New Laws Are Changing the Battle Against International Bribery & Corruption Pg. 12

Whiplash Fraud and Other Schemes Cause Massive Loss Pg. 17

Web of Deceit: Online Fraud Pg. 26

5 Biggest Fraudsters in History Pg. 30

How Do You Define Bribery? Pg. 37

ISSUE 2 2013 Crigroup.Com

Preventing the Spiraling Costs of Insider FraudCorruption, bribery and a lack of due diligence harm busi-ness interests worldwide. Learn what the experts are doing to combat these and other threats. Pg. 22

Published by

Fraud and White-Collar Crime Investigations | Background Investigations | Business Intelligence | Corporate Security | Forensic Accounting | Investigative Due Diligence

2 | fraUd360 | ISSUE 2 2013

Fraud360 is created for business leaders, directors, investors and professionals who need the latest information and best practices for protecting their assets from fraud. Presenting practical tools, case studies, and articles focused on fraud prevention and detection, Fraud360 provides an insightful look at the issues impacting businesses worldwide.

Fraud360 is published by Corporate Research and Investigations, LLC. (CRI Group).

Middle east & North africaCRI Group Headquarters – Dubai, UAELevel 9, #904, Liberty House, DIFCP.O. Box 111794Dubai, UAETel: +971-4-3589884Cell: +971 50 9038184Fax: +971 4 3589094Email: crimena@crigroup.comWeb: www.crigroup.com

Qatar OfficeLevel 22, Tornado TowerAl-Funduq StreetPO Box 27774Doha, QatarTel: +974 44292434Email: doha@crigroup.comWeb: www.crigroup.com

europeEMEA Head OfficeLevel 3325 Canada SquareLondon E14 5LQUnited KingdomTel: +44 207 038 8023Cell: +44 7588 454959Email: london@crigroup.comWeb: www.crigroup.co.uk

asiaPakistan OfficeLevel 12, #1210, 121155-B, Islamabad Stock Exchange (ISE) TowersJinnah Avenue, Blue AreaIslamabad, PakistanPO Box 2144Tel: +92 51 111 888 400Toll Free : 0800 00 CRI (274)Email: pakistan@crigroup.comWeb: www.crigroup.com

Singapore Office1 Raffles Place, #19-61, Tower 2One Raffles Place, Singapore 048616Tel: +65 6808 5634(35)(36) Fax: +65 6808 5800Cell: +6597265812Email: singapore@crigroup.com Web: www.crigroup.com

aMericasNew York Office600 Third Avenue, Suite 252New York, NY, 10016United States of AmericaTel: +1 (646) 571-2501 Email: newyork@crigroup.com Web: www.crigroup.com

WorldWide locatioNs

crIgroUp.com | 3

Spotlights & FeaturesFraud360 | Issue 2 | 2013

8What is fraud?

12New Laws are changing the Battle against International Bribery & corruption

17double Impact: Whiplash fraud and other Schemes cause massive Loss

26a Web of deceit: online fraud

305 Biggest fraudsters in History

34Unseen danger: The Business risks in Third-party relationships

37How do You define Bribery?

22The Spiraling costs of Insider fraudCorruption, bribery and a lack of due diligence harm business interests worldwide. Learn what the experts are doing to combat these and other threats.

12

3026

22

4 | fraUd360 | ISSUE 2 2013

Staying Ahead of Fraud and CorruptionWelcome to the second edition of Fraud360. Once again, we have carefully selected the articles that you will read in the following pages, and I sincerely hope that you will find them to be exceptionally inter-esting and valuable to you as a professional.

I would also like to take this opportunity to extend a note of con-gratulations to all of the professional experts who helped CRI Group reach an important achievement this year. I am proud to announce that recently, I was informed that CRI Group has been named the 2013 Anti-Fraud Advisor of the Year in the UAE by Acquisition International.

This is a great honor, as Acquisition International selects their winners based on “excellence, in-novation and performance across the legal community.” I am especially proud knowing that the criteria is more stringent than simply a reader poll — Acquisition International combines votes alongside supporting evidence and their own in-house research to honor those most worthy.

So it is within the pages of this magazine that we hope to communicate some of the knowl-edge and best practices that our experts use in the field every day. After all, fraud and corrup-tion is always changing and evolving, requiring all business leaders to stay ahead of a learning curve and be informed.

In this edition, you’ll learn some of the latest trends from across the UK, Middle East and other regions in terms of new security risks that require immediate preventative action. You will also learn how insurance fraud continues to make a major impact on the world economy, costing millions in both public and private funds — much of which will never be recovered.

I also invite you to reach out and tell us what you think about these issues, as well as the types of subjects you would like to read more about in the future. Just send us an email at info@fraud360.com. We want Fraud360 to be your reference guide for helping prevent and detect fraud threats among your business, agency or clientele. I hope you enjoy this edition of Fraud360, and I thank you for reading.

Zafar I. Anjum, CFE, CIS, MICA, Int. Dip. (Fin. Crime), MBCI Chief Executive of CRI Group

Message from the CEO

crIgroUp.com | 5

» Fraud & White-Collar Crime Investigations — Minimise risks associated with business operations.

» Employee Background Investigations — Research new hires for any criminal history, questionable business practices or bankruptcy.

» Forensic Accounting — Root out internal corrup-tion, expose financial fraud and support internal/external audits and strategic or tactical acquisitions.

» Due Diligence & “Know-Your-Customer” Investigations — Ensure your business associates, partners, suppliers and customers are financially viable and legally compliant.

» Corporate Security Consulting — Evaluate, implement and manage security and investigative programs to minimise internal and external risks.

» Insurance Fraud & Intellectual Property Investigations — Examine claims associated with disability, health, travel, property and liability policies. Safeguard against counterfeiting, contract breaches and copyright, trademark and patent violations.

» Business Intelligence — Analyse and verify an organisation’s strengths, weaknesses and growth potential while identifying its assets and investigat-ing corporate officers.

But how well do you know your business partners?

www.crigroup.co.uk / investigations@crigroup.co.uk / +44 207 038 8366 / United Kingdom / USA / UAE / Qatar / Pakistan / Singapore

YoU KnoW YoUr BUSInESS.

In a digital age where billions change hands every day and financial deals are transacted with little more than an email, it’s crucial to know WHO your business partners really are.

ContACt US toDAY

CrI Group has provided clients around the globe comprehensive tools to mitigate risk in international busi-ness transactions, mergers and other growth opportunities for more than 20 years. CrI Group offers:

VISIt oUr moBIlE WEBSItE

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6 | fraUd360 | ISSUE 2 2013

About CRI Group

Implemented and CertIfIedISO 9001:2008 (Quality Management Systems)ISO27001:2005 (Information Security Management Systems)

ABOUT USCorporate Research and Investigations LLC is a global supplier of investigative, forensic account-ing, business due diligence and employee back-ground screening services for some of the world’s leading business organizations. A licensed and incorporated entity of the Dubai International Financial Centre (DIFC), CRI safeguards business-es by establishing the legal compliance, financial viability, and integrity levels of outside partners, suppliers and customers seeking to affiliate with your business.

MeMBerShipS, pArTnerS & AFFiLiATeSCRI Group maintains partnerships with leading global organizations in the fields of due diligence, fraud investigation, forensic account-ing and more. Some of our affiliations include:

hOnOrS & AwArdSCRI Group is proud to be named the 2013 “Busi-ness Due Diligence Firm of the Year – UAE” and “Anti-Fraud Adviser of the Year – UAE” by Acquisi-tion International. AI’s Awards celebrate excellence and recognize investors, advisers and service providers for expertise in their specialized fields.

Connect with us on the web via your mobile device or Social Media.

