corporate fraud & corruption - mlgts · corporate fraud & corruption june 2015 • annual...

CORPORATE FRAUD & CORRUPTION

A N N UA L R E V I E W 2 0 1 5

Published by

Financier Worldwide

23rd Floor, Alpha Tower

Suffolk Street, Queensway

Birmingham B1 1TT

United Kingdom

Telephone: +44 (0)845 345 0456

Fax: +44 (0)121 600 5911

Email: [email protected]

www.financierworldwide.com

Copyright © 2015 Financier Worldwide

All rights reserved.

Annual Review • June 2015

Corporate Fraud & Corruption

No part of this publication may be copied, reproduced, transmitted or held in a

retrievable system without the written permission of the publishers.

Whilst every effort is made to ensure the accuracy of all material published in

Financier Worldwide, the publishers accept no responsibility for any errors or

omissions, nor for any claims made as a result of such errors or omissions.

Views expressed by contributors are not necessarily those of the publisher.

Any statements expressed by professionals in this publication are understood to

be general opinions and should not be relied upon as legal or financial advice.

Opinions expressed herein do not necessarily represent the views of the author’s

firm or clients or of any organisations of which the author is a member.

Corporate Fraud & CorruptionJ U N E 2 0 1 5 • A N N U A L R E V I E W

F i n a n c i e r Wo r l d w i d e c a n v a s s e s t h e o p i n i o n s o f l e a d i n g p r o f e s s i o n a l s a r o u n d t h e w o r l d o n t h e l a t e s t t r e n d s i n c o r p o r a t e f r a u d a n d c o r r u p t i o n .


Contents

UNITED STATES ..................................................... 08Randall Wilson RGL FORENSICS

BRAZIL .................................................................. 12Martin Whitehead PWC

COLOMBIA ............................................................ 16Liudmila Riaño EY

UNITED KINGDOM ................................................ 20Agnes Quashie PWC LEGAL

GUERNSEY ............................................................ 24John Greenfield CAREY OLSEN

IRELAND ............................................................... 28Paul Jacobs GRANT THORNTON

GERMANY ............................................................. 32Naidira Alemova-Goeres EY

SWITZERLAND ...................................................... 36Roman Richers HOMBURGER


www.financierworldwide.com


Contents

PORTUGAL ............................................................ 40Filipa Marques Júnior MLGTS - Morais Leitão, Galvão Teles, Soares Da Silva & Associados

ITALY .................................................................... 44Fabrizio Santaloia EY

CZECH REPUBLIC ................................................... 48Jan Spacil DELOITTE

INDIA ................................................................... 52Dinesh Anand PWC

CHINA & HONG KONG .......................................... 56Allen Liao GRANT THORNTON

AUSTRALIA ........................................................... 60Rob Locke EY

SOUTH AFRICA ..................................................... 64Vernon Naidoo GRANT THORNTON

GHANA ................................................................. 68Eric Nana Nipah PWC

INTRODUCTION

A N N U A L R E V I E W • C O R P O R AT E F R A U D & C O R R U P T I O N 2 0 1 5

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.

Some of the major trends that executives and corporate boards should keep an eye on in the near future are anti-corruption compliance, information security and technological innovations.

Compliance with the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, and other anti-corruption legislation will remain a top priority for organisations operating abroad, especially those in emerging markets. Anti-corruption enforcement is a priority for US and EU enforcement agencies. Therefore, senior executives must take proactive steps – such as establishing clear policies and robust internal controls – and stay current in this area, particularly as emerging markets continue to influence international growth.

Information security is a major concern for organisations of all sizes and in virtually every industry, especially now with companies like Anthem, Sony Pictures, JPMorgan Chase and eBay reeling from major data breaches in recent months. These high-profile data breaches exposed widespread vulnerabilities among organisations and show that senior executives must become more aggressive in strengthening information security and developing breach-response plans.

Technology will continue to play a key role in combating fraud and corruption. Fraudsters are becoming more innovative in their use of technology and, consequently, their schemes are growing in complexity. Although simple frauds will still exist, complex and sophisticated schemes will proliferate.

The mounting capabilities of increasingly sophisticated fraudsters mean that senior executives and their boards must also adapt to advances in technologies. And although anti-fraud and corruption efforts are currently capitalising on technological advancements, there remains much room for improvement.

Of course, addressing the threat of fraud and corruption is a complicated process that requires a comprehensive, multi-layered approach, comprising various elements like preventive controls, employee awareness and an ethical culture. But ultimately, the success of any organisation’s efforts to combat fraud and corruption depends on whether leadership is committed to the fight.

James D. Ratley, CFE President and Chief Executive Officer

Association of Certified Fraud Examiners

+1 (800) 254 3321

[email protected]

A N N U A L R E V I E W • C O R P O R AT E F R A U D & C O R R U P T I O N 2 0 1 5

A N N U A L R E V I E W • C O R P O R AT E F R A U D & C O R R U P T I O N

8 • F INANCIER WORLDWIDE • JUNE 2015 www.f inancierworldwide.com


UNITED STATESRANDALL WILSONRGL FORENSICS

WILSON: 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. The Securities and Exchange

Commission (SEC) reported 755 enforcement actions in 2014, up

approximately 12 percent from the previous year. These actions have

preliminarily resulted in orders of disgorgement and penalties totalling

more than $4bn.

WILSON: The provisions of the Dodd-Frank Act continue to be

implemented, and the SEC continues to implement its advancement of

electronic tools and analytics to detect corporate fraud and manipulation

of the financials. For example, the SEC recently announced a proposal

that would require disclosure of the relationship between executive

compensation and the financial performance of a company. The

SEC’s primary objective is to ensure that the investing public is more

completely informed. The sophistication of electronic tools and analytics

continues to advance, which provides investigators with important

warning signs that may require more detailed investigation. This trend

Q TO WHAT EXTENT HAVE

YOU SEEN A NOTABLE RISE

IN THE LEVEL OF CORPORATE

FRAUD, BRIBERY AND

CORRUPTION UNCOVERED

IN THE US IN RECENT YEARS?

Q HAVE THERE BEEN ANY

LEGAL AND REGULATORY

CHANGES IMPLEMENTED

IN THE US DESIGNED TO

COMBAT FRAUD AND

CORRUPTION? WHAT

PENALTIES DO COMPANIES

FACE FOR FAILURE TO

COMPLY?

A N N U A L R E V I E W • C O R P O R AT E F R A U D & C O R R U P T I O N A N N U A L R E V I E W • C O R P O R AT E F R A U D & C O R R U P T I O NA N N U A L R E V I E W • C O R P O R AT E F R A U D & C O R R U P T I O N

JUNE 2015 • F INANCIER WORLDWIDE • 9 8www.f inancierworldwide.com

UNITED STATES • RANDALL WILSON • RGL FORENSICS

will ultimately include external auditors, who will likely be required

to perform certain specified data analytics of the audited company,

and depending on the results, may be required to perform additional

analyses to satisfy themselves that the financial statements are fairly

stated in all material respects. An important regulatory authority for this

projection is the Public Company Accounting Oversight Board (PCAOB)

which has oversight authority over audits of public companies. The SEC

is particularly concerned about broker-dealers. For example, the Dodd-

Frank Act amended the provisions of the Sarbanes-Oxley legislation

to give the PCAOB full oversight authority over audits of all broker-

dealers. Companies can face a number of penalties for failure to comply

with regulations under Dodd-Frank, Sarbanes-Oxley and the PCAOB

authority, including both fines and sanctions.

WILSON: At the federal level of the US, regulators have sufficient

monetary resources to enforce the laws given the magnitude of the

penalties enacted on the enforcement cases to date. However, there

may be shortages in manpower given the enormity and complexity

of the capital markets and underlying economies. This is likely why

regulatory authorities will continue to rely on sophisticated investigative

and manipulation tools to detect aberrations that require additional

analysis.

Q IN YOUR OPINION,

DO REGULATORS IN THE

US HAVE SUFFICIENT

RESOURCES TO ENFORCE

THE LAW IN THIS AREA? ARE

THEY MAKING INROADS IN

THIS AREA?




WILSON: When subject to a government investigation or dawn raid,

the entity should assemble its team to respond to the investigation.

This may include retention of consulting professionals to assist in the

process. It is important to be cooperative and transparent in providing

information, yet it is equally important to manage this process and

understand the issues and documents internally so that you can explain

the information and help investigators get to the right answer. One

important component to this response is to run your own analytical

indices, as well as evaluate the internal controls and the control

environment within the area of the operation that is the subject of the

investigation. Ultimately, it will be important to upgrade these controls

to detect or prevent such issues in the future during the normal course

of operations.

WILSON: Whistleblowers play a critical role in the fight against

corporate fraud and corruption. The Association of Certified Fraud

Examiners continues to report that tips from employees, suppliers,

vendors, and so on are the highest volume methodology in detecting

fraud. As such, it is vitally important to train staff at all levels to identify

and report potentially fraudulent activity. It is also important to design

a system where reported activity is appropriately evaluated and, where

necessary, further investigated.

WILSON: During the course of an investigation it is important not

to reach premature conclusions. Our advice is to be thorough in the

investigation, seek completeness of the records and interview carefully

in order to identify the facts. Where necessary, involve professionals

to protect the company from liability and to document the fraud for

disclosure to the criminal authorities where appropriate.

Q WHAT ROLE ARE

WHISTLEBLOWERS PLAYING

IN THE FIGHT AGAINST

CORPORATE FRAUD AND

CORRUPTION? HOW

IMPORTANT IS IT TO TRAIN

STAFF TO IDENTIFY AND

REPORT POTENTIALLY

FRAUDULENT ACTIVITY?

Q WHAT ADVICE CAN YOU

OFFER TO COMPANIES ON

CONDUCTING AN INTERNAL

INVESTIGATION TO FOLLOW

UP ON SUSPICIONS OF FRAUD

OR CORRUPTION?

Q IF A COMPANY

FINDS ITSELF SUBJECT

TO A GOVERNMENT

INVESTIGATION OR DAWN

RAID, HOW SHOULD IT

RESPOND?


“ It is vitally important to train staff at all levels to identify and report potentially fraudulent activity.”


JUNE 2015 • F INANCIER WORLDWIDE • 11www.f inancierworldwide.com

Q WHAT GENERAL STEPS

CAN COMPANIES TAKE TO

PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

Randall Wilson

Partner

RGL Forensics

+1 (636) 812 0292

[email protected]

Randy Wilson leads RGL’s US Fraud Practice. A globally recognised financial forensic expert and certified fraud examiner; he has been featured in international publications and major media outlets including NBC News and Financier Worldwide. He quantifies losses, traces assets and identifies financial motive for fraud schemes ranging from arson and embezzlement to misappropriation and theft. He helps companies detect and prevent theft or fraud, and works with insurance companies on fraud and fidelity claims. He has a detailed understanding of the business issues related to franchise ownership and the ocean marine industry, including the unique issues related to government contracting.

WILSON: One of the most important steps a company can take is

for senior management and the board of directors to communicate

their attitude that fraud will not be tolerated and that perpetrators

will be prosecuted. This would include assembling a Fraud Prevention

Team and partnering with an outside accountant to assist in evaluating

your control environment and improving the controls of assets and

financial reporting to prevent or detect fraud in the normal course of

business. It is also important to keep in mind that it is impossible to

prevent fraud completely, however, every organisation could benefit

from an evaluation of its controls. Furthermore, many excellent control

measures are infrequently utilised. According to the Association of

Certified Examiners’ recent bi-annual survey, anti-fraud controls

such as risk assessments, surprise audits, job rotation and rewards

for whistleblowers are utilised in less than a third of the companies

surveyed. Yet, these controls are an inexpensive way to improve the

quality of any fraud prevention program.





BRAZILMARTIN WHITEHEADPWC




FRAUD, BRIBERY AND


IN BRAZIL IN RECENT YEARS?



