Context

The world order is changing with the dynamics of the post COVID era exerting a relatively unprecedented set of pressures on businesses across the globe. The impending threats of geo-political conflicts, intricacies of socio-economic balancing, adoption of cutting-edge information technology to enhance competitiveness, evolving regulations, data protection, fears of deceleration of global growth [triggered by what is widely acclaimed as the most anticipated recession in the United States of America (‘USA’)] and evolution of hybrid models are some of these. 

During this time, the scope of white-collar crime has expanded significantly to encompass bribery & corruption, embezzlement, forgery, insider trading, money laundering, racketeering, larceny, diversion of funds, counterfeiting and cyber-crimes. Research has revealed that amongst these, bribery & corruption alone are costing the world over US$ 5 trillion annually, which translates into ~4% of the global gross domestic product and is as high as 25% of the procurement costs in specific economies.

Our forensic experts believe that notwithstanding their severity; bribery & corruption should not be viewed from a narrow prism, as the same (a) are a consequence of; (b) lead to; and (c) coexist with various forms of financial crimes such as money laundering (to disguise corrupt payments).

Main bribery & corruption risks

Corruption activities encompass a wide range of unethical and illegal practices, such as bribery to officials and executives and misappropriation or theft of funds or assets, which may be committed in collusion by employees, management and third parties.

The inherent characteristic of bribery and corruption is “deceptiveness”, with implications of each act of bribery or corruption, not only undermining the trust in political & economic institutions but also scarring the organization and individuals concerned, sometimes permanently for life. The other main risks in this context, which include specific internal and external risks (including jurisdictional, transaction and business risks) are the following.

• Derailing economic and social development.
• Promoting unfair trade practices.
• Discouraging investments.
• Convictions, fines & imprisonment.
• Significant legal & professional fees.
• Overvalued organizations.
• Stock market volatility.
• Collateral defaults.
• Intrusive & costly post-transaction investigations.

Mitigation measures

A holistic and collaborative approach between governments, organizations and individuals with strong anti-corruption laws, transparent governance structures, accountable institutions and active enforcement efforts pave the way to combat bribery and corruption risks. Additionally, promoting ethical behavior, fostering a culture of integrity and encouraging transparency within organizations and societies are imperatives to address and prevent corruption.

While countries like USA and the United Kingdom (‘UK’) have implemented stringent anti-fraud and anti-corruption frameworks along with penalties for wrongdoers, emerging markets like India are also making significant progress in developing unique and effective approaches to identify and prevent such risks, while aligning themselves with global standards

In this context the Prevention of Corruption Act that prohibits public officials from accepting bribes, the "know your customer" regulations, intensified scrutiny of suspicious transactions, enhancement of the legislative frameworks to address non-performing assets in the banking and financial services sector and promotion of digitization of large-scale public procurement are some significant measures taken by the Indian government to curb corruption. Enhancement of measures to promote competition, to address the fear of retaliation and institutionalization of legislations on the lines of USA’s Foreign Corrupt Practices Act and UK's Bribery Act are some additional aspects that can be considered by governments across the globe as best mitigating practices.

Organizations should reassess their internal financial controls to address fraud risks, enhance their whistle blower frameworks, revisit their code of ethical business conduct, closely monitor their compliance frameworks (by potentially automating and developing workflows & reporting dashboards) and policies (with emphasis on money laundering policies), undertake third party due diligences (vendors, customers & employees) and implement comprehensive fraud risk assessments. In doing so, organizations should identify all regions and locations in which they operate and conduct preliminary country specific risk assessment/s. In this context, the latest “Corruption Perceptions Index” published by Transparency International can also be used as a good reference point.

Inherent in fraud risks is an element that can at best be controlled by frameworks and practices, but only expelled by individual conduct, which requires top level commitment (what is commonly referred to as the “tone from the top”). The culture of ethical and moral conduct should permeate across levels, influencing individuals to shun malpractices at the workplace and not fall prey to temptations of making quick money by accepting and giving bribes. However, this has been and remains the hardest part of the nut to crack.

To conclude ...

Every organization faces the inherent challenge of striking a delicate balance between profitability and growth on one hand and upholding their values and ethics on the other. Procedures to prevent bribery and corruption should be proportionate to the risks an organization faces and their varying levels of complexity.

Finally, the management assurance function of organizations should consider an independent vertical to focus on fraud detection & mitigation, with resources that have relatively unique skill sets that combine expertise in auditing & investigations with proficiency in data analysis tools & techniques; and softer aspects that entail natural curiosity, detail orientation, effective communication and interpersonal skills. These would facilitate the timely identification of trends, anomalies, seemingly innocuous documentation & other potential fraud indicators; and effective communication of the same.

This thought leadership is a part of our endeavors to keep our clients posted of specific trends and developments in order for you to stay ahead of what we term as the “risk curve”. Should you require any additional details or assistance, please do not hesitate to reach out to contactus@mgcglobal.co.in for the same.

Best regards

Markets Team

MGC Global Risk Advisory

About Allinial Global

Allinial Global (formerly PKF North America) is currently the world's second-largest member-based association (with collective revenues of approximately USD 5 billion) that has dedicated itself to the success of independent accounting and consulting firms since its founding in 1969. It currently has member firms in over 100 countries, who have over 28,000 professional staff and over 6,000 partners operating from nearly 700 offices across the globe.

Allinial Global provides its member firms with a broad array of resources and support that benefit both its member firms and their clients in the key impact areas of learning and development, human resources, international outreach, technical support, knowledge-sharing platforms through its specialized communities of practice, marketing resources, information technology and best practices in practice management.