Transcript IA Advocacy Initiative

Presentation for:
Investigations in the “BRIC”
Countries
Shannon Grayer, CFE, CBM, CCEP
Investigations Senior Manager
[email protected]
Laying the
Foundation
BRIC’s and
Mortar
Beyond
B.R.I.C.
• Introduction/Overview
• Origins of BRIC
• Detailed Information on each B.R.I.C.
country
• Fraud within each B.R.I.C. country
• Relevant Case Studies
• The Next 11
• Wrap-up
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Risk Assessment
Safety, logistics
Business Protocols
Suitable conduct
Business Ethics
Gifts, Entertainment
Legal Issues & Employee Rights
Privacy Laws
Working with International Vendors
What to look for
Image obtained from
http://www.wizardzofwealth.com/notes/personal
-growth/power-of-words.html
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Term was first prominently used in a thesis by Jim
O’Neill, Head of Economic Research at Goldman
Sachs in 2003
Potential to become among the four most
dominant economies by the year 2050
Forecasted to be 39% of worlds population and
combined GDP of $15.4 Trillion Dollars
By 2025, it is estimated that over 200 million people
in BRIC nations will earn over $15,000 per year,
creating a large middle-class
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India and China:
Service, Manufacturing & High-Tech
The Indian and Chinese economic juggernaut is sometimes referred to as
“Chindia”
Brazil and Russia:
Natural Resources
Brazil - Huge new oil reserves off the coast of Rio de Janeiro
Russia - 20% of the worlds production of natural gas and oil
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Managing Growth
Infrastructure - roads, communications, food
Standards of living and inflation
Income Disparity
Political Issues
Economic Policy - restrictions
Legal Environment – constraints and censorship
Human Rights
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What’s in a name?
Kickbacks/Conflicts
Phantom Companies
Expenses & Receipts
Company & Asset
Search Limitations
Legal Limits &
Difficulty of
Prosecution
Protectionism &
Police Limitations
Source: ACFE Fraud Magazine – “Booming Fraud in China”
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Brazil
• Government - Federative Republic
• Population - 188 Million
• Official Language - Portuguese
• Currency - Brazilian Real
• Major Business Centers - Sao Paulo, Rio
de Janeiro, Brasilia
• Literacy Rate - 86%
• Per Capita GDP - $8,600
• Main Exports - Iron Ore, Soy,
Sugarcane, Wood, Gemstones
• Corruption Perceptions Index - 72
(Tied)
• Economic Strength: Natural Resources
• Economic Challenge: Informal Economy
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74% of companies consider fraud a “large problem”
77% of respondents are concerned about organized crime
impacting the organization
83% of offenders are male
26 – 40 years old
2 – 5 years in the company
Earn between R$1k – R$3k per month (Staff level)
Typical Fraud Schemes: Check Falsification, Money
Laundering, Cybercrime, Bribery, Tax Fraud
Source: KMPG - A Fraude no Brasil Relatorio da Pesquisa 2004
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Personal Relationships & Importance of Family
• Strong personal relationships critical to business
Portuguese Basis of Identity
• Unique to Americas
Great Ethnic Diversity
• European, Japanese, African and Indigenous influences
Hierarchical and Paternalistic Organizations
• Loyalty to manager rather than company
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Russia
• Government - Federation
• Population - 141 Million
• Official Language - Russian
• Currency – Russian Ruble
• Major Business Centers – Moscow, St.
Petersburg
• Literacy Rate - 99%
• Per Capita GDP - $7,014
• Main Exports - Iron Ore, Gas, Oil, Metals
• Corruption Perceptions Index - 143
• Economic Strength: Petroleum, Natural
Gas
• Economic Challenge: Declining
Population
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64% of companies surveyed lost >$1M USD
20% lost more than $10M USD
Direct cost of economic crime is 5x the global average
89% of offenders are male
84% have University degrees
With company less than 2 years
Senior Management responsible for 50% of all cases, which is
more than 2x the global average of 20%
51% of companies responding felt they had lost an
opportunity to a competitor they believe paid a bribe.
Typical Fraud Schemes: Money Laundering, Cybercrime,
Bribery
Source: PriceWaterhouseCoopers 4th biennial Global Economic
Crime Survey - Russia
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Pride (Gordost’)
• Russia’s Importance to the world
Ours/Not Ours (Svoi/Chuzhije)
• Insiders vs. Outsiders. Personal relationships are critical.