CHANGES IMPLEMENTED

IN BRAZIL DESIGNED TO

COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

WHITEHEAD: 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. We also

need to keep in mind that it is difficult to unpick enhanced detection

processes and compliance awareness in Brazil from any potential

underlying increase in the level of economic crime.

WHITEHEAD: The Brazil Anti-Bribery Act, often referred to as the Brazil

Clean Companies Act (BCCA), came into force on 29 January 2014. The

law does not have criminal implications for companies, unlike the FCPA

and UK Bribery Act, but it does provide severe civil and administrative

sanctions for a company which is found to have committed or been

involved in acts of fraud or corruption involving a public official in Brazil

or abroad. More recently, on 18 March 2015, the federal authorities

issued guidance regulation and rules for applying the BCCA. These rules

detail, among other things, the administrative procedure to investigate

and determine responsibility and penalties in relation to companies

that can vary from 0.1 percent to 20 percent of gross revenue, less

taxes. The new legislation has greatly enhanced awareness of the need

for compliance programs in Brazil. As a result, ethics, anti-fraud and anti-

corruption matters are now no longer just the concern of foreigners or

multinational companies doing business in Brazil.



BRAZIL • MARTIN WHITEHEAD • PWC

Q IN YOUR OPINION,

DO REGULATORS IN

BRAZIL HAVE SUFFICIENT




THIS AREA?

WHITEHEAD: Regulators are strengthening their teams, and making

investments to upskill their teams, including exchanging experiences

with the US Department of Justice so they are ready to enforce the

BCCA effectively. According to the legal enforcement structure in Brazil,

the public entity affected by the improper acts is in charge of enforcing

the law, in each level of government – federal, state and municipal. Brazil

has more than 5000 cities, and there are open questions about how the

law will be enforced, especially in smaller cities, as not all of them will

have adequate resources to do the job. There is also an independence

question when we think about the decentralised enforcement model. In

addition, there are the administrative bodies that may have overlapped

subjects, such as antitrust concerns and considering some penalties

can be imposed at administrative level, without the need for a court

procedure and vice versa, there are many discussions floating around

and it is not entirely clear how the various bodies will interact and

coordinate efforts.

WHITEHEAD: Incident response and crisis management protocols

are critical components of an effective risk management structure,

such as an integrity program. Executives and employees must be

trained to know what to do, and what not to do, in such situations.

As most companies do not foresee going through such situations, we

understand they have not designed robust protocols. They certainly

would bring their lawyers in to assist with the situation. Therefore they

should follow best practice, which is centred on asking for the public

official’s identification, and contact the company’s lawyer to follow

the operation. Also, it is good practice to ensure that companies fully

cooperate with the investigating body and look to communicate and

coordinate with them. Companies should try to minimise deliberate

disruption or any unintentional acts which could be highly detrimental

to the company’s position.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?


Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY




WHITEHEAD: Whistleblowing is a key tool to fight against fraud in

Brazil. However, for this to be fully effective, the culture in Brazil needs

to evolve, primarily because employees fear reprisals as a result of

inadequate confidentiality. These days, most Brazilian companies have

policies, procedures and tools to encourage ethical behaviour – yet

employees often do not feel safe reporting inappropriate practices. This

is because they fear that the complaint would not be kept anonymous.

Secondly, many do not believe that corrective action would be taken in

any event, so why bother? Training is an important strategic action that

companies can undertake to educate people and help create the right

change in culture. Many companies have made great strides already

with forward thinking training policies based on ethics. Training must be

practical, clear and ‘real world’, such that the company’s whistleblower

policies are fully understood, trusted and seen to be aligned with the

firm’s wider stated goals around anti-corruption and compliance.

WHITEHEAD: Investigations must be undertaken with due care and

attention. Firstly, this means ensuring they are done by the right people

with the right resources with an appropriate reporting mechanism.

Secondly, there must be suitable remediation. The investigation team

should be carefully assembled to include only people with good

investigation skills and who are clearly and credibly independent,

meaning they are not implicated or suspected of being aware of the

matters under investigation. External professionals should be brought in

where there are skill gaps or doubts about independence. For example,

most companies do not have the in-house resources to image and

process laptops or mobile devices, or to perform sophisticated data

analytic procedures. Those charged with assessing the investigation

findings and devising remedial action should also be demonstrably

independent. For example, a sub-committee of the audit committee

might fulfil this role if the matter is sufficiently weighty. Finally, a

company must be able to follow through with the ‘so what’ phase. This

means adequate remediation vis-à-vis dealing with ineffective controls,

staff who are implicated and perhaps even wider issues affecting

corporate culture and ethics.






OR CORRUPTION?






PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

WHITEHEAD: In short, companies should implement suitably robust

integrity or compliance programs – but this alone is insufficient. To be

truly effective, a compliance program must be built around a culture

of ethical behaviour driven by the CEO and board of directors. In the

best companies, ethics are embedded within the corporate DNA. The

phrase ‘tone at the top’ has started to become clichéd - yet such

endorsement from the top remains the number one criteria for getting

it right. High level executives have deep knowledge of a firm’s key fraud

vulnerabilities and are uniquely placed to help educate staff to ‘do the

right thing’ by example. Each compliance program must be tailor-made

to a company’s unique situation and reality, comprising processes and

procedures over key areas of the internal control environment including

the reporting hotline and internal investigations.


Martin Whitehead

Partner

PwC Brazil

T: +55 (11) 3674 2141

E: [email protected]

Martin Whitehead leads the PwC Brazil Forensic Services practice. He has been a PwC partner since 2000 and has more than 22 years of experience in conducting investigations and compliance work for clients in the UK, Europe, North America and Africa. Over this period he has performed forensic work in more than 20 countries. He has conducted numerous large scale and complex investigations for clients in the private and public sectors, often working closely with external counsel and with regulatory bodies in different jurisdictions.

“ In the best companies, ethics are embedded within the corporate DNA.”




COLOMBIA




FRAUD, BRIBERY AND


IN COLOMBIA IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN COLOMBIA DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

LIUDMILA RIAÑOEY

RIAÑO: 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.

RIAÑO: Colombia issued anticorruption law 1474 in 2011 and joined

the OECD Anti-bribery Convention in 2013. This redefined the legal

framework to fight corruption and strengthened mechanisms to prevent,

investigate and punish acts of corruption, and the effectiveness of public

control. However, there are few examples of enforcement actions,

charges imposed or settlements. Presently, although not finalised, the

Chamber of Representatives recently approved the first debate over

new regulations regarding the transnational bribery and corruption

policy. Sanctions for corruption are being strengthened in the form of

monetary fines that could reach up to nearly $54m, together with a

strict ban from engaging in any contracts with the State up to 20 years.

Penalties including revoked licences for commercial activities may also

be imposed.



COLOMBIA • LIUDMILA RIAÑO • EY

Q IN YOUR OPINION,

DO REGULATORS IN

COLOMBIA HAVE SUFFICIENT




THIS AREA?

RIAÑO: The Colombian government is putting in place different

initiatives in order to accommodate stricter regulations. One such

project is the high level reporting mechanism, where the private

sector is being incentivised to report possible acts of corruption. Other

initiatives include laws that protect employees and whistleblowers who

may have been deterred from reporting wrongdoing in the past. This

initiative is under discussion and will first have to proceed to draft law.

Other initiatives include the EACA, which involves companies active in

compliance with anti-corruption measures implementing compliance

programs with the goal of removing the incentive for fraudulent activity

by meeting certain international transparency and corruption standards.

The government currently lacks sufficient resources to enforce the law

and there are still many challenges ahead before it will be able to fully

implement all these initiatives.

RIAÑO: The moment a company suspects fraudulent or corrupt activity,

it is advised to welcome investigations and consult with legal counsel.

Self-reporting may improve the company’s reputation and reduce

possible fines. If the allegation is related to accounting, it is prudent to

consult with an external accounting firm. Companies should start to

implement and strengthen their corporate compliance programs and

define a compliance structure and network to mitigate the risk of fraud,

corruption and bribery. If the government finds these programs are in

place, the company may be given credit during enforcement actions,

possibly reducing or limiting fines and penalties.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?




RIAÑO: Whistleblowers are a critical part of detecting and reporting

suspected fraudulent or corrupt activity. Their role is extremely

important as they permit the identification of potential illegal acts or

misconducts and provide key information during an investigation. The

responsibility for reporting and monitoring misconduct rests with the

entire company, not just internal audit or the compliance office. It is

imperative to educate staff throughout the organisation in order for

them to correctly identify possible fraudulent or corrupt activities in

their daily work. According to the Report to the Nations on Occupational

Fraud and Abuse released by the ACFE in 2014, employees were the

source of almost half of all tips that led to the detection of fraud.

There is a responsibility carried by the government and corporations

in making sure that whistleblowers are properly protected by law, as

currently their role is not as strong or popular as it should be.

RIAÑO: If a company does not already have an anti-corruption and

fraud compliance program in place, it should try to establish general

rules to improve the core values of the company, educating employees

on proper conduct, and lowering the risk of continued fraudulent activity.

Contracting entities specialised in identifying fraudulent behaviour can

also help expedite the situation and identify if fraudulent behaviour

persists. Technological platforms and specialised software can also

be implemented for real time monitoring of possible fraud. Last but

not least, it is important to maintain custody of the evidence without

tampering during an internal investigation, to maintain its integrity. In

this case, it is advisable to consult with legal counsel and have external

investigators and experts engaged to protect the corroborating

evidence at hand and maintain confidentiality so that the case can be

properly carried out according to local laws. It is important to properly

document the protocols for how to conduct an investigation when a

member of the organisation is under suspicion for misconduct.






OR CORRUPTION?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY







PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

RIAÑO: Fraudulent activities and corruption can spread over many

areas of interaction. First and foremost, the acting member within

the company must be properly educated on the risks involved in

corruption and that the company implements and strengthens these

‘laws of conduct’ as core values and procedures so that people take

guidance and report inappropriate actions. Compliance frameworks

and networks for internal control, such as auditing and monitoring,

can also help to identify specific areas of risk in a company. Also, it is

important to establish what disciplinary actions a company imposes on

its employees in the event of an incident and to be consistent with the

laws of its country and the tone at the top.

Liudmila Riaño G.

Partner

EY Colombia

+57 1 484 7351

[email protected]

Liudmila Riaño is a partner at EY Colombia leading the practice of Fraud Investigation & Dispute Services. Ms Riaño has more than 19 years of experience in assurance, risk management, fraud and corruption assessments, corporate compliance services, FCPA and UKBA compliance and forensic technology services. She has also served major national and international clients in oil & gas, retail, consumer goods industries, financial, manufacturing and services companies.


“ It is important to properly document the protocols for how to conduct an investigation when a member of the organisation is under suspicion for misconduct.”




UNITED KINGDOMAGNES QUASHIEPWC LEGAL




FRAUD, BRIBERY AND


IN THE UK IN RECENT YEARS?



CHANGES IMPLEMENTED

IN THE UK DESIGNED TO

COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

QUASHIE: 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.

QUASHIE: In the non-financial services sphere, probably the biggest

legislative changes in respect of financial crime is the UKBA and the

introduction of the corporate liability offence of failing to prevent

bribery. In simple terms, a company would be guilty of an offence if a

person connected with it paid a bribe for the benefit of the company

– the ‘Section 7 offence’. If a company were to be prosecuted under the

UKBA, penalties could include unlimited fines and possible debarment

from public contracts. Recent commentary suggests that the ‘Section 7

offence’ may be extended to other financial crimes including fraud and

money laundering.



UNITED KINGDOM • AGNES QUASHIE • PWC LEGAL

Q IN YOUR OPINION,

DO REGULATORS IN THE

UK HAVE SUFFICIENT




THIS AREA?

