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

Bribery and corruption is widespread in EMEIA, claims new fraud survey

BY Fraser Tennant

Bribery and corruption is a huge problem in Europe, the Middle East, India and Africa (EMEIA), with unethical behaviour and high levels of mistrust among colleagues typical of today's workforce at larger companies, reveals a new EY fraud survey.

According to ‘Human instinct or machine logic: Which do you trust most in the fight against fraud and corruption?’, an average of 51 percent of those surveyed (4100 senior company executives spanning 41 countries) said they assume that business transactions in their country involve bribery and corruption.

Among the report’s other key findings: (i) 25 to 34 year-olds are more corrupt than other age groups and assume that management is also corrupt; (iii) whistleblowing is not being effectively implemented, with employees often not knowing to whom they can report a suspicious person; and (iii) efforts by regulatory authorities are hitting home, with three-quarters of survey respondents supporting individual responsibility for managers.

The EY fraud survey comes at a time when significant and sometimes unexpected political change is spreading economic uncertainty, presenting businesses with new challenges and opportunities in an increasingly disrupted world. At the same time, the challenges facing businesses continue to mount – such as the pace of technological change, shifts in consumer demands, the changing makeup of the workforce and the constant pressure of growth.

Given these significant political and economic changes, business conduct is now under scrutiny like never before. Businesses must find alternative ways to meet ambitious revenue goals and be responsive to the significant public demand for businesses to be held to account through greater transparency and accountability where traditional compliance frameworks may no longer be valid.

"The diesel dupe, the Libor scandal, illegal price fixing and intentionally falsely declared meat; compliance violations are constantly hitting the headlines,” said Michael Faske, head of fraud investigation & dispute services at EY. “The results of our survey show that unethical behaviour and a high level of mistrust among colleagues are typical of today's workforce at large companies. This applies in particular to managers and the youngest generation.

“The requirements of the regulatory authorities have continued to grow and even the companies themselves have introduced strict compliance regulations. In the perception within and outside of the company, these rules do not change anything however, if they are evaded by individual employees or even by the management committee."

Although the survey does highlight progress and improvement in some emerging economies , overall the fight against bribery and corruption remains a major challenge across the EMEIA region.

Report: Human instinct or machine logic: Which do you trust most in the fight against fraud and corruption?

Significant rise in fraud and risk incidents in 2016, confirms new report

BY Fraser Tennant

Fraud, cyber and security incidents are now the “new normal” for companies across the world, according to a new report by Kroll, the global risk consulting company.

In its ‘2016/17 Annual Global Fraud and Risk Report: Building Risk in a Volatile World’, Kroll highlights the escalating threat to corporate reputation and regulatory compliance. Eighty-two percent of the global executives surveyed stated that their company had fallen victim to fraud in 2016 , up from 75 percent in 2015.

Kroll also found that cyber incidents were particularly commonplace, with 85 percent of executives confirming that their company had suffered a cyber incident over the past 12 months. Furthermore, over two-thirds (68 percent) reported the occurrence of at least one security incident over the course of the year, with the theft or loss of intellectual property cited as the most common type.

Although the Kroll report highlights the widespread concerns over external attacks, the data indicates that the most common perpetrators of fraud, cyber and security incidents over the last year were current and former employees. Junior staff were cited as key perpetrators in two-fifths (39 percent) of fraud cases, followed by senior or middle management (30 percent) and freelance or temporary employees (27 percent). Former employees were also identified as being responsible for 27 percent s of reported incidents.

“It’s becoming an increasingly risky world, with the largest ever proportion of companies reporting fraud and similarly high levels of cyber and security breaches,” said Tommy Helsby, co-chairman at Kroll Investigations and Disputes. “The impact of such incidents is significant, with punitive effects on company revenues, business continuity, corporate reputation, customer satisfaction and employee morale.”

In terms of the impact that fraud and security concerns have on overseas expansion, 69 percent of executives admitted that their company has been dissuaded from operating in a particular country or region due to fraud concerns and security threats.

Mr Helsby concluded: “With fraud, cyber and security incidents becoming the new normal for companies all over the world, it’s clear that organisations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage.”

Report: ‘2016/17 Annual Global Fraud and Risk Report: Building Risk in a Volatile World’