EY has published its 2016 global fraud survey of senior executives from 62 countries and territories with specific regional insights in Africa, Brazil, China, Eastern Europe and India. The feedback is initially encouraging with 91% of executives recognising the importance of establishing the ultimate beneficial ownership of entities with which they do business.
However, it is widely recognised that more focus is still needed on combating bribery and corruption. Globally, 39% of respondents believe that bribery and corrupt practices happen widely in their country (up from 38% in 2014 and 2012). The percentage was highest in the emerging markets, but even in the UK this figure is 28%.
Focussing on the UK, the perception remains that regulatory bodies are not performing adequately in combatting bribery and corruption. Perhaps this is in part due to a lack of press interest in the Bribery Act 2010 prosecutions to date, but there have been a number of landmark cases in the last 12 months (including the Sweett case and the first UK deferred prosecution agreement) and regulatory bodies are stepping up their game.
Companies should, as a matter of course, use the tools of internal audit, external audit, external consultants or law firms to monitor compliance with the law and in particular the “adequate procedures” guidelines. Recent headlines in relation to both corruption and transparency have led to the government suddenly widening the corporate liability net with a result that companies need to focus on getting an ever deeper understanding of their clients, partners and suppliers.
The UK government has recently enacted new regulations implementing the “People with Significant Control“ (“PSC”) register which will include information about individuals who own or control, subject to certain exceptions, all UK-incorporated companies and LLPs including their name, month and year of birth, nationality, and details of their interest in the company. This register will be made publically available from mid-2016 subject to any successful individual applications made in order to suppress the PSC information.
Geographic risk remains, it seems, a real source of danger. According to the EY Report, a third of UK respondents do not consider country specific risks when undertaking forensic or anti-corruption due diligence on potential investments.
The EY Report outlines a number of “immediate actions for management” including 1) analysing your data; 2) implementing an effective whistleblowing regime; 3) performing rigorous due diligence on third parties; 4) setting the tone and communicating management’s commitment to anti-corruption; and 5) being proactive in tackling issues.
The vast majority of firms have put in place some measures in order to tackle these issues, but there is still plenty of room for improvement. In the UK, 76% of respondents said that they have a whistleblowing hotline in place, compared to 86% globally. UK financial services regulators have announced new regulations, which will come into force in September 2016, requiring all firms falling within their remit to have effective whistleblowing arrangements. A whistleblowing hotline on its own is unlikely to be considered a sufficient measure to mitigate fraud, bribery and corruption risk.
Management also need to look internally at their company’s operations, conduct a thorough risk assessment and ask whether any measures need to be taken. It was particularly surprising that 36% of respondents admitted that they could justify unethical behaviour to meet financial targets and that they would be prepared to make some form of adjustment to the presentation of financial performance to meet targets or to prevent a company from going under. If such individuals are to be believed, then the SFO may be busy for some years yet.
A full copy of the EY Report is available online.
This month also saw the Anti-Corruption Summit held in London with many positive announcements following including the new International Anti-Corruption Co-ordination Centre to help police and prosecutors work together, the Global Forum for Asset Recovery, and in the UK, a consultation on Unexplained Wealth Orders reversing the burden of proof on those suspected of corruption to prove that they acquired their wealth legitimately. There was a shared commitment amongst the attendees toward building a global movement against corruption which is for the long haul. The Summit is to meet again at the UN General Assembly next year.
The renewed focus on transparency, anticorruption and corporate crime more generally makes it ever clearer that companies need to devote more, rather than less, compliance resources to eradicating and preventing financial crime within their organisations.