QUASHIE:The Serious Fraud Office (SFO) is the main prosecutor in the

UK for serious fraud and corruption and their resources are constantly

under scrutiny. The SFO has seen its funding cut dramatically since

2008 and there are concerns that such cuts have hampered the

SFO’s ability to undertake investigations. This was highlighted in the

statistic that in the year to June 2014 only 12 new investigations were

instigated by the SFO despite receiving 2508 reports through its ‘SFO

Confidential’ service. The SFO does have the ability to apply to the

Treasury for ‘blockbuster’ funding on a case by case basis for high profile

investigations but further, more consistent investment may be required

before it is viewed in the same light as its US equivalents.

QUASHIE: If a company is only considering how to respond to a raid

as it is unfolding in real time, they are already responding too late.

Businesses need to be proactive. However, in the event they are caught

completely unprepared, the first action should be to ensure that those

executing the warrant are who they say they are and that the warrant

is valid. A company should also contact its legal advisers to get initial

advice and if necessary have them speak with the officer in charge,

then arrange for them to attend on site urgently to assist in managing

the raid. In the meantime, an appropriate person should speak to the

officer in charge to seek assurances of their conduct while waiting for

the businesses legal advisers to arrive during the raid.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?


Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY




QUASHIE: The use of the ‘SFO Confidential’ line is just one example which

highlights the key role whistleblowers are now playing in the fight against

economic crime, as they provide both insight and intelligence. They also

play an equally integral role for businesses in assisting to uncover unethical

and dishonest conduct and identifying weaknesses in systems and controls.

Training staff on how to identify and report fraud and other concerns is

an important part of a company’s monitoring and review of the financial

safeguards it has in place to allow businesses to remediate deficiencies.

What is key is that any whistleblowing report is taken seriously and

investigated, and that the findings are reported appropriately to ensure

employees trust in the process. Failure to do so could cause employees

to revert to external reporting which is likely to be more damaging to the

business due to the pursuant risks that may follow.

QUASHIE: Businesses can obviously choose to investigate allegations

of fraud internally but experience demonstrates that instructing

independent legal advisers to undertake the investigation is preferable.

Lawyers are trained to quickly establish and analyse the facts and

advise the company on its legal position and any potential exposure.

By instructing lawyers, the advice provided is legally privileged and

allows the company, if it chooses, to withhold from disclosure any

report and advice that is provided – for example, to a regulator or a

third party in litigation. It also permits the legal adviser to initially

liaise with regulatory and prosecuting authorities on a no-names basis

if necessary. It is important that any investigation is thorough and

proportionate to give the company and its stakeholders’ comfort that

the suspicions have been adequately investigated and that appropriate

steps have been undertaken to remediate the problem.






OR CORRUPTION?


“ Once a risk assessment has been completed, the company should design and implement policies and procedures to manage the risks identified.”





PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

Agnes Quashie

Partner

PwC Legal

T: +44 (0)20 7212 1511

E: [email protected]

Agnes Quashie is a partner and Practice Group Leader of PwC Legal’s Regulatory and Commercial Disputes team. With a career spanning 20 years, she has worked for a range of clients in high profile UK and international cases. Ms Quashie leads complex cases from first instance through to the Supreme Court and European Court of Justice (ECJ) and regularly advises and assists clients in respect of large and complex commercial disputes and also large scale investigations by regulatory and prosecuting authorities such as the Serious Fraud Office and HM Revenue & Customs.

QUASHIE: In order to proactively prevent corruption and fraud,

businesses must understand and identify the risks associated with it.

Once a risk assessment has been completed, the company should design

and implement policies and procedures to manage the risks identified

– these can be, for example, third party due diligence, financial controls

and whistleblowing systems. The importance of proper governance

and compliance needs to be communicated from the board down and

reinforced through training. Any systems and controls should then be

monitored and reviewed regularly to ensure they remain fit for purpose

and that they develop and adapt with the business. Employees should

be encouraged to provide feedback on how the policies and procedures

have been implemented as they are on the grass roots level of the

business and will have a good sense of how they work in practice.





GUERNSEY




FRAUD, BRIBERY AND


IN GUERNSEY IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN GUERNSEY DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

JOHN GREENFIELDCAREY OLSEN

GREENFIELD: 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.

The proactive approach of companies, coupled with comprehensive

regulation and guidance by the Guernsey Financial Services Commission

(GFSC), is likely to be responsible for the relatively stable levels of fraud

observed within the Bailiwick.

GREENFIELD: There have not been any recent, significant legislative

changes to combat fraud and corruption but the GFSC provides regular

updates and helpful guidance in respect of its anti-money laundering

(AML) and financial terrorism (FT) regulations. In 2012 Guernsey joined

MONEYVAL, the monitoring body of the Council of Europe entrusted

with assessing compliance with the principal international standards for

AML/FT. A MONEYVAL visit to the Bailiwick occurred in October 2014,

the report for which is expected at MONEYVAL’s September plenary. The

introduction of MONEYVAL has provided a separate process to report

on Guernsey’s AML and FT regime and has naturally generated changes,

such as the issuing of instructions by the GFSC in respect of MONEYVAL’s

public statements. In addition to MONEYAL, the GFSC has provided other

relevant updates, including a new chapter on Bribery and Corruption

in its Anti-Money Laundering & Combating the Financing of Terrorism



Q IN YOUR OPINION,

DO REGULATORS IN

GUERNSEY HAVE SUFFICIENT




THIS AREA?

GUERNSEY • JOHN GREENFIELD • CAREY OLSEN

Handbook. In June 2014, the GFSC’s Financial Crime Supervision and

Policy Division also produced a helpful guidance note to assist in the

compliance of its regulations. The penalties that companies can face

as a result of becoming engaged in fraud can be devastating. Offences

for fraud can attract sentences of up to 14 years imprisonment and in

certain circumstances unlimited fines. For those companies regulated by

the GFSC, it can result in the withdrawal of licensing, without which it is

a criminal offence to provide regulated services.

GREENFIELD: The GFSC appears to have both sufficient and efficient

resources to enforce its regulations. As outlined above, the GFSC is

continually concerned with improving its regulations and has gone

to considerable efforts to ensure its regulation meets the highest

international standards. The GFSC’s regulation is effectively supported

by the financial investigation unit (FIU), the central point of contact

for the reporting of all suspicious transaction reports and the analysing

and disseminating of financial disclosures in respect of the proceeds of

crime.

GREENFIELD: If a company finds itself subject to any investigation, the

first thing it should do is obtain appropriate legal advice. A company

can inadvertently commit fraudulent offences such as possessing,

transferring or assisting a third party to retain the proceeds of crime. It

is essential that a company receives appropriate legal advice as soon as

possible. Proper legal advice can help mitigate against the consequences

of fraud, and prevent the commission of any further offences such as

‘tipping-off’.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?


Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY




GREENFIELD: Detecting fraud once a business relationship is established

can prove challenging. A company may unconsciously fall into a fraudulent

offence and if it does, early detection is essential in mitigating against

the consequences. Whistleblowers provide a fundamental mechanism for

early detection but currently have no statutory protection. It is therefore

imperative that a firm’s policies explicitly acknowledge the role of

whistleblowers and reassure individuals that they will not face negative

consequences for providing information in good faith. Vigilant members

of staff are indispensable for the early detection of fraud. It is essential

that all staff receive adequate and regular training on the importance

of vigilance, key risk factors to consider when assessing any business

relationship or transaction and the importance of reporting suspicions.

GREENFIELD: When suspicions of fraud arise, attention should instantly

be drawn to a firm’s internal policies. Every firm should have dedicated

members of staff to facilitate the day-to-day responsibility of managing

those policies and risks that arise in accordance with them. Following

an internal report of suspicion, immediate steps should be taken to

conduct appropriate due diligence. Once a suspicion of fraud has arisen,

it is essential that companies keep their obligations under Disclosure law

in mind. Failure to give appropriate consideration to obligations under

Disclosure law could result in a conviction. Equally, once a suspicion has

been generated, companies must be alive to the risk of ‘tipping-off’, an

offence under both the Disclosure and Proceeds of Crime Law. During

the lifetime of any suspicion, a firm must be especially careful in their

communications to any individual or company to which a suspicion

relates. If in doubt, companies should seek the advice of the FIU.






OR CORRUPTION?


“ Dedicated members of staff should be responsible for the management and review of fraud and corruption.”





PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

GREENFIELD: Prevention is inevitably better than cure. An efficient

and robust fraud policy and system can significantly reduce the threat

of fraud. A thorough policy impresses the importance of acting in a

professional, ethical and fair manner to all new employees and acts as

an ongoing reminder to all existing employees. The first step to creating

any policy should be a detailed risk assessment, directed specifically to

the risks that companies faces. Thereafter, it is essential to ensure that

it is understood and implemented by all members of the company, with

regular training to ensure proper implementation and constant vigilance.

Dedicated members of staff should be responsible for the management

and review of fraud and corruption. The supervision of this dedicated

fraud team should extend to every level and department within the

company, so as to provide an appropriate management structure to

protect against internal fraud. As indicated above, a clear policy in respect

of whistleblowing is an imperative for all companies; it acts as both a

helpful deterrent and detection mechanism for internal fraud.

John Greenfield

Managing Partner

Carey Olsen

+44 (0)1481 732026

[email protected]

John Greenfield is managing partner and advocate in the litigation and dispute resolution group of Carey Olsen in Guernsey. Mr Greenfield undertakes the complete range of litigation work including asset tracing, multi-jurisdictional disputes and commercial and trust litigation. He has been Counsel in many of the major litigation cases before the Royal Court of Guernsey and Guernsey Court of Appeal. Mr Greenfield is a founder member of Fraudnet, a body of leading fraud lawyers established by the International Chamber of Commerce. Elected head of the Guernsey Bar twice, he was also awarded ACTAPS Offshore Contentious Lawyer of the Year Award in 2014.





IRELAND




FRAUD, BRIBERY AND


IN IRELAND IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN IRELAND DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

PAUL JACOBSGRANT THORNTON

JACOBS: 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. Lastly, increasingly frauds

are brought to light by whistleblowers. In our experience, there does not

appear to have been any increase in levels of bribery and corruption, but

this is difficult to gauge with precision.

JACOBS: The draft Fourth EU Anti Money Laundering Directive is designed

to update and improve the EU’s Anti-Money Laundering and Counter-

Terrorist Financing laws. Key amendments include the extension of the

Politically Exposed Person (PEP) regime to cover domestic PEPs and persons

entrusted with a prominent function by an international organisation.

The identification of the beneficial ownership of companies and trusts

is intended to be simplified through access to newly created registers

of ownership information. The Protected Disclosures Act 2014 provides

protection for employee whistleblowers who have a ‘reasonable belief’

that there is wrongdoing in the workplace. The legislation places significant

new responsibilities on employers, company directors and on public bodies.

The Prevention of Corruption (Amendment) Act 2010 strengthens the

legislation on corruption, in particular in relation to corruption occurring

outside the State, and gives fuller effect to the OECD Anti-bribery



Q IN YOUR OPINION,

DO REGULATORS IN

IRELAND HAVE SUFFICIENT




THIS AREA?

IRELAND • PAUL JACOBS • GRANT THORNTON

Convention. A key provision in the Act is the protection afforded to persons,

including employees, who make reports, in good faith, of offences under the

Corruption Acts, 1889 to 2010, and those reports can also be made on a

confidential basis. Separate to the abovementioned draft and the Protected

Disclosures Act, Ireland has existing legislation in place which already deals

with the identification and reporting of suspicious transactions, and places

obligations on regulated entities and professionals, such as accountants

and lawyers. This legislation carries serious penalties for failure to comply.

JACOBS: Like many jurisdictions, Ireland faces difficult decisions about

resource allocation, in particular in relation to balancing the need for

fiscal constraint against the need to provide regulators with the necessary

resources to detect, investigate and fight corporate fraud. In recent years,

Irish regulators have had to deal with investigations which are both large

and complex from any international viewpoint. Overall, we believe that

the regulators are making inroads, although the experience is not uniform.

