Fraud Seminar Presentation Feb 2009 (2)


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Fraud seminar presentation Feb 2009

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Fraud Seminar Presentation Feb 2009 (2)

  1. 1. Fraud and Corruption 25 February 2009
  2. 2. Agenda <ul><li>09:00 Welcome and introduction Roy White, FINPRO EMEA Practice Leader </li></ul><ul><li>09:05 The latest perception of corruption by country and industry Jermyn P Brooks, Director, Private Sector Programmes, Transparency International </li></ul><ul><li>09:25 Fraud trends – the types of fraud threatening your business and the impact of the current financial crisis Howard Cooper, Senior Director, Financial Investigations Practice, Kroll Stefano Demichelis, Senior Director, Financial Investigations Practice, Kroll </li></ul><ul><li>09:45 The impact of the Foreign Corrupt Practices Act on UK businesses Richard Abbey, Managing Director, Financial Investigations Practice, Kroll </li></ul><ul><li>10:05 Wrap-up and Q&A Roy White, FINPRO EMEA Practice Leader </li></ul><ul><li>10:20 Close </li></ul>
  3. 3. Corruption and Business Responsibility Presentation by Jermyn P. Brooks Director Private Sector Programmes Transparency International (TI) at the Kroll and Marsh Breakfast briefing on Fraud and Corruption                
  4. 4. A few Facts about Corruption <ul><li>  </li></ul><ul><li>The poorest countries suffer most </li></ul><ul><li>The poorest people in the poorest countries </li></ul><ul><li>suffer even more </li></ul><ul><li>Women and children are the most vulnerable </li></ul><ul><ul><li>- no clean water </li></ul></ul><ul><ul><li>- no or only primitive health care </li></ul></ul><ul><ul><li>- no education </li></ul></ul><ul><ul><li>- no housing  </li></ul></ul><ul><ul><li>- no work </li></ul></ul><ul><ul><li>= no hope </li></ul></ul>
  5. 5.   The Fight against Poverty <ul><li>Why are we not achieving the Millennium Development Goals (MDGs)? </li></ul><ul><li>Main causes:  fragile state structures and zones of conflict </li></ul><ul><li>But also:  50% of aid is lost to corruption and inefficiency </li></ul><ul><li>Wasted economic effort:  the poor pay high levels of bribes, e.g. </li></ul><ul><ul><li>Kenya:  30% of average annual income </li></ul></ul><ul><ul><li>Russia:  42% pay bribes = US$ 2,250 per head of the </li></ul></ul><ul><ul><li>population per annum </li></ul></ul><ul><li>Solutions </li></ul><ul><ul><li>Empowerment of the poorest to demand accountability  </li></ul></ul><ul><ul><li>Huge increase in Foreign Direct Investment (FDI) for job creation   </li></ul></ul>
  6. 6. Why is FDI so low? <ul><li>Corruption increases costs </li></ul><ul><li>Corruption creates uncertainty </li></ul><ul><li>Corruption undermines trust </li></ul><ul><li>&quot;Corruption goes hand in hand with increased investment risk </li></ul><ul><li>which deters inward investment and raises the cost of capital&quot;  </li></ul><ul><li>Guardian newspaper, 23 September 2008 </li></ul>
  7. 7. So what are the solutions (I)?   <ul><li>Key public sector goals: </li></ul><ul><ul><li>work to create stable political institutions </li></ul></ul><ul><ul><li>defend the independence of the judiciary </li></ul></ul><ul><ul><li>further an active media with multiple players </li></ul></ul><ul><ul><li>support civil society groups </li></ul></ul><ul><ul><li>reform tax, customs and related agencies to raise state income </li></ul></ul>
  8. 8. So what are the Solutions (II)? <ul><li>The Private Sector contribution </li></ul><ul><ul><li>Business is the supply side of the problem </li></ul></ul><ul><ul><li>BUT business can be a force for good </li></ul></ul><ul><ul><ul><li>i.e. part of the solution to the problem </li></ul></ul></ul><ul><li>Start by understanding there are real issues but </li></ul><ul><li>also ways of tackling them:   </li></ul><ul><ul><li>extend due diligence for Corruption Perceptions Index (CPI) scores > 5.0 </li></ul></ul><ul><ul><li>no bribery commitment as a business opportunity </li></ul></ul>
  9. 9. Are there particular lessons for the financial services industry? <ul><li>Internal processes Make sure all staff understand and apply high ethical and operating standards, esp. risk evaluation </li></ul><ul><li>2. Handling other people‘s money Heightened responsibility to act with prudence Avoid undesirable clients (even if mega-rich) </li></ul><ul><li>3. Wider societal responsibility Evaluate steps needed to avoid systemic risk </li></ul>
