Global Fraud Report 2011/12 - Selected Articles

Browse and read selected articles from the Kroll Annual Fraud Report 2011/12. To read the full Report, please subscribe here.

Fraud Fatigue
Although the financial crisis of 2008-09 put a focus on fraud, according to Tommy Helsby, there is an imminent danger that fraud risk is being neglected. Most frauds took place during good economic times, and companies need a vigilant corporate compliance department to tackle fraud vulnerabilities and address these regulatory issues.

FCPA Reform
Long awaited reform to the Foreign Corrupt Practices Act has led to several amendments to allow for greater fairness in its application. Such reforms should encourage companies to limit their FCPA exposure and to update their regulatory practices on issues like facilitating payments, successor liability and also on internal investigations of compliance violations.

Investing in the BRICs
Managing fraud risks through increased due diligence should be paramount in this era of aggressive enforcement by the Department of Justice and Britain’s Serious Fraud Office, especially when expanding into the BRIC markets. In particular, companies should focus on vulnerability to corruption, shortcuts in diligence and anti-bribery concerns.

Recovering Sovereign Assets
Once the dictators are gone, attention turns to recovering the money they stole. For deposed and exiled tyrants, it is not as easy as it once was to conceal their illegitimate spoils. Daniel E. Karson examines the methods that corrupt heads of state employ to secure their massive fortunes and discusses how these assets are tracked down in foreign countries.

When Fraud is an Inside Job
Increasing fraud risk posed by insiders is a growing phenomenon, most particularly in terms of intellectual property. Richard Plansky outlines key steps that could help companies respond ethically and effectively to the rising threat of insider fraud.

Inaccurate Due Diligence
Insufficient due diligence in advance of a merger or acquisition can be extremely costly. According to Peter Turecek, companies must increase transparency efforts and root out corruption by employing a combination of varied techniques and careful analysis to avoid regulatory risk.

Say-on-Pay 2012
Shareholders have a strong voice and ammunition to influence executive compensation. The Securities and Exchange Commission has issued new rules to implement pay-for-performance requirements. These essentially require 2012 proxy statements to include information for shareholders, disclosing executive compensation in relation to financial performance of the company.

Canada Steps Up
For over five years now, Canada has been the only G7 country on the Transparency International’s Corruption Perception Index to exhibit “little of no enforcement” against this Fraud.  The authors provide an analysis into Canadian compliance practices and how potential liabilities in substantial penalties are now a real threat for Canadian businesses.

Latin America’s Uneven Playing Field
At time when the global economy is wracked by uncertainty, Latin America continues present significant opportunities for investment and growth.  However, the arbitrariness of its legal system and the lack of independence of the judiciary in several countries continue to raise doubts about transparency, legality and fairness.

Rooting out Fraud after Acquisitions
In the Brazilian sugar and ethanol industries, an influx of global investment has spurred massive growth. Vander Giordano discusses how a thorough internal review can help minimize risk in the period after an acquisition.

Financial Statement Fraud
Glen Harloff discusses how the deliberate inclusion of misleading amounts or disclosures, or the omission of pertinent ones in a financial statement, could be extremely costly. Financial statement fraud prevents investors, bankers and shareholders from properly assessing the financial health of a company and making informed decisions.  It can also lead to substantial losses. 

Procurement and Supply – China Fraud in Asia
Vendor, supplier and procurement fraud can take many forms, and with a growing Asian domestic market, there is a greater challenge to drive efficiencies and eliminate gaps in compliance. The most common form of supply chain fraud involves kickbacks and bribery, followed closely by conflicts of interest and collusion.

Third Party Vendor Screening
In addition to revealing red flags, vendor screen can reveal past instances of fraud and can help in the identification of key areas where business partnerships and synergies may be improved. Starting with a base legal review and diligence that may include multi-lingual consultations, a robust program in compliance is the route to better business.

When a Watchdog may not be Enough
There are certainly limitations of the traditional audit practice for fraud prevention. Fraud is not intended to be easy to detect, according to Colum Bancroft, and in order to effectively prevent and detect fraud, management and audit committees should arrange for an independent fraud risk assessment.

Corruption and the Indian Infrastructure Boom
A massive overhaul of India’s infrastructure revealed bribery, corruption and fraud on many levels, problems that have long plagued the country. Increased attention to corruption in India by activists has brought the issue to the forefront, but it is vital that foreign corporations fully understand the culture of business in India and have an eye towards compliance.

Biggest Threat to Financial Institutions
Statistics show that a large majority of the time, employees themselves have caused the greatest damage to individual financial institutions, where individuals in powerful positions are often aware of the fraudulent activities. Richard Abbey argues that financial institutions must protect themselves by implementing rigorous risk management policies and internal reporting structures.

Italy
Privacy laws in Italy in the instance of a case of fraud could deter officials from fully investigating the facts. Marianna Vintiadis discusses the tools and methods that can be employed to uncover evidence in the case of a suspected fraud, and underlines the importance of having the right legal advice to tackle the problem.

Corruption and Vendor Fraud in the Gulf
Yaser Dajani discusses the politics of conducting businesses in the Gulf economy, where anti-bribery laws and rules are not often well defined. When looking for a business partner, one should avoid over-reliance on the public records, which can often be undependable. Knowledge and understanding of the local red flags can help companies go a long way to protecting themselves in this region.

Africa – Are we there yet?
Africa is among the fastest developing regions in the world, with over $44 billion in investments in the region in 2010. Melvin Glapion and Bechir Mana discuss various attributes that successful investors have adopted when entering the market, and that with the appropriate level of fraud risk mitigation and compliance, lasting business success is possible.