, compliance is key in order to defend the company in a white-
collar case. Adequate staffing with experienced employees and constant
education are required. Today, such education often takes place via
face-to-face training as well as with e-learning tools. Additionally, we
see a tendency for regular inspections, random tests and mock dawn
raids in order to test compliance.
MARCEL MEINHARDT
Head of Internal Investigation, Competition and Regulated MarketsLenz & Staehelin +41 58 450 80 00
Dr Marcel Meinhardt is a leading expert in anti-trust law and internal investigations. He specialises in
all areas of Swiss and European anti-trust law, in compliance and internal investigations in these fields,
as well as in the context of white-collar crimes. He has broad experience in both contentious and non-
contentious matters.
SWITZERLAND • MARCEL MEINHARDT • LENZ & STAEHELIN
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
4 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
AUSTRIACLAUDINE VARTIANDLA PIPER WEISS-TESSBACH
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN AUSTRIA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
VARTIAN: We have noticed a considerable increase in our daily practice
as a law firm as well as in media coverage. There is a new sensibility in
Austria regarding corporate fraud, bribery and corruption. Numerous
cases, more than in the past, are pending at the courts. Former politicians,
directors, board members, and officers have all been affected as well
as executive staff of private companies. More and more frequently,
companies themselves, as legal entities, are drawing the focus of the
authorities and are facing painful criminal proceedings. Legislation and
criminal authorities are trying, through their joint efforts, to create a
new and clean culture of business and administration. It is remarkable
that criminal proceedings regarding corporate fraud, bribery and
corruption are leading to more severe penalties in Austria. There was
a time when bribery and corruption were treated as trivial offences by
the authorities. These times are certainly over.
VARTIAN: Aside from the ‘traditional’ types of fraud, we are more often
engaged in cases of corruption in the private sector – the business to
business area. A possible reason for this is that in the field of corruption
in the business to business sector, a sense of justice and existing
legislation are a long way away from each other. Old-established
business practices are no longer tolerated by the Austrian Criminal Act
and are punishable. We have also seen that corruption in connection
with procurement processes is being prosecuted more frequently and
that antitrust laws are enforced more vigorously.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 4 9
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN AUSTRIA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
AUSTRIA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
VARTIAN: A remarkable amendment to the Austrian Criminal Act
came into force on 1 January 2013. The whole regulatory framework
of anti-bribery and anti-corruption was readjusted. In a nutshell, the
national legal framework to avoid bribery and corruption was seriously
intensified. The definition of a public officer was widely extended and
penalties increased. There have also been changes to the legal norms
for corruption in the private sector. These new amendments to the
Austrian criminal act aim to give a clear distinction between permitted
and non-permitted business practices with the hope of removing the
existing legal uncertainty in this area. It will take some time to find
out if this can be achieved via the new legislation. Furthermore, in
the context of the recent amendments to the Austrian Cartel Act, the
procedural competences of the Federal Competition Authority have been
strengthened and the fight against market abuse has been reinforced
with the introduction of a provision of collective dominance.
VARTIAN: Along with the changes to the legal anti-corruption
framework, Austrian regulators have been provided with more extensive
resources. A separate unit within the public prosecutor’s office was
established – the Wirtschafts- und Korruptionsstaatsanwaltschaft in
Vienna – where public prosecutors with an economic background, either
academic or in practice, are working exclusively on cases concerning
corporate fraud, bribery and corruption. They are definitely making
inroads in this area and are provided with additional manpower almost
every year. Perhaps because this administrative regulatory body is quite
new, it has exerted a great deal of effort in exposing criminal activities.
Additionally, the Federal Competition Authority recently assumed more
procedural capabilities, especially in the context of dawn raids and
information requests.
AUSTRIA • CLAUDINE VARTIAN • DLA PIPER WEISS-TESSBACH
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
5 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
VARTIAN: Companies doing business in Austria certainly face more
risks today. The Corporate Criminal Liability Act (VbVG), established
in Austria in 2006, enables authorities to punish companies as legal
entities under Austrian criminal law – similar to the FCPA or UK Bribery
Act. In the beginning, the VbVG was largely neglected, with precious
few cases pending. Recently, this situation has changed enormously.
Whenever a new corporate fraud, bribery or corruption scandal is
uncovered, prosecutors endeavour to pursue the companies at fault. In
case of emergency, it is very helpful for companies to be in a position
to provide the authorities with evidence that an effective compliance
system has been installed. Failure to comply could lead to painful
financial consequences. Also, in the context of competition law, public
awareness has increased and infringements are prosecuted more
strictly. If proceedings are initiated, the companies involved may face
high penalties.
VARTIAN: Within the Austrian legal system, whistleblowing does not
have the fundamental importance it has in the legal systems of the US
or the UK. However, we recognise the importance of whistleblowing
and company standards regarding whistleblowing are improving. New
provisions regarding leniencies have been implemented in the Austrian
Criminal Proceedings Act (StPO). The aim is to encourage whistleblowers
to share their cognitions with the criminal authorities and in return
receive the promise of immunity from criminal prosecution. Although
field reports regarding these new provisions have to be awaited, there is a
clear indication that whistleblowing will become much more important
than it has been previously. Leniency proceedings do, however, already
have an important role in Austrian Competition Law as the Austrian
legislation on competition provides for a system of whistleblowing.
AUSTRIA • CLAUDINE VARTIAN • DLA PIPER WEISS-TESSBACH
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 5 1
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
VARTIAN: Many multinational companies doing business in Austria
already have an extensive compliance framework regarding corporate
crime, bribery and corruption as they are familiar with FCPA and the
UK Bribery Act. Compliance training and frameworks often cover
competition law aspects and provide the mechanisms needed to
avoid the infringement of antitrust laws. However, it is important
to understand that the whole range of national provisions has to be
covered. In general, a zero-tolerance business culture needs to be
implemented. Our experience has shown that the legal framework
regarding corporate crime, bribery and corruption changes frequently.
Therefore, up-to-date business guidelines, internal policies and codes of
conduct are of significant relevance. Every company should implement
effective training programs that are both comprehensible and practical
for staff, and effectively protect the company.
CLAUDINE VARTIAN
PartnerDLA Piper Weiss-Tessbach+43 1 531 78 [email protected]
Claudine Vartian is the country managing partner of DLA Piper’s office in Vienna, Austria, where she
also heads the firm’s Litigation and Regulatory practice. She is a recognised legal expert in the fields
of banking litigation and related white collar crime, European and Austrian competition law, antitrust
and regulatory law. Her clients include regional and international banking groups, and global industrial
corporations which she supports with inter alia, internal and external investigations, the implementation
of compliance systems and anti-bribery monitoring. Dr Vartian is recommended as a practitioner by
leading international publications and is a regular author of legal publications.
AUSTRIA • CLAUDINE VARTIAN • DLA PIPER WEISS-TESSBACH
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
5 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
LUXEMBOURGSANDRINE PERIOTKPMG LUXEMBOURG S.À R.L.