Linkedin

BLOgS:Fraud360.comFraudinsider.com

MOBiLe SiTe

FACeBOOk TwiTTer

Fraud360 is published by Corporate Research and Investigations LLC. Level 9, #904, Liberty House, DIFC, P.O. Box 111794, Dubai, UAE, Tel: +971-4-3589884, Fax: +971 4 3589094. Copyright is reserved through-out. Although Fraud360 may be quoted with proper attribution, no part of this publication may be reproduced without the express written permission of the publisher. Contributions are invited but cop-ies of all work should be kept as Fraud360 can accept no responsibility for loss. The views expressed in Fraud360 are those of the authors and might not reflect the official policies of CRI Group.

Advertising inquiries:marketing@crigroup.com

Editorial inquiries: info@fraud360.com

crIgroUp.com | 7

News & Media

Cri group Launches New WebsiteIt is an exciting time for CRI Group as we have just refreshed our brand with the launch of our new and im-proved website, www.crigroup.com.

With the help of the CRI web de-signers, we have built a more compre-hensive source of company informa-tion and services with a great dynamic animation screen on the home page.

The website is full of exciting new features including LIVE Chat, news of CRI in the media, a regularly-updated blog, an RSS Feed of the Financial Times and a ’Meet the Team’ page.

We also have a contact page for the press to get in touch as we will be releasing regular press releases about the growth, improvements and ser-vices of CRI across the globe, with a hard focus on the UK and Asia Pacific.

CRI are pleased to provide servic-es across the world with a larger con-tact network to ensure competitive pricing, extensive knowledge and experience and the best customer service in the industry.

Keep watching and we would love to hear your thoughts — please drop an email to pr@crigroup.com.

upcoming EventsFind CRI Group at the following events around the globe in 2013-2014:

• 2013 ACFE Asia-Pacific Fraud Conference, Singapore, 18-22 November 2013

• Anti-Corruption Conference, Frankfurt, Germany, 28-29 November 2013

• Asia Ethics Summit, 4-5 December 2013

• Dubai Conference, 9-10 December 2013

• GCS Summit, Dubai, 15-18 February 2014

in the mediaCRI Group is active in the media, notably recently promoting International Fraud Awareness Week. Find CRI on Twitter, Face-book, LinkedIn and at our newly-redesigned website, www.crigroup.com, and our blogs, Fraud360.com and FraudInsider.com.

8 | fraUd360 | ISSUE 2 2013

n the broadest sense, fraud can encompass any crime for gain that uses deception as its principal mo-

dus operandus. More specifically, fraud is defined by Black’s Law Dictionary as:

‘A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.’

Consequently, fraud includes any inten-tional or deliberate act to deprive another of property or money by guile, deception, or other unfair means.

Types of fraudFraud against a company can be commit-ted either internally by employees, man-

What is Fraud?for businesses, fraud is a vital concept to comprehend, and is defined in different ways depending on the type, environment and other factors

By FRAUD360 STAFF

I

crIgroUp.com | 9

agers, officers, or owners of the company, or externally by customers, vendors, and other parties. Other schemes defraud indi-viduals, rather than organizations.

 Internal FraudInternal fraud, also called occupational fraud, can be defined as: “the use of one’s occupation for personal enrichment through the deliberate misuse or misap-plication of the organization’s resources or assets.” Simply stated, this type of fraud occurs when an employee, manager, or executive commits fraud against his or her employer. 

Although perpetrators are increas-ingly embracing technology and new ap-proaches in the commitment and conceal-ment of occupational fraud schemes, the methodologies used in such frauds gener-ally fall into clear, time-tested categories. To identify and delineate the schemes, the ACFE developed the Occupational Fraud and Abuse Classification System, also known as the Fraud Tree. 

The fraud TreeOccupational frauds are those in which an employee, manager, officer, or owner of an organization commits fraud to the

Corruption

Conflicts of Interest

Cash

Theft of Cash on Hand

Theft of Cash Receipts

Fraudulent Disbursements

Inventory and All Other Assets

PurchasingSchemes

Sales Schemes Bid Rigging

Skimming Cash Larceny

Misuse Larceny

Asset Requisitions

and Transfers

False Sales and Shipping

Purchasing and Receiving

Unconcealed Larceny

Sales

Unrecorded Write-off Schemes

Lapping Schemes

Unconcealed

Understated

Receivables Refunds and Other

Billing Schemes

Payroll Schemes

Expense Reimbursement

Schemes

Check Tampering

Register Disbursements

Forged Maker False Voids

False RefundsForged Endorsement

Authorized Maker

Altered Payee

Mischaracterized Expenses

Ghost Employee

Commission Schemes

Overstated Expenses

Fictitious Expenses

Multiple Reimbursements

Falsified Wages

Shell Company

Non-Accomplice

Vendor

Personal Purchases

Invoice Kickbacks

Timing Differences

Fictitious Revenues

Improper Asset

Valuations

Concealed Liabilities and

Expenses

Timing Differences

Understated Revenues

Improper Asset

Valuations

Overstated Liabilities and

Expenses

Improper Disclosures

Illegal Gratuities Economic Extortion

Asset/Revenue UnderstatementsBribery Asset/Revenue

Overstatements

Asset Misappropriation

Financial Statement Fraud

Figure 1. Source: 2012 ACFE Report to Nations on Occupational Fraud and Abuse.

The Fraud Tree

10 | fraUd360 | ISSUE 2 2013

detriment of that organization. The three major types of occupational fraud are: Corruption, Asset Misappropria-tion, and Fraudulent Statements. The complete classification of occupational fraud, frequently referred to as the Fraud Tree, is shown in Figure 1 on page 23.

External FraudExternal fraud against a company cov-ers a broad range of schemes. Dishonest vendors might engage in bid-rigging schemes, bill the company for goods or services not provided, or demand bribes from employees. Likewise, dishonest cus-tomers might submit bad checks or falsi-fied account information for payment, or might attempt to return stolen or knock-off products for a refund. In addition, organizations also face threats of security breaches and thefts of intellectual prop-erty perpetrated by unknown third par-ties. Other examples of frauds committed by external third-parties include hack-ing, theft of proprietary information, tax fraud, bankruptcy fraud, insurance fraud, healthcare fraud, and loan fraud.

Fraud Against IndividualsNumerous fraudsters have also devised schemes to defraud individuals. Identity theft, Ponzi schemes, phishing schemes, and advanced-fee frauds are just a few of the ways criminals have found to steal money from unsuspecting victims.

 Why does fraud occur? The best and most widely accepted model for explaining why people commit fraud is the fraud triangle. This is a model devel-oped by Dr. Donald Cressey, a criminolo-gist whose research focused on embezzlers — people he called “trust violators.” 

The Fraud Triangle  The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud (see Figure 2 on page 25). It consists of three components, which, together, lead to fraudulent behavior:

1. Perceived un-shareable financial need

2. Perceived opportunity

3. Rationalization The fraud triangle originated from

Donald Cressey’s hypothesis on fraudulent behavior (see quote on page 25).

ConclusionAfter answering the question, “what is fraud?,” it is good to keep in mind one clear rule about what fraud isn’t: an hon-est mistake. Fraud is a deliberate act, and no matter how small it starts, nor the rationale given by the person com-mitting it, fraud is a serious problem for any organization.

Whether it be external or internal, em-bezzlement, skimming or another scheme, fraud is theft — and by the most recent es-timates, it costs organizations roughly five percent of their total revenues. The bottom line? Preventing fraud, or detecting it early, can mean the difference between success and failure for your business.

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Trusted persons become trust viola-tors when they conceive of themselves

as having a financial problem which is non-shareable, are aware this problem can be se-cretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their concep-tions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.”

Donald Cressey

Figure 2. The Fraud Triangle explains factors that cause a person to commit occupational fraud.

