Letter from the Editor, May 2016

In this issue, Aidan Colclough explains why the possibility of facing huge fines or prosecution as a result of falling foul of the UK Bribery Act or the FCPA, should not dissuade small and medium sized enterprises from taking advantage of the potential for high growth in emerging markets overseas.

The AFN has recently teamed up with Routledge to offer AFN members and readers a 20% discount on fraud books. To obtain your discount on titles such as The Changing Face of Compliance, Confronting Corruption in Business, Corporate Social Irresponsibility, Cyber Security, Fraud and Corruption in Public Services, In Pursuit of Foresight, The Origins of Ethical Failures, Security Culture, and The Tone from the Top, click here and use code AFN16 at the checkout.

We are always interested in articles and book reviews written by AFN members and readers. If you would like to contribute to the AFN newsletter or the website, please contact us at info@antifraudnetwork.com.

Nick Burkill

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Risk-based due diligence: SMEs and low risk engagements

AidanColclough2016Small and medium-sized enterprises (SMEs) are increasingly trading outside their local regions to access the opportunity and potential for high growth in emerging markets overseas. In Europe, for example, a survey authorised by the European Commission highlights that about half of SMEs in the European Union have been involved in international business outside the European Internal Market over the last three years.

A direct consequence of this internationalisation of commerce is that SMEs are often finding themselves engaging with third parties around the globe to facilitate their business operations.  In the wake of the UK Bribery Act 2000 (Bribery Act), and under the extensive reach of the US Foreign Corrupt Practices Act 1977 (FCPA), liability for corruption can be triggered when a bribe is paid indirectly through a third party. This opens up significant risks, and SMEs, unlike their blue chip counterparts, may not be so well versed with anti-corruption procedure and may lack dedicated compliance teams.

The vast fines consistently levied by the US Department of Justice (DoJ) and Securities Exchange Commission (SEC), and those imposed by the United Kingdom’s Serious Fraud Office are a clear reminder that the importance of effective third-party due diligence cannot be understated. Indeed, following a recent prosecution, the chief of the SEC Enforcement Division’s FCPA Unit noted that

This is a wake-up call for small and medium-size businesses … when a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.

Although recent enforcements and media attention may dissuade SMEs from participating in international commerce and establishing valuable relationships with third parties in overseas territories, such a response would be an overreaction; with appropriate measures in place, there is a way forward.

What is effective due diligence?

Both the United Kingdom and the United States recognise that, to be effective, due diligence does not always require a “kitchen-sink” approach; the extent of corruption risks will vary and, accordingly, so will the level of due diligence required.

Under the Bribery Act, a company will not be guilty of failing to prevent an act of bribery carried out by a third party on their behalf if they have “adequate procedures” in place to prevent such conduct. To demonstrate the presence of these adequate procedures, guidance from the Ministry of Justice recommends that the level of due diligence should be proportionate to the risk of corruption faced by the company and conducted using a risk-based approach.

DoJ and the SEC, through enforcement policies and Opinion Releases, have provided guidance on the FCPA, stating that the degree of due diligence necessary may vary depending on a number of factors, such as the industry, location, size and nature of a transaction, and the historical relationship with the third party.

Identifying risk

The engagement by a company of any third party agent poses a risk, but the level of that risk will vary.

For example, a UK company contracting with a distributor based in Denmark to resell products to Denmark-based retailers does not present the same level of risk as a UK company engaging a business consultant in Kazakhstan chosen by an official of the contracting company, for the sale of equipment to a large state-owned oil company.

These contrasting scenarios highlight that risk factors such as industry, geographical location and the nature of the third party relationship are all relevant in assessing what will be required for due diligence to be effective.
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Posted in 2016-05, Newsletter | Tagged , , |

Letter from the Editor, April 2016

In this issue, Elif Morgenroth completes a two part article by explaining how to identify patterns of financial crime and examining the importance of knowing your enemy, utilising IT effectively, and turning compliance burdens into business opportunities.

In addition, Andrew Vaughan Winterbottom provides insight into the Chinese anti-corruption watchdog’s reporting on state-owned enterprises (SOEs), which is essential for companies conducting due diligence with a view to partnering with an SOE.

The AFN has recently teamed up with Routledge to offer AFN members and readers a 20% discount on fraud books. To obtain your discount on titles such as The Changing Face of Compliance, Confronting Corruption in Business, Corporate Social Irresponsibility, Cyber Security, Fraud and Corruption in Public Services, In Pursuit of Foresight, The Origins of Ethical Failures, Security Culture, and The Tone from the Top, click here and use code AFN16 at the checkout.

We are also delighted to offer readers a discounted opportunity to attend a major industry conference.

The Canadian Institute’s 15th Annual Forum on Anti-Money Laundering will be held on 26 to 27 April 2016 at the Hyatt Regency Toronto. Attendees will gain critical updates on anti-money laundering regulations, guidelines and best practices. The Anti-Forum Network is a proud supporter of this event and we’ve arranged a 10% discount off the conference fee for AFN readers interested in attending.

