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ANNUAL REVIEW

Corporate Fraud & Corruption 2019

May 2019  |  FRAUD & CORRUPTION

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Corporate fraud and corruption collectively costs businesses and economies hundreds of billions a year. It has the potential to damage reputation and brand, severely weaken business development, compromise efficiencies and ultimately leave an irremovable stain on the corporate landscape. Seemingly ubiquitous, corporate fraud and corruption can wear many faces – be it insider trading, money laundering, embezzlement, fraudulent financial reporting or misappropriation of corporate assets, among others – permeating every sector and industry, and in virtually every country across the globe.

 

UNITED STATES

Anne Marie Minogue

Navigant Consulting, Inc.

“One proxy for measuring corporate fraud and corruption in the US is the dollar amount of fines imposed by federal authorities in recent years. Although monetary fines are increasingly common in the prosecution of fraud and corruption, statistics show a 20-year downward trend in the volume of federal white-collar crime cases prosecuted by the Department of Justice (DOJ). Moreover, the DOJ is annually prosecuting less than half the amount of corporate fraud cases that it prosecuted a decade ago. Despite decreasing prosecutions for federal white-collar crime and corporate fraud, in our opinion the decreases are not reflective of a downward turn in actual crime but rather a manifestation of competing enforcement priorities and diminished resources.”

 

UNITED KINGDOM

Gavin Williamson

AlixPartners LLP

“Prosecutions are up, fines are up, column inches devoted to the subject are up and the government tells us that the total value of fraud in the UK has doubled in the last 10 years. Does this really mean that corporate fraud, bribery and corruption are all increasing? Almost certainly not, but it does demonstrate that public and corporate awareness, and especially willingness to acknowledge and report fraud is higher than it has ever been. And we do seem to be entering a virtuous corporate governance circle where increased publicity of instances of fraud and corruption is driving increasing willingness among boards and senior managers to investigate and litigate potential issues.”

 

SPAIN

David Jiménez-Ayala

Duff and Phelps, S.A.

“Our 2018 Anti-Bribery and Corruption Benchmarking Report showed that, despite the increased focus and engagement of organisational resources on compliance efforts, a staggering 93 percent of respondents believed their anti-bribery and corruption risks would remain the same or worsen in 2018. After a decade of remarkable growth, the level of corporate fraud, bribery and corruption in Spain has remained relatively stable in the last few years – giving Spain an average ranking among countries with similar economic profiles.”

 

PORTUGAL

Tiago Geraldo

Morais Leitão, Galvão Teles, Soares da Silva & Associados, SP, RL.

“In recent years, several high-profile cases of bribery or corruption have been uncovered, prosecuted and tried in the Portuguese courts. There have been three cases which have had a significant impact. The ‘Face Oculta’ case involved an alleged corruption ring designed to favour a private business group linked to business waste and waste management, with relevant state firms also involved. The ‘Labirinto Operation’ was related to alleged unlawful concession of ‘golden’ visas.”

                                                                                                        

GERMANY

Finn Zeidler

Gibson, Dunn & Crutcher LLP

“After an apparent uptick in public attention toward perceived corruption about five years ago, culminating in the resignation and subsequent trial of Germany’s federal president on corruption allegations, for which he was ultimately acquitted, the focus over the last year or two has shifted to alleged fraud on consumers, where Volkswagen and its diesel vehicles stand out. In addition, alleged fraud cases in the health industry arise in the media. Last but not least, probably the matter garnering the most attention at the moment is the criminal investigation into alleged tax frauds involving ‘cum ex’, affecting significant parts of the financial industry.”

 

SWITZERLAND

Ralf Baumberger

PricewaterhouseCoopers AG

“The Swiss Financial Market Supervisory Authority (FINMA), the Office of the Attorney General of Switzerland (OAG) and Cantonal Public Prosecutors Offices have successfully uncovered, prosecuted or otherwise settled a significant number of suspected allegations of fraud, bribery and corruption on a far greater scale than seen in previous years. These cases have included Swiss authorities pursuing investigations alone within their jurisdiction and collaborative cases with foreign authorities, such as Petrobras-Odebrecht, and the FIFA and 1Malaysia Development Berhad corruption scandals.”

 

ITALY

Stefania Papa

Deloitte Financial Advisory S.r.l.

“In recent years, we have not seen a significant rise in the number of cases uncovered by law enforcement agencies, investigative journalists or corporate auditors. That does not necessarily mean there is a drop in corruption in real terms. The phenomenon is by definition widely underreported because of a lack of a systematic collection of data publicly available in Italy. Nevertheless, if we consider some data published online by the Italian Ministry of Justice, concerning criminal proceedings for corruption charges before Italian Tribunals, they show an ‘up and down trend’ over the last four years.”

 

POLAND

Marcin Cieminski

Clifford Chance, Janicka, Kruzewski, Namiotkiewicz i wspólnicy sp.k.