The Fraud Triangle

ot long ago, corporations of the more industrialized world could afford to be indulgent

when conducting business transactions or commercial agreements in the Asia-Pacific region. Anti-bribery laws mainly targeted western corporations that were gaining commercial advantages in the region by means of illegal payments to local govern-ment officials or ruling party representa-tives. Yet, a system of local branches and ad-hoc mediators, in combination with poor law enforcement, were safely shield-ing the mother companies from anti-cor-ruption practices.

In an increasingly interconnected world — where international transac-tions are becoming more sophisticated and often a deal involves several diverse jurisdictions — things are rapidly chang-ing. Beginning with the Foreign Corrupt Practice Act (FCPA) in the U.S. and on to the

recent UK Bribery Act (enacted in 2010 and implemented in 2011), anti-bribery/anti-corruption practices and international law enforcement are becoming farther-reach-ing and adapting to the new dynamics of international business.

The FCPA, enacted in 1977 and amend-ed by the International Anti-Bribery Act in 1998 specifically to include the new OECD anti-bribery convention, was the answer to a systematic use of illegal practices of bribing foreign officials to foster the inter-est of a specific business organization. With the 1998 amendment, the term of Foreign Official acquired a new broad meaning.

For instance, doctors working for gov-ernment health organizations, bankers with a position in the local government and employees of government-owned companies are considered Foreign Officials under this provision of the FCPA. It is inter-esting to note that the FCPA also applies

N

New Laws Are Changing the Battle Against International Bribery & CorruptionBy MAURo CATTAnA

14 | fraUd360 | ISSUE 2 2013

to non-U.S. citizens — including foreign nationals who engage in bribery while in the territory of the United States.

The UK Bribery Act goes a step further, and is at the forefront of the fight against international bribery. The Act also targets the so-called mediator or facilitator. Un-der Sec. 6 of the Act, it is clearly stated: “A person will be guilty of this offence if they promise, offer or give a financial or other advantage to a foreign public official, either directly or through a third party,” hence effectively discouraging the use of a common device that was used to shield

the main perpetrator of the bribery from legal action. Three months before the Act entered into force, the Secretary of State issued a set of guidelines in six principles named the Guidance:

• Proportionate Procedures

• Top-level Commitment

• Risk Assessment

• Due Diligence

• Communication (including training)

• Monitoring and Review

The Guidance is designed to ensure that a commercial organization has implement-ed proper awareness through communi-cation and the training of its employees, as well as toward commercial partners in regards to the business code of conduct of the organization. The failure to demon-strate that the Guidance has been imple-mented in case the organization is already under investigation will be considered in

court as aggravating the position of the commercial entity.

Two years after its implementation, we are not yet aware of important cases brought up under the UK Bribery Act. However, a sense of complacency that no actions will be taken under the Act are at best naïve, and at worse,detrimental. It is likely that investigations are already ongo-ing under the new Act.

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After all, it took more than two years for the first case to become public under the FCPA (which entered into force in the late 70s) and, in the first 20 years, only 18 cases were prosecuted. We saw, however, a steep increase in the FCPA enforcement starting by the end of the 90s. Between 1998 and 2008, more than 50 compa-nies were prosecuted under the FCPA. The UK Bribery Act 2010, and its far-reaching scope, is likely to change substantially the importance of implementing an anti-corruption code of conduct for any organization involved in foreign commercial activities. Hence, it becomes a must for all commercial organizations having business in Asia to implement proper guidelines for its employ-ees as well as business partners.

Not only the U.S. and the UK are empowering the fight against corrupted practices: The EU adopted the Stockholm Pro-gramme in 2010. The Commis-sion has been given the political mandate to monitor the prog-ress of the fight against corrup-tion and develop a comprehen-sive EU anti-corruption policy.

The International Chamber of Commerce (ICC) has intro-duced in 2010 an Anti-Cor-ruption Clause to be included in international commercial agreements. The scope of the ICC Clause is “to provide parties with a contractual provision that will reassure them about the integrity of their counter-part during the pre-contractual

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16 | fraUd360 | ISSUE 2 2013

period as well as during the term of the contract and even thereafter” (from ICC Anticorruption Clause Book).

How to Implement proper guidelinesA proper internal code of conduct would discourage rogue management from taking advantage of external illegal op-portunities. Hence, the following measures should be taken:

• Implementation of a clear code of con-duct with top management involvement

• Training at all employee levels and spe-cifically for key management positions on the do’s and don’ts detailed in the implemented code of conduct.

• Regular review and monitoring of em-ployees to re-enforce compliance regard-ing the code of conduct

• Organize and facilitate a “whistle-blower” policy in which internal employees and disgruntled suppliers are able to report wrongdoing without fear of retaliation.

When working with third-party suppli-ers, further consideration should be given to the “Three M Rule”:

maNagE — moNITor — maINTaIN

• mANAgE: Bid proposals, contracts, licensing, registrations, certifications, training levels

• moNiTor: Production standards, output benchmarks, quality and compliance

• mAiNTAiN: Regular contact with third party providers, including open commu-nications and regular site visits to review operations and ensure compliance with the provision of the contract

The very recent tragic event in Bangla-desh shall ring as a deafening alarm bell for every organization outsourcing its labour intensive production in developing

countries: More than 1,000 workers were killed in the collapse of a crammed and ill-managed factory building.

Besides the irreplaceable lives that were lost, what are the other costs involved? It is very difficult to calculate the full impact, but one loss that immediately comes to mind is the loss of reputation and, most of all, credibility for the foreign companies who used to have their products manufac-tured in that building.

Clearly the factory’s poor condition was also linked to bribery of government officials — and thorough investigations on this matter are presently ongoing. UK entities with active commercial activities with the site in question came forward offering financial relief and better working condition to their workers. Is that enough? Clearly not. Proactive measures would have saved lives on the first place and, further, they would have saved the incalcu-lable cost of a wrecked public image, loss of business and legal costs.

A thorough investigation and proper due diligence would have uncovered the bribery system that allowed this factory to remain in operation despite its appall-ing conditions, and it would have given a powerful analytical tool to any foreign company considering engagement with the site for business operations. In to-day’s interconnected world, no organiza-tion conducting international business can afford to be caught unprepared — and unprotected — by failing to imple-ment anti-corruption measures and proper due diligence.

ABOUT THE AUTHOR Mauro Cattana, Pg Cert International Business Law, is APAC Business Development at CRI Group. He can be reached at __________________.

crIgroUp.com | 17

Double ImpactWhiplash fraud and other Schemes cause massive Loss

By FRAUD360 STAFF

slam on the brakes, some screeching tires. The sound, and feel, of impact — jarring,

metal on metal. Few things can be as traumatic as a

traffic accident. In the aftermath, those involved may be injured, perhaps seriously; not to mention damage to their vehicles and anything else around. Often, the police are involved to help sort out a confusing situation and take witness statements while the sudden shock of the incident wears on.

A twist to such an unfortunate sce-nario is the fact that, rather than suffer-ing through such difficult circumstances, there are individuals who actually profit from them — by design. Their schemes are often well-orchestrated, finely tuned, and put into practice multiple times to put insurance money in their pockets.

They are costing us millions.In the UK, a phenomenon known as

“whiplash fraud” has become a target of authorities who have seen this form of

A

18 | fraUd360 | ISSUE 2 2013

insurance fraud spiraling out of control. Often, these cases involve minor, low-speed accidents in which a victim makes a claim of whiplash injury to receive an insurance payout.

In one of the most egregious examples, the driver of a double-decker bus in Shef-field, England conspired with at least 26 other individuals — who loaded into the bus as passengers — to commit whiplash fraud. With the scammers on board, the driver rear-ended another vehicle, result-ing in 26 whiplash claims. The bus com-pany involved set aside £250,000 to pay for the claims before it was discovered that they were fraudulent.