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN LUXEMBOURG IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
PERIOT: With a score of 80, Luxembourg has been ranked the 12th least
corrupt country by the 2012 Corruption Perception Index among the
176 countries and territories assessed. However, there are no official
statistics to really quantify and determine the exact level of economic
and financial crime perpetrated. It must be noted that in the tough
economic climate, where maintaining earnings and survival are the key
priorities for organisations, fraud continues to affect all business. There has
been significant enforcement of the existing legislation in Luxembourg
in the last three years. Public and private professionals are aware of the
regulatory framework and the risks regarding non-compliance, which
include penal, financial and reputational risks. Integrity and transparency
are still relevant to Luxembourg which was the first country through the
Private Banking Group Luxembourg (PBGL) and the Luxembourg Bankers’
Association (ABBL) to sign the International Capital Market Association’s
(ICMA) charter of quality for private wealth management in October
2012, the main principles of which are integrity in business relationships
as well as transparency towards clients and the regulatory environment.
PERIOT: Fraud in Luxembourg is the same as in other countries within
Europe, and includes the diversion and theft of goods, financial statement
fraud, misappropriation of assets, corruption, money laundering, VAT
fraud, and cyber-crime, amongst others. We are not aware of any specific
type of fraud occurring more frequently. An economic environment
where there is continuing pressure to reduce costs clearly offers
opportunities for employees to commit fraud, as the level of controls
might also be reduced. This does not mean that perpetrators of fraud
will be restricted to people with the lowest level of authority within the
organisation. The KPMG UK fraud barometer for January 2012 to June
2012 revealed that the largest group of perpetrators is management. It
should be noted that there is also a correlation between the perpetrator’s
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 5 3
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN
LUXEMBOURG THAT ARE
DESIGNED TO COMBAT
FRAUD AND CORRUPTION?
Q DO REGULATORS IN
LUXEMBOURG HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
level of authority and the losses generated by the fraud.
PERIOT: Luxembourg has amended its anti-bribery and corruption
legislation to respond to recommendations made by the OECD working
group on bribery, as well as by GRECO, especially with the introduction
of the criminal liability of legal entities law – Law of March 2010 –
and protection measures for whistleblowers – Law of February 2011.
These changes have impacted directly upon existing regulation such
as labour laws, and the penal and criminal codes. The financial sector
remains undoubtedly the main pillar of the national economy, attracting
massive capital flows. As a consequence, and in parallel to these changes,
Luxembourg has continued to strengthen its framework in the fight
against money laundering and terrorist financing. Luxembourg made
significant efforts to respond to the recommendations made by the FATF
following its assessment in 2009. The definition of a money laundering
offence and the list of predicated offences, including public and private
corruption as well as the professional categories concerned, have been
extended. In 2011, according to the activity report of the Financial
Intelligence Unit (FIU) published in September 2012, the number of
suspicious declarations reported by professionals to the FIU, with
corruption as the underlying offence, was 25 compared with 6 in 2010.
PERIOT: Since the 2010 amendment of the modified law of November
2004, combating money laundering and terrorist financing, the powers
and means of enforcement of the financial regulator and the FIU have
been strengthened as well as the applicable penalties and sanctions.
Cooperation requirements of professionals with the authorities have
been enforced, as have cooperation requirements between competent
and foreign authorities. Indeed, professional secrecy does not apply
LUXEMBOURG • SANDRINE PERIOT • KPMG LUXEMBOURG S.À R.L.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
5 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
LUXEMBOURG • SANDRINE PERIOT • KPMG LUXEMBOURG S.À R.L.
vis-à-vis the FIU and disclosure of information by professionals will
not constitute a breach. The numbers employed by the Luxembourg
authorities have also been enforced. A specific entity, ‘Transparency
International’ was established in 2009. Awareness raising campaigns
have been addressed to both the public and private sectors with an
emphasis on the link between money laundering and corruption.
PERIOT: Prior to the introduction of the law of March 2010, only physical
persons could be prosecuted and held liable for bribery of domestic and
foreign officials, meaning that only directors or any other representatives
of a company would be held liable if a criminal offence was committed.
Since the law of March 2010, natural persons and legal entities – for
example, private or public companies, and profitable or non-profit
entities – can also be held liable in case of violation of bribery rules. It is
noteworthy that foreign companies can be prosecuted for foreign bribery
if the offence has been committed within the territory of Luxembourg.
In the same way, any nationals or Luxembourg residents committing an
offence of corruption abroad could be subject to criminal proceedings in
Luxembourg. Sanctions for individuals prosecuted for corruption related
offences can range from a fine, imprisonment from six months to 15
years, loss of civil rights, and prohibition from practising certain types of
professions. Legal entities can, amongst others, face a fine, be permanently
or temporarily disqualified from public tenders, or be dissolved.
PERIOT: Whistleblowing plays an essential role in the detection of fraud.
Nevertheless, employees should trust that they can report suspicious
activity on an anonymous and confidential basis without fear of reprisal.
In that respect, the law of 13 February 2011, relating to the fight against
corruption, contains a specific provision in relation to the protection of
whistleblowers.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 5 5
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
PERIOT: The first mechanism companies should adopt is the
implementation of a zero tolerance culture towards fraud, starting from
the top with the existence of a code of conduct, integrity and ethics
charter, conflict of interests policy, anti-fraud policy, and repeated
training and awareness. Companies should fully assess the vulnerabilities
of their business operations and implement measures to mitigate the
risks identified. This risk mitigation process should then be reviewed
on an ongoing basis to identify weaknesses. Only an anti-fraud regime
applicable to all will be effective.
SANDRINE PERIOT
DirectorKPMG Luxembourg S.à r.l.+352 22 51 51 [email protected]
Sandrine Periot is a director in charge of Forensic and Anti-Money Laundering services at KPMG
Luxembourg. She joined KPMG in 1996 where she initially focused on voluntary liquidations of investment
funds, banks and other financial professionals. Since 1999, she has integrated the Forensic department
and has over 13 years experience in anti-money laundering services, dispute advisory services and fraud
investigations. Her experience also includes compliance function reviews for banks and other financial
professionals.
LUXEMBOURG • SANDRINE PERIOT • KPMG LUXEMBOURG S.À R.L.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
5 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
AUSTRALIAOWAIN STONEKORDAMENTHA FORENSIC
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN AUSTRALIA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
STONE: It is always difficult to be definitive about trends concerning
the extent of corporate fraud, bribery and corruption, especially as there
is no specific requirement in many Australian jurisdictions to report such
matters, and corporates are often reluctant to report to the authorities
if they don’t have to. However, we have continued to see an increase in
the discovery of corporate fraud, bribery and corruption in recent times.
Companies are much less willing to ignore allegations and we now
see a higher proportion of such issues being more fully investigated
by firms. From the foreign bribery perspective, in October 2012, the
OECD issued their Phase 3 report on Australia’s implementation of the
OCED Anti-bribery Convention (the OECD Report), which was scathing
of Australia’s extremely low level of enforcement activity of foreign
bribery. We expect to see a notable increase in such cases investigated
by the Australian Federal Police (AFP).
