Letter from the Editor, November 2014

In this issue, Carine Smith Ihenacho, global Chief Compliance Officer of Statoil and I take a close look at Statoil’s anti-corruption efforts. These can be seen as a best practice template even for smaller companies and companies with a different risk profile.

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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Addressing global anti-corruption enforcement trends: how Statoil’s procedures meet changing challenges

Nick BurkillCarineSmithIhenaco

 

 

 

 

 

Statoil’s oil and gas exploration and production operations are conducted on the Norwegian continental shelf and further afield in countries around the world including Angola, Azerbaijan, Indonesia, Libya and Mozambique.  In addition to its exposure under local laws where it operates, Statoil is subject to Norwegian, English and US law.

Statoil has a commitment to maintaining best practice in its anti-corruption efforts, just as in other areas of its business, and it devotes significant resources to these efforts.  Its practices are relevant to smaller companies and to companies whose risk profile is different; some core approaches are needed for all effective anti-corruption programmes. Statoil’s practices are scaleable and can be applied effectively to smaller companies and to those who have a different focus for their anti-corruption resources.
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Posted in 2014-11, Newsletter | Tagged , , , , , |

Letter from the Editor, October 2014

When the perpetrator of a fraud appears to be beyond reach, there are usually other claims that can be pursued.  Prompted by the rise in interest in third party litigation typified by the attempts by the victims of Bernard Madoff’s US$65 billion Ponzi scheme to seek damages from the SEC and Mr Madoff’s banks, this month we are taking a look at third party litigation.  Matthew Blower outlines the type of claims that may be brought under English law against third parties.

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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Third party claims: What to do when you can’t make a claim against the fraudster

There are many reasons why a claim against the most obvious perpetrator of a fraud is either not possible or is unlikely to result in recovery by the claimant.  This could be because the wrongdoer cannot be traced, is based in a jurisdiction in which a judgment cannot easily be enforced, or is known to have no assets.  Even when the primary wrongdoer may appear to be beyond reach, however, there are usually other claims that can be pursued and careful consideration should therefore be given by potential claimants as to which other individuals and companies may be liable.

Third party targets might include the principal wrongdoer’s employer or the employer’s parent company, or banks, accountants and auditors if their actions can be shown to have contributed to the claimant’s loss.  If others are involved in the fraud, there may also be a basis for bringing a claim for conspiracy.

These types of third party claims have received a lot of coverage recently, particularly with the high profile attempts by the trustee for the liquidation of Madoff Investment Securities LLC to obtain compensation from a number of banks whose accounts were used by Mr Madoff.

There are a number of claims that may be brought under English law against third parties.  They can all be brought as an alternative to, or in addition to, a claim against the principal wrongdoer.
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Posted in 2014-10, Newsletter | Tagged , |

Letter from the Editor, September 2014

Welcome back from the summer break.

In this issue, Mark Johnson introduces us to cyber crime, security and digital intelligence, a topic close to the heart of every business. The article is an edited extract from Cyber Crime, Security and Digital Intelligence, published by Gower Publishing.  AFN readers can purchase Cyber Crime, Security and Digital Intelligence direct from Gower with a 30% discount, using code G8ATZ30 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 in September, please contact us at info@antifraudnetwork.com.

Nick Burkill

Posted in From The Editor |

An introduction to cyber crime, security and digital intelligence

There are several factors determining the future shape of the cyber security landscape:

  • The rise of the machine readable Web, also known as Web 3.0
  • Increasingly vast data storage
  • Computer processing at light speed
  • Increasingly advanced and persistent threats
  • Slow human decision-making speeds and a general lack of awareness
  • A growing chasm between cyber security decision needs and cyber security decision capabilities.

The only obvious solution to this conundrum is the complete automation of cyber security decision making, but the technology to support that is far from ready.

In the meantime, we need to learn to live with the challenge and find ways to better protect our information assets from attack, theft, exposure, loss or damage. Cyber security and cyber risks are ubiquitous, which is to say that they are everywhere and of importance to any person or organisation using one or more internet-enabled devices.