The scheme unraveled when it was found that the company coordinating the fake whiplash claims, an outfit called City Claims 4 U, actually had a staff member on board the bus during the accident... this staff member, subsequently, was one of the claimants.

While the bus scam was exposed, many others are not. In fact, Sky News recently reported that whiplash fraud is costing drivers in the UK an estimated £118 each, based on higher premiums. In fact, ex-perts suggest that at least 15 percent of a driver’s insurance premium goes toward mitigating the impact of fraud on insur-ance companies.

Caught on CameraIt isn’t just whiplash fraud causing concern, nor is the problem limited to the UK. For evidence of this, one needs to look no fur-ther than to the prevalence of the famous Russian “dashcam” videos. There are, liter-ally, hundreds of them posted to various websites online.

In one, a vehicle ahead is seen deliber-ately backing up into the would-be victim’s car, which is outfitted with a dashcam (that is capturing the entire scene). Quickly, a man and woman get out of the car in front,

pointing and gesturing dramatically at the damage to their vehicle, undoubtedly demanding money from the driver of the dashcam car. The would-be victim, also outside of his car, calmly points toward his dash, showing them the camera that has been filming their entire charade. They quickly get back in their car and pull away.

In another video, a pedestrian is seen waiting until the last moment, and then throwing himself onto the hood of the car. He picks himself up off the ground, feign-ing serious injury. This time, the driver with the dashcam has no restraint in dealing with the situation. The camera catches him

tackling the pedestrian and throwing him off to the side of the road, before returning to his car and driving away.

It is a sign of the frustration that boils over when such scams become epidemic. In Russia, a large percentage of cars are now fitted with dashcams to foil such schemes. What seems like an extreme,

£40

£60£80

£100

£120

Sky news recently reported that whiplash fraud is costing drivers in the UK an estimated £118 each, based on higher premiums.

crIgroUp.com | 19

expensive measure becomes a rational necessity when fraudsters can simply name their price after staging an incident with an unlucky victim.

In the West, however, cameras for the road are still mostly limited to police cars and, occasionally, motorcycle and bicycle helmets. The work instead falls to investi-gators, insurance companies and witnesses to sort out the truth in a traffic accident. Unfortunately, such cases are rarely as cut and dried as one that is caught in living color, on camera.

Insurance Fraud on the RiseThe scourge of insurance fraud reaches far beyond our motorways. In fact, BBC News recently reported that home insurance frauds are still the most common. With these claims leading the way, the Associa-tion of British Insurers (ABI) announced that fraudulent insurance claims totaled £1.1bn last year in the UK (see facts from the ABI in the sidebar on this page).

One of the problems, according to experts, is that many people still tend to re-gard insurance fraud as a “victimless crime.” They may have the view that insurance companies are large profit-makers who treat consumers unfairly, at times, and so committing fraud simply “levels the play-ing field” to some degree. Or, some might believe, insurance companies expect a certain amount of fraud to occur, and they budget for such payouts to be made as a cost-of-business expense.

The truth, by contrast, is that rampant insurance fraud costs individual consum-ers hundreds and thousands of pounds in increased premiums, and larger organi-zations even more. Fraud punishes hon-est drivers and homeowners alike, while

rewarding a dishonest few — many who conduct these schemes as a business of their own, not a one-time indiscretion.

In the face of such daunting statistics, it is clear that it is the responsibility of more than just police officers or local investiga-tors to stem the tide of insurance fraud. Insurance agents must be properly trained and should be Certified Fraud Examiners, and hold other relevant certifications in fraud prevention and detection. Individu-als caught up in accidents, or as witnesses, should be aware of suspicious behavior or

red flags that their might be fraud — and report it immediately.

And society, as a whole, should rein-force the message that fraud is theft — it is criminal behavior, and is not to be toler-ated at any level.

› There are 2,390 fake or inflated claims made every week

› The claims cost the industry (and honest policy holders) £90 million a month

› There were 51,000 cases involving dishonest householders last year

› Since 2007, the value of fraudulent claims has doubled

Source: Association of British Insurers (ABI)

LOCATION:New York, NY

LOCATION:London, UK

LOCATION:Qatar

LOCATION:Pakistan

LOCATION:Dubai

LOCATION:Singapore

20 | fraUd360 | ISSUE 2 2013

CRI group Staff

CRI Group recently welcomed Kiran Ali as Head of Global Strategy on 1 October 2013. She will be based pri-marily in the New York office; however she will be managing the business de-velopment team across all offices on an International scale working closely with the CEO. Kiran also serves as the general council for CRI.

Kiran graduated in 2004 from the American University in Washington with a BSc in Internal Relations and then went on to study Law. She has litigation experience with FCPA (For-eign Corrupt Practices Act and was a member of the corporate council for an insurance company. She now serves on several charity boards.

Kiran looks forward to meeting the rest of the team around the world.

Another new starter to join the CRI family is Lara Jezeph, who was em-ployed on 21 October 2013 and has hit the ground running as Marketing & PR Manager – EMEA. She will be primarily based in the London office, working with Kiran Ali in the development team.

Lara has lived and worked in Aus-tralia, New Zealand and most recently in Africa where she helped set up and manage a security company in Kenya.

Lara graduated in 2007 from the University of Surrey with BSc in Entre-preneurship in Business, Technology and IT. After returning from her work in Australia she started with a security and private investigations company in Guildford where she slowly pro-gressed to Communications Director after three years. She hopes to make CRI her new career.

Welcome to CRI groupLondon Office

Kiran Ali – Head of Global Strategy New York, NY (USA)

Lara Jezeph – Marketing & PR Manager, EMEA | London, UK

LOCATION:New York, NY

LOCATION:London, UK

LOCATION:Qatar

LOCATION:Pakistan

LOCATION:Dubai

LOCATION:Singapore

crIgroUp.com | 21

SERVIng CLIEnTS WoRLDWIDE

Pakistan Office

Ezad Ahmad – Principal Representative | Qatar

Zafar Anjum, CFE – CEO | Dubai

DUBAI STAFF (left to right): Maria Victoria Miones, Research Analyst; Mary Queen S. Crisostomo, Senior

Research Analyst; Sherry May Cruda, Research Analyst; Michelle Ann Mangalonzo, Research Associate

PAKISTAn STAFF — Top (left to right): Imran Yousaf, Investigator; Faisal Ayub, Manager Finance; Ejaz Waqar, Investigator; Sobia Syed, Sr. Manager Background

Screenings; Sadaf Munir, Asst. Manager Background Screenings; Nuzhat Shakeel, Client Service Executive; Samina Batool, Research Analyst; Rabia Shami, Research Analyst; Shahbaz Ahmed, Accounts Officer; Atif Ameer, IT Administrator. Bottom (left to right): Nousheeen

Kousar, Front Desk; Faiza Sittar, Compliance Officer; Qurat ul Ain, Sr. Research Analyst; Anab Gul, Sr. Research Analyst; Abid Saeed, Media Research Analyst

Preventing the Spiraling CoSTS oF InSIDER FRAUD

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By ArJuN mEdhi

Staff Fraud Operation Manager, CIFAS — The UK’s Fraud Prevention Manager

Insider fraud causes more than financial losses. Just one insider fraud case can lead to repu-tational damage, which, in turn, can affect the victim company’s share price. For financial services firms, there are also regulatory implications to consider. For all organizations, insider fraud can de-stabilise the workforce. It is well-known that to counter insider fraud, it is neces-sary for an organization to implement a strategy. Such a strategy usually encom-passes the following:

understanding the nature of the insider fraud problem This will involve, among other things, measuring the insider fraud risks/losses.

• prevention. Implementing controls to remove the opportunities and tempta-tions that cause an employee to commit fraud.

• detection & investigation. This may involve implementing data analytics or establishing an investigations team.

