Fraud hits almost two thirds of UK firms, reveals new report

BY Fraser Tennant

Almost two thirds of UK firms have been the victim of fraud or economic crime over the past two years, according to research published this week.

PwC’s ‘2022 Global Economic Crime Survey’ found that the number of UK companies targeted by fraudsters was above the global average for this year (46 percent), as well as being higher than the last time the survey was conducted in 2020 (56 percent).

Moreover, of the types of fraud reported, cyber crime was the most frequent, with almost a third (32 percent) experiencing a cyber breach, although this is less than the number that fell victim to cyber crime in the 2020 survey (42 percent). Supply chain fraud, included for the first time in the survey, accounted for almost a fifth of respondents (19 percent).

“With increased levels of disruption being experienced, and the fact that more UK organisations have experienced fraud than in our last survey, it is surprising to see a decline in some types of fraud and economic crime, such as cyber crime, bribery and financial statement fraud,” said Fran Marwood, partner and head of digital & forensic investigations at PwC. “However, from what we are seeing in the market, I believe these trends are temporary.”

As far as who is committing fraud is concerned, just over half of UK respondents (51 percent) said fraud was committed by external fraudsters, compared to 43 percent globally. The top three external perpetrators according to those surveyed in the UK were customers, hackers, and vendors and suppliers.

Additional findings reveal that the most serious fraud was initially detected most frequently by companies monitoring suspicious activity using forensic technology and by internal audit, followed by corporate security and whistleblowing or tip-off. In terms of money lost through fraud, almost a quarter of survey respondents reported the figure to be between $1m and $5m.

“The message to organisations is clear,” concludes Mr Marwood. “With fraud now a greater and more costly threat than we have seen before, and the risk landscape continuing to undergo rapid change, it is important that organisations invest in prevention, and take the time to make sure their defences are match-fit for any attacks.”

Report: 2022 Global Economic Crime Survey

Corruption hit biggest companies hardest in 2020, reveals new report

BY Fraser Tennant

More than half of the world’s biggest companies reported “very significant” impacts as a result of the impact of corruption and illicit activity in 2020, reveals a report published this week by Kroll.

According to the ‘Global Fraud and Risk Report 2021Bribery and Corruption: The Winds of Change’, 57 percent of respondents at companies with a turnover of more than $15bn reported a very significant impact of illicit activity, such as fraud, corruption and money laundering.

Kroll also found that global organisations were feeling vulnerable to both internal and external threats, with 46 percent of respondents citing lack of visibility over third parties as the number one threat relating to bribery and corruption risk. Weaknesses in internal record-keeping was second on the list, followed by employees’ actions. 

To combat this, companies were placing an increased focus on proactive measures to manage bribery and corruption risk, including enterprise-wide risk assessments and the use of proactive data analytics. However, despite these defences, 82 percent overall still felt corruption and illicit activity were having a significant impact on their organisation. 

“It has been an unprecedented year for corporate risk,” said Zoe Newman, managing director of forensic investigations and intelligence at Kroll. “Firms have faced threats from all angles, including increasingly complex supply chains and the impact of COVID-19 measures.

“The findings from our report leave us with an important question,” she continued. “Why are bribery and corruption threats persisting and still having such a big impact? Poor record-keeping or the inability to adequately monitor frontline teams and regional offices are typical vulnerabilities that are often overlooked. Then there is the human factor.”

More encouragingly, the report found that many companies are bolstering their defences with proactive measures such as data analytics, and that bribery and corruption risk is on the boardroom agenda. 

Ms Newman concluded: “An organisation can have the best possible compliance programme in place on paper, but if the human elements of the chain are not well managed, educated or equipped to act, non-compliance or illicit behaviour will continue to prevail and go undetected.”

Report: Global Fraud and Risk Report 2021Bribery and Corruption: The Winds of Change

Corruption threatening global COVID-19 recovery, says new report

BY Fraser Tennant

Widespread corruption is undermining healthcare systems and threatening the global recovery from the coronavirus (COVID-19) pandemic, according to a new Transparency International report published this week.

In its ‘2020 Corruption Perceptions Index’ (CPI), Transparency International ranks 180 countries and territories by their perceived levels of public sector corruption, drawing on 13 expert assessments and surveys of business executives. The index uses a scale of zero (highly corrupt) to 100 (very clean).

According to the CPI, corruption poses a critical threat to citizens’ lives and livelihoods, especially when such behaviour is combined with a public health emergency such as COVID-19.

At the upper end of the CPI, clean public sectors correlate with greater investment in healthcare. Uruguay, for example, at 71 on the scale, has the highest CPI score in Latin America, invests heavily in healthcare and has a robust epidemiological surveillance system, which has aided its response to COVID-19 and other infectious diseases. 

In contrast, Bangladesh, at 26 on the scale, invests little in healthcare while corruption flourishes during COVID-19, ranging from bribery in health clinics to misappropriated aid. Corruption is also pervasive in the procurement of medical supplies. Countries with higher corruption levels also tend to be the worst violators of rule of law and democratic institutions during the COVID-19 crisis.  

