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    Kpmg   расследование мошенничества Kpmg расследование мошенничества Document Transcript

    • FORENSIC Cross-Border Investigations Effectively Meeting the Challenge A DV I S O RY
    • Contents Introduction and Executive Summary 1 Current Environment 2 Defining Fraud and Misconduct 5 Taking the Appropriate First Steps 6 Meeting the Challenge of Taking the Appropriate First Steps 8 Cultural and Legal Differences 10 Meeting the Challenge of Cultural and Legal Differences 12 Resources 14 Meeting the Challenge of Resources 16 The Availability and Accessibility of Electronic Data 18 Meeting the Challenge of Availability and Accessibility of Electronic Data 22 Key Points to Remember 24 Survey Methodology: Respondent Locations: Quantitative Argentina Denmark New Zealand • Conducted in November/ Australia France South Africa Austria Germany South Korea December 2006 Belgium India Spain • Total respondents: 103 Brazil Italy Switzerland • Respondents: The most Canada Japan United Kingdom Chile Netherlands United States of America senior people in charge of day-to-day corporate investi­ gations for their companies Qualitative • Thirty in-depth interviews with senior executives © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 4 Introduction and Executive Summary At a time when As trade barriers fall and international As part of our survey and follow-up money and intel­ commerce expands, and as the speed interviews with senior business execu­ lectual property of conducting business and remitting tives with responsibility for investiga­ can be digitally funds increases, companies that tions, KPMG learned that the challenges flashed in a conduct business across international in cross-border investigations faced by matter of boundaries are recognizing the corre­ these professionals generally fell into seconds across sponding increase in the risk of fraud four categories: continents in and misconduct. However, it is clear • Taking the appropriate first steps the course of from our research that some are more • Cultural and legal differences global trade, the difficulty of prevent­ prepared than others. Those organiza­ ing, detecting, and responding to tions have bolstered their cross-border • Investigation resources international cross-border fraud, investigations capabilities either • The availability and accessibility of corruption, and misconduct is hard to through adding in-house resources or electronic data. overstate. The growth and the scale by forming alliances with a third party, and sophistication of fraud and particularly in the more specialized Our purpose in publishing this report is misconduct perpetrated against busi­ areas such as electronic data capture not only to describe those challenges nesses around the world is accelerat­ and review and data analysis. in some detail but also to provide ing. The negative impact in terms of insights into possible responses to lost revenue and property can be An effective cross-border investiga­ them. With that insight as background, substantial – personal and business tions capability is just one element in we hope companies will be able to reputations, market capitalization, and a comprehensive approach to risk derive the best value for their current investor confidence can all be rapidly management and investigation of or pending investment in cross-border and significantly impaired. What’s fraud and misconduct. An effective investigations, regardless of whether more, when a business must respond approach can: those are conducted in-house or under­ to fraud and misconduct its manage­ • Lower the risk of the occurrence of taken with a third party. ment is distracted from focusing on fraud or misconduct, thus lowering growing and developing the business. the possibility of being hit with seri­ Furthermore, an effective cross- ous sanctions border investigations plan demon­ During the latter half of 2006 and early • Demonstrate to regulators, share­ strates not only an organization’s in 2007 KPMG, along with the research holders, stakeholders, bond-ratings sound risk management practices, firm Penn, Schoen and Berland agencies, and the capital markets but also its overall commitment to Associates Inc. approached multina­ that the business takes accountabil­ good corporate governance. tional businesses in diverse industries ity and control seriously, thereby around the world, and asked those mitigating damage to reputations We also believe this is the right time to charged with the responsibility for • Exhibit the business’s commitment engage in dialogue for the purpose of cross-border investigations within to overall corporate governance change and improvement. those companies how they responded activities to their current challenges. • Assist in a rapid and efficient response before issues spiral Adam Bates Global Chairman beyond control. KPMG Forensic © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 5 Cross-Border Investigations: Effectively Meeting the Challenge Current Environment A global airline based in Asia belatedly acts and subsequent rapid distancing discovers a travel agent operating in of funds and assets has generally not “One thing is clear…as interna­ a number of countries uses its reser­ kept pace with the speed and tional communications, the inter­ vation system to steal at least increased sophistication of fraud. net, and global commerce continue to expand, the interna­ USD5 million. An international energy concern based in Africa learns that At the same time, the need for effec­ tionalization of fraud investiga­ tions will increase apace…” one of its executives illegally diverts tive cross-border investigations is also some of its product from one country being driven by ever-more stringent to a business in which he owned an regulatory directives in many countries. Seth T. Taube, partner and Chief of the Trial Section of the New York interest that is located in another Some examples of currently enacted office of Baker Botts LLP and author , country. A financial services company laws and regulations are: of Investigating Foreign Subsidiaries: The Mixed Marriage of Alien Cultures based in Europe unearths a massive • In the United States: the Foreign and Domestic Laws, American multi-nation, money-laundering Corrupt Practices Act (FCPA), the Conference Institute, March 1, 2006 scheme operated by a crime syndicate USA PATRIOT Act, and the Sarbanes- that threatens its reputation. The list Oxley Act of 2002, section 404. goes on and on, with similar stories • In the United Kingdom: and new twists. - The Anti-Terrorism, Crime and Security Act 2001 includes extra­ For senior management and board territorial provisions relating to members around the world, the above corruption. examples of fraud and misconduct are not surprising. Yet, the speed with - The Proceeds of Crime Act 2002 which these cross-border crimes are permits recovery of assets in the United Kingdom that are the committed appears to be increasing, proceeds of an act committed fueled by the rapid advances in both outside the United Kingdom and global trade and information technol­ that are both illegal in the country ogy. Consider this comment made by where committed and in the United an Asia-based transportation-industry Kingdom. senior executive in our recent survey: • In Australia: the Commonwealth “…Continued advancement in the Criminal Code Act 1995 makes it an area of IT [information technology] has offense to bribe a foreign public offi­ made it so much simpler for the cial, whether in Australia or in crooks to defraud us.…International another country. “The risks to companies from corruption are growing and the boundaries don’t affect the criminals, • In Canada: the Corruption of Foreign effects of corruption are especially and IT issues don’t affect criminals, Public Officials Act. severe on transition economies. but they certainly affect us. ” Our review has shown that report­ • In Germany: The Federal Government ing is improving among best prac­ The argument could be made that Directive Concerning the Prevention tice companies, most often those of Corruption, 2004, sets the legal because global forces are driving busi­ at greatest risk from corruption, framework for enacting the federal but for the majority of companies nesses to operate in certain countries where there are lax or seldom-enforced government’s corruption prevention the issue is still handled in a low strategy and includes an anti-corrup- profile manner. TI [Transparency laws regarding, for example, bribery and International] strongly encourages tion code of conduct. The existing corruption, the need for robust cross- companies to improve their report­ German penalty code and criminal border investigative capabilities will ing to support their reputation for procedure law allows the pursuit of continue to increase. employees of foreign companies if integrity. ” they are involved in corrupt activities David Nussbaum, Chief Executive Furthermore, a company’s ability to while in Germany. Transparency International respond to the increased sophistication and speed of perpetration of fraudulent © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 6 • In South Africa: The Prevention and There is also in existence a United Combating of Corrupt Activities Act Nations Convention against Corruption “…bribery of foreign government No. 12 of 2004 provides for the that was entered into force in officials in international business strengthening of measures to prevent transactions is a serious threat to December 