STONE: Due to the diversity of industries across Australia, the fraud we
see occurring in the mining and resources sector can be different to that
in the manufacturing sector. However, we continue to see a number of
common types of fraud in the current climate. These include: conflicts
of interest; employees receiving kickbacks from vendors; inventory
misappropriation; theft of plant and equipment; and theft of intellectual
property, particularly confidential commercial information. A tougher
economic climate has also seen corporates pay more attention to costs,
which in turn has led to greater scrutiny of vendors and in certain cases,
identified significant overcharges, sham invoices or kickbacks.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 5 7
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN AUSTRALIA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
AUSTRALIA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
STONE: In Australia, legislation prohibiting bribery at the Federal
– national – level is contained in the Australian Criminal Code Act
1995 (the Code) as amended by the Crimes Legislation Amendment
(Serious and Organised Crime) (No. 2) Act 2010. In November 2011,
the Criminal Justice Division of the Australian Attorney General’s
Department released a consultation paper in relation to ‘Assessing
the “facilitation payments” defence to the Foreign Bribery offence and
other measures’ under the Code. In particular, public comment was
sought on the treatment of facilitation payments under Australian law;
the factors that influence whether a benefit is ‘legitimately due’ to the
recipient; the current requirement to identify a particular foreign public
official in order to establish an offence; and the role of dishonesty in
domestic corruption offences. The results of this public comment are
yet to be communicated, but we consider it likely that some changes
will be made in this area to bring Australia either into line with, or
closer to, the UK position on facilitation payments.
STONE: The AFP is tasked with investigating potential violations of the
Code. In response to criticism that allegations of foreign bribery may not
be investigated thoroughly, the AFP is mentioned in the OECD Report
as having created a Foreign Bribery Panel of Experts (the Panel) who will
assist in evaluating all foreign bribery referrals and subsequent decisions
as to whether to open an investigation. The Panel will also monitor
allocation of resources for an investigation. However the relatively
small number of investigations of foreign bribery by the AFP means
that whilst they have some highly experienced and trained individuals,
they are on a steep learning curve to build sufficient strength in depth.
AUSTRALIA • OWAIN STONE • KORDAMENTHA FORENSIC
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
5 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
The OECD Report has recommended that the Australian Securities and
Investments Commission (ASIC) use their experience and expertise
in investigating corporate economic crimes to assist the AFP when it
comes to investigating foreign bribery. However, the ASIC does not
have legislated jurisdiction in relation to foreign bribery.
STONE: Earlier this year, it was reported in the media that the AFP had re-
opened two foreign bribery investigations. Given criticism in the OECD
Report for a lack of enforcement and the fact the AFP reopened these
two cases, companies should expect increased enforcement activity
and ignoring legislation like the Code will be at their own peril. Falling
foul of the Code means a company can expect a criminal penalty of the
greater of $11m, three times the benefit obtained by the company, or
if this cannot be determined, 10 percent of the annual turnover of the
company in the 12 months preceding the offence. Individuals can face
a fine of up to $1.1m or 10 years’ imprisonment or both.
STONE: The ACFE’s ‘2012 Report to the Nations on Occupational
Fraud and Abuse’, stated that over 43 percent of uncovered frauds
in an organisation were detected by a tip. Our experience is that
whistleblowers can be a great source of information in the fight against
fraud. Accordingly, it is vital a company implement a safe and secure
route for employees and associated persons to provide such tips
surrounding fraud and misconduct by way of a whistleblower hotline. In
the US and UK the establishment of a whistleblower hotline is regarded
as one necessary element in an overall anti-corruption framework.
However this should be one of a suite of initiatives, rather than putting
all the onus on individuals to report inappropriate behaviour.
AUSTRALIA • OWAIN STONE • KORDAMENTHA FORENSIC
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 5 9
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
STONE: Companies should implement an anti-fraud framework
that covers the following three objectives: prevention; detection; and
response. These three objectives are covered in the Standard which
provides a suggested approach to controlling fraud and corruption against
and by Australian entities. We recommend companies develop their
anti-fraud framework based on the Standard, with appropriate tailoring
for their specific circumstances. For compliance with international anti-
corruption legislation, Australian companies should not simply conduct
a box ticking exercise but develop an anti-corruption framework
specific to their business operations and ensure that they go beyond
paper compliance and monitor its ongoing effectiveness. Our view is
that a company should concentrate on ensuring its anti-corruption
framework will allow and encourage employees and associated persons
to follow the spirit of anti-corruption compliance.
OWAIN STONE
PartnerKordaMentha Forensic+61 3 8623 [email protected]
Owain Stone manages the KordaMentha Forensics team and has over 25 years experience in a wide range
of forensic accounting projects. He was previously the Oceania Head of Fraud Investigation and Dispute
Services for Ernst & Young, managing a team of over 50 across Australia, New Zealand and Indonesia. His
recent experience includes expert witness related forensic accounting services (including preparation of
expert reports and giving oral testimony) in the Australian Federal Court, the Supreme Court and County
Court of Victoria, the Supreme Court and High Court of Singapore, the Supreme Court of Vanuatu, and
giving evidence in arbitrations in Australia, Hong Kong and the US.
AUSTRALIA • OWAIN STONE • KORDAMENTHA FORENSIC
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
6 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
CHINA
PACKHAM: There has been a rise in corporate fraud, notably the
manipulation of financial statements to inflate the value of various
companies involved in Chinese Reverse Mergers (CRM), whereby
Chinese companies avoided IPO procedures by buying US-listed shell
companies. Increased international trade and investment has also
meant heightened exposure to international regulations such as the
US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Foreign
firms often do not understand their Chinese operations, and Chinese
firms often do not understand the international regulations to which
they have been exposed. Corruption of government officials is also an
increasingly high profile issue. Chinese leaders have recently stressed
that corruption represents an existential threat to the Communist
Party and have pledged to tackle it.
PACKHAM: The most common frauds of recent years have involved the
manipulation of accounts and financial statements. As noted above,
these have often involved Chinese reverse takeover or CRM companies
that file their accounts in the US. They have also involved foreign
companies whose newly acquired Chinese subsidiaries or joint ventures
have manipulated their financial reports to their head offices or JV
partner while extracting value from the company. The most recent case
to hit the headlines involved the write off of $580m due to alleged
fraud in the recently acquired Chinese subsidiary of a multinational
infrastructure provider. These frauds have arisen from a mixture of weak
corporate governance in Chinese companies and lack of independence
in accounting firms.
HARVEY PACKHAMALVAREZ & MARSAL CONSULTING
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN CHINA IN RECENT YEARS?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 6 1
continued...
8
CHINA • HARVEY PACKHAM • ALVAREZ & MARSAL CONSULTING
PACKHAM: In 2011, the 8th Amendment to the Criminal Law made
it an offence to bribe a foreign official, and that law now applies to
all Chinese nationals globally, to anyone physically present in China,
and to all entities organised under Chinese law. The Amendment’s
definitions are vague which will afford it a broad scope. Also in 2011,
new regulations were introduced concerning prepaid shopping cards
for large supermarket chains, which had previously been used to pay
bribes. The new regulations dictate that real identities must be given
when purchasing the cards and any significant purchases must be
made by electronic banking transfer. In 2012, the Supreme People’s
Court issued a new judicial interpretation on offering bribes, in which
it provided guidelines on the categorisation of bribes offered and the
penalties to be applied to bribe givers for each category.
