Category Archives: Fraud

And the Siemens Bribery Scandal Continues

Siemens, who just a few years ago was found guilty of serious bribery and fraud under the FCPA and who was required to to pay a record $800M in fines and disgorgement of profits, is facing legal action again. Already found guilty of fraud that spanned at least half a dozen countries, including Germany, Italy, US, UK, Switzerland, Russia, and Nigeria, and dozens of subsidiaries, Siemens is now facing legal action in Greece after an 11-month parliamentary investigation that estimated the cost to Greek taxpayers of the alleged bribery at 2 Billion Euros.

The bribery, which allegedly took place between 1997 and 2002, and which affected contracts and security prior to the 2004 Athens Olympics, included bribing of Ministers. According to this article from BBC News, a former Transport Minister told the investigating committee that he had accepted the equivalent of 100,000 Euros in 1998.

It just goes to show the importance of having an FCPA Compliance Strategy in place.

How Will India Become The #2 Economy …

… if it can’t get control of the rampant bribery that plagues the entire country? From what I’ve been reading, the situation hasn’t improved any since KPMG did their 2008 study that found that 84% of Indian Businesses pay Bribes (as quoted on hindustantimes.com). According to this recent article over on NDTV, India [is still] among the top bribe paying country (according to a recent Transparency International study). According to the recent study, 1 in 2 Indians (54%) have had to grease the palm of authorities to get things done. Even more worrying is that bribes to the police have almost doubled since 2006 and bribes to judiciaries for registry and permit services are up as well. In other words, it’s not the private sector that is the problem, it’s the public sector!

And if the public sector is the problem, which is especially true in Bangalore which tops in India’s bribery chart (commonfloor.com), how are they going to continue to grow in a global economy when country after country is adopting anti-bribery laws, like the Foreign Corrupt Practices Act in the US or the Bribery Act in the UK (that follows the recommendation of the OECD Anti-Bribery Convention that is attempting to eradicate bribery in all of the 34 member countries). Especially when the problem is so bad that it’s said that even [the] blind are witness to bribery in India (thaindian.com)?

I don’t have any answers. Some people are suggesting that legislation may be the answer (equitymaster.com), but if officials can be bribed to ignore it, it won’t solve the problem. If you have any ideas, please feel free to leave a comment.


Bribe, bribe, everywhere a bribe
Preventing the transaction, breaking my bank
To do this or do that, you must make a bribe

Are You Compliant with the Bribery Act?

Are you sure? If you were operating in the UK, up until April of this year, all you had to worry about was the Prevention of Corruption Acts, which haven’t changed much since 1916. And keeping compliant with those acts was pretty easy as long as your employees in the UK didn’t bribe or accept bribes, as it wasn’t until the introduction of the Anti-terrorism, Crime, and Security Act 2001 that extended it to cases where neither the agent’s nor the principal’s affairs had connection with the UK.

But now, with the new Bribery Act, you have to worry about all types of bribery at home or abroad. It may have taken some time, but the UK has finally caught up with the other members of the OECD and adopted many of the recommendations of the OECD Anti-Bribery Convention. As per the Ministry of Justice, the new act, among other things:

  • provides a more effective legal framework to combat bribery in the public or private sectors,
  • creates two general offences covering the offering, promising or giving of an advantage, and requesting, agreeing to receive or accepting of an advantage
  • creates a discrete offence of bribery of a foreign public official

and

  • creates a new offence of failure by a commercial organization to prevent a bribe being paid for or on its behalf.

That’s right, unless you have adequate procedures in place to prevent bribery, if a bribe is paid for or on your behalf, you are in violation of the act and can be charged. Thus, as per this article in CPO Agenda that asks [if] your procurement policies stand up to the demands of the new Bribery Act, burying your head in the sand is not an option since a failure to prevent a bribe could be a fine that runs into millions of pounds as well as a custodial sentence. Plus, even if you are a US subsidiary, or have a US subsidiary, and are completely in compliance with the US Foreign Corrupt Practices Act (FCPA), it may not be enough. For example, while both the FCPA and the UK Bribery Act prohibit the bribery of foreign public officials, the UK act also prohibits commercial bribery.

So where do you start?

The CPO Agenda article recommends starting with the internal control framework established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, that was set up in the 90s to provide guidance on governance, business ethics, internal control, enterprise risk management, fraud, and financial reporting. It’s a good start, but I’d also recommend bringing in an expert consultant.

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A Great Argument for Carbon Taxes (and Credits)

A recent article in Knowledge @ Wharton Universia on “phishing, bribery, and falsification: combating the complexities of carbon fraud” provides a great argument on why cap and trade should be abandoned in favour of straight carbon taxes (and credits if the goal is to encourage corporations to be as efficient with carbon emissions as possible). According to the article, carbon trading systems, especially when coupled with lax Internet security and third party verification, pose a great opportunity for crooks who want to defraud honest companies out of millions of dollars.

The first example the article gave was of a group of rouge traders who, earlier this year, stole as much as $4 Million by posing as regulators, setting up a fake, but official-looking website, and using it to obtain carbon trading account information from companies and traders who thought they were complying with government requests. The scheme forced the German Emissions Trade Authority to suspend trading, but not before 250,000 permits had been stolen.

The second example was that of Carbon Harvesting Corp who’s director has been arrested and charged in connection in an alleged scheme to pay $2.5 Million to “rent” a fifth of Liberia’s forests and profit by selling the credits that could be obtained from the carbon absorbing trees.

All in all, Europol estimated that tax fraud associated with carbon trading reached 6.5 Billion over 18 months, and in some countries, up to 90% of trading volume resulted from fraudulent activities. A recent report on “Ten Ways to Game the Carbon Market” identified 10 scams common to carbon trading … and the list was not necessarily all-inclusive.

But if there’s no trading, there’s no opportunity for trading fraud. And there’s no need for trading if governments simply levy a tax on every tonne of carbon emitted. Furthermore, if the goal is to compensate companies that are being extra efficient about carbon emission, there can also be carbon credits where companies that emit below a floor can get tax credits. In fact, it only takes a simple algebraic formula to capture taxes and credits in a joint system: (tons emitted - tons allowed) * tax per ton. For example, if it’s $10 per tonne, the company has an allowance of 1,000 tons, and the company emits 2,000 tons, then the company would pay (2,000-1,000)*10 = 10,000. And if it’s $10 per tonne, the company has an allowance of 1,000 tons, and the company emits 500 tons, then the company would get a credit of (500-1,000)*10 = 5,000 on its tax return. Simple.

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Rio Mino … Rio Bribo … Rio Gono!

If you’ve been following the news, four executives of Rio Tinto, a mining and exploration company, recently admitted to a court in the Chinese city of Shanghai that they took bribes totalling over 10 Million Yuan (BBC). Not long after, they each received prison sentences of between 7 and 14 years in addition to large fines and confiscation of their personal assets. Liu Caikui received seven years, Ge Minqiang received eight years, Stern Hu received ten years, and Wang Yong, accused of receiving the largest bribe, of almost 9M, received 14 years (CNN).

This should send a very strong message to foreign companies wanting to do business in the new China. Play by the rules (and definitely respect “face” [HBR]), or do the time.

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