How are you answering the new regulatory agenda?

After a period of “light touch” regulation, one big impact of the credit crunch that led to a global period of recession is a new era of regulatory inspection. The new agenda in regulation focuses on the public demand for increased accountability and action.

This point is fully made in the new Kroll Fraud Report which calls out the consequences of this new regulatory focus.

Some key points to take away from this are:

• You need to join up thinking in one area with what is happening elsewhere in your business. It’s no longer good enough to perform well in one area of regulation, if you have a huge compliance risk waiting to happen in another area.

• More resources are being aligned by the regulators to following up on what they find – so as a business you not only need to understand and mitigate your risks but be tackling the heart of the issues that may exist in your business to reduce the chance of action being taken against you

• What is your internal attitude to risks and issues? Companies who regulate themselves and fully investigate are often treated more leniently than where it is the regulator who first finds that problem. By building an environment of trust and openness it’s more likely that problems will be highlighted, and from there resolved, than with companies with a blame culture where risks are both siloed and silenced.

Regulation can be seen as nothing more than an onerous responsibility. By creating an environment where the concerns of the regulator are built into the acquisition processes and the way you do business, there is the opportunity to spot and resolve issues before they even get anywhere close to damaging the way you do business.

Money laundering and your business

The widening of the Proceeds of Crime Act in the UK in 2002 means that now there are a wider set of offences and more actions that can be taken by the regulators if money laundering is suspected or confirmed in a business.

What are some of the issues you might face in running your business?

• Being able to show that you “know your customer” especially where you deal with information and financial transactions
• Being given a “production order” by the authorities and needing to understand what information you need to give, and what information is outside the scope of the order
• How to avoid “tipping off” someone who is suspected of potential money laundering offences
  
• Recognising and understanding what money laundering is, and what your responsibilities as a business owner are
  
• Where to seek help if you are faced with a criminal investigation
  
• What the implications are for your business
  

As a business owner it is absolutely key that you understand what your responsibilities are, for instance in keeping good business records, so that you don’t accidentally risk an even bigger issue for your business. Plus, many of the points around money laundering help you to assess risk levels within your business and any other potential risky or fraudulent activities which may be happening internally.

Finding out about your responsibilities can be done through some initial research into money laundering regulations. If you are faced with an investigation or believe you have an issue, then it is best to seek advice from a money laundering solicitor, who can help you to understand fully the issues and what actions you need to take.

Resources:

Anti-money laundering services

ICAEW money laundering regulations

UK criminal law firm

SOCA resources on money laundering

Securities fraud and insider trading

The recent case involving former McKinsey director Anil Kumar highlights the risks that some of the worlds largest companies face from employee leaks and insider trading. Kumar stated he made £1.6m giving inside market information to one of America’s richest men, Raj Rajaratnam. Twenty one people, including employees of IBM and Intel, have been charged in this case. So how do companies large and small protect themselves from breaches and employee misconduct when the rewards are so enticing for those who are providing the tips?

The Securities and Exchange Commission regularly brings insider trading enforcement actions against corporate officers, directors and employees who trade their employer’s securities after learning of significant developments. But insider trading also includes friends, family members, and business associates who trade securities after receiving confidential information. While the SEC is actively trying to shine the light on hedge fund operations in an effort to detect any insider trading, and new technology is available to help staff catch unlawful trading patterns.

Insider trading has been around for, well as long as the stock market basically. Most companies know their securities will be traded when something significant happens. What they don’t want, is employees breaching their duty or confidence to provide non-public information to brokers or analysts in return for compensation. To prevent this, companies need strict policies for secure communications, compliance, and governance.

Communication within large organisations can and should be monitored for suspicious activity. Directors and top executives should communicate externally through secure, authorised networks. With stakeholders, corporate governance should apply to non-public price sensitive information. Discretion is advised with a board of directors where non-public information will impact the decision making process for a company, without putting stakeholders at risk of criminal or civil activity. Insider trading regulations prohibit privileged communications of insider information to individual shareholders or groups of shareholders.

Finally, a few words on corporate transparency. Regulators look to enforce transparency in listed companies to avoid stock manipulation. Transparency builds shareholder confidence, whether in financial reporting, mergers and acquisitions, or in the trading activity of directors and senior level executives.

