Increasing global cooperation in enforcement against corruption

Increasing global cooperation in enforcement against corruption

EY Ernst & Young’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 issuesEY

Conducted between October 2015 and January 2016, the survey of nearly 3000 senior business from 62 countries and territories – with 50 interviews conducted in Switzerland -highlights overwhelming corporate support for enhanced beneficial ownership transparency, with Swiss executives (92 %) being at par with Global respondents (91 %) in recognizing the importance of establishing the ultimate beneficial ownership of entities with which they do business.

Michael Faske, EY Swiss Leader of Fraud Investigation & Dispute Services, says: “We are still seeing that combating corruption remains a global priority. 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 on the global front. In total, 39 % of all respondents believe that bribery and corrupt practices happen widely in their country, little changed from 38 % in 2014 and 38 % in 2012. Surprisingly only 8 % of Swiss respondents feel the same way. Whilst the perception differs clearly in Switzerland, corruption is still widespread in the rest of the world with 51 % of respondents in Emerging markets believe that bribery and corrupt practices happen widely in business. Whilst Switzerland may feel that corruption is not common practice here, 38 % of Swiss respondents admitting that they could justify unethical behavior to meet financial targets.

Coordinated efforts by regulators to root out corruption

Regulators recognize 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. Such enforcement efforts appear to be heavily supported by survey respondents, with 80% of Swiss respondents alongside 83 % or global respondents agreeing that prosecuting individuals will help deter future fraud, bribery and corruption.

The survey also identified a perception in emerging markets1 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.

Michael Faske 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 such as continuous monitoring software to manage these risks and improve compliance and investigative outcomes.”

There are some positive indicators in markets, where governments and regulators have taken steps to crack down on impropriety. In India, for example, where steps to increase transparency and crackdown on corruption have been taken by the government, the proportion of respondents from this country believe that bribery and corruption happens widely in the country declined from 67 % in 2014, to 58 % this year. In China, 74 % of local respondents report that enforcement is effective, indicating the apparent effectiveness of the Chinese Government’s commitment to tackle corruption.

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 utilize technologies such as forensic data analytics to identify and mitigate risks

 

Innovation is critical to responding to emerging risks

Whistleblowers remain a critical source of information on alleged misconduct. According to this year’s survey, 55 % of companies have whistleblower hotlines in place. Regulators welcome such tips, and in some jurisdictions, including the US, whistleblowers are offered substantial monetary rewards. Yet such mechanisms are not always effective. Survey respondents report barriers to using such mechanisms: 10 % of Swiss respondents (18 % global) cite that loyalty to colleagues would deter them from reporting an incident of fraud, bribery and corruption and 12 % (19 % global) cite loyalty to their company as a deterrent.

Michael Faske says, “We know that tip-offs are the most common way that that fraud, bribery and corruption are uncovered yet still just under half of companies survey globally have whistleblower hotlines. And then what we are seeing additionally quite clearly 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. Dealing with such cyber and insider threats should be a top priority for management and boards. Yet 41 % of Swiss CFOs and 59 % of CFOs globally view cybercrime as a low risk – a perspective that deserves robust challenge.”

Between October 2015 and January 2016, EY researcher — the global market research agency Ipsos Mori — conducted 2825 interviews in the local language with senior decision-makers in a sample of the largest companies in 62 countries and territories.

For the purposes of this report, “emerging” countries and territories include Argentina, Brazil, Bulgaria, Chile, China (mainland), Colombia, Croatia, Czech Republic, Egypt, Estonia, Hong Kong SAR, Hungary, India, Indonesia, Israel, Jordan, Kenya, Latvia, Lithuania, Malaysia, Mexico, Nigeria, Oman, Philippines, Poland, Romania, Russia, Saudi Arabia, Serbia, Slovakia, Slovenia, South Africa, South Korea, Taiwan, Thailand, Turkey, UAE, Ukraine and Vietnam.

The 14th Global Fraud Survey 2016: Corporate misconduct – individual consequences can be downloaded here                

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