• deterrent & awareness. An organiza-tion will need to consider what to do after the insider fraud investigation, e.g. whether to proceed with a private prosecution and how to present the situation to your employees.

The trouble is that implementing such a strategy can be costly. Often businesses will only do so reactively, following a dam-aging insider fraud attack. Furthermore,

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understanding the nature of the insider fraud can itself be problematic.

Before pressing ahead, it is worth stressing that insider fraud covers all aspects of staff dishonesty except for violence and drugs in the workplace i.e. thefts of data, cash and property, decep-tion and job applica-tion fraud. There are still organizations who view an employee stealing goods as different from fraud. It is important to remember that any indi-vidual who abuses his or her position to steal is a fraudster. He or she has legally applied for a role and stated that he/she is in a position to safeguard the businesses of the employer and protect their customers but instead has breached that trust.

When looking at mea-suring fraud losses, it is worth considering the true cost of insider fraud. We should follow what the UK Government recom-mends in measuring fraud by including not just the actual losses (which could be £0 if you have foiled an attempt). That is, consider too the costs of investiga-tions, HR costs (e.g. for dis-missal and re-hiring) and other miscellaneous costs associated with insider fraud (e.g. legal advice).

Sometimes, the costs of the investigations and HR costs can outweigh the actual loss. This raises all sorts of issues. CIFAS and the University of Ports-mouth will be releasing

research in to the true cost of insider fraud. But aside from costs, every organization should start by measuring risks. It is worth asking your staff to help identify the insider fraud risks in there area of the workplace. Then apply your fraud risk manage-ment to assess what you need to focus on in your insider fraud strategy.

What we do know is that in 2012, 240 UK organiza-tions reported a 43 percent increase in insider fraud through CIFAS — The UK’s Fraud Prevention Service.

Furthermore, KPMG’s Fraud Barometer reported that 80 percent of the finan-cial loss through fraud in the UK was attributed to management and non-management staff.

In their review of fraud, BDO Stoy Hayward found that staff frequently “commit theft and cash fraud.” This is certainly reinforced by CIFAS where organizations frequently reported theft of cash of-fences. During the same year, it was reported that 1,373 financial services staff were dismissed or suspended, which repre-sented an increase of 76 percent the previous year. The big question is “where are these staff now?” Twenty-five percent of the insider frauds reported to

Sometimes, the costs of the investigations and HR costs can outweigh the actual loss. This raises all sorts of issues.

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CIFAS were reported to the police. However, just 7 percent of the frauds reported reached convic-tion. That means that 93 percent of the fraudsters do not have a criminal record. Clearly, to reduce the risk of fraud, it is im-portant to do more than criminal record checks. That in itself is a warning to all those organizations who are not taking insider fraud seriously.

Taking into consider-ation of the risk and loss measurements of insider fraud and the potential costs of countering it, it be-comes more obvious that

organizations should start focusing more on preven-tion. Enhancing vetting is a start, and then carefully applying employee moni-toring systems and internal controls are a must.

Organizations have increasingly come to terms with the idea that the vulnerabilities within an organization are as dan-gerous, and for some even more so, as those that out-siders might try to exploit. Countering insider fraud through improving con-trols, responsible moni-toring, and sharing data together with best prac-tice in terms of prevention

are therefore methods that responsible organizations can and do use. It is clear that more must be done by other organizations to prevent their businesses and their customers from being punished from within. While it is true that most staff are honest, hardworking and reliable, guarding against the few bad apples must become an increasing priority for all organizations.

ABOUT THE AUTHOR Arjun Medhi is the Staff Fraud Operation Manager for CIFAS, The UK’s Fraud Prevention Manager. He can be reached at ___________.

Figure 1: The nature of the insider fraud problem

prEvENTioNImplementing controls to remove the opportu-nities and temptations that cause an employee to commit fraud.

dETErrENT & AWArENESSAn organization will need to con-sider what to do after the insider fraud investigation, e.g. whether to proceed with a private prosecution and how to present the situation to your employees.

dETECTioN & iNvESTigATioNThis may involve imple-menting data analyt-ics or establishing an investigations team.

iNSidEr FrAud

CoST CoST

CoST

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he Internet age has ushered in a frontier where purchasing goods and services from all cor-

ners of the globe is exceedingly quick and simple, something that can be done in mo-ments with a few clicks of a mouse. In this virtual marketplace, mostly devoid of face to face interaction and dependent almost solely upon technology, there was little doubt that fraud would find a comfortable home. What some might view as increas-ingly disturbing, however, is the degree to which it still thrives today.

In Africa, it is estimated that for every 100 online transactions, seven are fraudu-lent — a staggering number when

extended across millions of transactions all around the continent. Fairly or unfairly, Af-rica is sometimes considered “ground zero” for certain types of fraud, primarily due to the infamous Nigerian fraud letters — a correspondence scam started in the 1980s that grew new, much more efficient legs when it took to the Internet in email form.

Regardless of reputation, though, Africa is not alone in its fraud troubles. Other regions are close behind. In Asia, for ex-ample, 5 percent of all Web transactions are fraudulent, followed by South America (four percent). Europe and America register two percent and one percent, respectively.

A Web of DeceitThe Internet has changed the business world immeasurably. It’s also changed the world of fraud.

By FRAUD360 STAFF

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Those statistics, published by global firm iovation, are based on billions of trans-actions that were analyzed for geographic trends. The study revealed that credit card fraud, identity theft, and account takeover or hijacking attempts were the leading cyber crime schemes in 2012.

online Fraud Driving an Upward Trend?In the UK, lately, fraud in general is often looked at in terms of “how high can it go?” Troubling numbers from the Office for Na-tional Statistics (ONS) are raising the alarm at a time when most consumers are looking for any indications that their online busi-ness transactions are more, not less, secure.

Unfortunately, they are in for some bad news: The ONS reported that there were more than 230,000 cases in England and Wales in the first half of this year, marking a shocking 59 percent increase over the last five years. This covers all fraud, not just online theft, but experts see a correlation between the increase in online activity and the rise in fraud cases in general. Indeed, a large percentage of fraud reported in the UK today are “purchase frauds,” involving online shopping, as well as spyware and malware, along with credit card fraud.

Justice, on occasion In the age of the Internet, do the fraudsters who operate from behind a computer screen ever get caught? To answer that question, we return to Africa for a moment — and the notorious Nigerian fraud let-ters. One of the most popular mutations of this fraud are the notifications to random, would-be victims that they have won a lot-tery. All the recipient needs to do is provide banking information, as well as front a nominal processing fee, and their millions will be delivered within days. The emails are usually riddled with misspellings and all manner of red flags, yet people still fall for the scheme on a regular basis. All the while,

experts scratch their heads, asking victims: “why would you believe you had won a lot-tery for which you hadn’t bought a ticket?”

While most of the purveyors of such schemes are largely anonymous and nearly impossible to catch, occasionally justice does catch up to an unlucky few of them.

Just last month, four Nigerian operators of the lottery fraud were convicted and sentenced to three-year prison terms (and, notably, the imprisonment prescribed for the men was declared as “rigorous”). The courtroom victory and strict sentences will hopefully have some deterrent effect, but that seems doubtful. While the country itself is largely on the path to an economic recovery after years of difficult financial times, there is still widespread poverty, and the opportunity to net fraudulent dollars is

In Africa, it is estimated that for every 100 online transactions, seven are fraudulent

7%FRAUDULENT

Source: 2012 study by iovation

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simply too tempting for many to pass up. As long as people still fall for the scams, there will be little incentive for the scam-mers to walk away voluntarily from such a profitable enterprise.