Laws and technology are working towards identifying insider trading activity and prosecuting the offenders. Companies must do their fair share in preventing it from happening in the first place.

Resources:
Financial Services Authority

Regulatory investigations

FBI Securities Fraud Awareness

Insider trading defence lawyers

Corruption and money laundering - Bolting the door on terrorism

Since 2002, when the Proceeds of Crime Act introduced a whole range of offences involving criminal property and money laundering, things have been getting tougher for those criminals who use corruption to fund their activities. In 2005, the UN Convention against Corruption introduced the first legally binding anti-corruption measure. 2009 started with a 543 million Euro fine on biggest bank, UBS, for aiding tax fraud, while the Swiss financial regulator FINMA swiftly ordered the bank to hand over about 250 customer names to the US Internal Revenue Service. Russia has just ratified a treaty on money laundering and the finance of terrorism (ratified on Christmas day, 2009).

The last decade has seen a clampdown on corruption and fraud involving money laundering. With Swiss banks under scrutiny and world governments keen to get their hands on tax money being laundered in foreign banks, it seems there is no place left to hide the proceeds of corruption. Or is there?

As money laundering laws tighten, criminals become more technologically savvy as well. According to a recent Kroll fraud report on corruption proceeds, "high level corruption usually involves powerful government officials who will have weakened, or allowed corruption to infiltrate many domestic institutions. Although current international arrangements require a high level of evidence before asset freezing and recovery can begin, much of this evidence may still be in the hands of the corrupt officials themselves." It's not just terrorists or criminal gangs who are involved, but high level officials, making detection and asset recovery all the more difficult.

In countries like Nigeria, 2009 saw most of the chief executives and senior management from the top 5 banks being prosecuted for financial misappropriation and money laundering. The reform in the sector also revealed the shady interplay between the major players in the stock market and top bank executives. This illustrates just how far the rot and corruption can go, from government officials to bank executives, stock brokers to heads of state. Even former vice president of the United States was under scrutiny when it was revealed that the company he had formerly headed, Halliburton, was implicated in a bribery consortium in Nigeria.

When corruption runs so deep as to involve lawyers, government officials, bankers, and leaders of multimillion dollar corporations, how can we expect to eradicate it? It is evident that an anti-corruption framework is needed in all countries, with information sharing, and a view that no one is above the law. Prevention is the key, compliance and regulatory scrutiny across all sectors and industries, in all countries. Insufficient anti-corruption enforcement and systemic weaknesses work together to encourage corruption, as do instability and political strife. In order to strengthen nations like Somalia and Afghanistan financially, the countries must be stabilised, and the measures against corruption should be strengthened. We are moving in the right direction, but are still years away from a workable solution for all nations.

Resources:

Transparency International global priorities in corruption

Kroll compliance and integrity services

UN Anti-Corruption Facebook page

Interpol Anti-Corruption Academy

Bindman's Business Crime Unit

Computer Forensics: Your Mission should you choose to accept it...

Often when we think about breaking cold cases, and finding previously hidden data, we think about the world of Spooks, Mission Impossible and MI5.

As more and more of what we do is happening online and within our PC’s (when was the last time you wrote significant amounts of data by hand?) companies are turning to computer forensics to help break cases, find data & recreate events. Computer Forensics is about digging out the traces which are left on the web of the conversations and documents that took place.

So when may you find computer forensics important?

• If you’ve got allegations relating to inappropriate emails being circulated around the business
• If you’ve lost key operational data and need to try to recover it
• As part of a legal case, or an investigation which may form part of litigation.
  

It’s vital to find a computer forensic expert as your expert will have the knowledge and expertise of how to carry this out confidentially, discreetly, and accurately. You want data that can’t be disputed, both in terms of how it is collected and how it was stored as the case was fully investigated.

Using computer forensics can help with information both about what data is there, and the trail of how that data has been used and altered. Partly, that’s why it is so important to make sure if you have an issue you think you need help with relating to computer forensics, that it is dealt with by a professional so you don’t run into issues like chain of evidence and reliability of your data. This will definitely be important if you move to a litigation or external audit stage, that you can show you’ve been working with qualified, experienced professionals. It’s all about building confidence both in the data you find, what you do with it and the end outcome.