2005, after countries world­ and fight against corrupt activities. the development and preservation wide were provided the opportunity to of democratic institutions. Not only • The Organisation for Economic sign it. The Convention sets measures does it undermine economic devel­ Cooperation and Development dealing with corruption with respect to opment, it also distorts international (OECD) Anti-Bribery Convention. competition by seriously misdirect­ its prevention, criminalization, interna­ ing resources. Each country must According to it's newest ratification tional cooperation, and asset recovery. adopt the necessary national legisla­ list, the OECD's Anti-Bribery tion to criminalize the bribery of Convention has been implemented foreign public officials and address To be effective against the threat of in 36 countries as of November related obligations under the fraud, corruption, and misconduct, Convention. Examples of such obli­ 2005. This number includes most multinational organizations must gations include insisting on corpo­ of the countries within the continually assess their cross-border rate responsibility for the offence, European Union. sanctioning the laundering of the investigative capabilities – as well as bribe and the proceeds of foreign Some examples of emerging, pending, their overall fraud risk management bribery, penalizing related account­ and evolving laws and regulations are: programs – in order to ensure the right ing omissions and falsifications, and balance is struck among their efforts providing mutual legal assistance • In the United Kingdom: The Proceeds and extradition. ” regarding the prevention, detection, of Crime Act 2002 is a developing area with other Bills before Parliament and response to fraud and misconduct. From The Organisation for Economic that if enacted in their current form Co-operation and Development’s Web will codify or impact the Act further. Though determining the specific finan­ site (http://www.oecd.org/about/0,2337, cial impact of cross-border fraud and en_2649_34177_1_1_1_1_1,00.html) • In Germany: Reportedly under misconduct has proved very difficult consideration is the introduction of for law enforcement organizations legislation tightening anti-corruption around the world, there is no doubt law,1 which is the result of recent Consider some of the key challenges corporate scandals. The legislation about the scope and nature of these corrosive crimes. “National borders reported by survey respondents: reportedly would increase public prosecutors’ power to investigate rarely prove to be barriers to deter­ • Roughly half said their company corruption of a broader range mined fraudsters, according to the ” does not have comprehensive proto­ of implicated employees. Serious Fraud Office in the United cols covering investigation processes • In China: Laws passed by the Kingdom.2 “Money is channeled • Identifying/scoping the allegation National People’s Congress, includ­ through overseas banks and offshore presents a significant challenge ing the Criminal Law and the companies, victims can reside Anti–Money Laundering Law anywhere in the world, and suspects • Most do not have a dedicated func­ currently being enacted, set the and evidence can hide behind the tion for managing cross-border rules for anti–money laundering laws of different jurisdictions. And, ” investigations requirements for financial institutions therein lie the aspects of cross-border • Many do not have ready access to with banking functions, and clearly fraud and misconduct that often differ­ the right levels of skills and establish the basic framework for entiate them from other types of resources – internally or externally – anti–money laundering reporting and information monitoring systems. occupational fraud that a business may in order to conduct an effective face. The investigation of cross-border cross-border investigation fraud and misconduct frequently • The availability and accessibility of Participants in the Association of involves numerous legal issues, juris­ electronic data presents a serious Certified Fraud Examiners’ 2006 National dictions, and cultural challenges. As a Fraud study estimate U.S. organizations challenge result, businesses often are faced lose 5 percent of their annual revenue to fraud. Applied to the estimated 2006 with resource constraints due to the United States Gross Domestic Product, geographic considerations of a cross- this 5 percent figure would translate to border investigation. approximately USD652 billion in fraud losses, according to the 2006 ACFE 1 Jurist, Legal News and Research, University of Pittsburgh, Jan. 14, 2007 http://jurist.law.pitt.edu , Report to the Nation on Occupational /paperchase/2007/01/germany-to-toughen-anti- Fraud & Abuse. corruption-law.php 2 http://www.sfo.gov.uk/international/international.asp © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 7 Cross-Border Investigations: Effectively Meeting the Challenge • Companies say they find it challenging to stay current with laws on the gather­ Respondents identified the ing, storing, and transporting of data following primary drivers of • Four of the top six challenges in conducting cross-border investigations deal success for an international or cross-border investigation with cultural and legal differences • Proper planning and identify­ • Ninety-two percent of respondents expect cross-border investigations to ing the scope, 56 percent continue at the current pace or to increase. • Effectively utilizing internal resources (including people When discussing the critical challenges they face in cross-border investigations, and technology), 40 percent the primary concerns of executives in our survey fell into four broad categories, • Hiring the right external including those dealing with the first steps, cultural and legal differences, resources, 34 percent resources, and the availability and accessibility of electronic data. Consequently, • Communicating effectively, we have organized our report around these findings and included some ideas on 32 percent how to handle them. • Managing expectations of senior management, 27 percent Top challenges in conducting cross-border investigations • Coordinating with govern­ ment or local authorities, The legal or regulatory environment 45% n = 103 17 percent Availability and accessibility of 32% electronic data (e.g., e-mail) Cultural differences 26% Language differences 25% Lack of internal investigation resources 24% Lack of cooperation from 23% governmental agencies Maintaining confidentiality for 19% whistleblowers/informants Identification of competent 16% external resources Lack of cooperation from 9% others in your company Multiple responses allowed Personal security of persons 8% involved in investigations Other 11% 0% 20% 40% 60% 80% 100% Percentage of respondents Source: KPMG International, 2007 © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 8 Defining Fraud and Misconduct Fraud is a broad legal concept that • Misappropriation of assets (e.g., Scandals and failures, together with generally refers to an intentional act embezzlement, payroll fraud, exter­ flourishing and cynical greed may have committed to secure an unfair or nal theft, procurement fraud, royalty profound and prolonged effects on unlawful gain.3 Misconduct is also a fraud, counterfeiting) public opinion. It is our collective duty broad concept, generally referring to • Revenue or assets gained by fraudu­ and well-understood interest to violations of laws, regulations, internal lent or illegal acts (e.g., overbilling demonstrate that market economy policies, and market expectations of customers, deceptive sales prac­ goes together with integrity and ethical business conduct. Together, tices, accelerated revenue, bogus common good. they fall into the following categories revenue) of risk that can undermine public trust • Expenses or liabilities avoided by and damage a company’s reputation fraudulent or illegal acts (e.g., tax Black’s Law Dictionary (Eighth Edition, for integrity: fraud, wage and hour abuses, falsify­ 2004) defines misconduct as a “dere­ ing compliance data provided to liction of duty; unlawful or improper • Fraudulent financial reporting (e.g., regulators) behavior. Further, it is defined as “an ” improper revenue recognition, over- affirmative act of misrepresentation or statement of assets, understate- • Expenses or liabilities incurred concealment of a material fact; inten­ ment of liabilities) for fraudulent or illegal acts (e.g., tional wrongful behavior. ” commercial or public bribery, kickbacks) International Standard on Auditing 240 (ISA 240) on fraud: • Other misconduct (e.g., conflicts of interest, insider trading, discrimi- The term “fraud” refers to an inten­ nation, theft of competitor trade tional act by one or more individuals among management, those charged secrets, antitrust practices, environ- with governance, employees, or third mental violations) parties, involving the use of deception to obtain an unjust or illegal advantage. 3 Black’s Law Dictionary, Eighth Edition, Bryan A. Garner, Editor, West Group, 2004 © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 9 Cross-Border Investigations: Effectively Meeting the Challenge Taking the Appropriate First Steps Identifying and scoping the initial steps Less than half of the respondents have comprehensive protocols to respond to an incident of alleged for conducting an investigation; one in five have no protocols fraud or misconduct can increase the 100% n = 103 chance that the cross-border investiga­ tion results in a positive outcome. 