PACKHAM: A lack of resources should not be an issue in China since
the government should be able to mobilise whatever resources it needs,
especially since its leader, Xi Jinping, made anti-corruption measures a
priority in November 2012. However, since corruption appears to be
a problem at all levels of the party – Xi Jinping referred recently to
cracking down on ‘tigers’ and ‘flies’, meaning both senior leaders and
more junior bureaucrats – it will require considerable political will to
root it out. Furthermore, what is perceived in the West as corruption
and weak corporate governance are often accepted cultural norms in
Chinese business practice, so regulatory resources may not necessarily
be focused or applied as they would be in other countries.
Q DO REGULATORS IN
CHINA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN CHINA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
6 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
CHINA • HARVEY PACKHAM • ALVAREZ & MARSAL CONSULTING
PACKHAM: The aggressive application of the FCPA over the last few
years, combined with the increasing exposure of both foreign and
Chinese companies to the FCPA through mutual trade and investment,
has certainly increased the risk of investigation and prosecution by
US regulators. It is still too early to say whether the 2011 regulatory
changes and the 2012 interpretation of China’s anti-corruption laws,
as well as the recent prioritisation of anti-corruption measures by Xi
Jinping, will have a sustained impact on companies. Under Chinese
law, companies found guilty will be fined, and will have to return any
inappropriate monetary benefits. Any non-monetary benefits, such
as operating licences, are dealt with in accordance with ‘applicable
regulations’.
PACKHAM: Whistleblowers play a significant role in the fight against
corporate fraud – even more so than in developed countries because
of the weak corporate governance, compliance, and internal control
environment in Chinese companies. We believe that whistleblowers are
responsible for revealing the majority of corporate frauds uncovered
in China. As international standards of corporate governance become
more accepted we expect whistleblowers to report more fraud and
corruption, leading to more investigations, and prompt further, albeit
slow, improvements in corporate governance.
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 6 3
continued...
CHINA • HARVEY PACKHAM • ALVAREZ & MARSAL CONSULTING
PACKHAM: The tone at the top, stronger corporate governance, and
formal training are key everywhere, but especially so in China. The tone at
the top is especially important since hierarchical structures and respect
for authority are deeply ingrained. Linked to this is the implementation
of effective corporate governance and internal controls to prevent
dominant senior management and owners overriding procedures
currently in place. Cultural acceptance of fraud and corruption as a
normal business practice – together with respect for authority – means
that the provision of formal training to educate staff as to what is not
acceptable is also crucial. Foreign companies with Chinese subsidiaries
or JV partners should perform risk assessments as soon as possible, and
identify and address deficiencies in the internal controls, policies and
procedures that mitigate those risks.
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
HARVEY PACKHAM
Director Alvarez & Marsal Consulting+86 10 6563 [email protected]
Harvey Packham is a chartered accountant with over 14 years’ experience including forensic accounting
investigations into manipulation of profits, embezzlement, carousel fraud, and US Foreign Corrupt
Practices Act issues, as well as litigation support and quantum of damages calculations for courts
and international arbitration. Mr Packham has advised clients from a range of industries including oil
exploration, metallurgy, telecoms, travel services, banking and financial services, aeronautics, manufacture
of healthcare products, perfumery, and import and export. He has also worked with government agencies
and insurance companies.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
6 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
SINGAPOREMATTHEW FLEMINGKORDAMENTHA FORENSIC
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN SINGAPORE IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
FLEMING: The KPMG Singapore Fraud Survey 2011 showed the
average number of fraud incidents reported per organisation had
increased from 3.8 in 2008 to 9.0 in 2011. The estimated cost of these
incidents increased from S$5.3m to S$6.5m. However, the majority
of respondents are generally unfamiliar with the implications of
anti-bribery and corruption legislations in Singapore, the US and the
UK. In recent times, whistleblowing has gained renewed attention.
Corporate and government bodies are encouraged to establish effective
whistleblowing channels that protect the whistleblower against
retaliation. This could have contributed to a rise in corporate fraud being
investigated. Singapore has been ranked as one of the world’s least
corrupt countries in Transparency International’s Corruption Perception
Index 2011. The reported cases to Singapore’s anti-corruption agency
– the Corrupt Practices Investigation Bureau (CPIB) – appear to be on
the decline. According to the organisation’s 2011 report, CPIB received
the lowest number of complaints since 2007.
FLEMING: Singapore is among the largest financial centres in the world
and, with Asia leading the global economic recovery, there has been an
increase in the use of nominees, and layering through shell entities and
financial intermediaries, to commit and conceal fraud. Typical offences
we have seen increasing in recent times include criminal breach of
trust, cheating and investment scams, falsification of accounts, money-
laundering, and motor insurance fraud.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 6 5
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN SINGAPORE
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS
IN SINGAPORE HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
FLEMING: In Singapore, legislation against fraud and corruption is
contained in the Penal Code, the Prevention of Corruption Act, and
the Corruption, Drug Trafficking and other Serious Crimes Act (CDSA).
Under the CDSA, it is mandatory for any person to lodge a Suspicious
Transaction Report (STR) if he or she knows, or has reason to suspect,
that any property may be connected to a criminal activity. Singapore
has continued its efforts to combat fraud and corruption, on both the
global and national fronts, by announcing tighter money laundering
and terrorist financing regulations, ratifying international conventions,
and conducting outreach programmes to share knowledge and enhance
public awareness. Other than complying with the legislation, listed
companies are encouraged to adopt the principles and guidelines of
the Code of Corporate Governance (Singapore Code) and are required
to disclose and give explanations for any deviations from the Code
in their annual reports. The Code was first introduced in March 2001,
and was revised in July 2005 and May 2012. The revised Code includes
stricter guidance on director independence, boards’ responsibilities
regarding risk management, and disclosure on remuneration. The Casino
Regulatory Authority was set up in 2008 to ensure that the management
and operation of the newly opened casinos in Singapore are free from
criminal influence or exploitation. Online gaming is gaining popularity
and is an area where regulations are still in the development phase.
FLEMING: In Singapore, commercial crime is investigated by the
Commercial Affairs Department, while corruption matters are
investigated by CPIB. Listed companies are regulated by Singapore
Exchange (SGX), which, a self-regulatory organisation, also operates
the centralised electronic marketplace for trading, clearing, and settling
securities and derivative products. With the proliferation of technology,
financial crimes are becoming increasingly more complex, involving
SINGAPORE • MATTHEW FLEMING • KORDAMENTHA FORENSIC
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
6 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
more transactions, and are cross-border. Regulators recognise that they
have to increase their analytical resources, information technology
infrastructure and field intelligence capabilities, and are taking steps to
strengthen inter-agency and international cooperation frameworks.
