The rise of financial crime and corruption
Global events over the last two years have significantly impacted individuals, organisations and the way we live. During the pandemic, many individuals suffered with financial stress and organisations were forced to operate differently, supporting new staff, processes, internal controls, remote working and technology. Such circumstances have led some good people to make bad decisions. Rationalising the need to ‘borrow’ from an employer with an intent to ‘repay’ the borrowings. These bad decisions often go undetected for months, if not years, resulting in organisations suffering high value fraud.
Indications suggest that the risk of offshore foreign bribery and corruption is continually a high priority for law enforcement agencies and international regulators. Particularly, as borders open up and internal corporate teams have the opportunity to more closely examine contracts, payments and third party relationships. The absence of in-person oversight, monitoring, examination and review of operations in remote locations has increased the potential for personnel to override controls. Combined with the added pressure caused by factors such as supply chain issues, organisations face exposure to risks that they would otherwise avoid or mitigate by virtue of people-watching or by being more involved in the foreign country activity.
Compounding these risks is the increased transactional activity in higher risk economies, such as mergers and acquisitions, where local entities are the target of takeovers. In these circumstances it is critical to ‘know your target’ to avoid inheriting a significant foreign bribery issue. Before closing a deal, it is crucial to develop an understanding of the entity, including the nature and history of transactions and assets held, the employees and executives and the interactions with government and third party contractors.
What can be done?
To reduce the risk of fraud and corruption, and to identify dishonest actions early, an effective response must target forensic investigations that do not impact a business’ day-to-day activities or its people. Organisations should consider:
- Discreet programs examining payment types, regularity, amounts and beneficiaries, that can highlight transactional activity requiring a deeper inquiry.
- An examination of the governance regime that may identify an absence of anti-fraud and/or bribery programs, including whistleblower programs, which can be a red flag in certain jurisdictions prompting further enquiries and questions.
- Transactions or relationships that seem irregular can often be better understood through layers of integrity due diligence to identify conflicts of interest or undisclosed relationships.
- Examination of corporate emails and other electronic devices can reveal suspicious communications across parties, such as evidence of falsified or modified invoice documents supported by meta data indicating the people who created the document and when.
- Receive sound advice on what to do and where to start to ensure proper consideration of identifying evidence that can be relied on to make decisions regarding employees or counter parties.
The theme, whether it be domestic fraud or foreign bribery and corruption, remains the same. Good people can and will do bad things when their personal circumstances and pressures intersect with an opportunity to obtain unauthorised financial support from their employers. Deeply motivated and dishonest people continue to take risks that will not be understood or rationalised by those around them, particularly if there is a lack of proactive programs designed to detect foreign bribery or domestic fraud.
Staying alert to these risks are important. Organisations should implement programs to ensure employees are aware of proactive activities, designed to reveal any suspicious actions and dissuade good people from making bad decisions. When a concern arises, particularly where more serious foreign bribery activity is suspected, a discreet and deep examination of transactions and relationships can reveal facts quickly and assist in decision-making. This can inform more immediate decisions to protect the business, senior executives and the board, keep regulators and law enforcement at bay and avoid the negative public scrutiny that can often follow.