80% The need for an investigation arises Percentage of respondents suddenly. Cross-border issues bring 60% on many complexities. Both of these 44% concepts necessitate having protocols 37% 40% to react. In practice, however, the respondents to our survey say they 19% face significant challenges in building 20% and deploying such a process. 0& We have We have We have A substantial portion (56 percent) of the comprehensive limited no developed investigation investigation investigation investigations professionals interviewed protocols protocols protocols as part of the survey said their compa- Source: KPMG International, 2007 nies do not have comprehensive inves- tigation protocols. Thirty-seven percent Extent of investigative protocols by region of respondents said they had “limited 100% Does not total 100% due to rounding investigation protocols, and 19 percent ” reported not having developed investi- 80% Percentage of respondents gation protocols at all. Asia-Pacific-head- quartered corporations were least likely 60% 54% Americas (n=35) to have developed comprehensive 46% Asia-Pacific (n=33) protocols. 40% 37% 36% 37% 33% 30% Europe/Africa (n=35) The 37 percent of respondents who 17% 20% said they had limited protocols also 9% mentioned that their protocols typically deal only with limited aspects of inves- 0% We have We have We have tigations, such as: comprehensive limited no developed investigation investigation investigation protocols protocols protocols - Organizational aspects of assigning resources Source: KPMG International, 2007 - The company’s response process to Most significant investigative challenges a whistleblower 100% n=103 - Handling evidence. 80% When fraud or misconduct is alleged 67% Percentage of respondents or discovered, organizations must have 62% 59% 58% assurance that those involved in inves­ 60% 49% tigating the incident have and under­ stand the processes needed to identify 40% and scope the issues. We asked respondents to rank elements of an 20% investigation in terms of challenging to very challenging. Identification and 0% scoping of issues was the most Identification Perfoming Gathering of Perfoming Reporting and and scoping interviews electronic analysis communicating common area to be identified as chal- of issues data results lenging or very challenging. Source: KPMG International, 2007 © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 10 Following are some of the comments from respondents concerning protocols and operating procedures that illustrate the current atti­ tudes and conditions within the survey group. The responses are anonymous in order to protect the identities of the individuals and the organizations: “We have written protocols “It’s very important [for the “It is very important in the sense of how to organization to have a writ­ because you need to give handle evidence, how to ten, formal procedure/ a consistent message in handle informants, but not protocol for cross-border how you handle and deal how to conduct an enquiry. ” investigations] because the with these sorts of things. ” Chief of corporate security end result of any work we Head of corporate assurance do is an appearance at “We have some [formal some formal court or tribu­ “The whistleblower protocols] around investi­ nal. That generally doesn’t program has got a page gations following reports happen, but we conduct that says that this is the that are made through our our investigations with the group that is responsible whistleblowing hotline, view that one day we will for doing investigations but those are the only end up at court or a tribu­ and this is broadly how formal guidelines that nal. We have to do it in a they will go about it….It I’m aware of.” manner that is going to assigns responsibility for Vice president of corporate audit withstand the rigors of a conducting the investiga­ good criminal or civil tion. It doesn’t go into a lot “Is there a protocol? Is defense. So we have to of detail as to each step or there something that [our comply with the rules of stage of the investigation. ” investigators] can follow? evidence, the rules of natu­ Manager, risk management What we find is that unfor­ ral justice, and industrial tunately there’s not…That’s relations rule.” probably one of our Chief of global investigations biggest issues.” Vice president, corporate security © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 11 Cross-Border Investigations: Effectively Meeting the Challenge Meeting the Challenge of Taking the Appropriate First Steps Our experience when conducting • Failing to keep the circle tight – the Possible Considerations for cross-border investigations, and when organization should take care in terms Organizations. discussing such investigations with of whom to notify or involve during • Undertake an assessment of the the early stages. If the people who experienced investigations profes­ business’s global investigational are targets know about or suspect sionals around the world, has been capabilities, and benchmark those that an investigation is underway, that businesses face immediate chal­ they could destroy vital information or capabilities against recognized lenges at the initial stage of the begin to collaborate with others to “better practice.” investigation. build a contradictory story. • Assess the organization’s investiga­ • Not having the appropriate person to tion competence and adequacy of The level of investigation capability in lead the process – in some cases protocols at the highest levels of the many organizations is not keeping pace this person could be an independent company, and then place the issues with the geographical operations of the board member, although not all cases on the agenda of the board and audit organization or with the sophistication would warrant that level of attention. committee. of the fraud and misconduct being The point person might also be a • Have a single, global point of perpetrated. security director, the general counsel, accountability for responding to or outside legal adviser, depending suspicions or actual incidents of Examples of Dangerous Flaws in the on the circumstances. fraud and misconduct. Initial Reaction Stage. • Prepare investigation resources on • Taking too narrow an approach in It is all-too common for organizations the uniqueness of cross-border responding to allegations, failing to operating across borders to lack the fraud and misconduct issues and ensure that sufficient procedures are capabilities to react properly and deci­ on how to respond to incidents actually being followed, or taking a sively in response to allegations of occurring across jurisdictions and view that in some jurisdictions there improper acts. Organizations also cultures. In many cross-border is little that can be done. commonly fail to alert the legal investigations, the in-house investi­ • Failing to properly preserve elec­ department of the matter in a timely gators do not have experience in tronic information – organizations manner, and they sometimes incor­ managing issues across borders that either must, by regulation, or rectly assume that home-country inves­ and diverse cultures. ought to, for good practice, issue tigation protocols will apply in all of the • Consider the development of a writ­ preservation/retention notices should geographic locations where the organi­ ten incident-response document. make certain that all relevant parties zation operates. Unfortunately, too This is not to say there should be a in all affected geographic locations often, initial reactions tend to be comprehensive handbook on “how receive the notice and understand flawed, which can have serious, long- to” conduct an investigation, however it. We have seen many examples term consequences on the eventual organizations can benefit from having where corporate responses to inci­ a comprehensive set of protocols or dents have not led to prompt preser- outcome of the investigation. For a procedural manual for responding vation/securing of relevant electronic instance, companies could be to a situation that requires investiga­ information and many cases where subjected to greater penalties and fines tion. By putting in place clearly such information was inappropriately by government enforcement agencies defined processes, organizations can accessed causing loss of data and/or regulators should they be found to have develop their responses to an investi- damage to the evidence trail. handled an investigation poorly. