Increasing global cooperation in enforcement against corruption raises the stakes for companies and their executives

David Stulb, EY Global Leader of Fraud Investigation & Dispute Services.

• Overwhelming support for enhanced beneficial ownership transparency: 91% globally agree, and 97% for Africa • Corruption levels are persistent: 39% say its widespread in their country • 56% of respondents in Africa believe that their government is willing to prosecute, but does not seem effective in securing convictions • 81% of respondents in Africa say bribery and corruption is an ongoing challenge in their countries • 57% of Africa respondents recognise cybercrime as a risk • Data privacy issues are creating complexity for cyber threat management

EY’s 14th Global Fraud Survey 2016: Corporate misconduct – individual consequences finds a worldwide clamor for enhanced transparency at a time of increased geopolitical tensions and heightened volatility in financial markets. The escalating threats of cybercrime, terrorist financing and, more recently, the revelations regarding widespread possible misuse of offshore jurisdictions, have increased pressure on governments to act and companies to identify and mitigate fraud, bribery and corruption issues.

Conducted between October 2015 and January 2016, the survey of nearly 3,000 senior business leaders from 62 countries and territories highlights overwhelming corporate support for enhanced beneficial ownership transparency, with 97% of executives in Africa, and 91% globally, recognising the importance of establishing the ultimate beneficial ownership of entities with which they do business.

David Stulb, EY Global Leader of Fraud Investigation & Dispute Services, says:

“With the continuing anti-corruption enforcement focus on third-party conduct, and the recent revelations on the possible misuse of offshore financial structures, business leaders are right to be focused on securing a deeper understanding of their clients, partners and suppliers. Enhanced transparency is clearly a focus of broad public interest.”

Increased transparency is, however, only one facet of the solution to a problem that shows no sign of abating. In total, 39% of respondents believe that bribery and corrupt practices happen widely in their country, with this view being consistent with EY’s fraud surveys conducted in 2014 and 2012. Furthermore, 81% of respondents in Africa say bribery and corruption is an ongoing challenge in their country, with 60% of respondents in South Africa saying that they have had concerns about ethical conduct at work.

Coordinated efforts by regulators to root out corruption

Regulators recognise the threat that bribery and corruption pose to a financial system already under stress and are increasingly cooperating across borders to hold individuals accountable for illegal acts.

Sharon van Rooyen, Fraud Investigation & Dispute Services Director at EY Africa, says: “Such enforcement efforts appear to be heavily supported by survey respondents, with 83% globally agreeing that prosecuting individuals will help deter future fraud, bribery and corruption, and 91% of respondents in Africa agreeing. Specifically, the percentage in South Africa was 86%, while Nigeria and Kenya recorded 98% and 90% respectively.”

Although the above points talk about enforcement, 40% of respondents in South Africa admit that they could justify unethical behavior to meet financial targets. With this level of justification, executives responsible for ethics and compliance appear to be facing a significant challenge if they are to keep their organisations clear from the scrutiny of prosecutors.

The survey also identified a perception in emerging markets[1] that individuals responsible for corruption are not being held to account, with 70% of respondents in Brazil and 56% in both Africa and Eastern Europe believing that although governments are willing to prosecute, they are not effective in securing convictions. In Nigeria, specifically, the percentage stands at 62%, while South Africa and Kenya stand at 42% and 64% respectively.

Stulb says, “Increased levels of global cooperation between law enforcement agencies are making it harder for fraudsters and bribe-payers to evade prosecution. However, with respondents indicating that such misconduct is showing no sign of abating, companies continue to be exposed to major risks driven by the illegal actions of a small minority of employees. Better use of technology is certainly part of the answer. More can be done to leverage forensic data analytics to manage these risks and improve compliance and investigative outcomes.”

Robust compliance, robust growth?

Expanding into new markets is essential for most companies, yet such expansion brings new and less familiar risks. The research shows that companies are frequently failing to take appropriate steps to respond and reduce their risk exposure:

• One in five do not identify third parties as part of their anti-corruption due diligence
• One in three do not assess country or industry-specific corruption risks before making investments
• Only half utilise technologies such as forensic data analytics to identify and mitigate risks

Van Rooyen concludes, “However, as innovation is critical to responding to emerging risks, companies should also consider performing an ethics and culture risk assessment to bring these ethical issues into view, and also extend this assessment to educate both employees and suppliers.

Furthermore, what we are clearly seeing is that some employees, with widely varying motivations, are prepared to misappropriate – or enable others outside the firm to have access to – the confidential data of their companies. The balance between data privacy laws and security creates further complications in this regard.

This makes it more important than ever for organisations to conduct tailored threat assessments that are aligned to protecting their most valuable data, and establishing mitigation measures around vulnerabilities for access to it.”

To see the FIDS Global Fraud Survey 2016 click here.