ANNUAL REVIEW

Corporate Fraud & Corruption 2015

June 2015  |  FRAUD & CORRUPTION

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Fraud and corruption affect organisations of all sizes and types and across all industries. Though industries and global authorities have made gains over the years in combating such wrongdoing, fraud and corruption remain a major source of risk for organisations worldwide. What is more, the fraud and corruption landscape is constantly evolving, and with the rise of economic globalisation, it is also expanding. Consequently, senior executives and corporate boards must stay up-to-date with the latest threats and adapt to any emerging trends in today’s rapidly changing environments.

 

UNITED STATES

Randall Wilson

RGL Forensics

“The volume of reported corporate fraud, bribery and corruption cases continues to rise at an alarming rate. This is quite surprising given the scrutiny of regulatory authorities, the heightened level of awareness of the potentiality of corporate fraud and the increasing role of external auditors to detect material misstatement in the financial records of public companies resulting in fraud or error. In a recent case, corporate fraudsters orchestrated a Ponzi scheme that resulted in a loss to investors of nearly $1bn. According to the Internal Revenue Service (IRS), a number of other significant corporate fraud schemes were discovered in 2014 including the founder of Bixby Energy Systems who was sentenced to 300 months in prison and ordered to pay nearly $60m in restitution as a result of a Ponzi scheme involving the offer of company securities.”

 

BRAZIL

Martin Whitehead

PwC

“According to the PwC 2014 Global Economic Crime Survey, which relies entirely on client responses, Brazilian respondents saw a slight dip in the incidence of economic crime over the prior two-year period, with 27 percent reporting one or more material economic crimes against a global average of 34 percent – yet respondents also reported that the cost of each incident rose. Procurement fraud is particularly problematic in Brazil, comprising almost half of all incidences of economic crime. Speaking with clients provides mixed viewpoints concerning the level economic crime over time, with some indicating that it has risen steadily in Brazil over the last decade or so, in line with reports in the public domain from other territories.”

 

COLOMBIA

Liudmila Riaño

EY

“Colombia ranked as the 94th least corrupt country out of the 175 measured in the Corruption Perceptions Index of 2014. Its position has been quite stable in the last three years, but if we compare this with the Corruption Perceptions Index back in 2002, where Colombia occupied 57th spot, there has definitely been a marked difference in the rise of perceived corruption over the last 10 years. This could be the result of an increase in the size of the economy and improvements in education and communications in Colombia, whereby more cases are being published, some of them identified due to anonymous reporting lines for whistleblowers and others due to proactive measures taken by companies. In recent years, there has been a trend of increasing consciousness about integrity and ethical concepts in Colombian companies.”

 

UNITED KINGDOM

Agnes Quashie

PwC Legal

“PwC’s Global Economic Crime Survey 2014 showed that the majority of respondents felt that the level of economic crime and the financial impact of it had increased in the last two years. Interestingly, however, the same survey also showed that companies experiencing financial crime had fallen from 51 percent in 2011 to 44 percent in 2014. The decrease in corporate victims could be as a result of improved governance risk and compliance within businesses to manage the risk of financial crime which has in turn come out of the UK Bribery Act 2010 (UKBA), aggressive enforcement by the Financial Conduct Authority for those in the financial services sector and, more generally, increased regulation.”

 

GUERNSEY

John Greenfield

Carey Olsen

“As an offshore financial centre, the Bailiwick of Guernsey and all companies that choose to locate or operate within it, must possess a heightened awareness of the innate and continual threat of corruption and fraud. Despite the vast number of multinational companies which choose to operate within Guernsey, there does not appear to have been any substantial alteration or rise in the level of corporate fraud, bribery or corruption. A proactive approach to corporate fraud is adopted by the vast majority of companies within Guernsey, so much so, that despite the Prevention of Corruption (Bailiwick of Guernsey) Law, being implemented in 2003, it does not appear that there has been a conviction under it.”

 

IRELAND

Paul Jacobs

Grant Thornton

“There is an important distinction to be made between corporate fraud and bribery and corruption. There has been a noticeable increase in the level of detection of corporate fraud in the last five years, with a possible increase in the level of fraud that is being perpetrated. We attribute this to three principal factors; the first two factors are linked to the economic environment that Ireland has experienced since 2008 including a recessionary period. Firstly, management in organisations are more often scrutinising financial information and their relationships with third parties – for example, charges by external suppliers. This can lead to the identification of ‘issues’ that are often historical. Secondly, we have found that the personal financial circumstances of the perpetrator have been a factor leading to the commission of the fraud.”

 

GERMANY

Naidira Alemova-Goeres

EY

“According to the latest published figures by the German Federal Criminal Police Office, there has been an overall decrease in recent years in corruption-related crimes discovered by law enforcement agencies. At the same time the data shows an increase in the detection of bribery and investment fraud cases contributed by continuous anti-corruption and anti-fraud enforcement by the authorities. According to the OECD Working Group on Bribery, Germany had a “leading position in the investigation and prosecution of foreign bribery cases” and was ranked second in the total number of bribery cases, behind the US.”

