Investigating And Prosecuting Fraud & Corruption In The International Business Environment - Part 1
Article by Monty Raphael, Joint Head of the
Fraud and Regulatory Department.
1. INTRODUCTION
In this new economic climate, white collar crime is no longer
seen as victimless. It is seem as symptomatic of the failures of a
global banking and regulatory system and countries are cracking
down on perpetrators. The most important issue for the public in
the UK, EU and international community is not, therefore, the
naming and shaming of companies, the deterrent effect of
investigation or the financial sanctions imposed on those who have
committed such offences. What matters is whether fraudsters and
perpetrators of corruption are prosecuted in a court of law.
Fraud and Corruption are global crimes. These are offences that
cross borders, political regimes and legal jurisdictions. The
developing world, in particular, is becoming a hot spot for the
perpetration of white collar crime. Endemic corruption within the
criminal justice and political systems mean that there is little
interest to investigate and prosecute fraud cases.
Currently in the news are the internet scams originating in
Nigeria and ending in Brighton (of which our Anti Corruption
Champion and Justice Secretary, Jack Straw, recently found himself
on the receiving end). There is also increased interest in
unregulated hawala banking systems within certain communities that
operate the transfer of money between the UK and any number of
countries including Pakistan, Bangladesh and India. The question
is, how does an international business community deal with the
potential for financial crime and the countries in which financial
crime is overlooked and ignored.
In the last two decades, states, the UK included, have built a
huge edifice of interlocking agencies, instruments, treaties and
pathways, all designed to confront, if not defeat, the ever
mutating virus of fraud.
In Britain, fraud rates show no sign of abating. According to
KPMG Forensic's Fraud Barometer1, more than
£1.1billion of fraud came to UK courts in 2008, the highest
level recorded since 1995 and the second highest in the twenty-one
year history of the survey. Fraud by professional gangs remained at
the extremely high levels seen in previous years (£800million
in 2008), but there was a marked increase in fraud by individuals.
Taken together, company managers, employees and customers were
tried for some £300million of fraud last year, three times
the value seen in 2007.
KPMG warns that the worst is yet to come. The bulk of the fraud
committed since the credit crunch began in August 2007 is unlikely
to come into the public courts in the near future. The Fraud
Barometer's records show that in the last recession of the
early nineties the full peak of fraud in the courts was not reached
until 1995.
The corporate sector, in particular, suffered during 2008. There
was a five-fold increase in fraud losses, up from £24million
(45 cases) in 2007 to £125million (54 cases) in 2008. For
corporates, the financial sector and public sector, the fraud
threat grew both internally and externally. Managers accounted for
£128million (£54million in 2007) and employees for
£100million (£27million), while customers inflicted
£65million (£25million).
Perpetrators of fraud in the corporate sector ranged across the
spectrum of seniority. By way of example, Bernard Madoff has pled
guilty to a ponzi scheme that is estimated to have lost $50billion.
At the other end of the spectrum, a junior PA carried out frauds at
three employers in a row, spending on company credit cards, cashing
cheques and setting up personal direct debits from business
accounts. Despite being sacked by her first two employers for
committing fraud, she was still able to find work and carry out her
scams again. She gained £200,000 before she was finally
prosecuted.
To cope with the increasing volume of white collar crime, the
international community has developed new investigative powers to
assist countries and individuals to take action and recover lost
funds. When criminal proceedings are brought against white collar
criminals, information can be gathered through mutual legal
assistance and various information exchanging treaties. When civil
proceedings are instigated, there are various international orders
that can be made to freeze assets and search premises.
There have a number of high profile cases recently uncovered by
the United States Department of Justice. The two most news worthy
examples are the cases against Bernard Madoff and Allen Stanford.
The US DOJ is investigating the allegations against Stanford and
has brought criminal proceedings against Madoff. The US operates a
plea bargaining system in the hope that the accused will cooperate
in which case they can avoid the expensive, costly and complex
investigations to uncover the lost funds. Madoff refused the plea
bargain offered to him and pled guilty which may raise concerns
about how far the investigation can go and whether the stolen
assets will be recovered and returned to those who have lost their
savings?
In the UK, we are witnessing a changing of the tide towards the
use of civil sanctions and investigative powers in cases of both
corruption and fraud with the priority appearing to be the return
of funds rather than the imprisonment of perpetrators. However,
there is disparity between how the UK prosecutors bring proceedings
for white collar offences such as fraud and prosecutions for
corruption. Fraud is an offence under the Fraud Act 2006 whereas
there is no conclusive anti bribery legislation in the UK. The Law
Commission introduced its Draft Corruption Bill in November 2008
which is currently being considered by government. It is not yet
known whether the UK will implement the Bill but under increased
criticism from the OECD, Transparency International and various
factions of the international community, it must show progress.
