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Q&A: Impact of technology on bribery prevention and detection

July 2019  | SPECIAL REPORT: WHITE-COLLAR CRIME

Financier Worldwide Magazine

July 2019 Issue


FW moderates a discussion on the impact of technology on bribery prevention and detection between Alexandra Wrage and Robert Clark at TRACE.

FW: What, in your view, constitute the main areas of bribery risk for organisations?

Wrage: This depends in part on the nature of the company and its business. Most of us are likely familiar with the statistic that somewhere over 90 percent of all bribery-related enforcement cases are based on the corrupt acts of third-party intermediaries, making that a pretty safe choice as one of the biggest risk areas – especially for large companies managing rosters of hundreds or even thousands of intermediaries at any given time. But those intermediaries almost never act alone. They collude with employees within the company to generate and pay bribes. So, while it is important to vet your business partners, it is not sufficient. Companies need to train the employees that interact with them and ensure there are controls in place to deter, or if that fails, to detect these payments. Effective oversight is always critical. A company can be held responsible for a bribe paid on its behalf, even if it did not direct anyone to do anything wrong. Companies can minimise their exposure to liability by having appropriate deterrence mechanisms in place and by moving quickly to put an end to any misconduct. In that sense, another significant risk is taking a head-in-the-sand approach to the problem.

FW: Given the staggering increase in volume, variety and velocity of business data, what benefits can technology offer to companies in terms of monitoring, detecting and preventing bribery and corruption?

Clark: If it is well-organised and made appropriately accessible to the right people within the organisation, all that data can go a long way toward reducing the kind of administrative chokepoints that help misconduct go undetected. A lot can be accomplished by making it possible for management and oversight personnel to move fluidly between high-level financial overviews and the granular details of particular invoices and payments. Of course, those sorts of tools are only as good as the people using them, so you must also make sure you are cultivating the right attitudes and maintaining the right incentives for improprieties to be reported and dealt with.

Sometimes it is easy to miss the distinction between digitalisation and what you might call mere ‘digitalising’.
— Robert Clark

FW: How important is it for organisations to better understand their customers, employees and business partners, to reduce instances of bribery?

Wrage: Technological developments have not fundamentally changed the answer here: knowing who you are doing business with and how you are going about it has always been a key to keeping corruption at bay. What has changed, perhaps, is the scale at which these questions have to be asked, and the complexity when faced with so much available information. What is unlikely to change is the requirement for expert judgment to be exercised to ensure the information gathered is applied to the specifics of the deal in the relevant industry and region.

Clark: Sometimes the sheer volume of information can actually make it hard to recognise what information you do not have. We rightly do not want anything slipping past our sensors, but we also do not want to get so caught up in the data deluge that we forget to ask the most basic questions, like who actually benefits from a company’s engagement.

FW: What types of technology solutions are available to help firms improve their anti-bribery processes?

Clark: One promising area is the development of anomaly detection algorithms: techniques for using the enormous amount of available data to automatically detect fraudulent behaviour. These algorithms are based on statistical tests that identify certain values outside of a normal range. Even so, where the analysis suggests that an agent’s activities and successes lie outside the norm, it can be worth taking a closer look into whether this is simply a very talented salesperson or if something less savoury is afoot. An increasing ability to flag such instances automatically will be a significant aid in the fight against bribery.

FW: To what extent are these technologies keeping pace with savvy fraudsters? Do organisations need to maintain cutting-edge solutions to combat threats?

Clark: Keeping pace is by definition a relative thing; for example, these same anomaly detection technologies could in principle be used to create more effective cloaking for financial misconduct. Of course, that would only be necessary if enough people were on the lookout for that sort of anomaly in the first place. Otherwise, it is much easier – and cheaper – for the fraudsters to keep hiding in plain sight.

Wrage: In some ways, this sort of cutting-edge detection is of greater practical relevance to law enforcement agencies, which are in a unique position, both financially and jurisdictionally, to put the technology to work against criminals and their organisations. The rest of us should stay alert to new technologies, but we should not be preoccupied with them at the expense of the fundamentals of compliance: clear ethical tone, sound feedback structures and consistent application of risk-based due diligence. Enforcement agencies are not going to ask what ‘cutting-edge’ tools you used. They are going to ask if you put in the effort to understand and deal with your own specific risks. Tools are great, but they are only tools – and the judgment of a professional who understands the deal specifics and the company’s appetite for risk remains a key factor in a successful programme.

One of the biggest game-changers may come from governments themselves, in the form of increased use and availability of e-government tools.
— Alexandra Wrage

FW: In your experience, what are the biggest challenges that tend to arise when digitalising bribery prevention and detection processes? What steps can companies take to overcome them?

Clark: Sometimes it is easy to miss the distinction between digitalisation and what you might call mere ‘digitalising’: converting hard-copy records and processes to a digital format and leaving it at that, like getting all your old home movie videotapes burned onto a CD-ROM and never watching them again. It is an easy trap to fall into because you know you need to do something to keep up with the digital age, and this is at least measurable. But you do not want to let the process outstrip the purpose.

Wrage: It is so important to keep your eye on the fundamentals. If you are asking yourself, ‘What does our company need to do to address its own particular compliance risks?’, you are more likely to find traction in your upgrade efforts.

FW: How are the tools and techniques used to detect and prevent bribery likely to evolve in the years ahead? Are any particular innovations set to disrupt this space?

Wrage: One of the biggest game-changers may come from governments themselves, in the form of increased use and availability of e-government tools. We are seeing more and more how online access to government services can minimise both the opportunity and the incentive for bribes – and that it can do so for big and small governments alike. E-government tools can also increase public transparency and citizen participation, supporting a long-term reduction in governmental corruption. If companies can clear customs, process permits and participate in bids online, for example, the likelihood of a bribe-tainted transaction is greatly reduced. Contributions will doubtlessly be made through other new technologies as well – like blockchain and machine learning – but it will take some time to sort through the hype and find the real substance they have to offer.

 

Alexandra Wrage is president and founder of TRACE. She has written several books and speaks frequently on transparency, good governance and the hidden costs of corruption. She was a member of FIFA’s failed Independent Governance Committee and has served four years on the B20 Taskforce on Anti-Corruption. Ms Wrage studied law at King’s College, Cambridge University. She can be contacted on +1 (410) 990 0076 or by email: wrage@traceinternational.org.

Robert Clark oversees a team of lawyers responsible for the production of analytical content. Previously, he was a staff attorney for the Court of Appeals in Chicago. Prior to that, he specialised in business bankruptcy litigation. Mr Clark holds bachelor’s and master’s degrees from the University of Chicago, and a J.D. cum laude from Harvard Law School. He can be contacted on +1 (410) 990 0076 or by email: rclark@traceinternational.org.

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