Success tends to take the form of upskilling personnel, providing increased

resources, building multi-disciplined investigation and enforcement teams

with a variety of skill sets, and actively identifying the risk from new or

heightened threats such as cyber-attack on regulated entities.

JACOBS: In Ireland, the powers of regulatory bodies carrying out a raid

are clear, so the issue is how to deal with the dawn raid if it should occur.

Best practice is that companies should have policies and procedures set out

in advance on what to do if a raid occurs. These policies and procedures

should recognise that the organisation needs to comply with the terms

of the raid – often under a search warrant issued by the Court, but to the

best extent possible to facilitate it in such a way as not to be disruptive to

the business. Key points include training of reception staff, forming a panel

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?




of designated persons who would be contacted by reception in the event

of a raid, taking the enforcing officers to a meeting room at the earliest

opportunity, ensuring that staff are on hand to shadow those carrying

out the raid, and having a law firm on standby if legal advice is required.

This point has greater significance with recent legislative changes where a

solicitor is allowed to be present during the questioning of a suspect.

JACOBS: It is instructive to note that whistleblowers are playing an

important role. In Ireland, whistleblowing reports tend to take the form of

anonymous letters provided to the organisation, or a third party. Although

usage in Ireland of fraud hotlines may be less frequent than in other

jurisdictions, the importance and benefit of staff training is increasingly

recognised by organisations and businesses operating here. We have

noticed an increased recognition by senior management of the threat to the

organisation from fraud. Forward thinking organisations have collaboratively

engaged with their personnel at all levels to identify the risks and threats

from fraud. This provides an alternative framework to conventional control

based processes, to better assess the risk of fraud. Culture and the ‘tone

from the top’ are vital to underpin the success of internal detection and

reporting of potentially fraudulent activity.

JACOBS: Far too often we see organisations conducting investigations

without regard for preservation of evidence and without regard for legal

process. In relation to evidence handling, there needs to be increased

awareness within organisations of the procedures that exist for dealing with

digital information. Often there is a need to engage external independent

consultants to acquire and analyse digital evidence in a forensically sound

manner that meets relevant guidelines – such as the ACPO Guidelines.

Regarding the legal environment, particularly if employees might be involved

in the potential fraudulent activity, it is necessary for an organisation to

obtain advice from the human resources department regarding, firstly,

the employer’s obligations to employees and, secondly, the organisation’s

rights to review and acquire data on devices used by the employee. It is also







OR CORRUPTION?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY


“ Far too often we see organisations conducting investigations without regard for preservation of evidence and without regard for legal process.”



necessary for an organisation to obtain legal advice from employment law

specialists. The outcome of the internal investigation can be compromised

if correct legal process is not followed.

JACOBS: Creating the appropriate culture within the organisation is

important – the tone at the top of the organisation is key to this. That

culture should reinforce the risk of corruption and fraud, promote

awareness of the risks, and set the standard of zero tolerance. Key principles

to preventing corruption and fraud within the organisation are, firstly,

identifying and assessing the organisation’s risks, secondly, aligning policies

and procedures within the organisation, thirdly, communicating to all, and,

lastly, monitoring. Ongoing review is important, both in terms of ensuring

that controls and systems are appropriate, but also ensuring that awareness

levels are maintained among staff. New recruits should receive appropriate

training.

Paul Jacobs

Partner

Grant Thornton

+353 (0)1 6805 835

[email protected]

Paul Jacobs is a partner and head of the firm’s forensic and investigation services unit in Ireland. He is also the Global Leader of Forensic & Investigation Services, and Cyber Security, at Grant Thornton International. He is a Fellow of the Association of Chartered Certified Accountants (FCCA) and a Chartered Accountant of the Institute of Chartered Accountants of New Zealand. He has been a forensic accountant for 20 years working full time on forensic investigations and expert witness assignments. He specialises in complex and multi-disciplinary assignments.




PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?




GERMANYNAIDIRA ALEMOVA-GOERESEY




FRAUD, BRIBERY AND


IN GERMANY IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN GERMANY DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

ALEMOVA-GOERES: 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.

ALEMOVA-GOERES: On 21 January 2015, the German government

adopted the draft of a new law combating corruption that aims to

implement international anti-corruption guidelines. The new law

intends to reform the German Criminal Code in order to accommodate

the mandatory requirements imposed by the European Council and

the United Nations Convention against Corruption. The new draft law

tightens the penalties on passive and active corruption in business

transactions, making this a criminal offence. It also redefines the

prohibition of bribery of foreign public officials under German law,

redefining the term ‘public official’ to comprise European public officials.

A new Section 335a of the German Criminal Code would extend the

prohibition of bribery of a foreign, non-EU public official. Current anti-

corruption provisions in the German Criminal Code prohibit corruptive

agreements with respect to granting an undue benefit or offering a

bribe to public officials. Under the new draft law, it will be sufficient

if the benefit is given for the discharge of an official duty. The code

also introduced criminal liability for European public officials located in

Germany. Under the new draft law, a European public official who is

located in Germany could be held criminally liable if he accepts a bribe.



GERMANY • NAIDIRA ALEMOVA-GOERES • EY

Q IN YOUR OPINION,

DO REGULATORS IN

GERMANY HAVE SUFFICIENT




THIS AREA?

ALEMOVA-GOERES: Germany is one of only four countries assigned in

2014 an ‘active enforcement’ classification by Transparency International

for combating bribery of foreign officials in business transactions. In

Germany, anti-bribery and anti-corruption enforcement is carried out

by 25 regional prosecutor’s offices covering 16 German states – some of

these German states have more than one prosecutor’s office attached to

a State Court of Appeal. Most of the prosecutor’s offices have dedicated

anti-corruption units. Because each state is responsible for funding

and administrating the state level criminal justice system, the level of

funding and staffing units targeting corruption varies from state to state.

In particular, Hesse and Bavaria have established centralised prosecution

corruption units staffed with highly experienced investigators in anti-

bribery and anti-corruption. As a result, the Munich prosecutor’s office

has collected more than €1bn that went to the state of Bavaria, mostly

from settlements in corruption cases according to news reports.

ALEMOVA-GOERES: First of all, we would recommend contacting in-

house and external legal counsel and forensic technology consultants.

In many cases we are asked to carry out an independent analysis to

identify the circumstances, people involved and potential loss caused.

There are additional steps that companies should bear in mind. Firms

should prepare and provide documentation to the authorities on time.

In a situation where the information is not immediately accessible, pre-

analysis or consolidation of data, and discussions with subject matter

experts are needed. Companies should always consider information

security and privacy requirements, especially when the investigation

has a multijurisdictional extent either within or outside the EU. During a

raid, companies should ensure that they take copies of everything seized

or copied or seen. Furthermore, enlist the help of a forensic technology

consultant to assist you with using forensic software to ensure that

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?




source data copied remains intact. Finally, companies should be truthful

and accurate in any statements to the government. Never do anything

to impede or obstruct a government investigation, such as concealing,

deleting or altering relevant documents.

ALEMOVA-GOERES: A whistleblowing hotline is a very powerful tool

and has proven its ability to detect corporate fraud and corruption. Every

year we conduct a fraud survey of respondents across the globe including

Germany – the results of our 2015 survey send a clear message: ethical

business and good compliance go hand-in-hand with growth. It is also

clear that confidential reporting channels are critical to a company’s

integrity program. And yet 26 percent of German respondents to our 2015

fraud survey reported their company does not have a whistleblowing

hotline. The cost of failing to implement an effective compliance reporting

framework can be substantial. A sophisticated whistleblowing hotline

solution should be operating enterprise-wide, including subsidiaries and

foreign branches, and should provide calling and email messaging options,

as well as anonymity, protection and consultation support in local

languages. Based on the messages received, an auditing or controlling

function may organise surprise audits, forensic data analytic procedures

or other activities. It is essential that all staff members have been trained

to identify and report potentially fraudulent activity.

ALEMOVA-GOERES: Most companies will have to deal with an internal

investigation at some point. First of all, it is important to frame the issue

which is the subject of investigation. Secondly, there is also the question

of who should investigate the incident – in some cases it is relevant to

carry out an impending investigation with the support of an external

forensic investigator. Thirdly, depending on an issue, a fraud or corruption

investigation usually involves an array of complex considerations.

Therefore, it is imperative to involve professionals who have extensive

experience in conducting internal investigations with suitable analytical,

technical and communication skills.







OR CORRUPTION?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY


“ Ethical business and good compliance go hand-in-hand with growth.”





PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

ALEMOVA-GOERES: Preventing corruption and fraud always starts at the top.

It is also important to have adequate resources to operate the anti-corruption

program effectively. It is essential to reinforce the importance of anti-bribery and

anti-corruption standards through training and employee awareness. Each company

has to adopt clear policies and procedures and ensure they are adhered to through

proper supervision and inspection. There should also be clear penalties for breaking

anti-bribery and anti-corruption policies, and punishment should be dispensed

within a reasonable timeframe. A robust anti-fraud policy and code of conduct, agile

fraud risk management processes, prudent employee and third-party due diligence,

and regular fraud awareness training and communication are vital. Nevertheless,

without a compliance culture – the heart and soul of compliance – anti-fraud and

anti-corruption activities become a hollow exercise. The future of fraud prevention

relies on employing emerging technology and big data analytics where large

volumes of available business information are used to predict upcoming fraud trends

in the company. As fraudsters are becoming better prepared, the development of

technology provides companies with means to defend themselves.

Naidira Alemova-Goeres

Partner

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

+49 (0) 6196 996 21348

[email protected]

Naidira Alemova-Goeres is a partner in EY’s Fraud Investigation & Dispute Service practice in Frankfurt, Germany, responsible for the financial institutions industry in the Central and Eastern Europe region. She has more than 16 years of experience in banking and securities regulatory matters having held senior compliance positions with global financial institutions as well as international consulting firms. Ms Alemova-Goeres has a vast international experience serving clients in various jurisdictions around the globe. Her expertise covers international asset tracing, investigations of money laundering, financial crime, bribery and corruption, FCPA-related investigations, sanctions investigations, and suspicious activity historical transaction reviews.





SWITZERLANDROMAN RICHERSHOMBURGER



CHANGES IMPLEMENTED IN

SWITZERLAND DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?




FRAUD, BRIBERY AND


IN SWITZERLAND IN RECENT

YEARS?

RICHERS: 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.

RICHERS: The Swiss criminal law provisions against fraud are well

established and generally deemed to be adequate. The provisions

against bribery, on the other hand, are newer and their implementation

is subject to international scrutiny. They have therefore been revised

several times in recent years. A revision of the rules on bribery in the

private sector is currently pending in the Swiss Parliament, with a view

toward improving the prosecution of such crimes, namely by abolishing

the requirement of a demand for prosecution by an injured party,

and broadening their scope of application. Individuals engaging in

corruption or fraud face severe criminal sanctions. Companies that fail

to implement adequate compliance procedures may be sanctioned with

a fine of up to CHF 5m in the event that bribery occurs. Moreover, any

unlawful profits may be disgorged. Increasingly, sanctioned enterprises

also risk being debarred from future public tenders.



SWITZERLAND • ROMAN RICHERS • HOMBURGER

Q IN YOUR OPINION,

DO REGULATORS IN

SWITZERLAND HAVE

SUFFICIENT RESOURCES TO

ENFORCE THE LAW IN THIS

AREA? ARE THEY MAKING

INROADS IN THIS AREA?

RICHERS: The Swiss Office of the Attorney General has publicly stated

that it intends to focus its investigations on international white-collar

crime and money laundering, including the fight against corruption. Part

of this focus also lies in supporting foreign corruption investigations,

and the Swiss authorities were involved in many recent cases, ranging

from the Siemens case to the recent Petrobras related investigations.