Fraud Loss: Pick a numberWhat is online fraud costing all of us, in global terms? No one can say for sure, but Eugene Kaspersky, the Russian co-found-er of anti-virus software maker Kaspersky Labs, says he believes it ranges in the hun-dreds of billions of (U.S.) dollars. His re-marks at a technology conference in Dublin, Ireland, as reported by The Guardian, had him casting doubt on a previous online fraud loss estimate of $100 billion, not-ing that he thinks it is many times more than that amount. Kaspersky’s leaning is probably closest to the truth and might even be conserva-tive, given that the latest survey-based estimates of fraud (all fraud, not just online) point to more than a trillion dollars in global loss.

Worse, Kaspersky believes the security lapses plaguing systems all across the In-ternet, and the sophisticated methods of exploiting them, create an environment where fraud might be a secondary worry. Kaspersky fears a serious security threat in which the next major terrorist attack is a crippling online invasion targeting infrastructure, financial centers, military systems or all of the above.

The Road AheadThe fight against online fraud is an uphill battle. With every new and changing facet of technology, the fraudsters tend to stay at least one step ahead of investigators trying to cover thousands of miles and mil-lions of bytes of data to catch them. Given the statistics, however, as well as dire warn-ings from experts like Kaspersky, it is not a fight that we can afford to lose.

It will be imperative that government agencies, along with corporations, Internet providers and facilitators, work closely with security firms and cyber crime experts to stem fraud threats, both now and in the future. It will take the right combination of expertise, tools, tough laws and strict enforcement to keep our transactions secure online. Without those measures, the Internet could soon be little more than an online version of the Wild West.

In the age of the Internet, do the fraudsters who operate from behind a computer screen ever get caught?

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organization ProfileThe Fraud Advisory Panel

Established in 1998 through an initiative by the Institute of Chartered Accountants in England and Wales, the Fraud Advisory Panel is a registered charity and member-ship organization that acts as an indepen-dent voice and leader of the counter fraud community in the UK. By bringing together people and organizations with an inter-est and expertise in preventing, detecting, investigating and prosecuting fraud they believe they can make a difference in stop-ping fraudsters in their tracks.

The Fraud Advisory Panel offers a multi-disciplinary perspective on fraud with members drawn from the public, private and voluntary sectors and across a variety of professions.

Fraud in the UK: Facts and Figures• Fraud is estimated to cost the UK econ-

omy £52 billion broken down as follows: public sector £20.6 billion; private sector £21.2 billion; charity sector £147 mil-lion; individuals £9.1 billion (NFA, Annual Fraud Indicator, June 2013).

•  The average annual cost to small busi-nesses of fraud and online crime is just under £4,000 per year (FSB, Cyber secu-rity and fraud: the impact on small busi-ness, May 2013).  

•  Just under one third of Federation of Small Businesses members were a vic-tim of fraud over the last 12 months. The main types of fraud suffered were customer or client fraud, card fraud, and computer software fraud (FSB, Cyber security and fraud: the impact on small business, May 2013).  

• Around one in three FSB members were a victim of online crime over the last 12 months, most commonly from virus infec-tions, hacking or electronic intrusion, or system security breaches/loss of avail-ability (FSB, Cyber security and fraud: the impact on small business, May 2013).  

•  The value of fraud was up by 38% to £516m in the first half of 2013 with the average value of cases £3.5m (KPMG Fraud Barometer, ‘Fraud increases 38% to over £0.5bn but real cost is human misery’, 02 July 2013).

www.fraudadvisorypanel.org

global Fraud Statistics » The global average cost of fraud is estimated at 5.47% of expenditure; equivalent to £2.91 trillion each year worldwide or £85.3 billion in the UK (BDO and the University of Portsmouth, The financial cost of fraud report 2013).

» It is estimated that a typical organization loses approximately 5% of its annual turnover to staff fraud. The median loss was US$140,000 (ACFE 2012 Report to the Nations) 

» 70% of companies reported suffering from at least one type of fraud in the past year. The average economic cost was 1.4% of revenue. The main types of fraud suffered were theft of physical assets, information theft, management conflict of interest, and vendor, supplier or procurement fraud (Kroll, 2013/14 Global Fraud Report).

» 72% of fraud committed involved at least one insider in a leading role (Kroll, 2013/14 Global Fraud Report).

» 39% of respondents reported bribery or corrupt practices occur frequently in their countries (Ernst & Young, 12th Global Fraud Survey).

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hen you think about fraud, who comes to mind? Is it a nameless, faceless office

worker altering financial statements or staying late at the office to forge some checks? Or is an employee stealing from the warehouse, or skimming from a cash register, attempting to stay just out of the watchful gaze of management?

These conjured images of “fraudsters,” as anti-fraud professionals would call them — are accurate, as are a host of other char-acters that fit the mold of a white-collar criminal. However, there are also individu-als in history whose schemes were so large, or so outrageous, they’ve become icons in the history of fraud. They are real people with real names, and many of them are still today doing time in prison.

We’ve rounded up who we believe to be the top five fraudsters of all time. Of course, there is room for debate — there has been a lot of fraud in the centuries since human trading of goods and services first took

shape. Yet we think you’ll agree that these five individuals (or four individuals and one entity, as it were) certainly made their mark on the history of fraud. Without further ado, we present them to you.

Charles PonziIf there is a Godfather of Fraud, Charles Ponzi must be him. No other person has an entire scheme named after him — a scheme, it should be pointed out, that is

still widespread to almost epidemic pro-portions today. The fact is, Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi started early along the road to conning and deceit, adopting many aliases and orchestrating numerous frauds almost as soon as he set foot on U.S. soil from Italy in the 1920s.

The scheme that would lead to Ponzi’s undoing (and subsequently make him famous) was originally based on a concept of the time involving postal reply cou-pons. Ponzi found he could make money by a loophole of sorts that allowed him to exchange these reply coupons for stamps, taking advantage of a difference in value between the stamps purchased in Italy

By FRAUD360 STAFF

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Biggest

Fraudsters

in History

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then exchanged in the U.S. The scheme itself was simple enough, but it is the busi-ness he built around it that vaulted him to the status of history’s fraudster number one.

Ponzi solicited investors, to whom he promised a 50 percent profit within 45 days or 100 percent profit within 90 days. How-ever, Ponzi was simply paying early inves-

tors with the cash infused by newer inves-tors. The pyramid of investors bloated to a scale that soon was unsustainable. When it collapsed after a year, it had cost investors more than $20 million — nearly a quarter-billion dollars by today’s standard.

Bernard MadoffA much more recent figure in fraud history is Bernard Law-rence “Bernie” Madoff, a U.S. financier who is currently in prison on a 150 year sentence.

In 2008, Madoff admitted to running a Ponzi scheme that is considered to be the largest financial fraud in U.S. history.

Using his Wall Street firm, Bernard L. Madoff Investment Securities LLC, he ran what he would later call “one big lie” — a massive fraud that, despite some attention and investigations in previous years by the

SEC, had never been uncovered. His admis-sion — first to his family, then to authori-ties, as the scheme began to collapse, led to an immediate FBI and SEC investigation that would result in a long list of felony charges (11 to which he would plead guilty).

Though he had founded his investment firm in the 1960s, Madoff claimed that the business did not turn into a Ponzi scheme until the early 1990s. This, however, was dis-puted by experts, many of whom believe he ran the scheme much longer, perhaps decades. In the fallout of his admissions, it was initially believed that more than $65 billion had been lost to the scheme — yet actual loss estimates were eventually ad-justed to a still jaw-dropping $18 billion.

EnronTo be accurate, Enron is not a person, of course — and so our third position is presented more to an entity than a single fraud-ster. Still, the human characters

were there: Jeffrey Skilling, Kenneth Lay, Andrew Fastow, and others in the leader-ship circle of Enron. Together, they led the Houston, U.S.-based energy corporation down a one-way path to ruin through a massive financial statement fraud that still has repercussions today.