FLEMING: The risk of regulatory investigation and prosecution remains
high. For cheating – if property is delivered, penalties include fines and
mandatory imprisonment up to 10 years. If no property is delivered,
punishments can include a fine or imprisonment of up to three
years. For corporate corruption, a fine not exceeding S$100,000, and
imprisonment for a term not exceeding five years can be imposed. For
criminal breach of trust (CBT) there can be fines and imprisonment for
up to seven years. For falsification of accounts, a fine and imprisonment
up to 10 years can be handed down. Money laundering can see a fine
of no more than S$500,000 for an individual, or up to S$1m for non-
individuals, and imprisonment of seven years or less. For corruption
crimes involving public servants, the penalties are harsher: imprisonment
can be up to seven years. For CBT crimes committed by public servants,
bankers, merchants or agents, the imprisonment can be up to 20 years,
or life.
FLEMING: It is vital that companies implement a safe and secure
route for employees and associated persons to provide tip offs by way
of a whistleblower hotline. In the US and UK whistleblower hotlines
are regarded as a necessary element in an overall anti-corruption
framework. However, they should be one of a suite of initiatives. In
Singapore, there is no specific standard on fraud control. However, the
2012 Code recommends that listed companies should implement a
policy for whistleblowing.
SINGAPORE • MATTHEW FLEMING • KORDAMENTHA FORENSIC
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 6 7
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
FLEMING: Companies should implement an anti-fraud framework
that covers the following three objectives; first, prevention; second,
detection; and third, response. These objectives are covered in the
Australian Standard on Fraud and Corruption Control (the Standard)
which suggests an approach to controlling fraud and corruption against,
and by, Australian entities. We recommend companies develop their
anti-fraud framework based on the Standard, with appropriate tailoring
for their specific circumstances. For compliance with international anti-
corruption legislation, Australian companies should not simply conduct
a box ticking exercise but develop an anti-corruption framework
specific to their business operations. Our view is that a company should
concentrate on ensuring their anti-corruption framework will allow and
encourage employees and associated persons to follow the spirit of
anti-corruption compliance. Getting the spirit right, including a strong
‘tone from the top’, will allow both the letter and the spirit of the law to
be followed, whether that be Australian, US, UK or international laws.
MATTHEW FLEMING
PartnerKordaMentha Forensic+65 6593 [email protected]
Matthew Fleming is a partner who leads the Singapore practice of KordaMentha Forensic. Having
previously spent 11 years in the New South Wales Police force, Mr Fleming is now responsible for
conducting protracted complex fraud investigations, foreign bribery investigations, asset tracing
assignments, AML, and factual investigations on behalf of clients throughout the Asia Pacific region. He
has experience conducting investigations in most Asian countries including Vietnam, Thailand, Japan,
Korea, the Philippines, Malaysia, Sri Lanka and India. Mr Fleming has also been engaged in work in Europe
and the Americas.
SINGAPORE • MATTHEW FLEMING • KORDAMENTHA FORENSIC
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
6 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
MALAYSIAJOYCE LIM WAN CHEAKERNST & YOUNG
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN MALAYSIA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
LIM: Bribery and corruption have remained pervasive, according to the
12th Global Fraud Survey conducted by Ernst & Young in 2012. The
survey, culled from 1758 interviews with senior decision-makers in 43
countries, showed that 39 percent of the respondents felt that bribery
or corrupt practices occur frequently in their countries. In Malaysia,
fraud and corruption seem to be on an uptrend. However, there is
greater public awareness to fight against corruption and this is further
enhanced by the fact that boards today are becoming more cognisant
and concerned about their personal liability from fraud, bribery and
corruption. During challenging economic conditions like the recent
financial crisis or the current eurozone crisis, it is inevitable that there
is closer scrutiny by internal as well as external stakeholders as the
performance of companies does not meet expectations. Often, the
‘skeletons come out of the closet’ during such challenging times, when
transactions or actions which may not have been open to scrutiny in
the past, become more exposed.
LIM: Procurement fraud and corruption seem to be appearing more
frequently in Malaysia. We are still a developing country with lots of
opportunities for economic development. Many companies are falling
victim to procurement fraud and corrupt practices by employees,
between employees and suppliers or contractors, and also collusion
among bidders. According to our 2012 Global Fraud Survey, one of
the most troubling findings is the widespread acceptance of unethical
business practices such as cash payments to win contracts and mis-
statement of financial statements. The challenge is even greater in
rapid-growth markets, where a majority of respondents believe these
practices are common.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 6 9
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN MALAYSIA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
MALAYSIA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
LIM: In mid December 2010, the Malaysian government implemented
the Whistleblower Protection Act 2010, which is a key measure to
curb corruption. The level of awareness of bribery and corruption has
also increased with the establishment of PEMANDU, a unit under the
Prime Minister’s Department with the responsibility for end-to-end
delivery of National Key Results Areas (NKRA), one of which is ‘fighting
corruption’, and the Malaysian Anti-Corruption Commission.
LIM: The fight against corruption is one of the areas of focus of our
regulators and authorities and they are committed to increasing their
workforce with the aim of increasing the awareness of fraud and
eradicating corruption. This is in tandem with the 2012 Global Fraud
Survey where 84 percent of the Malaysian companies surveyed think
that the authorities and regulators are willing to prosecute bribery and
corruption cases.
MALAYSIA • JOYCE LIM WAN CHEAK • ERNST & YOUNG
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
7 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
LIM: The 2012 Global Fraud Survey showed that in Malaysia, there is an
overwhelming majority (88 percent) who support increased supervision
by regulators, a view broadly in line with the region (82 percent) and
more strongly held than in the rest of the world (69 percent). According
to the Malaysian Anti Corruption Commission Act 2009, if an individual
is found guilty of any offences, the individual shall, on conviction, be
liable to imprisonment for a term not exceeding 20 years; and a fine
not less than five times the sum or value of the gratification which is
the subject matter of the offence, where such gratification is capable of
being valued or is of a pecuniary nature, or 10,000 ringgit, whichever is
higher. The offences include giving or accepting gratification; corruptly
procuring the withdrawal of a tender; and bribery of public officials.
LIM: The role of whistleblowers in the fight against corporate fraud is
becoming more apparent and key to curbing corruption. The Malaysian
government’s implementation of the Whistleblower Protection Act 2010
will enable whistleblowers to be protected and hence, it is expected
that more will come forward to raise issues relating to corruption,
misconduct, breach of trust and irregular activities.
MALAYSIA • JOYCE LIM WAN CHEAK • ERNST & YOUNG
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 7 1
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
LIM: Within an organisation, various means can be used in the fight
against corrupt practices, including instituting whistleblowing hotlines,
introducing anti-fraud programs such as conducting corruption risk
assessment, training on anti-bribery and anti-corruption policies,
and most importantly, setting a strong tone at the top, at senior
management level.