Many investigations were also opened after the Arab Spring and are

ongoing. Frequently, these Swiss investigations are focused on money

laundering and asset recovery issues, although the underlying predicate

offence is foreign corruption. The increased media focus on bribery and

corruption has also led to more scrutiny of local practices, and more

local criminal investigations into bribery allegations have recently

taken place. In turn, this has also led to Swiss enterprises reinforcing

their compliance efforts. However, despite these increased efforts, the

public prosecutors’ resources can be tight, and the authorities tend to

focus on the more important cases.

RICHERS: Ideally, the company has already taken precautionary

measures well before any dawn raid effectively occurs. Such preparations

include determining responsibilities in the event of a raid, setting out

the relevant internal rules in written guidelines, training the appropriate

personnel and, in some instances, conducting a mock dawn raid. Should

a dawn raid happen, it is crucial that the defined key people are alerted

immediately, including external legal counsel, to ensure that the legal

and factual repercussions remain as minimal as possible under the

circumstances. Under Swiss law, particular attention should be paid

to the requirement of immediately demanding the sealing of any

documents that are privileged, confidential or for which any other legal

objections may prevent their disclosure.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?


Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY




RICHERS: While whistleblowers can play an important role in the fight

against fraud and corruption, we have observed that such irregularities

are more frequently discovered by well-organised internal audit and

compliance procedures. Training staff to recognise and report signs of

fraudulent or corruptive behaviour is therefore an essential factor in

preventing such incidents. It is important to note in this context that

whistleblowing is seen somewhat more critically in Switzerland than

in other jurisdictions. Considerable emphasis is put on the internal

escalation of irregularities; on the other hand, making irregularities

public is considered admissible only as a measure of last resort.

The Swiss legislator is currently considering passing a new law that

provides clearer rules and thus more legal certainty for whistleblowers,

in particular regarding their rights under employment law, but it is

unlikely that this new law will lead to any fundamental changes to the

current regime.

RICHERS: The key to a successful internal investigation often lies in a

thoughtful organisation in the early phase. Large enterprises may have

internal guidelines and experienced staff to handle investigations, but

more frequently external experts are needed, in particular if serious

crimes are suspected. A key point in this respect is ensuring the legal

privilege, in particular as neither in-house counsel nor audit firms

enjoy any legal privilege under Swiss law. Ideally, external legal counsel

should therefore be involved early on. It is further essential to draw up a

timetable setting out how the investigation should proceed, addressing

issues such as collecting evidence, analysing available data including

email and forensic accounting reviews, and conducting interviews with

involved employees. Finally, an internal investigation can only lead to

meaningful results if it is conducted independently and with the full

support of the top management. Hence, this should be ensured from

the outset.







OR CORRUPTION?





PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

RICHERS: By far the most relevant factor in preventing corruption

and fraud is a sound corporate culture that is based on integrity and

accountability. Good corporate governance minimises the risk that

employees may resort to unlawful means when acting for the company,

increases the chances of detecting irregularities early on and generally

creates an environment that makes corruption and fraud less likely.

Companies should, of course, also implement more specific compliance

measures, such as creating a compliance organisation that specifically

takes into account the particular risks the company faces, issuing the

necessary codes of conduct, providing compliance training to the staff

as well as means to report irregularities such as an internal or external

hotline, and finally investigating suspected breaches of internal rules

and, if necessary, taking corrective action.

Roman Richers

Partner

Homburger AG

+41 43 222 10 00

[email protected]

Roman Richers is a partner in Homburger’s Litigation | Arbitration Practice Team and Homburger’s White Collar | Investigations working group. He graduated from the University of Basel (lic. iur.) and the University of Cambridge (LL.M.) and is admitted to all Swiss courts. He specialises in complex international and domestic dispute resolution, regularly advising and representing businesses and individuals in relation to criminal investigations and proceedings and related judicial assistance matters, as well as internal investigations. His practice further focuses on complex international and domestic arbitration proceedings and commercial litigation.


“ An internal investigation can only lead to meaningful results if it is conducted independently and with the full support of the top management.”




PORTUGALFILIPA MARQUES JÚNIORMLGTS

MARQUES JÚNIOR: 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.

MARQUES JÚNIOR: Since 2007, legal persons can be criminally liable

for fraud and corruption. In February 2015, changes were made to the

laws related to corruption, namely raising the penalties. Except in very

specific areas, such as financial compliance and money laundering,

failure to comply is always analysed within the context of other crimes.

Although it does not constitute an offence per se, nor a possible legal

justification for fraud or corruption, it is always advisable for companies

to demonstrate that they did everything in their power to try to

prevent fraud or corruption within the organisation. That can be used as

a defence argument in terms of trying to reduce any possible applicable

penalties.




FRAUD, BRIBERY AND


IN PORTUGAL IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN PORTUGAL DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?



MARQUES JÚNIOR: Regulators and judicial authorities have sufficient

resources and in recent years have used them in an effective way. Special

attention should be given to international cooperation in criminal

matters where we have found a new interest in these topics, providing

the competent authorities with valuable pieces of information and

allowing a better understanding of the methods used when committing

these crimes.

MARQUES JÚNIOR: A company should always adopt a cooperative

approach but, at the same time, immediately involve its internal

lawyers and audit personnel, as well as external counsel. This is

important in terms of guaranteeing that requests from the authorities

are in compliance with law, but also allows the company to start its

own internal investigation. Such internal investigations may be used to

cooperate with the authorities but also to provide a quick and better

understanding of what may have failed, allowing for the implementation

of mechanisms aimed at resolving the situation and preventing it in the

future.

MARQUES JÚNIOR: Whistleblower mechanisms should be seen as a

part of the company’s program to prevent fraud and corruption and not

as a ‘reward’ for any anonymous reports. Although there is no formal

corruption or fraud whistleblowing protection act in place, a company

may introduce such a system within its compliance program so that

it can initiate its own investigations as early as possible. Training on

Q IN YOUR OPINION,

DO REGULATORS IN

PORTUGAL HAVE SUFFICIENT




THIS AREA?

PORTUGAL • FILIPA MARQUES JÚNIOR • MLGTS

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW




the companies’ procedures with practical examples and case studies

of what is admissible or not under the company’s policies is a way

to ensure that the reports of potentially fraudulent activity are more

grounded and in line with what is expected.

MARQUES JÚNIOR: Management and boards should always be actively

involved, nominating a representative specifically allocated to the

investigation. Such internal investigation should include interviews and

review of the available data, complying with any local data protection

rules. Along with the involvement of internal legal advisers, audit and

compliance officers, companies should also appoint external counsel

that may have an ‘independent’ perspective of the facts and that may

help to conduct the necessary interviews as we find that often employees

are more confident talking with someone outside the organisation. A

periodical report of the findings and status of the investigation should

be made. There should also be an adequate response to the findings

of the investigation and it should always be assessed the best way to

disclose any findings to the competent authorities.

MARQUES JÚNIOR: Bearing in mind that it is very difficult to prevent

fraud and corruption, companies should have a robust compliance

programme with a strong message on the topic so that the fight

against corruption and fraud is perceived as a top level commitment.

This message should be passed on to the company’s employees, who

should be trained on a periodic basis. The company should, as one of

the primary preventive steps, and as part of a risk based approach,

identify the most sensitive areas to fraud and corruption, bearing in






OR CORRUPTION?



PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?



REPORT POTENTIALLY





mind the local regulation and customs, and determine an effective way

to address them. The company should also have someone responsible

for dealing with compliance issues, analysing any reports of suspicious

activities, and who is easily recognisable by the employees as the person

to address if any doubts arise. The company should also investigate

any suspicious reports of activity and, if necessary, bring disciplinary

proceedings against those involved, and assess the need or convenience

of externally reporting any conclusions. The general idea is that the best

way to prevent fraud and corruption is to minimise the opportunity for

it to happen.

Filipa Marques Júnior

Senior Lawyer

Morais Leitão, Galvão Teles, Soares da Silva & Associados

+351 210 091 783

[email protected]

Filipa Marques Júnior is a senior lawyer at MLGTS, a firm that she joined in 2002; she is a member of the firm’s litigation team, where she focuses mainly on criminal and misdemeanour litigation and compliance. Ms Marques Júnior has extensive experience in assisting clients in court proceedings and in pre-litigation stages in several areas, with special attention to economic crime, money laundering and corruption. She has worked in recent years in preventive and compliance measures and conducts internal training on corruption topics. She worked previously as adviser to the Legal Policy and Planning Office of the Ministry of Justice.


“ The general idea is that the best way to prevent fraud and corruption is to minimise the opportunity for it to happen.”




ITALY




FRAUD, BRIBERY AND


IN ITALY IN RECENT YEARS?




ITALY DESIGNED TO COMBAT

FRAUD AND CORRUPTION?

WHAT PENALTIES DO

COMPANIES FACE FOR

FAILURE TO COMPLY?

FABRIZIO SANTALOIAEY

SANTALOIA: 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.

SANTALOIA: In the last three years, significant changes have been

introduced in Italy. In 2012, a law was introduced aimed at strengthening

the measures that can be taken against corruption in relationships with

the public administration. This is to be achieved through the obligation for

each public body to define and monitor three-year plans for preventing

corruption. In addition, there was the introduction of a law against

commercial bribery crime, the crime of unlawful inducement to give or

promise anything of value, and trafficking of unlawful influences. The

penalties that companies face are different based on the crime committed;

the range varies from monetary to disqualification, confiscation and filing of

the judgment. Furthermore, new laws redefine the mission of the National

Anticorruption Authority, summarised as the prevention of corruption in

public administration, reinforcing the transparency and supervising public

tenders that can potentially develop corruptive phenomena. In addition,

recently the upper house of Parliament approved an anti-corruption bill

providing for increased penalties, making corruption committed by public

officials a crime, and reintroducing the crime of false accounting.



ITALY • FABRIZIO SANTALOIA • EY

Q IN YOUR OPINION, DO

REGULATORS IN ITALY HAVE





SANTALOIA: Presently, the effort against corruption in Italy includes the

action of the National Anticorruption Authority in increasing transparency and

monitoring the application of best practices in public tenders, as well as constant

enforcement actions made by Italian prosecutors to investigate bribery. A

further step in the fight against corruption would be to add forensic financial

analysis of available information relating to public tenders. This could include,

for example, the Chamber of Commerce, the Italian Tax Agency database, lists

of public tenders assigned, list of suppliers, as well as OSIN information. There

is a multitude of publicly and non-publicly available information which, once

properly investigated and linked with appropriate forensic tools, may identify

undisclosed bribery red flags that may reveal hidden malpractices or trends. This

information may then be passed to prosecutors for appropriate enforcement

actions similar to what occurs with other types of financial crimes.

SANTALOIA: Being prepared is always the best solution. Prosecutor

investigations are normally one-off crisis events in the professional career

of a C-level executive. Often, the company and its executives are not

prepared to properly manage an investigation that may directly involve top

management. The first suggestion should be to develop internal investigation

and crisis management protocols in advance of a crisis event, in order to be

prepared to respond promptly and effectively to the matter. Such protocols

must provide rules about the preservation of data related to the matter,

possible disciplinary action against employees involved in the matter,

disclosure information flows to the board of directors, and procedures to

perform the internal investigation. Undertaking an internal investigation is

the key part of the company’s response to the event. In the investigation

itself, a different department may be involved – internal audit, compliance,

security, legal and HR, together with outside counsel. Based on the results

of the investigation, the company should be required to implement changes

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?




to its compliance program, enforcing the code of conduct and enhancing

internal controls. Finally, it is worth noting that appropriate recovery and

review of digital evidence is becoming more critical for the success of an

internal investigation.

SANTALOIA: Whistleblowers are becoming more relevant as instruments

to fight company wrongdoing. Legislation is moving in line with this trend,

as laws are introduced specifically to protect public employees denouncing

crimes. Concerning private companies, under legislative decree, a corporation’s

compliance programs should impose an obligation on employees to

whistleblow to the corporation’s supervisory body. There is no explicit

statutory protection for whistleblowers, although in practice the majority of

compliance programs provide a certain degree of protection for, among other

things, the disclosure of identities. Both law and legislative decree include

training for employees as one of the mandatory steps for the implementation

of an anti-corruption plan and an effective compliance program.