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 12 • Proper assessment of the issue at hand. Develop a case categorization and prioritization model to give a measured response – quickly, but in a planned way – followed by an escala­ tion process in terms of response time, resourcing, and, where relevant, notification to the board and audit committee, depending on the nature of the issue. • Planning and managing the investiga­ tion – failing to plan is planning to fail. A standard process for planning and managing the investigation helps gation in a reasoned and planned drive consistency, thoroughness, and manner, rather than reacting to a good practice, while balancing the crisis situation. need for prompt action. • Begin an evaluation of the organiza- • Evidence collection. Standardized tion’s information technology envi­ evidence collection processes – ronment as it relates to initial steps such as those dealing with witness in obtaining and preserving informa­ statements, interview plans, and tion that could be used in a cross- reports – and a procedure to collect border investigation. It is important and record physical evidence prop­ that the organization has an appreci­ erly will help avoid questions about ation of how quickly information can contamination of evidence should be retrieved from its systems in the matter be taken to court. Also disparate global locations, and that critical are clear guidelines on it has adequate response programs preservation of electronic and other in place. material and the do’s and don’ts of how to handle it. • Involve legal counsel in any aspect of creating initial protocols and operat­ • Establish a memorandum of under­ ing procedures, especially those that standing or a service-level agree­ ment with investigations support involve taking actions that could teams in the locations where the affect the gathering of information or organization operates to facilitate evidence. rapid and effective deployment against understood, high-quality Having protocols in place is like having response standards. fire drills. In such a drill, everyone knows what they are supposed to do, where they are supposed to go, and to whom they are supposed to report. With protocols, the job of doing the investigation under difficult circum­ stances may be better managed. Possible Topics in a Set of Protocols or Procedure Manual. • Information about the proper way to receive and record the allegation, and how to evaluate the quality of the allegation received. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 13 Cross-Border Investigations: Effectively Meeting the Challenge Cultural and Legal Differences In a ranking by survey respondents of “I think the cultural differences are “It’s a straightforward thing where the top challenges businesses face number one. That challenge actually there is a legal environment that leads to another set of challenges. It must be respected. There are coun­ when conducting a cross-border inves­ is difficult to work with different tries where the local authorities are tigation, four of the top six dealt with cultures in different countries. It is quite happy for you to do the job, culture and local processes. Part of the indeed very difficult to work with but in the case of [name of country difficulty stems from the desire by authorities in different cultures and withheld] they basically told us multinational organizations to establish countries; you have to sort of adopt which was the playing field we similar policies and operations across practices and policies and even would be acting on and which was codes of conduct and unwritten the part they would be acting on. the countries where they operate, rules. Cultures really are the most This should be respected. In princi­ while at the same time dealing with challenging part. ” ple, when we have a case where the many different ways trade is there is an interest from the public Chief internal audit officer conducted and investigations handled side, we really do collaborate in a by businesses and local authorities. constructive way. ” More broadly, working with foreign Head of corporate audit “I think one challenge is definitely governments can be problematic, particu­ the different cultures that exist in larly if the subject of the investigation is a “I can refer to one case I handled different countries and trying to get government official or is otherwise where the marketing division was the right balance between expected connected to the country’s business or involved. We were in one part of the corporate behavior in Australia, gover­ country and this fraud had taken legal establishment. Many respondents nance and the like, versus what place in another part of the country. said that because standards for business might be acceptable in different It was just like going to another countries, be it Indonesia or Iraq or practices and behavior differ from those country and doing an investigation.” wherever. Whenever there is an alle­ of the corporations’ country of domicile, gation in another country you need to they frequently run the risk of serious Internal audit manager be conscious not to simply apply missteps throughout the investigation. In Australian law or Australian culture or Senior security executives say the some cases, the respondents reported Australian behaviors to that country. importance of a close working Often business is done differently. ” that laws are applied unevenly, which relationship with local officials and law makes carrying out an investigation espe­ Head of risk management and enforcement personnel in countries cially difficult without having a working internal audit where an investigation is taking place relationship with local officials. cannot be overstated. A good relation­ The challenges cited by survey respon­ “In a cross-border investigation, I’ve ship with those parties, they say, may dents included those of understanding learned that before I start I must make the difference in a good or bad and operating in the legal or regulatory have an understanding of the legal investigation. Many corporate security environment, having an appreciation for system. That has always helped. executives candidly admit that they cultural differences, language differ­ There have been instances where we thought our disciplinary codes frequently have difficult issues with ences, and lack of cooperation from and practices were applicable and local officials in the course of investiga­ government agencies where the inves­ we’ve found out that, to our horror, tions, and simply accept those chal­ tigation took place. There are also differ­ they weren’t. If I’ve set up a meet­ lenges as a part of doing business. ing legal and evidence procurement ing with partners from different requirements. A key consideration in disciplines in a law firm there, I’m going to get a crash course in the “It’s an inevitable fact of life that the this respect is having an understanding law system first. police in [name of country withheld] of the standards for maintaining privacy will, 80 percent of the time, act of information and recognizing and Forensic audit manager corruptly.” protecting confidentiality. Corporate security executive © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-border Investigations: Effectively Meeting the Challenge 14 “The fact is that barriers to enforcement coop­ eration come not just from ineffective laws. Sometimes they also stem from a lack of will­ ingness to cooperate on the part of market participants. And, I believe that the proceeds of crime travel to where enforcement coopera­ tion is lacking, threatening the integrity of our markets. This erodes not only investor confi­ dence but also the opportunity for real and legitimate growth in both local and cross- border business. ” Ethiopis Tafara Director, Office of International Affairs U.S. Securities and Exchange Commission Panama, April 15, 2004 Remarks before the Panamanian Securities Regulatory Community and Industry © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 15 Cross-Border Investigations: Effectively Meeting the Challenge Meeting the Challenge of Cultural and Legal Differences A cross-border fraud and misconduct Language Local Customs investigation cannot be undertaken Language is not a barrier easily over­ Differences in local customs are a from a totally domestic orientation. come. Companies regularly need to frequent challenge in performing cross- Simply understanding that key part of balance the requirement to recruit border investigations. Dealing with this the response to a fraud and miscon­ employees in countries of operation challenge can require an intimate duct investigation can lower the possi­ who have the relevant skills and experi­ knowledge of country/regional differ­ bility of an immediate obstacle when ence with the desire to recruit employ­ ences and the “do’s and don’ts” in beginning the probe. In some compa­ ees with multilingual capabilities. In order to avoid hampering the progress nies, such a change of orientation may general, the requirement to have rele­ of the investigation. Seth T. Taube, a require a significant shift in internal vant experience and the ability to partner and chief of the trial section of culture. perform the role in the employing coun­ the New York office of the international try will take precedence over any desire law firm Baker Botts LLP said in a In every cross-border fraud and miscon­ for multi-language abilities. recent interview with KPMG, “It is a duct investigation the cultural differences necessary fact of life in emerging should be taken into account without When the need arises for a cross- economies, or economies that up until jeopardizing the internal investigation border investigation where language just a few years ago were closed guidelines. In different cultures different barriers may cause difficulties, a key economies, [that] you have to deal routes can lead to the same outcome. In consideration in selecting team with government officials. In fact, it some cultures the local management members is to ensure that communi­ would be imprudent to conduct busi­ should be heavily involved to get the cations within and with the team are ness without those relationships. ” proper cooperation of local staff; in other understood. In particular, when inter­ Taube warned businesses that enter countries this should be avoided as viewing a witness or a suspect, it is new markets not to try to expect tradi­ much as possible. The same is applica­ important that those to be interviewed tional Western business conduct to be ble to the involvement of law