JOYCE LIM WAN CHEAK
Director, Fraud Investigation & Dispute Services, Malaysia Ernst & Young+603 7495 8847
Joyce Lim is a Director, heading the Ernst & Young Fraud Investigation & Dispute Services (FIDS) practice in
Malaysia. In her more than 15 years of service with Ernst & Young, she has led and managed various large-
scale projects involving fraud and forensic accounting investigations, the Foreign Corrupt Practices Act
(FCPA) and the Anti-Bribery and Corruption Compliance Review. She has also carried out internal audits
and corporate governance reviews for government-linked companies (GLCs), multinational companies
and public-listed companies in Malaysia and Singapore, as well as non-profit organisations.
MALAYSIA • JOYCE LIM WAN CHEAK • ERNST & YOUNG
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
7 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
PAKISTANMUHAMMAD SOHAIBCRI GROUP
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN PAKISTAN IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
SOHAIB: It is a widely held view that corporate fraud, bribery and
corruption in Pakistan is widespread, systematic, and that it is entrenched
at all levels. A World Bank report containing an assessment of Pakistan’s
Infrastructure Capacity (PICA) states that 15 percent of Pakistan’s
Development budget for 2010-2011 was lost in the procurement process
alone, due to corruption. This does not include subsequent costs of
corruption in the implementation and maintenance stages of projects.
Important business publications, such as World Economic Forum’s
Global Competitiveness Report (2011-2012), say that corruption is the
third-greatest problem for companies for doing business in Pakistan. The
Organization for Economic Cooperation and Development (OECD) says that
the World Bank and the Auditor General of Pakistan have complained about
governance problems in recruitment, site selection, absenteeism and bribery.
SOHAIB: In Pakistan, fraud is most visible in a number of forms. For
instance, government officials or ministers, or their business partners, may
receive money in exchange for awarding contracts, jobs, promotions or
approving invoices for payment. This crime involves bribery, abuse of power
and collusion. A policeman may receive money to drop charges against
suspects, or receive bribes to arrest others – an example that involves
bribery and abuse of power and may involve collusion and extortion.
Medical doctors using supplies received for use in a public hospital, may
use them in their private practice, and, in doing so, abuse their power
and commit the offences of fraud and embezzlement. A Treasury official
who receives money to pass contractor invoices, knowing that inspection
certificates lack all required approvals, is guilty of bribery, abuse of power,
fraud, deception, collusion and extortion. A senior manager in a public
or private organisation giving a job to a friend or relative, bypassing the
proper selection process, is an example of abuse of power and trading-in-
influence. The list goes on.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 7 3 8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN PAKISTAN
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
PAKISTAN HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
SOHAIB: In Pakistan there has been regulatory change on a routine basis.
However, implementation is found to be lacking. This may be a failure of
mutual consensus, or may be due to a lack of willingness to implement
regulatory changes to combat fraud and corruption.
SOHAIB: Regulators have resources to enforce the law but enforcement
is not the only solution to implement law strictly. First, the authorities
need to raise awareness against corruption, fraud and bribery, and run
advocacy campaigns. This is most important before implementing any
law. Second, regulators need to involve private investigation companies
in the legislation process as they can help the regulator to implement the
law at the right time and in the right direction.
SOHAIB: Companies need to ensure that they operate their businesses in
an ethical manner. Fraud awareness training programs should take place
on a regular basis within the organisation. Companies need to be made
conscious about background screening and also the implementation of
strong FCPA compliance. Background checks should be made from the
bottom to the top until all loopholes are clear.
PAKISTAN • MUHAMMAD SOHAIB • CRI GROUP
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
MUHAMMAD SOHAIB Research AnalystCorporate Research and Investigations (Private) [email protected]
continued...
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
7 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
UNITED ARAB EMIRATESZAFAR I. ANJUMCRI GROUP
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN THE UAE IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
ANJUM: Laws and precautionary measures to tackle corporate
corruption appear less frequently in the Middle East than globally,
although there is a view that white-collar crime is an increasing
problem. In the Middle East, almost half of companies report that
white-collar crime costs between AED3.5m to AED1.9m. Despite being
aware of the huge risks, companies still fail to take adequate measures
to prevent bribery and corruption. The main reason reported is that
attitudes against fraud are often weakened by a lack of extensive
training, and the lack of enforcement of financial and non-financial
penalties. This also impacts on the ability of companies to identify and
recognise fraud, both in terms of corporate corruption or white-collar
crime.
ANJUM: The most common corporate crimes seen or reported in
the Middle East include cases of bribery and corruption, cyber-crime
and accounting fraud. Other predominant cases reported include
intellectual property fraud, money laundering and corporate
surveillance. These crimes result in huge damage to businesses.
Incidents of cyber-crime are increasing. In 2002, there was a 300 percent
rise in computer hacking within six months. According to experts,
the UAE is among the top 10 countries most vulnerable to attack by
hackers. White-collar crime includes embezzlement of funds, fraud and
bribery. The UAE has taken several steps in opposing organised crime,
and in January 2002, a law was passed to tackle money laundering.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 7 5
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN THE
UAE THAT ARE DESIGNED
TO COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN THE
UAE HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
ANJUM: Since the late 1980s the UAE has enacted anti-bribery
legislation in the form of the UAE Federal Penal Code; however, we can
see that the UAE business community is not particularly aware of the
existence of the Code and how its provisions could affect their business
operations locally. However, following the global economic crisis and
the slowdown of the UAE economy, there has been a noticeable rise
in the prosecution of individuals suspected of fraudulent practices,
as authorities seek to enforce the law and mitigate such practices. It
is particularly important for businesses to have an awareness of the
provisions of the Code and its implication for businesses in the UAE.
ANJUM: A number of Federal Laws on commercial protection have
been imposed in the UAE. These include: Federal Law No. (4) of 1979
for the Suppression of Fraud and Deceit in Commercial Transactions;
Federal Law No. (37) of 1992 on Trade Marks; Federal Law No. (18) of
1981, as amended by Law No. 14 of 1968 on Regulating Commercial
Agencies; and Federal Law No. 24/2006 on Consumer Protection.
Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum also recently
issued a new draft law to create a committee to combat commercial
fraud. He said the UAE will continue to develop legislation and laws to
protect the community and markets from various types of crimes and
fraud, in accordance with practices and international standards.
UNITED ARAB EMIRATES • ZAFAR I. ANJUM • CRI GROUP
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
7 6 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
ANJUM: There has been an increase in the fraud committed by people
with higher level management or sensitive roles. According to a KPMG
survey, nearly 90 percent of white-collar crimes are committed by a
company’s own staff – of which 60 percent are senior management and
board members. The penalties vary for different frauds, from financial
penalties to custodial sentences. Such sentences can reach up to 20
years in jail for those involved in fraudulently laundering private and
public money.
ANJUM: Many people do not consider blowing the whistle, not only
because of fear of revenge, but also because of fear of losing the job,
demotion or harassment. Harassment of whistleblowers has become
a serious issue across the globe. Although whistleblowers are often
protected under law from employer retaliation, there have been
many cases where punishment – such as termination, suspension,
demotion, or harsh mistreatment – has occurred. A protection clause
for whistleblowers has been introduced in the draft code of Corporate
Governance for Developers by the Dubai Land Department. As per the
draft, the Audit Committee, which will be an integral part of the risk
management process, will ensure a framework is in place by way of
policies and procedures which protect whistleblowers from discharge
or discrimination.
