Looking at fraud through a global lens

By Sarah Hofmann

As technology continues to shape the world, advances in travel and communications have made international business easier to conduct. Anti-fraud professionals can reap the benefits of these advances to help prevent and detect fraud. But heed this caveat: The playing fields are changing. Border-crossing frauds are presenting new challenges to fraud examiners. During the 27th Annual ACFE Global Fraud Conference in June speakers shared best practices fraud examiners can use to operate within unfamiliar regions.

More than compliance: Fraud prevention in Africa

Despite growth and modernization, the majority of African nations are still considered high-risk areas in which to conduct business, explained Peter Goss, ICFP, CFIP, managing director, forensics, at SizweNtsalubaGobodo Audit, during his session, "Fraud and Corruption Risk Governance in Africa." Goss believes that fraud examiners can minimize risk and encourage cultures of fraud prevention in their organizations by exceeding local regulations and showing their C-suite executives that complying with more stringent international guidelines will lead to profit.

He said that laws or regulatory systems in many developing countries can be intrinsically corrupt or not extensive enough, so fraud examiners need to focus on the bigger picture. "If you [tell executives to] ‘do it because the law says to,' it's the wrong motive," Goss said. "Start talking about what's happening in the world in terms of fraud and corruption."

He said that board members of organizations need to be convinced that their fraud risks aren't problems that exist in silos; they shouldn't consider them company issues but pieces of a much larger puzzle.

Increasingly prevalent multinational regulatory groups open up opportunities to set organizations apart through their approaches to dealing with fraud, he said. "Teach that to the boardroom," said Goss. "Ask them, ‘What would make you more profitable?' Show them that the answer is that you're recognized by your peers in Europe and the U.S. because you comply with the OECD [Organisation for Economic Co-operation and Development]."

Change in preventing fraud will only truly be achieved by setting a tone through executives and captains of industry — not merely by adopting new regulations, he said.

Although parts of Africa still struggle with fraud, Goss hopes that looking at things from a global business leader's perspective will help fraud examiners stress the importance and benefits of a comprehensive, internationally designed anti-fraud program.

Corruption handicapping needs development: Tackling fraud in Latin America

Similar to Africa, a majority of Latin American countries are still considered developing countries. These countries aren't merely struggling economically but also in the realms of human rights and opportunities. Emanual Callejas, CFE, attorney and associate at Carillo y Associados in Guatemala, explored in his session, "Tackling Fraud in Latin America," how developing countries — and even some more established countries — are especially susceptible to fraud.

Developing Latin American countries sometimes value quick economic growth over honest growth, Callejas said, but that creates shaky foundations that will eventually crack.

Callejas shared several high-profile corruption cases in Latin American nations in the past few years and how these incidents disillusioned citizens.

Arrests of public officials in Guatemala in April 2015 after the United Nations International Commission Against Impunity revealed widespread tax fraud. (See An Unprecedented Uprising Against Impunity in Guatemala, by Lindsay Bigda, Foreign Policy In Focus, June 16, 2015.)

Similarly, in June 2015, Hondurans protested after authorities discovered former public officials committed "massive fraud" against the Social Security Institute of Honduras. (See The Guardian article, " How hitmen and high living lifted lid on looting of Honduran healthcare system," by Nina Lakhani, June 10, 2015.)

Perhaps the most famous of recent fraud cases in Latin America was "Operation Car Wash" in Brazil — one of the largest corruption scandals in the nation's history, Callejas said. This money-laundering ring scheme involved the state-controlled oil company Petrobras and several high-ranking government officials. The Brazilian people demanded the impeachment of President Dilma Rousseff (at publication, her impeachment process was still proceeding) and the arrests of the chief of staff of former Brazilian President Luiz Inácio Lula da Silva and the CEO of Odebrecht Group, a construction company involved in the Petrobas scandal. (See the Financial Times article, What is the Petrobas scandal that is engulfing Brazil? by Joe Leahy, March 31.)

Callejas used these high-profile cases to underscore how important it is for Latin American countries to take fraud prevention and anti-corruption practices seriously. Developing countries can never reach their potential via fraudulent gains, he said. Callejas said that though these countries have improved in combating fraud, local authorities and anti-fraud professionals must cooperate for major overhauls.

Investigating in the dark: Overcoming hurdles investigating in China

Although China is no longer considered a developing country, China presents similar fraud examination challenges. David Nolan, CFE, vice president of Klink & Co. Inc., discussed a specific case he investigated in China in his session, "$1 Billion and Counting: A Kickback Case Study in China." Nolan faced several unique hurdles during his 10-month kickback examination.

A multinational manufacturing company initially called in Nolan to examine a Chinese manufacturer that it had recently acquired. Although the subsidiary was profitable, several anonymous whistleblowers reported multiple kickback schemes. The parent company told Nolan and his associates that they couldn't conduct their fraud examination onsite at the subsidiary, and they couldn't speak to any officials. "[On top of that] we were not permitted to review books or records of any detail," said Nolan.

The parent company gave them no guidance or even the most basic help. They couldn't access any records that might be considered publicly accessible in the U.S., so they tried to obtain some stray vendor documents. Though these records held no details and no personnel data, they were able to find registration information for the companies. They noticed a pattern: Any time they came across a vendor they suspected to be corrupt, it had been formed and incorporated less than two years prior to Nolan's investigation.

Despite their unusual restrictions, they were able to visit a number of vendors. Nolan was shocked that they seemed to believe they'd done nothing wrong and "sang like canaries." "If you tried to ask those [probing] questions to vendors in the U.S., you'd be kicked out before you even opened the door," Nolan said. "[Vendors told us] ‘If you want to do business with [the manufacturer], you're going to have to give them some sort of kickback.'"

They discovered a prevalent kickback culture. Even family members of employees readily volunteered that their relatives had received kickbacks. At the end of the fraud examination, Nolan and his associates estimated that their client had probably lost more than $2 billion.

Prevent fruitless efforts

Though the frauds are similar, a one-size-fits-all approach to fraud prevention and detection doesn't work in these regions. Of course, fraud examiners must understand the political and cultural landscapes, local customs and histories before beginning examinations. Thoughtful preparation can save time and money and prevent fruitless efforts.

Sarah Hofmann is the ACFE's public relations specialist. Her email address is:

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