enforce­ are comfortable during the interview followed. “Don’t expect the values we ment. A well-known issue of cultural and that the investigator has confi­ place on contract and such things to be differences is interviewing. Certain dence that both the questions and considered values in other cultures, but behavior during an interview sometimes answers are clearly understood. The be ready to control the risks that arise is considered a signal of being guilty in nuances of answers and how to because of this natural tension. ” one culture and as perfectly normal develop questions can be critically behavior in another culture. affected by impaired understanding of Executives who have long experience the question and/or the answer. in doing business in other cultures are What follows below are suggestions aware of other themes that require on how to deal with cultural aspects of Consideration should therefore be consideration. Their impact on cross- a cross-border investigation from the given to how best this clear communi­ border investigations can be consider­ perspectives of language, local cation can be achieved. This may able. Such themes include: customs and traditions, understanding involve a choice between using a • Maintaining “face. This is a very ” local laws, and working with foreign reputable translator to accompany the important issue in many cultures, governments and local authorities. investigator to assist in the interview and there is a need to handle this process. Often, investigation teams use matter delicately. Face is a term that local specialists from the country in is linked with the opposing concepts which the investigation is taking place of honor and humiliation. Therefore, and who have the forensic investigation a person who is part of a cross- and specific language skills. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 16 Understanding Local Laws In some countries it may be considered Local laws and guidance may be quite normal to pay a “fee” to conduct busi­ different from those where the head­ ness, whereas in others such an act is quarters of a business is located. In considered to be illegal and may have order to avoid problems with such serious consequences. In particular, this matters, it is important for companies is an issue for consideration by U.S. with overseas operations to ensure multinationals, which are required to that those likely to be involved in comply with the U.S. Foreign Corrupt performing investigations are made Practices Act in in every country in aware of any relevant local customs which they operate. and laws. It is also important that they receive adequate training to fully Companies should ensure that they understand these differences and fully understand relevant international respond appropriately should the need and in-country legislation relating to border investigation could maintain arise to perform a cross-border investi­ fraud, corruption, and financial miscon­ or lose face, depending on how a gation. If such knowledge is not accu­ duct in order to avoid committing any question is posed and structured. mulated and kept up to date in-house, offense in relation to such matters. • Demonstrating respect. Regardless it is even more important to bring into Such understanding should be obtained of the circumstances, the utmost the investigation team appropriately and updated by companies on an ongo­ respect is required when a cross- experienced and skilled resources. ing basis to ensure that sufficient infor­ border investigation is being mation is available at the outset of any conducted. Respect can be affected Areas of difference may include: investigation that may arise. by body language as well as by the • The attitude of local authorities to spoken word. Ignorance or nonob­ As mentioned previously, understand­ “overseas” controlled businesses servance of certain customs, forms ing the legal systems in each country operating in their country of greeting, and the like may hamper and having access on a continuous progress. For example, not knowing • What is illegal in one country may be basis to resources that can assist in how to give and receive a business custom and practice in another such matters is particularly important. card in Japan or China could lead to It is important when conducting an • The extent to which the local authori­ offense being taken and a lack of investigation to know at the outset ties will expect, require. or pursue cooperation. Respect also follows whether or not it is a requirement to prosecution seniority, where people in some involve law enforcement in that particu­ cultures will do something as • How evidence that has been gath­ lar country. It is equally important to directed by a senior, regardless of ered may be used in court know if and when civil or criminal what they think. • The evidence required to secure a action can be initiated and what the successful civil outcome or criminal process for this would be. • Understanding questions and answers. A person attempting to prosecution If the correct steps are not taken answer a question in a language that • Data privacy legislation. throughout the investigation, difficul­ is not his or her native language may ties could result going forward. not be aware of nuances that could Working with Governments, Local give offense. That situation could Officials, and Law Enforcement present problems if the subject This can be a particularly difficult agrees with the interrogator, but area for many companies and, if not hasn’t actually fully understood the approached correctly, can lead to question. Problems might be over­ significant problems, particularly come by follow-up, written commu­ where local governments have the nications after a meeting, or of power to influence any ongoing trade course by using native-speaking of the company. specialist investigators. The payment of bribes is one area that Overall, having a “local” on your team falls under this category and is often a is invaluable. cause of concern for many companies. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 17 Cross-Border Investigations: Effectively Meeting the Challenge Resources Organizations will differ when it comes “I have the resources of the internal to which resources to utilize in a cross- audit department at my disposal as well as members of human resources border investigation. As a potential at my disposal, depending on the situa­ need for an investigation arises, the tion. For example, I may commit selection of the resources will be influ­ members of the internal audit depart­ enced by past experiences, the capabil­ ment to assist in conducting a financial, ities of its personnel, and its knowledge what I call forensic review. Additionally, of what external resources are avail­ I have members of a security IT group “Administratively there are probably that have a dotted line to me that I not enough of us so that when we able. However, thoughtful and deliber­ engage to assist in conducting the IT have an investigation it impacts on ate planning that addresses the portion of investigations.” the rest of our workload. ” preparedness of your internal capabili­ Vice president, information and security Internal audit manager ties and becoming familiar with exter­ nal resources are advisable. Internal audit was cited very frequently “It is very difficult to get information as the function that owned or shared extracted from the people in the “We had a dedicated investigations the cross-border investigations function: company because many have function for [issues] that are raised changed jobs, and we’ve got a very through our whistleblower program, “Internal audit, together with the poor process of information docu­ but for any investigations that are business security [department], is ments management. We can’t easily generated or required outside of that responsible for conducting investiga­ recover contracts and invoices…. ” whistleblower program, there is no dedicated group or person that must tions about frauds in the company… General auditor be the investigator.” All the [investigation] procedures adopted were based on internal Manager, internal audit and risk Some respondents said they are also audit procedures. management hindered by a lack of specific investiga­ I am an internal auditor, or the tion processes and protocols for deal­ “In a cross-border investigation… manager of internal audit. All the ing with other company functions and there have been instances where we investigations are within my role. In other words, I am in charge of all departments. Further, they reported thought our disciplinary codes and practices were applicable and we’ve investigations. ” needing assistance in dealing with local found out that, to our horror, they personnel involved in the investigation, Head of internal audit weren’t.