UNITED ARAB EMIRATES • ZAFAR I. ANJUM • CRI GROUP
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 7 7
continued...
UNITED ARAB EMIRATES • ZAFAR I. ANJUM • CRI GROUP
ANJUM: Management should implement both financial and non-
financial systems and controls to detect and prevent fraud. There
are several prevention and detection strategies such as job rotation,
mandatory vacations, and surprise audits. The organisation should
consider non-financial controls as well, such as pre-screening potential
employees and even post-screening outgoing employees. Management
should talk often with current employees, so they can pick up when they
are feeling stressed. Staff should be made aware of the consequences
of committing fraud, and firms should provide anti-fraud training for
managers and employees.
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
ZAFAR I. ANJUM
Group Chief Executive OfficerCorporate Research and Investigations LLC+971 4 [email protected]
As a corporate investigator with more than 21 years’ experience, Zafar I. Anjum is an expert in the
investigation of multifaceted business crimes and the management of fraud prevention and detection
across the Middle East, as Certified Fraud Examiner. Mr Anjum is proficient in the development of
investigation strategies and the provision of solutions to the most challenging assignments including
fraud, theft of intellectual property and serious organisational misconduct, forensic accounting and
integrity due diligence. He is Pakistan’s foremost member of the Association of Certified Fraud Examiners
(ACFE).
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
7 8 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
SOUTH AFRICAPIERRE KILIANBDO RISK ADVISORY SERVICES (PTY) LTD
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN SOUTH AFRICA IN RECENT
YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
KILIAN: According to the 2012 Transparency International Corruption
Perception Index (TI CPI), corruption in South Africa has been on a
gradual downwards trajectory over the past few years, dropping from
55th out of 174 countries globally in 2009, to 69th in 2010. The index
rated countries according to perceptions surrounding corruption, with
scores from the ‘highly corrupt’ at zero, to the ‘very clean’ at 100. In
January 2012 a new not-for-profit organisation, Corruption Watch,
was launched providing a platform for the general public to report
corruption. In its first 11 months, 1227 reports alleging corruption
were made, equating to three reports a day. Eighty-three percent of
these reports had been previously reported to the public authorities.
Although the general perception is that South Africa is becoming more
corrupt, the statistics suggest that there is a healthy whistleblowing
culture in the country.
KILIAN: Although fraud, corruption and bribery are widespread in both
the public and private sectors and the modus operandi is often similar,
the affect of the illegal acts are much different. In the public sector
the departments affected can often be easily identified as those where
service delivery is poor. When it comes to the private sector, the bottom
line of the company is adversely affected with margins decreasing and
operational effectiveness breaking down. The number of major service
delivery protests reached an all-time high with 173 recorded in 2012,
up from two in 2006, according to Municipal IQ’s municipal hotspots
monitor. This suggests an increase in the abuse of public funds. 2012
also saw a number of high profile politicians implicated in various
scandals relating to government contracts, abuse of public funds and
conflicts of interest.
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 7 9
continued...
8
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN SOUTH
AFRICA THAT ARE DESIGNED
TO COMBAT FRAUD AND
CORRUPTION?
Q DO REGULATORS IN
SOUTH AFRICA HAVE
SUFFICIENT RESOURCES TO
ENFORCE THE LAW IN THIS
AREA? ARE THEY MAKING
INROADS IN THIS AREA?
KILIAN: Due to the significant amount of foreign investment in South
Africa, the recent introduction of the UK Bribery Act, the renewed
emphasis on prosecuting companies under the Foreign Corrupt Practices
Act and the introduction of the King III report on corporate governance,
companies have stepped up their efforts to combat fraud and
corruption through self regulation and employee awareness programs.
The government has also stepped up its anti-corruption efforts in
recent years by introducing a national anti-corruption programme,
promoting ethical practices and establishing the Special Investigating
Unit (SIU), an independent statutory body with the aim of investigating
fraud, corruption and maladministration, and instigating civil litigation
to recover losses suffered by the state. However, the body has been
without a permanent head since December 2011.
KILIAN: The OECD working group’s 2012 report on bribery stated that
sufficient resources had been allocated in South Africa to the public
prosecution of corruption program, and that increased training for
the detection and investigation of foreign bribery had been provided
to investigators and prosecutors. However, according the National
Prosecuting Authority (NPA) there has been a 31 percent decline in the
number of convictions of complex commercial crime offences between
the periods 2008-2009 and 2011-2012, dropping from 1182 to 824.
What is concerning is that this decrease in convictions coincided with
an increase in the budget allocated to the public prosecutions office,
which funds and oversees the Specialised Commercial Crime Unit
(SCCU). This may be indicative of inefficiencies and a decline in service
levels, suggesting that South Africa is losing the battle against fraud and
corruption.
SOUTH AFRICA • PIERRE KILIAN • BDO RISK ADVISORY SERVICES (PTY) LTD
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
8 0 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
SOUTH AFRICA • PIERRE KILIAN • BDO RISK ADVISORY SERVICES (PTY) LTD
KILIAN: South Africa has neither prosecuted nor adjudicated any
case of bribery of a foreign public official, although the country has
some of the toughest penalties in the world. If convicted of money
laundering under the Prevention of Organised Crime Act (POCA), an
individual is liable to a fine up to R100m or imprisonment of up to
30 years. To put this in perspective, the life sentence associated with
premeditated murder is up to 25 years imprisonment. Penalties that
companies and associated individuals could face under the Prevention
and Combating of Corrupt Practices Act (PRECCA) range from five to
25 years imprisonment, and a fine up to five times the value of the
gratification involved in the offence.
KILIAN: The Association of Certified Fraud Examiners (ACFE) 2012
report to the Nations on Occupational Fraud and Abuse, found that
occupational fraud was more likely to be detected by tips from
employees in the company than any other method. It is therefore
important that employees know what to look for in detecting fraud
and equally important that whistleblowers are appropriately looked
after. In the future, fraud awareness and employee training should be
the cornerstone of every company’s fraud risk management program.
While companies may have a multitude of policies and procedures in
place to manage their business risks, when it comes to combating fraud
and corruption, no policy or procedure can take the place of a work
force operating within a strong ethical culture.
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 8 1
continued...
PIERRE KILIAN
Manager, Forensic AccountingBDO Risk Advisory Services (Pty) Ltd+27 (0) 10 060 [email protected] / [email protected]
Pierre Kilian joined BDO South Africa in July 2010. He is responsible for leading the forensic service
line and managing day-to-day activities and business development. Mr Kilian was recently seconded to
the London office where he is a manager in the forensic accounting unit. He has extensive experience
leading teams across a variety of industry sectors, with successful engagements being concluded in the
Democratic Republic of Congo, Ghana, Mozambique, Rwanda, Seychelles, South Africa, the UK and Zambia.
Mr Kilian holds a master’s degree in forensic accountancy and is registered as a chartered accountant and
certified fraud examiner.