SANTALOIA: First of all, use a standard process to review and filter

allegations to develop an initial response plan. Based on the analysis of each

issue, companies must establish their investigation team, determine any

need for outside counsel and take necessary steps to discover and preserve

evidence. At the same time, they must also ensure appropriate oversight

and disclosure as the process continues. It must be considered that each

investigation is unique; the facts and circumstances will dictate how specific

procedures should be performed within data analytics, document review

and conduct interviews. For example, a forensic accounting review is critical

to understand how transactions are captured in the accounting system, the

flow of funds and the internal control environment. Email and document

review helps to better understand troubling transactions. At the end of the

investigation, a report with formalised conclusions, recommendations and

remediation should be formalised.






OR CORRUPTION?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY


“ It is worth noting that appropriate recovery and review of digital evidence is becoming more critical for the success of an internal investigation.”




SANTALOIA: Companies must start from the risk assessment and consider

factors including the nature and location of business activities, third party

relationships, methods for generating business and applicable laws. The

second step consists of designing a comprehensive and balanced anti-fraud

program that corresponds to the risks identified during the assessment

process; including defining program ownership and oversight. Then it is

necessary to define and implement policies, procedures and controls that

map to regulations, obligations and business processes and to establish

procedures and controls to prevent, detect, correct and mitigate the risks.

Stakeholders must be trained in various forms to raise their awareness

and competence regarding anti-fraud goals, policies, procedures and

controls. Tracking and assessing, in various ways, policies and controls for

effectiveness and performance is necessary, together with timely corrective

and disciplinary action for violation of the anti-fraud program. Finally, each

change to the risk profile needs to be continually evaluated and the program

adjusted accordingly.

Fabrizio Santaloia

Partner

EY

+39 02 8066 9733

[email protected]

Fabrizio Santaloia joined EY as Italian leader of the Fraud Investigation and Dispute Services (FIDS) department in July 2013. He is also acts as EY EMEA Fids leader to support EY audit clients on forensic matters. Previously he acted as partner of forensic department for another Big 4 accounting firm. He has over 13 years’ experience on FIDS market serving large multinational corporations in specialised industries as telco, retail, automotive, pharma and banking. Mr Santaloia led major Italian and international forensic investigations achieving a robust experience in coordinating complex projects.



PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?





CZECH REPUBLIC




FRAUD, BRIBERY AND


IN THE CZECH REPUBLIC IN

RECENT YEARS?



CHANGES IMPLEMENTED

IN THE CZECH REPUBLIC

DESIGNED TO COMBAT


WHAT PENALTIES DO

COMPANIES FACE FOR

FAILURE TO COMPLY?

JAN SPACILDELOITTE

SPACIL: 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.

SPACIL: Corporate criminal liability was introduced to the Czech

legal system on 1 January 2012 following the adoption of the Act on

Criminal Liability of Legal Entities. The public and media were quite

sceptical as to the ability of the respective bodies to use the new law to

combat corporate crime in practice. After three and a half years of the

effectiveness of this law, we can confirm that it is starting to be taken

seriously not just by the state authorities, but also by the public and

companies themselves. Fraud and corruption are just a small sample of

criminal acts for which companies may be held liable. The new law has

introduced a large variety of penalties, ranging from the dissolution of

a company to the imposition of financial penalties, seizure of property,

bans on carrying out business, bans on participating in public tenders

or benefiting from subsidies, as well as publishing court decisions in the

media.



CZECH REPUBLIC • JAN SPACIL • DELOITTE


REGULATORS IN THE CZECH

REPUBLIC HAVE SUFFICIENT




THIS AREA?

SPACIL: The Czech Republic is quite well-known for its very lengthy

court proceedings – not only in cases concerning fraud and corruption

– due to lack of staff or specific expertise of the respective bodies.

Introducing corporate criminal liability brought challenges to the

attention of the police and state prosecutors as well as courts in

respect of certain specialisations, such as the overlapping of criminal

law and business law, or simply in terms of experts’ understanding of

how corporations function and execute business. The situation has

been steadily improving each year as a result of the practical insights

being gained, as well as by educating staff of the respective bodies, the

planned creation of a special police unit for combating corruption, and

so on. Although the level of expertise of the respective authorities has

been improving in recent years, there is still a long way to go in ensuring

we have an effective system of corporate crime law enforcement.

SPACIL: The most important aspect is to take those matters seriously

and not underestimate them. Corporations should definitely have the

guidance of legal experts who focus on corporate criminal liability

and understand the issues faced by large corporations and economic

crime generally. Another important recommendation is to effectively

communicate and cooperate with the respective authorities, whereby

the state authorities should take this into consideration in evaluating

the punishment if the crime has really been committed.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?


Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY




SPACIL: The role of whistleblowers in uncovering fraud and corruption

in the Czech Republic is not particularly strong. Whistleblowers are

still concerned about the level of protection they can expect should

they highlight illegal activity within their company. There are only

a limited number of companies with whistleblowing functions

actually being used by their employees. Giving proper safeguards to

whistleblowers is one of the crucial components for this tool if it is

to be as effective as it is in other countries. Therefore, on one hand

it is important that the whistleblower’s line is set up properly and in

accordance with the relevant legal provisions – such as data privacy

protection of the whistleblower and also of the accused and labour

law protection. But, on the other hand, staff must be trained properly

on how the whistleblower’s line should be used and how the company

and other staff may benefit from notifying illegal dealings and they

have to believe in that. Our experience suggests that in many cases

when whistleblowers have blown the whistle, breaches have not been

investigated properly. This is one of the reasons why whistleblowing is

not taken seriously by employees or companies in the Czech Republic.

SPACIL: It is, of course, a good start to implement some internal

measures to combat or prevent corruption or fraud. However, an

independent and unbiased investigation by a third party has proven

to be the most effective way of uncovering the facts and finding out

whether any type of such criminal acts has been committed within the

company or in the name of the company. Independent investigations

can also point out deficiencies in the established internal processes and

provide advice on their improvement.






OR CORRUPTION?






PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

SPACIL: The most important thing for companies is to understand the risk

of corruption and fraud for their business in the long-term perspective

and the willingness to be resilient to those negative issues. A company’s

management needs to clearly define its standpoint against fraud and

corruption and its readiness to take effective measures – in other words,

to set the proper ‘tone at the top’. It is then a matter of implementing

the appropriate preventive measures – training employees, setting up

whistleblower’s lines, having internal guidelines in place, and so on.

They need to implement sufficient control mechanisms and to have a

standard process in place for ensuring appropriate remedial measures

are taken if corruption or fraud is identified.

Jan Spacil

Partner

Deloitte

+420 246 042 991

[email protected]

Jan Spacil is a managing partner at Ambruz & Dark Deloitte Legal and a Deloitte Legal CE Leader. He leads the Czech Corporate Governance Centre and he is also chairman of Transparency International, Czech Republic. Mr Spacil specialises principally in commercial and corporate law, with a focus on corporate and business issues, comprehensive restructuring projects, acquisitions and similar transactions, and management liability reviews. As a Czech Corporate Governance Centre leader, Mr Spacil also exercises his extensive experiences in the area of corporate governance, criminal liability of legal entities and investigation into corruption, bribery and fraud.


“ Independent investigations can also point out deficiencies in the established internal processes and provide advice on their improvement”




INDIADINESH ANANDPWC




FRAUD, BRIBERY AND


IN INDIA IN RECENT YEARS?




INDIA DESIGNED TO COMBAT


WHAT PENALTIES DO

COMPANIES FACE FOR

FAILURE TO COMPLY?

ANAND: 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. The recent Transparency International Survey ranked

India 85th out of 175 countries in its Corruption Perception Index, as

compared to its previous ranking of 94. Although an improvement in

terms of ranking, this number highlights the extent of measures needed

to curb economic crime and improve the business environment further

in our country.

ANAND: Of late, there have been a number of legal and regulatory

changes aimed at combating fraud and corruption. The new Companies

Act, 2013 has incorporated some very stringent clauses that have

mandated greater accountability for the board and directors to prevent

and detect fraud. As per Section 447 of this Act, any individual who

is found guilty of fraud shall be punished with imprisonment from

six months to up to 10 years. A recent proposed amendment in

the Prevention of Corruption Act has incorporated more stringent

punishments for both the bribe giver and the bribe taker, enhancing the

penalty to a maximum of seven years of imprisonment. Along with this,

the Black Money Bill has announced criminal liability with enhanced

punishment of jail for 3-10 years for wilful evasion of tax on foreign



INDIA • DINESH ANAND • PWC


REGULATORS IN INDIA HAVE





income. Besides the domestic laws, with more and more multinational

companies coming to India, international laws such as the US FCPA and

UK Bribery Act are increasingly gaining prominence as the key regulatory

drivers for ensuring compliance.

ANAND: Historically, laws and regulations to curb corporate fraud,

bribery and corruption in India have always been there, but the

enforcement of these laws has not been adequate. With the recent

changes in domestic regulations, we are seeing an increased sense of

responsibility, and a change in the tone at the top across the board to

create awareness of the repercussions of fraud and corruption. Besides

this, as the Indian government is taking new measures for legislative

reform, it is interesting to see ‘self-regulation’ emerging as a key trend.

We are definitely seeing regulators make slow but a positive changes

regarding enforcing laws in India. Giving more powers to the Serious Fraud

Investigation Office (SFIO), the new Company’s Act proposes to make it a

statutory body entrusted with enforcement powers, including arrest.

ANAND: The most important thing that every company requires is to

have honesty and transparency in its dealings with the government.

In case of an unfortunate incident of a government investigation, the

foremost thing that needs to be done is to not do anything in haste

– it is better to understand the situation and take stock of things.

Only the people authorised by the company should engage with

relevant government agencies. Companies must preserve all data and

evidence related to the investigation. It is extremely important that a

company cooperates with officials fully and in a timely manner, does

not mislead officials or obstruct access to information or records that

are being sought. Besides this, one also needs to adequately respond to

the queries and requests for information by government bodies. While

these measures are being taken, the company may also seek professional

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?




advice to be safe and work towards voluntary disclosures and reporting

requirements. It becomes extremely helpful if the company has a formal

response protocol documented to address such situations.

ANAND: The role of whistleblowers in preventing and detecting fraud

and corruption cannot be undermined. According to PwC’s 2014 Global

Economic Crime Survey, whistleblowing systems or tip-offs uncover

about a quarter of all reported crimes. The Whistle Blowers Protection

Act, 2011 in India provides a mechanism to report alleged corruption and

misuse of power by officials and also protects anyone who exposes alleged

wrongdoing in government bodies, projects and offices. Under the Act, the

Ombudsperson is one of the authorities to whom protected disclosures

can be made. The Ombudsperson provides information and guidance to

people who have made, or want to make, a protected disclosure. To put

an effective whistleblowing mechanism in place, it is important to train

and create awareness among not just a company’s staff but also third

parties and business associates on how and where to report suspected

fraud. However, there is no ‘one size fits all’ solution; organisations need

to tailor the design of their whistleblowing arrangements according to

their operational and cultural circumstances.

ANAND: An internal investigation is a fact-finding exercise. To streamline

this, companies need to have a proper fraud investigation and response

protocol, and set up an objective independent investigation committee

to deal with such cases. Companies should give cognisance to and

address factors such as assessing the credibility of the complaint and the

complainant, taking immediate steps to preserve data and information

in electronic or hard copy format, identifying and securing testimony

of individuals who are associated with or may have knowledge of

the matter under investigation, identifying and securing information

regarding sources external to the company as needed, ensuring that

findings are presented in a lucid, fact based manner and any statutory or

other reporting obligations are complied with, and whether a full audit

trail is available and maintained for complaints received, investigated

and dispersed.