Resources

Computer Forensics in Fraud Investigations

More about what computer forensics is

Computer Forensic News

Business crime solicitors

Business fraud investigations

Forensic accounting still key following recession

It is too simple an answer to suggest that the recession has created only increases in financial fraud. A report published by Kroll highlights the fact that partly it depends on where your sector sits, and how it has been affected, by the recession, which relates to how it has been affected by financial fraud in the last year.

Increases in financial fraud have been on the rise where:

· Dissatisfaction is high (high staff redundancies, dissatisfaction with changes to pay structures) and motivation is higher for those concerned about the real effect on their financial position.

· Closeness to the sectors most affected by the recession- financial services and professional services firms

Financial Fraud has dropped in sectors where:

• There has been a drop in available funds/ industry output (think construction and manufacturing)
• There was previously a huge growth and move into new markets.

An increased level of risk: more need for due diligence & forensic accounting

Be aware of the potential risks you may face after changes:

• If you are reducing internal controls, ensure that they are ones that are not high risk or leave you too vulnerable to loss
• If you’ve made changes to pay structure/ redundancies, reduce opportunities for single sign off for key transactions, and ensure that you have a culture of compliance and spot checks.

What if you do have an issue at your firm?

If you do have an issue with financial risk and you think you may have a specific issue, it is worth taking advice from a forensic accountant. A forensic accountant will work through the data objectively & prepare an expert report for you that can then be used in expert witness testimony if you do need to take this through to litigation. From this you will be able to understand if a fraud has occurred, how long the fraud has been in progress, and quantify the amount of loss you have been subject to.

For me, the benefit of working with an independent means I know I have someone with exactly the right blend of expertise, skills and knowledge to get to the heart of the matter in as timely a matter as possible. This means you can then use this information to resolve the matter and reduce ongoing risk to your business, as well as handling it objectively and independently which means you feel you have a stronger result when you finish your case.

Resources

Forensic Accountants

Advice on money laundering

Business crime solicitors

Expert Witness Institute

Intellectual property crime growing exponentially

IP crime is the counterfeiting and piracy of trade marked and copyrighted products and services. This includes fake goods, prescription medicines and luxury goods, as well as trademarks and unauthorised downloads. The Rogers Review estimated that criminal gain from IP crime in the UK was £1.3 billion in 2006 with £900 million flowing to organised crime. Many industries are severely affected and attribute high levels of financial loss to IP crime. The European Commission reported that the total number of counterfeit and pirated articles seized by customs officials in Europe was 79 million in 2007.

In a report on intellectual property fraud by leading risk consulting company Kroll, IP fraud has skyrocked over the last ten years, "due to better access to Internet distribution channels and more criminal networks turning to IP fraud to finance operations". The report states there are weaknesses in corporate IP pipelines, poor legal protections in emerging markets, and highly sophisticated outlaws using both electronic and traditional means of obtaining trade secrets.

According to the Intellectual Property Office, you are responsible for enforcing your intellectual property. If you discover an infringement, you need to decide whether to seek an injunction or damages. They recommend seeking legal advice before taking any action, preferably from a law firm who specialise in intellectual property, patents, and trademarks.

An ounce of prevention may well be worth a pound of cure in these cases, and a thorough review of your policies, suppliers, and processes may go a long way in preventing litigation and loss of revenue. A few suggestions in combating IP fraud include:

• conducting a full IP audit and inventory of all archives
  
• conducting due diligence on suppliers, vendors, and partners
• sharing information with law enforcement officers
• preventing insider leaks through a system of monitors and alerts
• blocking software downloads on company PCs (or have a system where only certain people have administrative rights to download)
• encrypting data to outside sources
• putting security controls in place for high risk data
• protecting trade secrets, especially in employment contracts
  
• ensuring third party agents sign confidentiality agreements (this includes agencies, and should be in place for both parties)
  
• keeping up to date with regulatory requirements, and fully complying with new legislation

This is just a small step to ensuring that the information your company generates in the form of ideas, services, products, and branding does not generate profits for anyone outside the company.

Resources:

Intellectual property law firm

UK IP crime group

Interpol

Intellectual property management

Intellectual property solicitors London