The importance of security and the potential impact of the risks are primarily determined by the level of dependency that the person or group has on the technology.

Key sectors

The one word we need to keep in our thoughts is “resilience”. How resilient are we as a sector, community or nation in the event of a major cyber security event? Some sectors are more sensitive than others and there are also strong interdependencies between key sectors (listed below) which suggests the potential for what is called a “cascading failure”:

  • Financial services
  • Energy
  • Transportation
  • Supply chain
  • Defence and security
  • Government
  • Communications.

Loss or degradation of service in any one of the above areas is likely to have deleterious effects on the others. This makes these sectors particularly attractive to an attacker as well as making them the most sensitive in terms of accidental failures or natural disasters. Essentially, if you work in any of the areas listed, you should be prepared for the possibility of state-grade cyber attacks and intrusions and you should be putting corresponding state-grade countermeasures in place.

Cyber security risks for financial firms

During the late summer of 2012, a number of leading US banks experienced a serious and apparently coordinated series of Denial of Service (DoS) attacks that lasted for a period of several weeks and in fact, some of the attacks commenced earlier in the year. Senior political figures in the United States, including Senator Joseph Lieberman, chairman of the Senate Homeland Security Committee, reportedly asserted that these attacks originated in Iran, although no evidence to support this statement was put forward in the public domain.

Coincidentally, during the same period the computer systems of the UK’s Royal Bank of Scotland (RBS), one of the country’s largest financial firms, went down due to what was reported to be an internal software failure following an upgrade. Whatever the facts behind these events, it is now clear that western banking was in crisis mode through much of the year due to various types of cyber vulnerability.


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Posted in 2014-09, Newsletter | Tagged , , , , , , , , , |

Letter from the Editor, July 2014

In tNick Burkillhe second of our two-part series on giving gifts in China, Carl Hinze looks at the rules and traditions surrounding the cultivation of bao (“social reciprocity”), through gift giving. This month, we look closely at the gift-giving rules that apply to PRC Government officials.  With penalties for officials as severe as death by firing squad, businesses need to ensure gifts given to give “face,” i.e., to show respect, to the recipient and increase the “face,” i.e., raise the status, of the giver are well within the bounds of what is legally acceptable and can be proved to be so.

This is our last newsletter until September. I would like to wish all our members and readers a very happy summer.

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 in September, please contact us at info@antifraudnetwork.com.

Nick Burkill

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One person’s gift, another person’s bribe: The challenge of giving gifts in China, Part II

Carl Hinze 2014

In the second of our two-part series on giving gifts in China, we look at the rules and traditions surrounding the cultivation of bao (“social reciprocity”), through gift giving. This month, we look closely at the gift-giving rules that apply to PRC Government officials.  With penalties for officials as severe as death by firing squad, businesses need to ensure gifts given to give “face,” i.e., to show respect, to the recipient and increase the “face,” i.e., raise the status, of the giver are well within the bounds of what is legally acceptable and can be proved to be so.  

Bribery of officials

In respect of bribery of officials, Articles 389 to 391 and Article 393 of the PRC Criminal Law prohibit (regardless of whether the perpetrator is an individual or entity) giving state officials, state agencies, state-owned enterprises and civil organisations bribes in order to receive improper benefits. In order to constitute the offence of “giving bribes” the following criteria must be met:

  • There must be a payment in the form of property or unlawful kickbacks or procedural fees
  • The recipient must be a state official, state agency, state-owned enterprise, unit (an organisation) or civil organisation
  • The purpose must have been to receive improper benefits (emphasis added).

According to a Notice issued by the Supreme People’s Court and the Supreme People’s Procuratorate in 2008, “property” in this context is defined as

Either money or physical objects, and includes proprietary interests that can be measured in monetary terms, such as the provision of housing renovations, membership cards and gift cards (coupons) carrying monetary value, travel expenses, etc.