Enron was formed by Lay in 1985 after merging two existing energy firms. Years later, under CEO Jeffrey Skilling, the staff of Enron began a regular practice of using accounting loopholes, special purpose en-tities and poor financial reporting in order to hide billions of dollars in debt (mostly from failed projects and deals). Andrew Fastow, CFO of Enron, and other executives not only misled Enron’s board of directors and audit committee on high-risk account-ing practices, but also pressured Enron’s auditor at the time, major accounting firm Arthur Andersen, to ignore concerns over Enron’s numbers.

Charles Ponzi

2

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The bottom fell out in late 2001. Plum-meting Enron share value along with an SEC investigation signaled the worst for shareholders, who in turn filed a $40 bil-lion lawsuit. Enron, previously with assets valued at more than $63 billion, filed for Chapter 11 bankruptcy.

Skilling, Fastow and others were indicted for a variety of charges and were later sentenced to prison. Lay died before his case went to trial. The saddest legacy from the Enron debacle is the state it left former employees and shareholders, many who were left without their retirement funds and with little to gain from lawsuits. The scan-dal led to new regulations and legislation, including the Sarbanes-Oxley Act, which in-creased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders.

Allen StanfordAllen Stanford was a jet-setting, high-rolling financier when his life of luxury came crashing down around him in 2009. His investment company

was exposed as a massive Ponzi scheme, yet Stanford professed his innocence all the while (and still does). The Texas-born businessman held financial interests in Antigua and Barbuda as well as the U.S., and was known for projecting an image of wealth that fooled not only clients, but

government and other officials, as well. Money helped in that aspect: Stanford contributed millions of dollars to politi-cians both in the U.S. and overseas. He

was also a sports enthusiastic who spon-sored large cricket tournaments and other events regularly.

In 2009, Stanford became the subject of several fraud investigations by the SEC, who subsequently charged him with fraud and multiple violations of U.S. securities laws for alleged “massive ongoing fraud” involving more than $7 billion in certifi-cates of deposits. Following FBI raids on his offices, Stanford “voluntarily surrendered” to authorities in June of 2009. A full three

In fact, Minkow’s scheme is some-times used as a perfect teaching example of accounting fraud.

4Charles Ponzi

Mugshot, circa 1910

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years later, Stanford was convicted on all charges except for a count of wire fraud. Stanford is currently serving 110-year federal prison sentence in Florida.

Barry MinkowWe add Barry Minkow to the list partly because of what he accomplished at such a young age. First, we should note that it is a little bit difficult to put him

in the same category as Ponzi, Madoff or Stanford. Minkow arguably did not set out to commit fraud, initially — and when he did, he never pocketed much of the profits. Still, the sheer magnitude of his fraud and the lengths to which he went to maintain the charade are historically notable.

Barry Jay Minkow founded a carpet-cleaning and restoration company called ZZZZ Best while he was still in high school. While it appeared to be a very successful company, it had actually become a Ponzi scheme run by Minkow. As ZZZZ Best grew, Minkow went to great lengths to hide the fraud. In fact, when investors or auditors questioned certain large restora-tion jobs, Minkow was known for actually staging fake meetings at office buildings with which he had no contract or affiliation — under the farce that work was about to begin (or was already in progress).

It didn’t last. The scam collapsed in 1987, costing investors and lenders $100 million. This made it one of the largest investment frauds ever perpetrated by a single person, as well as one of the larg-est accounting frauds in history. In fact, Minkow’s scheme is sometimes used as a perfect teaching example of accounting fraud. Minkow was eventually released from jail, but could not stay out of trouble: in 2011, he was sent back to prison for manipulating stock prices of a company he was “investigating.”

CASE STUDy Performance Bond Fraud

A local financial institution was the victim of significant performance bond fraud. Through various investigations, the company was still unable to secure any evidence or a viable method to properly obtain information on the suspected fraudster. This prevented the bank from determining how much of the frozen assets had been stolen.

After investigating, the CRI Group team — comprised of Certified Fraud Examiners, corporate attorneys and chartered accountants — learned that the suspect had performed bond fraud on several occasions, with numer-ous companies over many years. CRI Group’s investigation led them to another victim of the fraudster, who had abandoned his claim. With this new evidence and additional investiga-tive work, CRI Group made it possible to freeze the suspect’s assets. The team was then able to search two locations the suspect occupied in London, where they found substantial documentation that supported the claim.

With this new evidence and documentation, CRI Group obtained the necessary information from third parties to support the bank’s claim that their suspect had, in fact, been the criminal behind the performance bond fraud.

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n today’s international business world, most organizations maintain relationships with third-parties on many different levels. Such part-

nerships, when conducted with carefully selected contractors, suppliers, consultants and other entities, can often help an orga-nization meet its goals in an effective way.

Unfortunately, however, partnering with the wrong organization can sometimes do irreparable harm. Companies have discov-ered, often too late, that being tied to an unethical or even fraudulent partner can drastically affect their own reputation — not to mention their business operations, finances and legal liability.

The potential for harm is high on the minds of business owners in Singapore lately, as new studies show there is reason for concern over corruption and fraud risks. According to a recent Ernst & Young survey, 59 percent of respondents said that their anti-bribery and corruption policy is good in principle but does not work well in prac-tice. Also, Singaporean corporations are more naive in their approach to anti-fraud and corruption practices in comparison to the Asia-Pacific average, the survey found.

The risks involved in partnering with outsiders have not changed over the centuries; it is the potential liability that’s

Unseen DangerThe Business risks in Third-party relationships

By FRAUD360 STAFF

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been ratcheted up several notches. Tech-nology has improved the way businesses communicate. Easy access to data and information enables the media to report on business news before a business can properly respond, and the markets are quick to form opinions based on a 24/7 on-demand news cycle.

“The result of this increased liability is problematic,” said Zafar I. Anjum, CEO of Corporate Research Investigations (CRI Group). “Business litigation has skyrock-eted, corporate reputations are constantly being assaulted and business strategies are forever shifting.

“Board members are becoming increas-ingly subjected to intense scrutiny from outside critics,” Anjum said. “And a highly educated market responds immediately with their pocketbooks.”

“3PRM”: “A “Third-Party Risk Management” Strategy™At CRI Group, Anjum and his team have developed their own, exclusive “3PRM”: A “Third-Party Risk Management Strat-egy™” in order to help organizations miti-gate such third-party risks. CRI Group’s experts work to help protect clients from liability issues, brand damage and harm to business.

The key to 3PRM’s effectiveness lies with CRI Group’s investigators, who use all means necessary to establish the legal compliance, financial viability and integrity levels of those outside partners, suppliers, customers and other sources worldwide that are considered potential partners for doing business.

The 3PRM strategy includes a focus on the following:

• Providing third-party risk assessments

• Meeting contracting requirements

• Conducting due diligence

• Providing management oversightWith a network of trained profession-

als positioned across five continents, CRI Group’s 3PRM services utilize one of the largest multi-national fraud investigation teams the industry has to offer.

CASE STUDy Fake Invoices and Fraud

A large U.S. pharmaceutical company was facing two significant fraud cases with one of its primary business affili-ates. The company suspected that the business affiliate was creating phony invoices for purchases and was fraudu-lently diverting its products.

A CRI Group team, including a Certified Fraud Examiner and foren-sic accounting staff — conducted a forensic audit of the business affiliate in question. Their research uncovered a large number of fake invoices and bills coming from this business affiliate. Further investigations and physical verifications revealed that employees were purchasing expensive gifts for physicians to promote the business’ products, costing the pharmaceutical company thousands of dollars.

In addition, the CRI Group team sent an undercover agent to pinpoint locations where some of the com-pany’s inventory was possibly being unloaded on the open market. The agent not only located the inventory but was able to seize a sizable amount before it was sold.