Registrations are filling up quickly. Reserve your place by calling +1 877 927 7936 or register online. Mention your AFN member code: D10-319-319CX03 to save 10% off your registration fee, at the time of registration. This special rate cannot be combined with any other offer or group discounts.

We are always interested in articles and book reviews written by AFN members and readers. If you would like to contribute to the AFN newsletter or the website, please contact us at info@antifraudnetwork.com.

Nick Burkill

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Preventing fraud and financial crime: Part 2

Eli MorgenrothIn our last issue, Dr Stefanie Rummel took a practical look at what impact communication has in preventing fraud and financial crime. This issue, Elif Morgenroth explains how to identify patterns of financial crime and examines the importance of knowing you enemy, utilising IT effectively, and turning compliance burdens into business opportunities.

New types of crime, such as cybercrime, are a major concern for financial institutions and companies. Just one type of cybercrime, online fraud, costs over US$600 billion a year in the United States alone.
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Posted in 2016-04 | Tagged |

Decoding the Chinese anti-corruption watchdog’s reporting on state-owned enterprises

Andrew Vaughan Winterbottom 2016Crime or punishment?

President Xi Jinping initiated a wide-ranging anti-corruption campaign soon after he was appointed general secretary of China’s communist party in 2012. The main targets of this campaign have been government officials and state-owned enterprises (SOEs). The campaign’s focus has shifted over time, and at present the financial services sector is being targeted. Chinese media indicate that over a dozen industry executives have been investigated for alleged corruption since mid-2015.
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Letter from the Editor, March 2016

In this issue, Dr Stefanie Rummel, a senior consultant specialising in soft skills, takes a practical look at communication training in the first of a two part series on meeting the challenge of preventing fraud and financial crime. In the next issue, Elif Morgenroth from CGI examines the benefits of knowing your enemy and a process based IT system, and the opportunities afforded by compliance.

We are delighted to offer readers a discounted opportunity to attend a major industry conference.

The Canadian Institute is hosting its 15th Annual Forum on Anti-Money Laundering on April 26 to 27, 2016 at the Hyatt Regency Toronto. The Anti-Forum Network is a proud supporter of this event and we’ve arranged a 10% discount off the conference fee for AFN readers interested in attending. The event brings together the top AML professionals from financial services, money service businesses, government and law enforcement from across Canada. Get updates to regulation and enforcement from OSFI, FINTRAC, the United States Federal Bureau of Investigation, RCMP Federal Policing, Financial Crime and more.

Register now by calling +1 877 927 7936 or register online. Mention your AFN member code: D10-319-319CX02 to save 10% off your registration fee, at the time of registration. This special rate cannot be combined with any other offer or group discounts.

In addition, Momentum’s 9th ACES Compliance Summit is a free, two day programme specially formatted to provide comprehensive, world-class solutions for navigating the toughest global anti-corruption, export controls and sanctions compliance challenges. This year’s event is taking place on 5 and 6 April in McLean, Virginia, and goes above and beyond benchmarking to take a closer look at government expectations of compliance programmes in the US and abroad. Compliance professionals will find the ACES Summit specialises in exploring regional interests and concerns, technological advancements, and best practices in export controls and anti-corruption topics. Registration for this event is free for corporate counsel, and international trade and compliance executives.

We are always interested in articles and book reviews written by AFN members and readers. If you would like to contribute to the AFN newsletter or the website, please contact us at info@antifraudnetwork.com.

Nick Burkill

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Preventing fraud and financial crime: Part 1 – communication is key

Stefanie RummelIn the fight against fraud, money laundering, and other financial crimes, there are a number of factors that stand out as recent developments and create new challenges.

The regulatory landscape is becoming more crowded, and sectors other than finance are being increasingly affected. The situation is likely to become even more problematic and fraught, as regulators and businesses need to identify and prevent increasingly sophisticated, hidden frauds, wrapped up in big, mostly unstructured, data. At the same time, financial penalties imposed for breaches of regulations can easily exceed millions of Euros, and the reputational damage suffered as a result of a breach is immense.

In addition, the profiles of the offenders and the types of crimes they perpetrate are changing faster than regulators or companies react. Fraud has become sophisticated and harder to detect, and fraudsters now operate on a global basis, often in a virtual world and not in the countries affected.

Despite the fact that the challenges are proliferating, there are several ways of dealing with them.

First, businesses need to stay one step ahead of the criminals. All businesses understand the concept of know your customer, but it is also important to know your enemy. Compliance officers and managers have to develop an up to date understanding of the fraudster’s pathology, the types of crimes they perpetrate, and learn how to identify patterns.

Second, as the identification of fraudulent activity is almost always linked to being able to handle masses of (often unstructured) data, businesses should take advantage of an IT system that is capable of managing the process for them.

Third, rather than viewing compliance as an operational burden, management should approach it as an opportunity to demonstrate integrity to third parties. Clients today are extremely discerning, and the ability to stand out in this key area is a real advantage. This is linked closely to communication, coaching and training of management and staff.