This paper will consider whether the international community is
doing enough to confront fraud and corruption worldwide or even in
their own back yards?
2. INTERNATIONAL FRAMEWORK FOR WHITE COLLAR CRIME INVESTIGATION
AND PROSECUTION
Anti-Corruption Codes And Protocols
There are a number of global and targeted codes and protocols to
assist States in the fight against corruption as follows :
Global
United Nations Convention Against Corruption
(UNCAC)
Adopted: 31 October 2003 by the UN General Assembly
Signatories: 140 (as of 1 November 2007).
Ratifications/Accessions: 125 (as of 29 September
2008)
Entry into force: 14 December 2005
United Nations Convention Against Transnational
Organized Crime (UNTOC)
Adopted: 15 November 2000 by the General Assembly of the
United Nations
Signatories: 147 (as of 7 October 2005) Opened for
signature on 12 December 2000
Parties: 146 (as of 29 September 2008)
Entry into force: 29 September 2003
OECD Convention On The Bribery Of Foreign Public
Officials In International Business Transactions (OECD
Convention)
Adopted: 21 November 1997 by the Negotiating
Conference
Signatories: 37 (as of 1 November 2007)
Ratifications: 37 (as of 1 November 2007)
Entry into force: 15 February 1999
Revised Recommendation Of The Council Of The OECD On
Combating Bribery In International Business Transactions
The 1997 Revised Recommendation adds strength to the
effects of the OECD Anti-Bribery Convention by focusing
on areas the Convention does not cover in depth: accounting,
auditing and public procurement; international co-operation; the
non tax deductibility of bribes; and measures to deter, prevent and
combat bribery.
Africa
African Union Convention on Preventing and Combating
Corruption (AU Convention)
Adopted: 11 July 2003
Signatories: 43 (as of 29 September 2008)
Ratifications: 27 (29 September 2008)
Entry into force: 5 August 2006
Southern African Development Community Protocol Against
Corruption (SADC Protocol)
Adopted: 11 July 2003
Signatories: 43 (as of 29 September 2008)
Ratifications: 27 (29 September 2008)
Entry into force: 5 August 2006
Economic Community Of West African States Protocol On
The Fight against Corruption (ECOWAS Protocol)
Adopted: 21 December 2001
Ratifications: 1
Entry into force: Upon ratification by at least 9
signatory states
Americas
Inter-American Convention Against Corruption (OAS
Convention)
Adopted: 29 March 1996
Signatories: 34 (as of 1 October 2007)
Parties: 33 (as of 1 October 2007)
Entry into force: 3 June 1997
Asia And Pacific Region
ADB-OECD Action Plan For Asia-Pacific (Action
Plan)
Established: November 2001
Endorsing Countries: 28 countries,17 initial
endorsements and 11 subsequent endorsements (as of 1 November
2007)
Europe
Council Of Europe Criminal Law Convention
Adopted: 4 November, 1998, by the Council of
Ministers
Opened for signature: Strasbourg, 27 January
1999
Signatories: 49 (as of 1 November 2007) Consisting
of 45 member states and 3 non-member states
Ratifications and accessions: 41 (as of 29
September 2008)
Entry into force: 1 July 2002
Open to: All 46 member states of the Council of
Europe and 5 non-member states (Belarus, Canada, Holy See, Japan,
Mexico, USA). Also, EU and other states can be invited to
join.
Council Of Europe Civil Law Convention
Adopted: 4 November 1999
Signatories: 42 (as of 1 November 2007)
Ratifications: 33 (as of 29 September 2008).
Including one non-member state: Belarus.
Entry into force: 1 November 2003
Open to: Council of Europe member states;
non-member states which took part in drawing it up; other
non-member states by invitation; and the European Community.
Resolution (99) 5 Of The Committee Of Ministers Of The
Council Of Europe: Agreement Establishing The Group Of States
Against Corruption
Resolution (97) 24 Of The Committee Of Ministers Of The
Council Of Europe: Twenty Guiding Principles For The Fight against
Corruption
European Union Convention On The Protection Of The
Communities' Financial Interests And The Fight Against
Corruption And Two Protocols
European Union Convention On The Fight Against
Corruption Involving Officials Of The...
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