The Notice also seeks to fill a gap in the Criminal Law by clarifying the meaning of “seeking improper benefits” in the context of the crime of bribery contemplated in Article 389 of the Criminal Law. According to the Notice, seeking improper benefits refers, rather vaguely, to circumstances where the giver of a bribe seeks a benefit that is in violation of laws, regulations, rules or policies, or where the giver of the bribe requests the receiver of the briber to provide help or convenience in violation of laws, regulations, policies or industry norms.
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Posted in 2014-07, Newsletter | Tagged , , , , |

Letter from the Editor, June 2014

Nick BurkillIn the first of a two-part series on giving gifts in China, Carl Hinze looks at the and rules and traditions surrounding the cultivation of  bao (“social reciprocity”) through gift-giving, and the practice of gift-giving between businesses.  With Chinese President Xi Jinping  making it a priority to clamp down on corruption in China, it is important to understand how your company can help prevent genuine gifts being misconstrued as bribes.

As ever, 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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One person’s gift, another person’s bribe: The challenge of giving gifts in China, Part 1

Happy New Year!

Carl Hinze

Carl Hinze

It was the week before Chinese New Year. The financial year had ended weeks earlier and unpaid invoices had made a dent in the annual performance of the small family business.

For months, the foreign husband, a co-owner of the business, tried to reason with the clients, appealing to their better nature, reminding them of their earlier praise for the work done. When his appeals met with silence, he upped the ante. He sent stern emails, stating that he would get lawyers involved if the bills remained unpaid. When these emails went unanswered, his wife finally ran out of patience with her husband’s tactics and told him it was time to try the Chinese way; she knew better than him that a China problem required a China solution.

She purchased a batch of tablet devices, carefully wrapped them in red paper and delivered them to the children of the chairmen of the clients who had failed to pay.  Within a couple of days, last year’s unpaid bills had been paid and the husband and wife could truly celebrate the new year. There was no need for thank you notes or cards, no need for lawyer’s letters or telephone demands, no need to instruct debt collectors. No mention of the gifts was made by either side and it was not long before several of those clients were seeking support from the business on new projects.

Through this experience, the foreign husband learned what the “Chinese way” really means. This is not to say that Chinese clients have a monopoly on failing to pay professional fees, unfortunately, this can happen anywhere. The situation faced by this family business is, however, a reminder of how situational ethics affect the way things are done in China. “Situational ethics” has been described as a flexible standard of thought and behaviour that is based on the circumstances at hand, real or imagined, instead of being based on universal principles.

Situational ethics vs logical ethics

The husband, who was raised and educated within a Western logic and ethics context, found it difficult to understand that his wife’s way was the best means to a positive end. The wife, who was raised and educated with a strong understanding of traditional Chinese situational ethics, realised that she had a lot of leeway in what to regard as an acceptable or unacceptable solution to their problem.

As experts have explained, the Chinese preference for, and use of, situational ethics is a product of China’s past, when individuals did not have absolute rights that were protected either by law or even by custom (see the February issue of the AFN newsletter). Throughout Chinese history, individuals were subject to the arbitrary rule of their superiors, who included family members and government officials at all levels.

For the husband, logical argument and a satisfied customer should have translated into payment of the agreed professional fees. And if logic and reason could not prevail, surely the law would step in to solve the matter. But at what cost?

Considering “face” and cultivating social reciprocity

The wife knew that she needed to cultivate bao (“social reciprocity”) because, even if the law did provide a framework for business transactions, relationships of all kinds in China–business, personal, political–must be based on trade-offs of one kind or another. What if the husband did manage to obtain payment of the fees through sending out a lawyer’s letter or using the services of a debt collector? The relationship with the client would be harmed, perhaps irreparably. The wife knew it was far more effective to use the situation to further develop the relationship.

This is not an isolated event. Western business people’s perspectives of gift-giving are substantially determined by Western laws and corporate rules. Chinese views, however, are determined primarily by a complex and sophisticated social philosophy of relationships. Gift-giving is related to respect, mianzi (“face”), group membership, reciprocity, status and long-term relationships. The art of gift-giving is just one of the innumerable proprietary rules of interpersonal behaviour, the origins of which go back thousands of years and are central to Chinese culture.
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Posted in 2014 - 06, 2014 Newsletter, Newsletter | Tagged , , , , , , |