In the next issue, Elif Morgenroth will look closely at these three ways to meet the challenge of financial crime, but first, Dr Stefanie Rummel takes a practical look what impact communication has in this field.
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Posted in 2016 Newsletter, 2016-03, Newsletter | Tagged , |

Letter from the Editor: February 2016

In this issue, John Evans from CGI talks about best practice for sanctions compliance. If you would like a copy of our low risk due diligence compliance checklist, please contact us.

We are delighted to offer readers a 10% discount on The Canadian Institute’s 15th annual Forum on Anti-Money Laundering, Canada’s longest running forum on Anti-Money Laundering, on 26 and 27 April in Toronto. Forthcoming amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act mean big changes to compliance obligations. This year’s conference will give attendees everything they need to get a head start on implementing these changes, so risk management programmes won’t miss a beat.  Register by phone on + 1 877 927 7936, or register online with AFN member code: D10-319-319CX01 to save 10% off your registration fee. This rate cannot be combined with any other offer or group discounts.

In addition, Momentum’s 9th ACES Compliance Summit is a free, two day programme specially formatted to provide comprehensive, world-class solutions for navigating the toughest global anti-corruption, export controls and sanctions compliance challenges. This year’s event is taking place on 5 and 6 April in McLean, Virginia, and goes above and beyond benchmarking to take a closer look at government expectations of compliance programmes in the US and abroad. Compliance professionals will find the ACES Summit specialises in exploring regional interests and concerns, technological advancements, and best practices in export controls and anti-corruption topics. Registration for this event is free for Corporate Counsel, International Trade and Compliance Executives.

We are always interested in articles and book reviews written by AFN members and readers. If you would like to contribute to the AFN newsletter or the website, please contact us at info@antifraudnetwork.com.

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Sanctions compliance

John Evans 2016Financial institutions face considerable challenges as they strive to comply with ever-expanding legal requirements for combating money laundering and terrorist financing. The number of global watch lists and sanctioned activities continues to grow, as does pressure for organisations to extend their screening processes across the entire enterprise. Sectoral sanctions and screening for Politically Exposed Persons create additional layers of complexity. Watch list data can change daily, further complicating the task of maintaining an up-to-date, efficient screening operation. Each new watch list requirement increases the compliance burden, while potentially slowing transactions and customer service. Financial institutions now more than ever are caught between their obligation to prevent illegal transactions and the rising costs of compliance.

But scaling back screening controls isn’t an option. Individual corporate executives have been prosecuted and jailed, and banks have been fined hundreds of millions, and even billions, of dollars for alleged dealings with black-listed nations and drug kingpins, and for deliberately or inadvertently helping them launder money and evade sanctions. As the global fight against money laundering and terrorist funding expands, the obligation to monitor transactions is expanding beyond financial institutions to affect large corporations, insurance companies, money management and transfer services, and other types of businesses.

Cost-effective compliance

How can these organisations meet the rising demands of sanctions compliance without disrupting customer service or incurring inordinate costs? Implementing the right filtering software to automatically screen transaction data and identify sanctioned entities, appointing the right people, and establishing effective processes are absolutely crucial to a cost-effective compliance programme.

Each of these three components—technology, people and processes—complements and reinforces the others. Each element must be implemented and maintained with an eye toward continuous learning and improvement, so compliance capabilities can keep pace with a constantly changing compliance landscape. The most successful organisations nurture and support an ability to adapt, learn and improve their capabilities across all three areas.

The following are best practices for managing technology, people and processes to maximise compliance and minimise cost and effort.
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Posted in 2016-02 | Tagged , , , |

Letter from the Editor, December 2015

In this issue, David Farrell reviews Emerging Risks: A Strategic Management Guide, in which a number of respected authors assess and propose a process for managing emerging risks, and the strategies that need to be put in place, drawing on examples of best practice.

If you would like a copy of our cyber security checklist, please contact us.

If you would like a copy of Emerging Risks: A Strategic Management Guide, Ashgate Publishing is offering AFN members a 10% discount on all titles using code G8ATZ30 – click here. Ashgate has also recently released three new publications: Fraud and Corruption in Public Services by Peter Tickner, In Pursuit of Foresight by Mike Lauder, Security Culture by Hilary Walton and The Changing Face of Compliance by Sharon Ward.

We are delighted to offer readers a 15% discount on the  Global Anti-Corruption & Compliance in Extractive Industries, Africa  in Johannesburg from 15 to17 February 2016. The event is an opportunity to benchmark industry best practices and gather practical advice from government bodies, NGOs and leading consultants on topics such as strategies for policy compliance, internal programme maintenance and metrics. To see the agenda, click here. To register, click here and use discount code BQ968AFN for the AFN 15% discount.

We are always interested in articles and book reviews written by AFN members and readers. If you would like to contribute to the AFN newsletter or the website, please contact us at info@antifraudnetwork.com.

Nick Burkill

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