“COVID-19 is not just a health and economic crisis, it is a corruption crisis,” said Delia Ferreira Rubio, chair of Transparency International. “And one that we are currently failing to manage. The past year has tested governments like no other in memory, and those with higher levels of corruption have been less able to meet the challenge. But even those at the top of the CPI must urgently address their role in perpetuating corruption at home and abroad.”

To reduce corruption and better respond to future crises, Transparency International recommends that all governments: (i) strengthen oversight institutions to ensure resources reach those most in need; (ii) provide anti-corruption authorities and oversight institutions with sufficient funds, resources and independence to perform their duties; and (iii) ensure open and transparent contracting to combat wrongdoing, identify conflicts of interest and ensure fair pricing.

“It is not surprising to see that there is a correlation between a country’s index score and their response to COVID-19,” said Michael Harris, financial crime consultant at LexisNexis Risk Solutions. “The pandemic exemplifies the impact corruption can have on government systems and more needs to be done to tackle this problem, including strengthening institutional oversight and ensuring thorough due diligence is carried out, regardless of the wider circumstances.”

Report: 2020 Corruption Perceptions Index (CPI)

DOJ releases revised compliance guidance

BY Richard Summerfield

This week the US Department of Justice (DOJ) issued a series of revisions to its ‘Evaluation of Corporate Compliance Programs’ which clarifies the new factors prosecutors may consider in the areas of risk management, policies and procedures, training and communications, mergers and acquisitions, and more in their evaluation of corporate compliance programmes.

Since the department first released guidance on how it evaluates corporate compliance programmes in 2017, there have been several revisions. Though the latest version leaves much of the substance of earlier versions unchanged, the most recent updates are in keeping with the agency’s efforts to improve its policies and provide transparency.

“The revised guidance on the Evaluation of Corporate Compliance Programs reflects additions based on our own experience and important feedback from the business and compliance communities,” said Brian Benczkowski, assistant attorney general of the DOJ’s Criminal Division, in a statement. “Although much of the substance of the prior version remains unchanged, the updates we have made are in keeping with our continued efforts as prosecutors to improve our own policies and practices to ensure transparency and the effective and consistent enforcement of our laws”.

One of the most telling changes has been in the section of the guidance concerning compliance programme structure, in which new language has been added to reflect how the Criminal Division assesses a company’s risk profile and offers solutions to reduce its risks. The new language states prosecutors will make a “reasonable, individualised determination in each case that considers various factors including, but not limited to, the company’s size, industry, geographic footprint, regulatory landscape, and other factors, both internal and external to the company’s operations, that might impact its compliance program”.

There have also been notable revisions to the language requiring prosecutors to ask companies whether their compliance programme is “adequately resourced and empowered to function” effectively. In previous versions of the guidance, prosecutors were encouraged to ask if the compliance programme has been “implemented effectively”.

Furthermore, the revisions note that prosecutors will evaluate compliance programmes at the time a potential offence occurred and when a decision is made about bringing charges. This will enable them to track the steps taken by companies to prevent problems from reoccurring.

News: DOJ revises its Corporate Compliance Guidance

Petrobras to settle corruption case for $2.95bn

BY Fraser Tennant

Dogged by allegations of corruption going back several years, Petrobras has announced its agreement to pay $2.95bn to settle the securities class action lawsuit brought on behalf of investors harmed by a huge corruption scandal at the Brazilian state oil giant.

Filed in the United States District Court for the Southern District of New York, the agreement, which is subject to approval by the court, is intended to resolve all pending and prospective claims by purchasers of Petrobras securities in the US and by purchasers of Petrobras securities that are listed for trading in the US.  

The agreement eliminates the risk of an adverse judgment which, as Petrobras has previously stated, could have a material adverse effect on the company and its financial situation, and puts an end to the uncertainties, burdens and costs of protracted litigation.

Under the proposed settlement, Petrobras has agreed to pay $2.95bn to resolve claims in two instalments – one $983m and another of $984m. The first instalment will be paid within 10 days of preliminary approval of the settlement by the court. The second instalment will be paid within 10 days of final approval of the settlement. It has also been agreed that a third instalment will be paid six months after final approval.

The court has stated that the total settlement amount will be recognised in the fourth quarter of 2017.

In a statement, Petrobras said that the agreement is in “the company’s best interest and that of its shareholders, given the risks of a verdict advised by a jury, particularities of US procedure and securities laws, as well its assessment of the status of the class action and the nature of such litigation in the US”.

In the US, only approximately 0.3 percent of securities-related class actions proceed to trial.

The agreement is scheduled to be submitted to the district court in New York for review. If preliminary approval is granted, the court will notify the members of the class of the terms of the proposed settlement. After considering any objections and a hearing on the fairness of the proposed settlement, the court will decide whether to grant final approval.

As a result of the agreement, the parties will ask the US Supreme Court to defer consideration of Petrobras’s petition for a writ of certiorari – which was scheduled for 5 January 2018 – pending final approval of the proposed settlement.

News: Petrobras to pay $2.95 billion to settle U.S. corruption lawsuit