“In recent years, several major corruption-related prosecutions have dominated the headlines. Enforcement of corruption-related offences remains high. At the same time, in December 2017, the Polish government published its Anti-Corruption Strategy 2018-2020. The main objective of the Strategy is to considerably reduce corruption and to promote social awareness in respect of counteracting corrupt practices. For the purpose of achieving this overall objective, the priorities are to strengthen educational and preventive activities, to improve monitoring mechanisms with regard to corruption-prone issues and monitor the application of the anti-corruption regulations, and to improve cooperation and coordination between law enforcement authorities, including international cooperation.”

 

UKRAINE

Gennadiy Chuprykov

PwC Advisory LLC in Ukraine

“According to our Global Economic Crime and Fraud Survey 2018, 48 percent of Ukrainian companies suffered from instances of fraud over the last two years, a 5 percent increase compared to 2016. Bribery and corruption has had a significantly negative effect on individual companies and business in general – an alarming 73 percent of Ukrainian companies experienced this type of fraud over the past two years, compared to 56 percent in 2016. The other top reported types of fraud in Ukrainian companies were asset misappropriation, procurement fraud, HR fraud and cyber crime. There was also a significant increase in the amount of fraud committed by internal actors, up from 28 percent in 2016 to 56 percent in 2018.”

 

RUSSIAN FEDERATION

Denis A. Korolev

Ernst & Young (CIS) B.V.

“Uncovering cases of corporate fraud, bribery and corruption has been on the rise significantly in our region. A few major factors have contributed to this. Ongoing economic recession continues to increase pressure to commit fraud and corruption on those who are making losses, but still in office – both in the public and private sectors. Moreover, political tensions with the West continue to result in new sanctions designed to make certain businesses struggle to profit. Another significant factor in the region is the overwhelming boom of social networks and messaging services that now host numerous public groups and channels, some of them anonymous, with hundreds or even tens of thousands of subscribers.”

 

INDIA

Anuj Bugga

FTI Consulting

“A recent Reserve Bank of India (RBI) report documented a sharp 72 percent rise in banking fraud from the previous fiscal year. The report pointed to a singular large value case impacting the increase in value of reported frauds. In addition to this, we have also seen an increase in whistleblower complaints in Indian listed companies for the financial year and India continues to fare poorly in Transparency International’s Corruption Perceptions Index. The index describes India’s score as stagnant in recent years, but there are promising political developments, anti-corruption reforms and awareness within companies that will look to address corporate fraud, bribery and corruption in India.”

 

CHINA & HONG KONG

Mavis Tan

Control Risks Group Holdings Ltd

“In the past two years, we have seen a steady increase in corporate fraud cases, both among multinational companies (MNCs) and private Chinese companies. Slower economic growth is likely a contributing factor, causing more people to resort to illicit means to generate more income. Also, thanks to the increasing popularity of social media mobile app WeChat, private peer-to-peer communications and financial transactions are now literally at everyone’s fingertips, making white-collar crimes in China harder for companies to detect and pursue than ever before. Moreover, recent fraud cases have become more sophisticated.”

 

AUSTRALIA

Matt Fehon

McGrathNicol Advisory

“While reports of internal fraud against Australian corporations continue to rise, a noticeable shift in recent years has been an increase in externally-instigated fraud. Technology has become the most important business enabler and, so too, it has become the most important financial crime enabler, particularly in terms of external attack on business. Australian corporations are heavily reliant on information technology due, in part, to relatively high labour costs and a consequent need to reduce organisational headcount. In recent years, there has been an alarming increase in reports of cyber fraud including theft of commercially sensitive and confidential client data, cryptocurrency-linked financial crime, ‘card-not-present’ credit card fraud, ransomware and business email compromise.”

 

UNITED ARAB EMIRATES

Stephen Crowe

Nardello & Co. (UAE) LLC

“A few years ago, words such as fraud, bribery and corruption were not openly discussed in the boardrooms and C-suites of Middle East companies. The increase in these types of offences in the region in recent years perhaps runs parallel to the progressive elevation of these topics globally. Local and regional governments, as well as companies, are looking internationally for investments or partners, which themselves are required to demonstrate their network compliance with conventions such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. This, in combination with enhancements to penal codes and regulatory provisions, has placed a spotlight on fraud, bribery and corruption risks generally in the region, and has translated to a rise in discoveries.”


CONTRIBUTORS

AlixPartners LLP

Clifford Chance, Janicka, Kruzewski, Namiotkiewicz i wspólnicy sp.k.

Control Risks Group Holdings Ltd

Deloitte Financial Advisory S.r.l.

Duff and Phelps, S.A.

Ernst & Young (CIS) B.V.

FTI Consulting

Gibson, Dunn & Crutcher LLP

McGrathNicol Advisory

Morais Leitão, Galvão Teles, Soares da Silva & Associados, SP, RL.

Nardello & Co. (UAE) LLC

Navigant Consulting, Inc.

PricewaterhouseCoopers AG

PwC Advisory LLC in Ukraine


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