…When we want to analyze for putting together and mobilizing data, we very often outsource that. investigation teams, and understanding Across geographies, respondents We have found we’ve got good value the legal issues in the countries in doing that. It’s very time-consuming who reported struggling with resource issues said the most pressing chal­ which they operate. and we don’t have the resources to do it. ” lenge they faced is that associated Those who said they believed the cross- Group forensic audit manager with having people with the requisite border investigation worked well cited depth and breadth of investigations the importance of good relationships Even in companies that reported skills. Additionally, there was the chal­ with the groups that shared the duties. having a dedicated cross-border inves­ lenge to assemble and mobilize a tigation function, survey participants team of individuals who would be “There are totally open communica­ said investigations responsibilities involved in a cross-border investigation. tion lines between the audit teams were typically shared with other func­ as well as the legal functions. ” “Resources are the biggest issue. tions, including human resources, Head of corporate assurance I’m going to be blunt – that’s our legal, and internal audit. largest challenge. ” Vice president corporate security © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 18 “When you have an in-house Nearly half of the respondents say external resources assisted with legal aspect(s); component, you get this aggregated one in three say such resources helped with the entire investigation knowledge of how the operation 100 n=103 runs. It’s very, very useful…You can’t do it all, and there is a need to cohabit with your consultants out 80 Percentage of respondents there. There is a need to use them Multiple responses allowed expeditiously and widely. ” 60 Group forensic audit manager 45% 40 32% Not surprisingly, the difficulties 26% 25% surrounding having enough – and the 20 13% proper – resources lead organizations 2% to look for outside help when 0 conducting cross-border investiga­ Legal The Forensic Technology Other Don’t aspect(s) entire accounting aspect(s) know/ tions. Participants said the primary of the investiga- of the refuse investiga- tion investiga­ reason for going outside their organi­ tion tion zations to fill resource gaps is Source: KPMG International, 2007 because they do not carry dedicated • Would be useful for computer foren­ “Because this was such a high- specialists on their staff since the sics support profile issue and it was in the news­ need is periodic rather than recurrent. papers, we really needed to provide Nearly one third (32 percent) of partic­ • Would be useful for surveillance to both the directors and external ipants said they used external support. agencies more assurance it was resources for the entire investigation, being dealt with at an arm’s-length “[Having the right internal resources] and at a professional level. Hence, and almost half (45 percent) said they is an issue for two reasons. One, we we engaged [outside experts] to engaged an outside law firm to handle are not a big enough company to assist.” the legal aspects. have a dedicated investigation unit. Chief of audit It’s sort of a subset of what we can Additionally, they believe that use of do.…And expertise-wise, we are not “We outsourced it. We don’t want to outside specialists: as strong because we are not big be accused of manipulating anything. ” enough to have dedicated experts • Would bring forth the perception of with the right background for conduct­ Group forensic audit manager having an independent organization ing investigations, hence the need to to lead an investigation use [outside] experts.” • Could provide speed and responsive­ Chief of internal audit ness when an incident occurs • Could help protect the integrity of information gained during the investigation © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 19 Cross-Border Investigations: Effectively Meeting the Challenge Meeting the Challenge of Resources When an organization faces the need for a cross-border investigation there are highly qualified investigators on staff almost always tradeoffs when it comes to resources. in every offshore location where the business has offices, an alliance with Half of respondents say their staff has not been trained an organization that can provide a on investigation protocols within the last six months combination of data analysis skills, 100% forensic technology capabilities, and a Based on companies that have investigations protocols solid understanding of the language n=83 and business processes in those loca­ 80% tions would provide an advantage Percentage of respondents should the need for a cross-border 60% investigation arise. 48% Considerations for a board of directors 40% 27% or management when assigning or identifying resources for a cross-border 20% 11% investigation: 7% 7% • Skill set. Assess the nature of the 0% incident, suspicion, or allegation, and Within the More than More than Have never Don’t know/ last 3–6 6 but less than 12 months been refuse then assess the organization’s skills months 12 months ago trained on ago your investiga­ to handle the matter. The purpose of tion protocols this step is to determine the combi­ Source: KPMG International, 2007 nation of legal, forensic accounting, technology, and industry expertise Education on current trends and formu­ Effective cross-border investigation that is required to handle the matter. lating responses to those trends is vital teams or individuals should have a Bear in mind that in certain jurisdic­ for the cross-border investigation func­ broad understanding of the company’s tions it may be customary for a legal tion at multinational organizations. The business strategy and have a back­ team to be initially engaged. The global marketplace continues to change ground in business processes and legal team may want to hire other quickly, as national borders become finance. The top managers should resources for the purpose of estab­ less of an obstacle to trade around the consciously build an internal investiga­ lishing legal privilege. Issues that world. That change has added an tions team with a capability of handling have financial or accounting conse­ entirely new dimension for multina­ routine investigations in the organiza­ quences almost certainly will require tional organizations that must react tion. And, like a typical internal arrange­ forensic accountants. Where elec­ quickly and effectively as fraud and ment with a third party, the managers tronic evidence exists, such as misconduct occurs. Ongoing training should also consider having a close e-mail, it will be necessary to have among members of an organization’s alliance with an external organization forensic technology resources as incident response team may mean the that can provide specialized and effec­ part of the team. Industry expertise difference between effectively handling tive support when cross-border fraud can especially be useful in engage­ an incident and making a bad decision or misconduct occurs. Recognizing that ments at organizations within regu­ at the start of an investigation. it probably is cost-prohibitive to have lated industries, such as banking, © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 20 – Background and credentials. Many As mentioned above in the discussion investigators develop skills in the dealing with initial protocol and opera­ public sector as government agents tional procedures, a single, global point or by virtue of a legal or regulatory of accountability is a critical capability background. Forensic accounting for any multinational organization oper­ has emerged over the past two ating in an environment where rapid decades as a specialized profes­ communications can facilitate fast- sion. It can take five to ten years of spreading illegal or improper activities. working on investigations before a In its discussion of resources, senior forensic accounting specialist can management or the board must have grasp the complexities and develop comfort concerning its ability to the professional maturity neces­ respond in a number of jurisdictions, sary to manage investigations. each with disparate cultural approaches insurance, energy, healthcare and There are some formal credentials to law enforcement. Without that capa­ pharmaceuticals. that have also started to emerge bility, a company may find that it is • Capabilities as being recognized within the vulnerable to a number of negative field of forensic accounting, such consequences. – Experience. Investigations are as the certified fraud examiner. always sensitive matters. Therefore it is imperative that the investiga­ • Independence. In many instances, tion team has the background and the ability to demonstrate the inde­ experience to meet the challenge. pendence of the investigation is If the organization has its own imperative. For example, an organi­ team or if it decides to hire a third zation would not want its general party, senior management – or the counsel investigating the chief exec­ board – should determine if the utive officer, nor would it want inter­ team has “been there before, ” nal audit investigating the chief and how it has handled difficult financial officer. The more independ­ situations. Management or the ent the resources, the more easily board may want to be wary of an stakeholders of investigations (such investigator who claims to have as regulators, investors, and exter­ seen an exact situation before, or nal auditors) will accept the findings predicts the ultimate outcome. of an investigation. Investigations rarely play out as • Availability. Investigations nearly expected. An investigator should always require immediate attention be able to describe a general and the investigation resources have preliminary approach to the matter, to be able to assemble a qualified but should not present an inflexible team quickly. A fast response is more work plan. difficult in cross-border situations. – Technical expertise. Meet with While some organizations will have prospective investigators to gain an direct resources in foreign locations understanding of both the prelimi­ that can be deployed, it would be a nary approach the investigation mistake to assume that all large busi­ team proposes and the expertise of nesses would have these resources the team’s key members. If possi­ and have the ability to act quickly. ble use experienced investigators Senior management or boards should to perform the interviews. If the determine whether the investigative investigation will involve the gather­ resources in the disparate locations ing, storage, or transportation of have similar investigative back­ electronic evidence, organizations grounds, or if they hire local “bodies” should explore the background of that do not have the same training those performing the preservation and experience. of the data and how they will go about those activities. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 21 Cross-Border Investigations: Effectively Meeting the Challenge The Availability and Accessibility of Electronic Data One of the commonly cited challenges One reason for the difficulty may be Another common instance is where a among survey respondents was not the proliferation of portable storage company PC or laptop used by an exit­ knowing where to find data that is rele­ devices, such as USB flash drives or ing employee is reallocated to another vant to a cross-border investigation. “thumb-drives, cellular telephones ” employee, sometimes after being When asked to rank factors that had an with removable memory chips, or “cleaned down” by the company in impact on conducting cross-border personal digital assistants (PDAs). At some way, thus making retrieval of investigations, a third of respondents times, data that is relevant to a cross- usable evidence more difficult. Further, cited the availability and accessibility of border investigation may be on the some respondents said that although electronic data. Cross-border investiga­ personal computer (PC) of an individual they knew where the data resided, tions pose unique challenges relating to who has left the company for another they weren’t clear on the rules and locating data, particularly when such job and not returned the PC. In still regulations relating to access and directives as retention policies do not other cases, a PC may have been taken transportation of data. exist or are not followed, as some of out of service and not stored according the survey respondents reported. to company policy, and thus the infor­ mation cannot be retrieved. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 22 The issue of physical access to rele­ information. Plus whenever you turn analyze electronic data in an effective, vant data is a particularly vexing one on your computer, it tells you that secure, and evidentially usable manner. anything done on a computer is for many companies with business The statistics in the survey could there­ considered property of the company units spread around the globe. A busi­ fore be interpreted as indicating a gap and that we have the right to ness that is headquartered in Berlin, inspect, seize, take control at any between companies’ perceptions as to for example, may not be able to imme­ time we wish. It’s generally been their investigative IT capabilities and diately take physical possession of upheld in the court, it’s not a prob­ what may be the reality compared with data that is on a PC located in, say, lem in Mexico, it’s not a problem in good investigative practice. Canada. It is a problem in Europe. ” Ho Chi Minh City, simply because of the need to discreetly travel to the Manager, security services The majority of survey respondents Socialist Republic of Vietnam. The (69 percent) said IT proficiency is company may be able to use the The challenges associated with the important to the success of cross- company’s network to view and possi­ availability and accessibility of data border investigations. Interestingly, bly acquire the data, but be unable involve a number of interrelated issues. respondents who reported having to quickly and quietly travel to the Aside from their struggle to stay comprehensive investigation protocols far-off location. current on the disparate laws and regu­ rate the importance of IT proficiency lations around the world dealing with higher (82 percent) than those respon­ Aside from the physical limitations of data collection, storage, and transport, dents who said they did not have data collection, many countries, partic­ respondents cited problems with incon­ comprehensive protocols (59 percent). ularly in Europe, have data privacy laws sistencies in their companies’ proce­ that place restrictions on how data can dures regarding data collection from It would be difficult to argue against be collected and how it can be trans­ one location to the next. In addition, the idea that the efficient deployment ported – if at all. Many countries there is the challenge of the some­ of technology coupled with effectively require that explicit consent agree­ times unrealistic expectations placed using the capabilities of those who ments be reached between the busi­ on in-house investigators to effectively work with the technology can make or ness and the affected individual. launch and carry out data gathering in break a cross-border fraud and miscon­ all of the countries where the fraud or duct investigation. Our experience and “Privacy of information is our biggest misconduct might have occurred. in-depth discussions with survey problem. And a number of different respondents indicate that the kind of countries around the world have their Organizations that recently established technology employed by perpetrators own particular areas where it’s diffi­ business units in a number of new of fraud is sometimes a generation cult to get certain information. ” locations due to global expansion or ahead of the technology of the victim. Manager, investigation function having entered into mergers, joint The nature of fraud, after all, is to ventures, or strategic alliances have discover and exploit weakness in the “Between Europe and North America, the privacy laws are much seen their problem of accessing data security of valuable assets. Fraud more stringent. For instance my exacerbated. Many may also have surveys of business executives counterpart who’s located in systems-integration issues that have conducted in 2006 by KPMG member Stuttgart cannot just go in and not been resolved as a result of expan­ firms in Australia, New Zealand, and access someone’s work network, sion or alliances. India revealed that fraud and miscon­ their e-mail account or their hard drive. In the United States, in duct is likely to increase in the years We noted with interest that 75 percent Canada or Mexico, within our poli­ ahead. In virtually every interview cies, that is company property from of respondents said they believe they conducted as part of this project, two respects. Number one we own have adequate technology resources to survey respondents reported that inter­ the hardware and the software, and support investigations. This is inconsis­ nal control weaknesses were exploited all the storage devices that are used, tent with our experience in investiga­ so therefore that gives us legal in the commission of the crimes tions where we see that a substantial access. Plus when things are against their organizations. proportion of companies do not have inputted into that system, it is done by employees who we are paying for the specialist technology software and that time and we have policies that operational procedures that should be require that be work related kind of deployed when seeking to capture and © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 23 Cross-Border Investigations: Effectively Meeting the Challenge An Asia-based executive dealing with a cross-border fraud described the role Safe Harbor Regulations and Cross-Border Investigations of technology in a recent incident in the following way: One area of legislation that impacts how companies can access electronic data in international fraud investigations relates to the European Union’s “Criminals just become creative in Directive on Data Protection (95/46/EC). This directive, which went into effect the way of doing things. I suppose in October 1998, would, and prohibits the transfer of personal data to non-EU continued advancement in the area nations that do not meet the European “adequacy” standard for privacy of IT has made it so much simpler for the crooks to defraud us. We’ve protection. While the United States and the EU share the goal of enhancing got false websites allegedly operat­ privacy protection for their citizens, the United States takes a different ing in Australia which are being run approach to privacy from that taken by the EU, relying on a mix of legislation, out of the U.S. or Europe.” regulation, and self-regulation, while the EU requires creation of government data protection agencies, registration of data bases with those agencies, and Getting better at using technology capa­ in some instances prior approval before personal data processing may begin. bilities clearly is on the agenda of busi­ As a result of these different privacy approaches, the directive could have nesses around the world. Almost significantly hampered the ability of U.S. companies to engage in many inter­ 80 percent of respondents say they national cross-border transactions, including investigations. believe in the next five years IT profi­ ciency will be even more important than As part of the Data Protection Directive, the United States and the EU it is now to the success of cross-border entered into the so-called “Safe Harbor Agreement, designed to bridge differ­ ” investigations. ent privacy approaches between the EU and the United States and offer a streamlined means for U.S. organizations to comply with the Data Protection “I think it depends on the company. Directive. Under this agreement, data transfers from the EU can take place to Within our company, our systems U.S. companies that agree to meet certain intermediate privacy protection aren’t that fantastic. To use data- standards. The financial services industry, however, is excluded from the Safe mining tools and things isn’t always very easy nor appropriate. But I’m Harbor Agreement because of recent changes in U.S. financial privacy laws sure in other companies with, under the Gramm-Leach-Bliley Act (GLBA). In the United States, private-sector perhaps, more sophistication from adoption of the agreement was slow to start. an IT point of view, those things can be fantastic in terms of identifying Although the non-transferability provisions of the Data Protection Directive transactions that are inappropriate or have yet to be rigorously enforced, financial institutions that currently have no outside the norm. ” acceptable Safe Harbor alternatives that guarantee the transferability of Former head of ethics and internal audit personal data for the long term will be unable to secure the uninterrupted ability to transfer data from the EU to the United States. Negotiations over the Safe Harbor Agreement, however, continue to evolve. For example, while the financial services sector was not included in the Safe Harbor Agreement originally, now that GLBA is being implemented, both sides are revisiting issues related to financial privacy. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 24 © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 25 Cross-Border Investigations: Effectively Meeting the Challenge Meeting the Challenge of Availability and Accessibility of Electronic Data Obtaining electronic data is critical to Organizations may want to consider • Individuals who have a role in cross- the success of a cross-border investiga­ asking the following questions: border investigations need to have a tion, but the rules to get access to data deep understanding of the laws on - What are the company’s retention sometimes can be complex. That is the gathering, storage, and transporta­ policies, including in relation to tion of evidence across international why it is imperative that there is an e-mails? borders. While senior management adequate understanding of the rules - What is your data back-up retention cannot be expected to have an in- and regulations regarding gathering, policy? depth understanding of the rules, it transporting, and storing data. is important for the organization to Following are recommendations about - Where do you allow people to store gain an appreciation for the variability data on your servers? access to electronic data that organiza­ of such rules and laws in order to tions may consider in the context of - How much information do people avoid costly mistakes when an inves­ cross-border investigations: replicate on their hard drives? tigation is launched. • Approach all cross-border investiga­ - Where are the servers on which • The individual with the responsibility tions from the perspective of relevant data is stored, and are they for being the global point of account­ preserving the integrity of the data. all under the company’s control? ability to respond to allegations The mere suspicion that an organiza­ should make certain that the busi­ • Review the company’s protocols tion has destroyed, tampered with, ness has access to country-by-coun- regarding the rotation of back-up or attempted to hide data from regu­ try details on procedures and data tapes. There should be a lators or prosecutors could seriously requirements for gathering, storing, process in place that ensures that harm the reputation of a company. and transporting data. Individual the rotation schedule will not allow Having a documented set of proto­ country laws continue to evolve, and critical data to be written over once a cols that has been clearly imple­ organizations must always be alert to preservation order is implemented. mented consistently across an any recent changes in such laws and organization gives credibility to • Organizations should institute train­ seek to understand them. the results of an investigation. ing programs on their electronically stored information policies and • When a company seeks help from • Review the organization’s proce­ an outside organization to investigate procedures. There should be infor­ dures for the issuance and enforce­ cross-border fraud and misconduct, mation on data privacy laws and ment of a preservation notice, that it must be assured that the third forensic preservation in the organi- tells individuals that the company is party also has a detailed, up-to-date zation’s incident-response plan, under an obligation to preserve all knowledge of the rules and best along with the requirement that all information relating to a particular practice for collection, preservation, affected individuals take responsibil­ instance because the company is and transmittal of data in and across ity for familiarizing themselves with being sued, suspects that fraud or the relevant jurisdictional boundaries. the information. misconduct has occurred, or is This can raise challenges in any or all under investigation. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • Cross-Border Investigations: Effectively Meeting the Challenge 26 data capture, in-country review, trans­ mittal across jurisdictional bound­ aries, and review out of country – for instance, at the group’s head office or legal advisers’ offices. Using an organization that has numerous and unconnected teams heightens the probability of damaging the integrity of the investigation. Companies can help avoid significant problems during the course of the investiga­ tion as well as possible difficulties in subsequent criminal prosecution or civil litigation by having a focused work plan that has been verified by appropriately experienced forensic IT professionals and a process that clar­ ifies the chain of custody of evidence while protecting the integrity of the data. • Organizations should ensure that when a cross-border investigation is launched they have the ability to track the evidence that is being gathered in all locations around the globe, and that the method employed to gather the information is uniform. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • 27 Cross-Border Investigations: Effectively Meeting the Challenge Key Points to Remember The challenges associated with conducting cross-border investigations are complex, lending weight to the imperative for being properly prepared when incidents of fraud, corruption, and misconduct occur. An appropriate initial response can have a profoundly positive impact on the outcome. Wise organizations think first, and then act. At the same time, no organization can possibly have a total understanding of all the cultural differences or have the laws in each of the locations where it conducts business. Further, an organization doesn’t need to know everything. Instead it needs to know where to find what it needs and who to ask. Frequently, it is the mishandling of electronic data and other evidence that causes problems in a cross-border investigation, given the myriad laws regarding the gathering, transporting, and storage of such data. An organization should not become comfortable that it knows everything it needs to about cross-border investigations. The landscape changes by the day, which will continue to give rise to new threats, often in different parts of the work. Being ready to respond and flexible in approach will best prepare organizations to react to meet their challenges in cross-border investigations. © 2007 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
    • kpmg.com Key Contacts Europe, Middle East and Africa Richard Powell Partner KPMG LLP in the United Kingdom richardfa.powell@kpmg.co.uk +44 (0) 161 838 4044 Americas Phil Ostwalt Partner KPMG LLP in the United States postwalt@kpmg.com +1 404 222 3327 Asia Pacific Mark Leishman Executive Director - Forensic Services KPMG in South Korea mleishman1@kr.kpmg.com +82 (2) 2112 0882 KPMG contributors to this publication include: Phil Ostwalt, Mark Leishman, Richard Powell, © 2007 KPMG International. KPMG Rens Rozekrans, Stephan Drolet, Ken Milliken, Earl Fagan, Amanda Rigby, Jilane V. Khakhar, International is a Swiss cooperative. Member Timothy R. Dougherty, Anne Hollyday, Lynda Leavitt,Charles Garbowski, and Marshall Bain. firms of the KPMG network of independent firms are affiliated with KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances KPMG International provides no client services. of any particular individual or entity. Although we endeavor to provide accurate and timely information, No member firm has any authority to obligate there can be no guarantee that such information is accurate as of the date it is received or that it will or bind KPMG International or any other continue to be accurate in the future. No one should act on such information without appropriate profes­ member firm vis-à-vis third parties, nor does sional advice after a thorough examination of the particular situation. KPMG International have any such authority to obligate or bind any member firm. All rights KPMG and the KPMG logo are trademarks of KPMG International, a Swiss cooperative. reserved. Document code: GSC037