Order (Proyadok)
• Accepted sets of unwritten rules, behaviors, rituals and symbols
Conscience (Sovest’)
• Internal perception of truth may take priority over external laws
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FCPA Violation
• Baker Hughes
• LUKoil (K.P.O. consortium)
Bribes
• Russia, Kazakhstan, Nigeria, Indonesia, Uzbekistan and Angola
Consulting Firm “Commissions”
• Payments to Government Officials
April 2007 – Record $44M Settlement
• Highest total penalty for bribery under FCPA
Corporate Integrity Agreement - monitoring
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India
• Government – Federal Republic
• Population – 1.1 Billion
• Official Language – Hindi/English*
• Currency – Indian Rupee
• Major Business Centers – New Delhi,
Mumbai, Bangalore, Hyderabad
• Literacy Rate - 61%
• Per Capita GDP - $909
• Main Exports – Engineering, Software,
Services
• Corruption Perceptions Index – 72 (Tied)
• Economic Strength: Highly Educated
Workforce
• Economic Challenge: Infrastructure
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36% of companies fail to take action against fraudsters
Indian legal system
89% of respondents indicated lack of faith in the legal system is a concern
10% conviction rate; 73% of jail population awaiting hearing/trial; 350-year
backlog of legal cases awaiting resolution
Typical offenders are male
81% have University or post-graduate degrees
70% are either middle or senior management
Only 8% of frauds are uncovered through whistle-blowers
34% of companies responding felt they had lost an opportunity to a
competitor they believe paid a bribe.
Typical Fraud Schemes: Corruption/Bribery, Intellectual Property,
Identity Theft
Source: PriceWaterhouseCoopers 4th biennial Global Economic
Crime Survey - India
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Spirituality
• Religion influences much of life in India
Hierarchy
• Very conscious of social order
Collectivism & Family
• Profoundly loyal to extended family
Humility
• Humility and modesty are highly valued
Diversity of Language and Culture
• Long and diverse heritages
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China
• Government – Communist Party-Led
State
• Population – 1.3 Billion
• Official Language – Standard Mandarin
• Currency – Chinese Yuan
• Major Business Centers – Shanghai,
Beijing, Hong Kong
• Literacy Rate - 91%
• Per Capita GDP - $2,034
• Main Exports – Electronics, Machinery,
Apparel, Clothing
• Corruption Perceptions Index – 72 (Tied)
• Economic Strength: Manufacturing
• Economic Challenge: Government
Involvement
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Over 30,000 bribery cases in the past 2 years
Many cases where sentences range from 10 years to life
Death sentences for most serious offenses
e.g. Zheng Xiaoyu – Former Head State Food and Drug Agency (executed)
2005 – 61,000 Economic Crime cases solved
9.7% increase over 2004
Compliance Reporting Mechanisms are crucial
“Black mails”
“Red Chip” companies
24% of companies felt they had lost an opportunity to a
competitor they believe paid a bribe.
Typical Fraud Schemes: Payroll Fraud, Counterfeiting, Bribery
& Supply Chain
Sources: KPMG Anti-Bribery , Anti-Corruption and the FCPA
Hong Kong University Stock Exchange Statistics
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Family
• Family relationships are valued above all others
Group Focus
• Emphasis on group rather than individual
Relationship (Guanxi)
• Identity and worth can be based on a persons network, extended family
Concept of “Face” (Mianzi)
• Preserving dignity of yourself and others
Order
• Social order valued over individual freedoms
Hierarchy
• Forms the basic structure of society
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Money laundering scandal
Three branch managers at Bank of China (BOC)
Bank managers allegedly laundered the stolen money
($485M) through Hong Kong, Canada and the U.S.
Fled to US
Sham marriages under false pretenses
Multiple Indictments
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The United Nations Office on Drugs and Crime (UNODC), 2006
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Outcomes and Implications
Two bankers - racketeering conspiracy, money laundering and
transporting stolen money, plus visa and passport fraud
If convicted, each faces a maximum of 70 years in prison and a $1.5
million fine.
Third banker - pleaded guilty to racketeering in 2004 and
voluntarily returned to China, where he was prosecuted for
embezzlement and bribery
Agreed to extradition on condition that he would not be tortured, executed or
jailed for more than 12 years & that his wife and children would be allowed to
stay in the U.S.
Several others indicted, awaiting trial or sentencing
Raises questions about the security of the banking industry
abroad, and potential capital punishment for crimes committed
in China
corruption, racketeering, tax evasion, etc.
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Eleven countries on the
“short list” with promising
outlooks
for investment and future
growth
Bangladesh
Egypt
Indonesia
Iran
South Korea
Mexico
Nigeria
Pakistan
Philippines
Turkey
Vietnam
Considerations
•N-11 are volatile marketplaces
•Growing at 6% per year
•Bribery and Corruption are the greatest fraud risks
in emerging markets
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Faster Comparative Growth due to US Financial
Crisis
BRIC’s now 16 percent of global GDP
First BRIC Meeting held in May 2008
Impact of Russia’s recent military actions?
“…the world doesn't want a separate club just looking after the
growing countries the same as it doesn't need an old club looking
after the declining -- it needs a better club, involving them both…"
Jim O’Neill
Goldman Sachs
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