 

SWITZERLAND

Roman Richers

Homburger

“Switzerland is traditionally a country with low levels of criminality, including white-collar crimes, and little has changed in this respect in recent years. However, Switzerland’s economy is, to a large extent, internationally oriented and many large multinationals are based in Switzerland. The international focus of Switzerland’s economy has led many companies to strengthen their internal compliance structures to ensure that their operations are conducted lawfully throughout the world. The growing awareness of fraud and corruption related risks has recently also caused a notable rise in the number of internal investigations taking place.”

 

PORTUGAL

Filipa Marques Júnior

MLGTS - Morais Leitão, Galvão Teles, Soares Da Silva & Associados

“What could be perceived as a rise in the level of such offences seems to correspond more to a rise in the number of investigations and increased awareness from the media. In fact, not only have the authorities begun to pay greater attention to such topics and utilise more effective investigative methods, the general public is also becoming more demanding in terms of being informed of the status of such investigations. This could be perceived as a rise in the level of corporate fraud, bribery and corruption, however we believe that levels have remained quite similar to the past – perhaps there has even been a slight decline in the amount of corporate fraud carried out, precisely due to increased awareness and investigation.”

 

ITALY

Fabrizio Santaloia

EY

“Recent data show that unethical behaviours persist in Italy, with the country receiving one of the lowest scores among EU member states in Transparency International’s latest Corruption Perceptions Index. This trend is linked with the severe economic downturn that Italy has faced in recent years. A 2015 survey showed that 67 percent of Italians have the perception that bribery and corrupt practices happen widely in business in Italy, and 46 percent have the perception that companies in this country often report their financial performance as better than it is. Reducing corruption and improving trust must remain a priority for Italy, as is enforcing new legislation.”

 

CZECH REPUBLIC

Jan Spacil

Deloitte

“There has definitely been a rise in the number of corporate fraud, bribery and corruption cases that have been investigated by the respective authorities, especially the police. Those cases always attract media attention and scrutiny. Over the last three years, many of these cases have actually concerned large corporations and state-owned companies, as well as individuals in management positions. It is, however, difficult to predict whether and when the accusations toward these companies and individuals are going to be resolved by the courts and what the final decision in those cases could be.”

 

INDIA

Dinesh Anand

PwC

“Today, economic crime is a global threat. According to the PwC Global Crime Survey 2014, “More than one in three organisations around the world are impacted by economic crime”. The survey has identified emerging economies including India, where 40 percent of total respondents have experienced economic crime in one form or another. Notably, economic crimes like money laundering, accounting fraud and HR fraud are among the top 10 economic crimes suffered by organisations. There has also been an emerging trend of fraud in the form of cyber crime, identity and intellectual property theft as fraudsters increasingly turn to technology to perpetuate economic crime. From an industry standpoint, economic crime is noted to be most common in sectors such as financial services, retail, consumer, infrastructure and real estate in India.”

 

CHINA & HONG KONG

Allen Liao

Grant Thornton

“Since the GSK case in 2013, there has been a continued rise in fraud cases being investigated by the Chinese authorities as part of their anti-corruption campaign. We’ve seen investigations across a wide range of industries including pharmaceuticals, high-tech and natural resources. FCPA-driven investigations continue at a steady pace, though these tend to be lead by multinationals rather than the DoJ.”

 

AUSTRALIA

Rob Locke

EY

“We have seen a notable rise in corporate fraud, which has been characterised by larger frauds being perpetrated by quite junior employees, often aided by technology such as electronic banking and payments platforms and the ability to circumvent hard system based controls and poor segregation of key duties due to organisational flattening and other cost control programs. Cyber frauds are also an emerging and alarming trend, particularly organisational hacking and email spoofing, whereby a senior manager’s email account is mimicked and instructions are given from that account to finance staff to make payment transfers. The best measure of frequency is the unprecedented level of travel we are undertaking on behalf of Australian multinationals with bribery and corruption exposure offshore.”

 

SOUTH AFRICA

Vernon Naidoo

Grant Thornton

“South Africa’s high levels of fraud and corruption are having a negative impact on the economy, job creation and service delivery. The challenge in accurately assessing the extent to which fraud and corruption is growing is predominantly due to a lack of data. Not all public and private sector entities are reporting fraud and corruption even though there is a legal obligation to do so. Fraud and corruption is becoming more and more sophisticated and this, coupled with globalisation and an increasing dependency on technology, has contributed to this notable rise.”

 

GHANA

Eric Nana Nipah

PwC

“There has been an increase in the level of corporate fraud, bribery and corruption in Ghana. Previously, such incidents may have existed but were not investigated for individuals or institutions to be brought to book. In recent times, such cases are now in the public spotlight as a result of greater media involvement in creating awareness and the increase in other anti-corruption agencies. Some high profile cases are currently pending in the law courts of Ghana. The Ghana Youth Employment and Entrepreneurial Development Agency case is pending judgment on 19 June 2015. Another noteworthy case involves the National Service Secretariat (NSS), where the former executive director and other regional and district directors were involved in an alleged corruption scandal.”


CONTRIBUTORS

Carey Olsen

Deloitte

EY

Grant Thornton

Homburger

MLGTS - Morais Leitão, Galvão Teles, Soares Da Silva & Associados

PwC

PwC Legal

RGL Forensics


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