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“The 3PRM strategy is especially critical when a business is performing pre-merger and acquisition research and pre-IPO due diligence, engages new clients, employs, contracts or retains foreign business part-ners,” Anjum said. “It should also be utilized when an organization requires a consistent and audit-worthy anti-money laundering and anti-corruption compliance program.”

There is no easy fix for an organization seeking to repair a damaged reputation. There are no shortcuts for recovering mon-ey lost to fraud, or settling lawsuits due to a relationship with the wrong third-party. Being proactive with third-party risk issues — and enlisting the top experts to conduct proper due diligence — is the best protec-tion any organization can have.

Business litigation has skyrocketed, corporate reputations are constantly being assaulted and business strategies are forever shifting.”

— Zafar I. Anjum, CFE

An investor in the U.S. was interested in purchasing a major jewelry operation head-quartered in Dubai. The jewelry business had painted a rosy picture of itself on paper as one of the region’s most profitable companies, and had attracted the eye of the U.S. investor. But an intensive due diligence investigation conducted by CRI Group told another story, uncovering several red flags that portrayed the jewelry business as not only a risky in-vestment, but a potentially liable one at that.

In the course of the investigation, (which involved international public records search-es and local, hands-on interviews to look into the financial liabilities of the jewelry operation’s directors and primary sharehold-

ers), it was discovered that the jewelry com-pany was, in fact, in the midst of liquidation proceedings, a major factor not previously disclosed to the potential buyer in the U.S. Further research conducted at a local level revealed that the company’s principals were involved in several bankruptcy cases and that the company had been issued warnings by local regulatory agencies concerning a host of collusive business activities.

Because these discoveries would have been nearly impossible to uncover using convention-al Internet-based search methods, the poten-tial buyer stood to lose his entire investment had it not been for the business background investigation conducted by CRI Group.

CASE STUDy Protecting an International Investor

he word “bribery,” most would agree, has quite the negative connotation. From a young

age, most of us learn that a bribe is a form of payoff, possibly an underhanded, dark-alley transaction carried out for nefarious purposes. We might picture a wad of cash

poking out of a nondescript envelope, dropped in a mailbox or handed off to a courier. Bribery is illegal, we know, and most upstanding individuals would never consider themselves likely to be in a situa-tion where they were giving — or

accepting — a bribe. So what about that time you

took some clients to dinner and drinks? Or better yet, treated a prospective client, one whose business you desperately want-ed to secure, to an all-expenses paid night on the town?

Is that bribery? What about taking them to a polo or football match, or even a small vacation? If done innocently, isn’t that just good business practice? Or could that actu-ally be called bribery?

HowDo You

DefineBribery?

By LARA JEzEPh

T

The most honest answer is: It depends. Whether it is bribery or harmless “enter-taining” depends on where (what country or region) you are, who you spent the money on, how the act is perceived by both parties, and all sorts of other vari-ables. Some bribery is stark and undeni-able. But other forms of it tend to exist in an international “gray area,” drifting some-where between influence and corruption.

A First-hand Look at BriberyMy own experience of what I found to be a clear case of bribery occurred while I was operating a security company in Kenya, Nairobi. I wanted to get some great media coverage in all of the newspapers and mag-azines to launch our new company, so I met with three or four media representatives and invited a few to attend some of our training days. To my surprise and naivety, perhaps, I was informed by my senior staff that I needed to pay the media representa-tives in cash to attend — as well as provide food and drink — or they wouldn’t even consider writing a story on the company.

I was astounded by this; however, they seemed surprised that I was surprised — and if I didn’t provide these “gifts,” then the company would be seen as cheap. Media have a huge voice, and we needed to be on the right side of them if we were to ever get contracts and awareness in this country. This was just one example of many in Kenya.

I did find, on the other hand, while working in the UK for a large number of local authorities that they would refuse a Christmas gift or a hosted drinks event. I had invited all of our clients and not one accepted. However, speaking with clients in the private sector, it seemed that some were provided an “entertainment budget” per annum and were at times told by their seniors that “you’re not spending enough on entertainment.”

Risks are higher TodayShades of gray or not, for anyone presently doing business — especially those who do business across international borders — it has become a smart idea to remain on the safe side. The Foreign Corrupt Practices

Act (FCPA), which was passed in 1977 but has recently seen stronger application and enforcement, and the Bribery Act 2010 passed in the UK apply criminal laws to bribery and corruption. Both provide for steep penalties for offenders (including imprisonment for individuals, along with punitive fines for firms).

Notable investigations under the FCPA include a case spurred by allegations pub-lished in the New York Times that Walmart engaged in widespread bribery activities in Mexico to obtain construction permits. In another ongoing case, Hewlitt-Packard is under investigation to determine whether company executives paid nearly $11 mil-lion in bribes to the Prosecutor General of Russia in an effort to win a lucrative con-tract to supply computer equipment.

As for the UK Bribery Act, the Serious Fraud Office (SFO) announced in August that it had filed its first-ever charges under the relatively young law. According to an article in Compliance Week: “The SFO stated that it filed a case in the Westminster Magis-trates Court against four men connected to

The truth is that bribery blights lives

and businesses.

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a company called Sustainable AgroEnergy plc. The SFO alleges that the men conspired to commit fraud by false representation and conspiracy to furnish false information relat-ed to the ‘promotion and selling of ‘bio fuel’ investment products to UK investors.’ Three of the four men were charged with the of-fense of ‘making and accepting a financial advantage contrary to section 1 (1) and 2 (1) of the Bribery Act 2010.

“The SFO pegged the amount of the alleged fraud, which allegedly took place between April 2011 and February 2012, at approximately £23 (million).”

The Bribery Act itself provides the fol-lowing as a sort of case-study/guide for companies that might find themselves in the situation of a hypothetical engineering firm, dubbed (rather unimaginatively), “F.” While possibly a bit overwhelming (or even disconcerting) to a business owner at first read, the bullets do provide some measure of good advice in developing an anti- bribery and corruption policy.

hospitality and Promotional ExpenditureA firm of engineers (‘F’) maintains a pro-gramme of annual events providing enter-tainment, quality dining and attendance at various sporting occasions, as an expression of appreciation of its long association with its business partners. Private bodies and individ-uals are happy to meet their own travel and accommodation costs associated with at-tending these events. The costs of the travel and accommodation of any foreign public officials attending are, however, met by F.

F could consider any or a combination of the following:

• Conducting a bribery risk assessment relating to its dealings with business partners and foreign public officials and in particular the provision of hospitality and promotional expenditure.

• Publication of a policy statement com-mitting it to transparent, proportionate, reasonable and bona fide hospitality and promotional expenditure.

• The issue of internal guidance on pro-cedures that apply to the provision of hospitality and/or promotional expendi-ture providing:

• That any procedures are designed to seek to ensure transparency and confor-mity with any relevant laws and codes applying to F

• That any procedures are designed to seek to ensure transparency and conformity with the relevant laws and codes apply-ing to foreign public officials

ConclusionWith new legislation and authorities on the hunt for corruption, it is critical for orga-nizations worldwide to take all necessary steps and remain in compliance. Due dili-gence and compliance experts are needed to ensure that all regulations are met, and that practices once seen as “normal busi-ness operations” don’t suddenly put a business at risk. The stakes are too high to overlook the details set forth in the FCPA, UK Bribery Act and all regional or locally-based laws that deal with the issue.

The truth is that bribery blights lives and businesses. Its immediate victims in-clude firms that lose out unfairly. The wider victims are government and society, un-dermined by a weakened rule of law and damaged social and economic develop-ment. At stake is the principle of free and fair competition, which stands diminished by each bribe offered or accepted.

ABOUT THE AUTHOR Lara Jezeph is the Marketing & PR Manager at CRI Group, EMEA – London, UK. She can be reached at ljezeph@crigroup.co.uk.

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