OR CORRUPTION?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY







PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

ANAND: With the changing economic dynamics and sophisticated

advancements in technology, organisations will have to pay special

heed to anti-fraud and anti-corruption programmes, as well as robust

cyber security programmes. While effective compliance programs,

sound financial and internal controls and continuous monitoring can

help in preventing fraud and corruption, a good way to mitigate such

unethical practices is to cultivate a culture of compliance and ethics

in an organisation. This includes setting the right tone at the top to

build confidence in the system, drawing up a comprehensive code of

conduct and ensuring strict enforcement, establishing a whistleblowing

mechanism, conducting a comprehensive and periodic baseline fraud

risk assessment and implementing anti-fraud controls, establishing a

continuous monitoring mechanism, doing adequate due diligence and

having strong third party compliance programmes, and providing training

and awareness on fraud and compliance to stakeholders.

Dinesh Anand

Partner

PwC

+91 98 1826 7114

[email protected]

Dinesh Anand is the Forensic Services Leader at PwC India. A pioneer in corporate intelligence, he has led some of the most challenging forensic engagements. He has built one of the strongest corporate intelligence networks globally with clients including the largest and most prominent companies and private equities worldwide. His work experience includes integrity due diligence, employment screening, customer due diligence, fraud investigations, anti-corruption, AML as well as work in responsible supply chain including environment and health safety reviews (EHS), social audits and child labour monitoring.


“ Organisations need to tailor the design of their whistleblowing arrangements according to their operational and cultural circumstances.”




CHINA & HONG KONG




FRAUD, BRIBERY AND


IN CHINA & HONG KONG IN

RECENT YEARS?



CHANGES IMPLEMENTED

IN CHINA & HONG KONG

DESIGNED TO COMBAT


WHAT PENALTIES DO

COMPANIES FACE FOR

FAILURE TO COMPLY?

ALLEN LIAOGRANT THORNTON

LIAO: 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.

LIAO: The greatest change in the last several years has been the

hardening of the attitude of the Chinese authorities toward corporate

fraud. This change in attitude, rather than in China’s statutes, is the

source of the recent increase in raids, investigations and convictions

related to fraud. Penalties – usually in the form of fines – are largely

assessed by two organisations: either the State Administration for

Industry and Commerce or the Public Security Bureau. The former can

only levy administrative fines while the latter can both levy fines and

conduct criminal investigations that lead to jail time.



CHINA & HONG KONG • ALLEN LIAO • GRANT THORNTON


REGULATORS IN CHINA

& HONG KONG HAVE





LIAO: In tandem with its economy, China’s regulators are becoming

more sophisticated in their investigations, especially in first tier cities

like Beijing, Shanghai and Guangzhou. We’ve seen a real upgrade in

their ability to conduct forensic audits when they suspect fraud

has occurred, as well as a better appreciation of the role of forensic

technology in obtaining electronic evidence. We fully expect China to

continue investing resources in its law enforcement organs, as well as

to revise its laws to keep pace with its economic development

LIAO: Each raid is unique, so there is no single ‘right’ answer to this

question. Nonetheless, there are a few general rules which should guide

a company’s response. First of all, your receptionists should follow the

protocols that you have already practiced for such situations. They

should call the designated senior executives who are best placed to

answer the investigators’ questions. The investigators should be treated

with the highest respect and you should quickly learn which law

enforcement organ they have come from and what types of documents

they are looking for. Following the raid, you and your local external

counsel should keep in touch with the investigators as it is likely that

they will have follow-up questions based on the documents they have

collected.

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?


Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY




LIAO: Whistleblowers are key players as they have the inside

information that can point investigators in the right direction. However,

especially in China, companies need to have a clear process for how

to deal with whistleblower allegations, lest the email boxes of their

senior executives get inundated with allegations that are more about

besmirching reputations than disclosing fraudulent behaviour. It is not

enough to have a hotline or ethics website. Whistleblower policies need

to be explained to all staff so that they know there is a process in place

that takes their allegations seriously.

LIAO: Again, there is a no single ‘right’ answer on how to conduct

an internal investigation beyond a few general suggestions. The

investigators should not come from the operations side of a company,

of course. In China it is important to do your work discreetly to reduce

the chances of evidence being destroyed. Interviews are the last step in

the investigative process and any terminations must be well-planned

so that they follow Chinese labour laws.






OR CORRUPTION?






PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

LIAO: The single most important step is to adequately fund your

compliance department so that you have enough personnel to monitor

your policies and investigate instances of wrongdoing. Over and over

again we are finding companies are investing little or no money into

their compliance functions, the end result being that companies are

too late to realise that wrongdoing has metastasised across their

operations in China. The second most important step is to provide

continuous training to your staff so they understand your policies, and

are aware that the company is always monitoring their compliance.

Allen Liao

Partner

Grant Thornton China

+86 (21) 2322 0210

[email protected]

Allen Liao is a partner and National Leader for Forensic, Investigative and Dispute Resolution Services atGrant Thornton China. He specialises in conducting complex investigative assignments involving fraud or corruption. Mr Liao has over 10 years experience investigating allegations of FCPA violations and anti-corruption matters for multinational companies with operations in Asia, with a particular focus on China. His investigations often include a forensic technology component wherein he is asked to review documents and emails and perform forensic computer data analyses to determine the nature and extent of fraudulent behaviour.


“ Over and over again we are finding companies are investing little or no money into their compliance functions.”




AUSTRALIA




FRAUD, BRIBERY AND


IN AUSTRALIA IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN AUSTRALIA DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT

ROB LOCKEEY

LOCKE: 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. This is driven by increased risks in emerging

markets with immature legal frameworks, M&A activity with limited

forensic due diligence, business combinations for major capital projects,

rapid expansion and capital projects with unprecedented demand for

vendors and resources – spend now, worry about governance and control

later. It has never been easier to get a discussion with C-suite and

boards on bribery and corruption risk given reputational exposure for the

company through share price implications, as well as D&Os in the form

of personal brand damage and liability. There has also been a significant

rise in regulatory activity in the financial services sector with misconduct

of traders and financial planners.

LOCKE: There have been a number of developments in this area including

criticism by the OECD over the lack of bribery and corruption enforcement

and unprecedented levels of cooperation by global regulators. Following

the G20 meeting in Brisbane, Australia in November 2014, the G20

published its collective anti-corruption plan for the next two years.

These deliverables included targeting anti-corruption initiatives in high

risk sectors and confiscating criminal assets through the Criminal Assets




REGULATORS IN AUSTRALIA

HAVE SUFFICIENT RESOURCES

TO ENFORCE THE LAW IN THIS



AUSTRALIA • ROB LOCKE • EY

Confiscation Taskforce. Further developments in Australia include an Anti-

Corruption Taskforce set up 18 months ago and the Australian Competition

and Consumer Commission initiating the use of its criminal investigation

powers, as opposed to only its civil action powers.

LOCKE: We believe that more can always be done. However, there are

other competing priorities, including counterterrorism.

LOCKE: From a corporate’s perspective, depending on the jurisdictional

framework that governs operations locally, we would suggest that it

engages with an external team of lawyers and accountants to try to

understand the issue on hand, and then to develop strategies to deal with

the allegation laid against it. A company can also implement a ‘triage

model’ where all advisers are in place with local expertise and reach.

Personnel are at the mercy of foreign regulators and the company must

protect the interests and safety of expatriate and local resources alike.

LOCKE: As the need for compliance grows, so does the need for strong

governance. Enhancing this with an effective whistleblower mechanism

is one of the greatest sources of identification and detection of bribery

and corruption. An effective whistleblower program is a primary

defence and identification priority. The role of the whistleblower will

become increasingly important given potential bounties issued by the

Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?

WHAT PENALTIES DO

COMPANIES FACE FOR

FAILURE TO COMPLY?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW




US Securities & Exchange Commission (SEC)

LOCKE: Deciding who will control an investigation needs to be agreed

before an incident arises. Use specialists rather than hobbyists – it’s a

minefield and advisers can get it wrong and expose the board. You

don’t learn forensic capability from a textbook; each job is different and

experience counts when it matters most. Take immediate steps to preserve

whatever can be lost or compromised, including physical and electronic

records. This might also include obtaining documented versions of events

from those with knowledge of the issues relevant to the allegations which

can be compared and contrasted later for consistency. There will be

competing interests here, so the pros and cons must be carefully weighed.

Frame some questions that the board needs answered and focus the

investigation on them. Who is involved? What is the potential exposure?

Have we identified the full extent? How can we be sure this doesn’t

happen again? Also, engage external counsel to preserve ‘professional

legal privilege’.

LOCKE: Engage with fraud, investigation and dispute services to perform

a fraud and corruption framework review and benchmarking exercise to

industry peers. Develop a roadmap to address the gaps with clear goals and

assign accountability. Document the fraud and corruption risks across the

business, entity level and process level, and assign oversight responsibility

to responsible persons. Mandate the inclusion of forensic due diligence

on all M&A activity and project origination. Carry out comprehensive

due diligence on third parties and enhanced due diligence on high risk

vendors or in high risk locations, because there is potential to expose

the company and board to liability for the actions of these third parties

– in 2012, 90 percent of all FCPA prosecutions involved the use of third

parties. Roll out regular training to employees and feedback of lessons



REPORT POTENTIALLY







OR CORRUPTION?



PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?


“ You don’t learn forensic capability from a textbook; each job is different and experience counts when it matters most.”



learnt. Make them aware of expected behaviour and increase awareness

of available channels to report suspicious activity. Implement enhanced

risk and assurance functions with specific fraud and corruption specialists.

Encourage peer to peer knowledge sharing and transfer; for example,

the rotation of internal audit team members into the business. Broaden

three levels of defence strategies to include fraud and corruption risk

management, starting with Control Self Assessments. Implement periodic

or event-specific management certification such as positive confirmation

of adherence to code of conduct and conflicts of interest declarations

by senior officials, and independence confirmation of tender committees.

Deploy background checks as part of the on-boarding of new suppliers,

customers, contractors and employees. Finally, deploy fraud analytics as a

proactive initiative to analyse transactions on a regular basis, and ensure

the appropriate resources are committed to review exceptions.

Rob Locke

Managing Partner

EY

+61 2 8295 6335

[email protected]

Rob Locke is the managing partner of the Oceania Fraud Investigation and Dispute Services (FIDS) practice and the leader of FIDS’ Oceania financial services practice at EY. He is a highly experienced forensic professional with more than 25 years law enforcement, investigation and fraud risk management experience in both the public and private sectors. Mr Locke’s experience extends across a wide range of industries and sectors, including financial services, consumer and industrial markets, government as well as energy and natural resources, media, information, communications and entertainment.





SOUTH AFRICA




FRAUD, BRIBERY AND


IN SOUTH AFRICA IN RECENT

YEARS?




SOUTH AFRICA DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?


REGULATORS IN SOUTH

AFRICA HAVE SUFFICIENT




THIS AREA?

VERNON NAIDOOGRANT THORNTON

NAIDOO: 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.

NAIDOO: We have seen multinational legislation against fraud taking

root in South Africa over the years, forcing companies to be more

accountable regarding fraud and corruption. Although South Africa’s

anti-corruption legislation is among the best in the world, enforcement

remains a challenge. The focus on legal and regulatory changes must be

supported by ethical and cultural change initiatives because changing

behaviour comes with its own significant challenges. There has been little

success in attempting to legislate behaviour globally. Although there are

penalties for non-compliance, inevitably this is funded by the company

and is therefore inadequate and ineffective. Serious consideration should

be given to criminalising specified levels and types of non-compliance,

which would likely be a more effective deterrent.