  10. 10. Private Sector Solutions (I)  <ul><li>Individual company actions </li></ul><ul><ul><li>analyse bribery and corruption risks </li></ul></ul><ul><ul><li>develop detailed anti-bribery policies </li></ul></ul><ul><ul><li>implement these policies throughout the company </li></ul></ul><ul><ul><li>monitor their effectiveness </li></ul></ul><ul><ul><li>publicly report what you are doing </li></ul></ul><ul><ul><li>consider obtaining external assurance to increase credibility </li></ul></ul>
  11. 11. Private Sector Solutions (II) <ul><li>What guidance can be used? </li></ul><ul><li>Adopt one of the good anti-bribery codes </li></ul><ul><li>TI's Business Principles for Countering Bribery </li></ul><ul><li>incl. the SME version </li></ul><ul><li>PACI (Partnering Against Corruption Initiative) Principles </li></ul><ul><li>ICC (International Chamber of Commerce) Code of Conduct </li></ul><ul><li>UNGC (United Nations Global Compact) </li></ul>
  12. 12. Private Sector Solutions (III) <ul><li>Collective action (overcoming the &quot;prisoner's dilemma&quot;) </li></ul><ul><li>combine forces with competitors and the public sector </li></ul><ul><li>Example: TI's Integrity Pact </li></ul><ul><li>work across sectors to change public behaviour </li></ul><ul><li>Example: </li></ul><ul><li>Customs reform following industry wide pressure     </li></ul><ul><li>from companies, trade and professional associations </li></ul><ul><li>use your influence over the supply chain </li></ul>
  13. 13. Conclusions <ul><li>Corruption can strangle development </li></ul><ul><li>But business has a duty to </li></ul><ul><li>make a positive contribution even in a difficult investment climate </li></ul><ul><li>position itself to avoid corruption </li></ul><ul><li>obtain a valuable trusted status especially in very corrupt countries </li></ul><ul><li>stand out as a respected environment for employees and business partners proving that </li></ul><ul><ul><li>CLEAN BUSINESS IS GOOD BUSINESS </li></ul></ul>
  14. 14. THANK YOU to all attendees <ul><li>For more information go to: </li></ul><ul><li> </li></ul><ul><li> </li></ul>
  15. 15. Fraud in the current financial crisis 25 February 2009 Howard Cooper, Kroll Stefano Demichelis, Kroll
  16. 16. Impact of current financial situation <ul><li>Why are there more fraud cases in an economic downturn? </li></ul><ul><li>Motivation </li></ul><ul><li>Personal gain - Financial pressures on individuals </li></ul><ul><li>“ Corporate saviour ” </li></ul><ul><ul><li>To avoid redundancies </li></ul></ul><ul><ul><li>To avoid breaching banking covenants </li></ul></ul><ul><ul><li>Raising debt or equity </li></ul></ul><ul><ul><li>Obtaining credit from suppliers </li></ul></ul><ul><ul><li>Bonus protection </li></ul></ul><ul><li>Is there really more fraud or is more fraud coming to light? </li></ul>
  17. 17. Impact of current financial situation <ul><li>Why are we seeing more fraud? </li></ul><ul><li>Increased pressure from: </li></ul><ul><li>Bankruptcies </li></ul><ul><li>Increased focus on expenditure </li></ul><ul><li>Regulators </li></ul><ul><li>Corporate governance </li></ul><ul><ul><li>So what are the types of fraud that Kroll is seeing at the moment? </li></ul></ul>
  18. 18. Types of fraud <ul><ul><li>Financial misrepresentation </li></ul></ul><ul><ul><li>Kroll has investigated nine cases in the last 12 months </li></ul></ul><ul><li>Fictitious revenues to boost results </li></ul><ul><li>Window dressing (revenue and expenses) </li></ul><ul><li>Improper asset valuations </li></ul><ul><li>Concealed liabilities and expenses </li></ul><ul><li>Improper disclosures </li></ul>
  19. 19. Types of fraud <ul><ul><li>Data theft </li></ul></ul><ul><ul><li>In the last 18 months Kroll has undertaken a dozen investigations involving the theft of highly sensitive and commercially valuable data. </li></ul></ul><ul><li>How is data taken from the business? </li></ul><ul><li>PDAs </li></ul><ul><li>WiFi </li></ul><ul><li>USB devices </li></ul><ul><li>Misplaced, unprotected or unaccounted for backup disks </li></ul><ul><li>What type of data is normally removed/copied? </li></ul><ul><li>Customer data </li></ul><ul><li>IP data </li></ul>
  20. 20. Types of fraud <ul><ul><li>Internal employee fraud </li></ul></ul><ul><ul><li>Who is the typical fraudster? </li></ul></ul><ul><ul><li>What type of fraud do they commit? Theft : </li></ul></ul><ul><ul><li>Property, Goods, cash , financial assets Fraud: </li></ul></ul><ul><ul><li>Bribery and corruption </li></ul></ul><ul><ul><li>False accounting </li></ul></ul><ul><ul><li>Collusion </li></ul></ul><ul><ul><li>Ghost employees and suppliers </li></ul></ul><ul><ul><li>Sale of company or customer details to others </li></ul></ul>