SOUTH AFRICA • PIERRE KILIAN • BDO RISK ADVISORY SERVICES (PTY) LTD
KILIAN: Companies need to understand that the current socioeconomic
climate is one in which fraud, theft and corruption can be widespread.
As a guide, the ACFE report estimates that a typical organisation loses
5 percent of annual turnover to fraud globally each year, but with these
losses impacting the bottom line directly, replacing this lost value can
cost an organisation significantly more. In short, fraud is the bedfellow
of organisational inefficiency. Fraud risk should be regarded as one of
the key risks in the company and be addressed accordingly through
a dedicated fraud risk management team, and continuous employee
awareness and training programs.
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
8 2 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
KENYA
KAHI: There has been a general increase in the level of corporate fraud
in Kenya. This is attributable to the rising cost of living, emerging modes
of committing fraud and an increased focus on Kenya as an investment
hub, particularly from China and other Asian countries. Reporting of
these cases within the last five years has gone down. When a new
regime took power in 2003, there was increased optimism that the
new government would tackle corruption and citizens were willing
to report corruption cases and assist in fighting corruption. However,
with time, the prosecutorial and investigative arms of government
have performed poorly, eroding public confidence. In the private sector,
people are reluctant to report fraud for fear of victimisation and brand
protection.
KAHI: Some of the more common types of fraud are procurement fraud,
collusion, bribery and/or corruption, embezzlement of funds, kickbacks
and theft. ATM card skimming and other internet related frauds are also
on the rise due to improvements in technology, a growing number of
techno-savvy employees and increased access to internet facilities.
PETER KAHIERNST & YOUNG KENYA
Q TO WHAT EXTENT HAVE
YOU SEEN A NOTABLE RISE
IN THE LEVEL OF CORPORATE
FRAUD, BRIBERY AND
CORRUPTION UNCOVERED
IN KENYA IN RECENT YEARS?
Q ARE THERE ANY SPECIFIC
TYPES OF FRAUD THAT
SEEM TO BE APPEARING
MORE FREQUENTLY IN THE
CURRENT CLIMATE?
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 8 3
continued...
8
Q DO REGULATORS IN
KENYA HAVE SUFFICIENT
RESOURCES TO ENFORCE
THE LAW IN THIS AREA? ARE
THEY MAKING INROADS IN
THIS AREA?
Q HAVE THERE BEEN ANY
REGULATORY CHANGES
IMPLEMENTED IN KENYA
THAT ARE DESIGNED TO
COMBAT FRAUD AND
CORRUPTION?
KAHI: Yes. These include the recent enactment of the Proceeds of
Crime and Anti Money Laundering Act, which requires the setting up
of a functional financial reporting centre to enhance and enforce AML
compliance by banks and other financial services institutions. The
recent establishment of the Insurance Regulatory Authority is aimed at
fighting fraud in the insurance industry. In the public sector, the Kenya
Anti Corruption Commission was disbanded and has been replaced with
the Ethics and Anti Corruption Commission (EACC). EACC carries out
ethics and integrity assessments of all persons aspiring to join public
service. Furthermore, it investigates all cases of fraud and corruption
touching on public officers and government employees.
KAHI: While regulators are making a concerted effort in the fight
against fraud, they face a number of challenges, including insufficient
funds, lack of the requisite technology, tools and expertise, duplication
of roles, lack of capacity in terms of staffing, bureaucratic processes for
outsourcing fraud experts, undue influence from industry players and
too much control by the government.
KENYA • PETER KAHI • ERNST & YOUNG KENYA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
8 4 • F I N A N C I E R W O R L D W I D E • A P R I L 2 0 1 3
continued...
Q ARE COMPANIES MORE
AT RISK OF REGULATORY
INVESTIGATION AND
PROSECUTION? WHAT
PENALTIES COULD THEY FACE
FOR FAILURE TO COMPLY?
Q WHAT ROLE ARE
WHISTLEBLOWERS PLAYING
IN THE FIGHT AGAINST
CORPORATE FRAUD? WHAT
IMPACT DO YOU EXPECT
WHISTLEBLOWING TO HAVE
ON BUSINESS PRACTICES
GOING FORWARD?
KAHI: Yes. The trend now is to qualify the limitation of liability of
directors and make them personally liable for certain acts. For instance,
under the Environmental Management and Coordination Act, 1999,
directors may be held personally liable and face imprisonment where
their companies fail to comply with environmental standards. Non-
compliant listed companies risk delisting or suspension from the
Nairobi stock exchange, hefty fines, blacklisting from procurement by
government and international agencies, surcharging and imprisonment
of directors.
KAHI: Whistleblowers have increased publicity on fraud. They have
also created an atmosphere that discourages fraudulent behaviour.
Whistleblowing is likely to lead to a decline in fraud committed through
connivance as the fraudster will not know who to trust in committing
fraud. People are also likely to gain confidence in the use of hotlines to
report fraud.
KENYA • PETER KAHI • ERNST & YOUNG KENYA
A N N U A L R E V I E W • F R A U D & R E G U L ATO RY E N F O R C E M E N T
A P R I L 2 0 1 3 • F I N A N C I E R W O R L D W I D E • 8 5
continued...
Q WHAT GENERAL STEPS
CAN COMPANIES TAKE TO
PROACTIVELY PREVENT
CORRUPTION AND
FRAUD WITHIN THEIR
ORGANISATION?
KAHI: There are a number of steps that companies can take in order
to prevent corruption and fraud. Firstly they can conduct training on
ethics and fraud awareness, focusing on emerging trends in fraud and
how to detect that fraud. They must also formulate and enforce fraud
prevention policies and procedures. Establishing the right culture via
the ‘tone at the top’ is also important, as is the development of a
fraud response plan. Companies must also conduct periodic fraud risk
assessments as well as regular and accurate background checks on both
suppliers and customers. Equally, companies must continue to embrace
the use of IT security in fighting fraud. Firms must also employ data
analytics to regularly monitor transactions and identify red flags. It is
also vital that companies continue to motivate employees through
sustainable salary reviews; while also improving efficiency in the public
sector and the provision of whistleblowing channels.
PETER KAHI
Partner, Fraud Investigation & Dispute Services Ernst & Young Kenya+254 20 2715300
Peter Kahi’s areas of focus include fraud and investigation, litigation support, anti-money laundering,
fraud risk management and corporate restructuring (asset tracing). He has over 25 years’ experience
in conducting forensic and consultancy assignments. Mr Kahi has led teams in a number of forensic
investigation assignments, in countries such as Kenya, Uganda, Tanzania, Rwanda, Sudan and Somalia. He
is a frequent speaker at workshops and seminars on fraud. Mr Kahi has a Bachelor of Commerce degree
from the University of Nairobi. He is also a certified public accountant of Kenya, an Associate Member of
National Board of Accountants and Auditors (Tanzania) and an Associate Member of the Association of
Certified Fraud Examiners (ACFE).
KENYA • PETER KAHI • ERNST & YOUNG KENYA
FWS U P P L E M E N T
www.fi nancierworldwide.com
A N N U A L R E V I E W