NAIDOO: The impact of the state of both the global and local economy

on South Africa continues to place severe pressure on the resourcing of

the Public Protector, National Prosecuting Authority, Special Investigating

Unit and the South African Police Services. There is clear evidence of a lack

of resources to enforce the law in this area, such as the slow turnaround

times experienced by commercial forensic practitioners in obtaining

cooperation from some SAPS officials, the lengthy lapse in time to get



SOUTH AFRICA • VERNON NAIDOO • GRANT THORNTON

cases heard in court and the lack of knowledge and experience of some

officials tasked with this enforcement function. These delays and lack of

knowledge and experience by enforcement officials negatively impact the

speedy conclusion of an investigation, investigation costs and in many

cases successful convictions. Actual and attempted political interference

in the independent functioning of these institutions has also impacted

on their efficiency and effectiveness, declining public confidence, loss of

competent staff to the private sector and low staff morale.

NAIDOO: Companies should have an approved and well communicated

policy and procedure which will guide and assist its response and

preparation for such an event. It is important to stay calm and to ensure

that the investigators receive full cooperation – aggressive behaviour

should be avoided. Equally important is to enquire upfront as to what

has given rise to the investigation and to determine if this is consistent

with the search warrant. The legal advisers of the company should be

contacted to consider, and advise on, the legal aspects of the case. It is

preferable that they are also present when interviews with the company

staff are being conducted. A concise record should be kept of all areas

visited by the investigators, all staff they have interviewed and the records

of statements made. Copies of all documents and data taken should be

taken and recorded in a register by location, no seals should be broken

and evidence should not be destroyed or tampered with. Investigators

should not be granted access to confidential legal correspondence.

NAIDOO: The South African constitution is premised on the realisation of a

“society based on democratic values, social justice and fundamental human

rights” and seeks to “lay the foundations for a democratic and open society

in which government is based on the will of the people and every person is

Q WHAT ROLE ARE



Q IF A COMPANY


TO A GOVERNMENT


RAID, HOW SHOULD IT

RESPOND?




equally protected by the law”. Whistleblowing is central to these constitutional

principles. It is key in the fight against corruption and mismanagement, especially

of public funds, and to strengthening transparency and accountability within

organisations and society more generally. Over the years both in the public

and private sector, approximately 50 percent of all fraud and corruption cases

investigated were reported by whistleblowers. Whistleblowers continue to play

a critical role in the fight against corporate fraud and corruption but sadly

there are several cases where the legislation and structures aimed at offering

protection to whistleblowers have failed them. Fraudsters are generally prone

to showing off their illegal proceeds in their lifestyle, and inevitably staff are

the first to notice these changes. It is therefore critical to train staff to identify

and report potentially fraudulent activity; in our opinion, this training is a pillar

to the implementation of a successful fraud prevention strategy. Staff training

also plays a role in reinforcing an anti-fraud culture.

NAIDOO: There are three critical considerations: the rights and treatment of

the suspected employees, the protection and preservation of evidence and the

timing of the response. Where employees are suspected and nothing has been

proven, their constitutional rights and relevant labour law provisions should

not be breached. Where there are risks of the suspect employees tampering

with evidence or interfering with witnesses, suspension should be considered

and executed in accordance with labour laws and the company’s disciplinary

code. The protection and preservation of the evidence is paramount and if

not attended to correctly and timeously may compromise the outcome of

the investigation and the chain of evidence. Computers, other digital media

and company owned cell phones should be immediately seized and analysed

by forensic investigators. The timing of responses by management is critical

and it is important that management respond swiftly. The ‘five Ws’ should be

considered in preparation for the investigation and throughout the process:

what happened, when did it happen, where did it happen, who was involved

and why did it happen.






OR CORRUPTION?

CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY



“ Fraudsters are generally prone to showing off their illegal proceeds in their lifestyle, and inevitably staff are the first to notice these changes.”


“ Pimusque publisultis, que hocrimmo vestiquam ina dea munipribusserum, satus terteris vere, musque publisultis, que hocrimmo vestiquam ina dea muni”




PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

NAIDOO: In both the public and private sectors, fraud risk management is

not tackled in an orderly and structured manner and the approaches used

are not holistic. In addition, the tone starts at the top. To achieve proactive

success in preventing fraud and corruption, companies must examine their

systems, processes, policies and culture and include the entire organisation

and not just their senior management in doing this. This will educate staff

across the organisation, increase buy in and commitment to the process and

shift staff from simply being involved from a compliance perspective. Of

critical importance is that the fraud risk response plan must be documented,

communicated throughout the organisation, resourced, actively monitored and

managed. The general steps include appointing a champion, developing a

fraud policy and response plan, implementing a fraud hotline, developing

a code of conduct and related HR policies, conduct fraud awareness

training, performing a fraud risk assessment, implementing mitigating

controls, regular reporting and conducting proactive data analytics.

Vernon Naidoo

Director and Head: Forensics

Grant Thornton Johannesburg, South Africa

+27 (0)10 590 7200

[email protected]

Vernon Naidoo is a director and head of forensics at Grant Thornton Johannesburg. Prior to joining Grant Thornton, Mr Naidoo was the managing director and a shareholder of Nexus Forensic Services. He was a founding director and chairman of the board of the Institute for Commercial Forensic Practitioners, a self-regulating body in South Africa. During his career he has held numerous leadership positions. Mr Naidoo has more than 23 years’ experience in the public and private sector after having completed his articles. During his consulting tenure, his engagements included internal audit, risk management, forensics, operation clean audit, IT audits and strategy.





GHANA




FRAUD, BRIBERY AND


IN GHANA IN RECENT

YEARS?



CHANGES IMPLEMENTED

IN GHANA DESIGNED

TO COMBAT FRAUD AND

CORRUPTION? WHAT


FACE FOR FAILURE TO

COMPLY?

ERIC NANA NIPAHPWC

NIPAH: 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.

NIPAH: There have been several legal and regulatory changes implemented

in Ghana to combat fraud and corruption. The Anti-Money Laundering Act

2008 and the Anti-Money Laundering Regulations, 2011 both criminalised

money laundering related offences. The Public Procurement Act 2003 was

enacted with the aim of strengthening and plugging all the holes in the public

procurement system. The Public Office Holders Act requires some government

officials to file asset disclosures but there is no effective mechanism in place

to monitor assets, incomes and lifestyles. Unfortunately, this Act has not been

implemented by any government in Ghana. The Whistle-blowers Act 2006

provides for the protection of witnesses and informants from prosecution and

victimisation. The Internal Audit Agency Act, 2003 seeks to establish a central

agency of government to coordinate, monitor and supervise internal audit

activities within government ministries, departments and agencies. The Act

creates standards and procedures for the conduct of internal audit activities

intended to secure transparency and avoid the incidence of corruption. The

Commission of Human Rights and Administrative Justice Act, established

in 1993, seeks to organise lectures and symposia to educate both public



Q IN YOUR OPINION,

DO REGULATORS IN

GHANA HAVE SUFFICIENT




THIS AREA?

GHANA • ERIC NANA NIPAH • PWC

and private officials on issues of corruption and fundamental human rights.

The aim, among other things, is to generate widespread awareness of the

social and economic cost of corruption and foster a positive and nonpartisan

approach to combating corruption. It is also to support and strengthen

society’s commitment to combating corruption. The Financial Administration

Act, 2003 regulates the financial management of the public sector, prescribes

the responsibilities of persons entrusted with financial management in the

government, and ensures the effective and efficient management of state

revenue, expenditure, assets and liabilities, resources of the government, the

consolidated fund and other public funds. Companies and agencies may be

sanctioned by institutions such as the World Bank and IFC. Huge financial

damages may also be imposed on them and they may lose key staff who

would not want to be tagged as working for such institutions and companies.

Ultimately, the brand would be affected adversely.

NIPAH: Most of the regulatory bodies by law, are supposed to be

independent and autonomous of the government. In our opinion, funding is

woefully inadequate and as funding comes from the government, this raises

independence issues, as well as questions regarding regulators’ ability to

take on the government over corruption issues. Budget allocations remain

scant and little attention is paid to the activities of these anti-corruption

regulatory bodies. This situation impedes their work and leaves a lot of cases

unattended because the resources to pursue them are simply not available.

NIPAH: A government investigation or a dawn raid by its nature can be

disruptive to the activities of a business and can affect its reputation.

A company that finds itself in this situation should cooperate fully with Q IF A COMPANY FINDS

ITSELF SUBJECT TO A

GOVERNMENT




the law enforcement agencies and seek legal counsel as soon as possible.

I would expect the company’s management and all employees to follow

its laid down procedures in its policy manuals. Only authorised personnel

should communicate with the investigative agency.

NIPAH: In the 2014 PwC Global Economic Crime survey, 5 percent of

respondents indicated that economic crime was detected by whistleblowing

even though it fell behind other determinants such as data analytics, internal

audit, fraud risk assessment, corporate security, rotation of personnel and

tip offs – both internal and external. Further, the Association of Certified

Fraud Examiners (ACFE) 2014 Report to the Nations on Occupational

Fraud and Abuse identifies employees as the most effective source of tips

for the detection of fraud. The role of whistleblowers in fighting corporate

fraud and corruption cannot be overemphasised. Whistleblowers can

help companies address wrongdoing which, if unreported in the long run,

may be detrimental to the operations and reputation of the company.

Any organisation which trains its staff on whistleblowing will create an

environment where employees can report all knowledge or suspicion of

wrongdoing to its designated whistleblower reporting officer without

fear of being victimised. A whistleblowing policy should be developed and

explained to employees at such training sessions. This policy would provide

guidance to employees on how to go about whistle-blowing when they

come across or notice matters of concern and suspected wrongdoing.

NIPAH: In instances where there are suspicions of fraud or corruption, we

would advise management to quickly take the necessary actions to conduct

internal investigations. It is imperative that these actions are communicated

to employees. This will convey to employees that the company is committed

to eradicating wrongdoing and promoting an environment of trust and

confidence in the internal system. Furthermore, companies should have

formalised procedures and policies in place for investigating suspicions of

fraud or corruption. These should be embedded in the Code of Ethics of the

company and communicated to all employees.






OR CORRUPTION?

Q WHAT ROLE ARE



CORPORATE FRAUD AND

CORRUPTION? HOW



REPORT POTENTIALLY



RAID, HOW SHOULD IT

RESPOND?


“ Regular fraud detection reviews, fraud risk assessments and use of fraud risk registers could foster the identification of areas of control weaknesses that are prone to abuse or fraud.”





PROACTIVELY PREVENT

CORRUPTION AND

FRAUD WITHIN THEIR

ORGANISATION?

NIPAH: Companies should adopt a culture of being proactive rather than

reactive, in order to identify potential areas that are prone to abuse and

quickly put in place controls to mitigate or prevent such incidences. To prevent

corruption and fraud in the corporate world, companies must ensure that

there is an effective and rigid compliance program in place at the workplace.

Regular fraud detection reviews, fraud risk assessments and use of fraud risk

registers could foster the identification of areas of control weaknesses that

are prone to abuse or fraud. There should be clear lines of accountability and

responsibility within a firm. Internal audits must be strong and independent

of management. Truly independent audit committees may also maintain

healthy levels of scepticism to promote continuous evaluations of the

company’s anti-fraud programs and controls. A positive work environment

can prevent employee fraud and theft. There should be a clear organisational

structure, written policies and procedures and fair employment practices.

An open-door policy can also provide a great fraud prevention system as it

gives employees open lines of communication with management.

Eric Nana Nipah

Partner

PwC

+233 302 761 500

[email protected]

Eric Nipah is a partner in PricewaterhouseCoopers (Ghana) Ltd. He is currently the competency leader for Business Recovery Services in the West Market Area and also leads the Forensics unit of the firm in Ghana, Liberia and Sierra Leone. With over 15 years of experience at PwC, Mr Nipah has immense experience in insolvency and forensic investigation services. He has led a number of high profile and complex assignments for both public and private sector clients in Ghana, Liberia, Sierra Leone, Kenya and UK.


FWS U P P L E M E N T

www.fi nancierworldwide.com

A N N U A L R E V I E W

corporate fraud & corruption - mlgts · corporate fraud & corruption june 2015 • annual...

Documents