  21. 21. How to mitigate the risk of fraud <ul><li>Know your business </li></ul><ul><li>how does the business make its money? </li></ul><ul><li>remote locations </li></ul><ul><li>Manage your staff </li></ul><ul><li>job satisfaction </li></ul><ul><li>clarity of reward </li></ul><ul><li>Regular review of controls </li></ul><ul><li>adapt as your grow </li></ul><ul><li>reliance on individuals </li></ul>
  22. 22. How the FCPA affects UK Businesses February 2009 Richard Abbey, Kroll Richard Grimes, O’Melveny & Myers LLP
  23. 23. What is the Foreign Corrupt Practices Act? <ul><li>The FCPA is a US legislation that prohibits “corrupt” payments from being made by individuals or institutions caught by the act. </li></ul><ul><li>These are payments, either cash or benefits intended to influence acts or decisions of foreign officials (including foreign political party officials and officials in public international organizations), in order to assist in obtaining or retaining business, or to secure some improper advantage. </li></ul><ul><li>The bribe does not actually have to be paid to violate the FCPA - the offer, promise, or authorization of a bribe is enough. </li></ul><ul><li>The FCPA prohibits both direct and indirect payments, thus capturing payments knowingly made through third parties. </li></ul><ul><li>The “conscious disregard” of a likely payment via a third party also violates the FCPA. </li></ul>
  24. 24. The Provisions of the Foreign Corrupt Practices Act <ul><li>The FCPA contains three substantive provisions: </li></ul><ul><li>(1) A requirement to maintain accurate books and records; </li></ul><ul><li>(2) A requirement to maintain an adequate system of internal accounting controls; </li></ul><ul><li>(3) A prohibition against bribing foreign officials. </li></ul><ul><li>Provisions (1) and (2) will apply to a UK entity if it falls into the definition of an “issuer” under SEC regulations </li></ul><ul><li>In general, if you make SEC filings and are not a foreign private issuers that has filed for an exemption from registration under Section 12(g) of the Securities Exchange Act of 1934, you are likely to be caught by all of the above provisions. </li></ul>
  25. 25. The Provisions of the Foreign Corrupt Practices Act <ul><li>For a corrupt payment to be covered under the anti-bribery provision, the payment must fall within the FCPA’s jurisdictional rules. The FCPA’s anti-bribery provision has essentially two forms of jurisdiction: </li></ul><ul><li>Territorial </li></ul><ul><li>Nationality </li></ul><ul><li>Territorial jurisdiction turns on whether a bribe has any connection to the U.S. </li></ul><ul><li>A foreign company is subject to the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place within the territory of the United States. Moreover, if acting within the United States, a company uses the U.S. mail or phone lines, highways, or any other means of U.S. “interstate” commerce in furtherance of the bribe, they will be liable . </li></ul><ul><li>Therefore just using a telephone from a US hotel, or routing $ through a US account is enough to be caught by the provisions. </li></ul>
  26. 26. The Provisions of the Foreign Corrupt Practices Act <ul><li>Nationality jurisdiction focuses on whether any U.S. citizen or company is involved in the bribe </li></ul><ul><li>The FCPA applies to the actions of both US citizens, companies and issuers wherever they are based </li></ul><ul><li>A US citizen employed by a non-U.S. company is liable for bribes made on behalf of the company, even if the company itself is beyond the FCPA’s reach </li></ul><ul><li>In such circumstances only the U.S. citizen employee, and not the non-U.S. company, would have liability under the FCPA </li></ul>
  27. 27. FCPA Investigations
  28. 28. Reach of the DOJ and International Co-operation <ul><li>BAE Systems corruption probe has demonstrated DoJ’s determination to pursue corruption on a global basis </li></ul><ul><li>DoJ has publicly stated its determination to co-operate and work with international law enforcement agencies, including the Serious Fraud Office (SFO) to investigate and prosecute corrupt activities </li></ul><ul><li>A number of cases currently or previously under investigation are non-US companies: </li></ul><ul><li>Statoil Siemens Smith & Nephew Daimler AstraZeneca </li></ul>
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  30. 30. This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Ltd, except that clients of Marsh Ltd need not obtain such permission when using this presentation for their internal purposes. This PowerPoint™ presentation is based on sources we believe reliable and should be understood to be general risk management and insurance information only. Marsh Ltd is authorised and regulated by the Financial Services Authority for insurance mediation activities only. © Copyright 2009 Marsh Ltd All rights reserved