The Cost of Integrity: A Whistleblower's Vindication

FROM THE PRESIDENT AND CEO

Through the years, I've met scores of whistleblowers — the ACFE likes to call them sentinels — and all of them have suffered. Many have lost their jobs, relationships and health. But I don't think I've known of a sentinel who's paid the cost of integrity more than James Holzrichter.

Back in the 1980s, Holzrichter — then an eager young analyst and systems auditor for Northrop (later Northrop Grumman) — brought to his supervisor some problems of materials acquisition and management.

"What I most especially did not know at that time [of the meeting with the supervisor] and would not even begin to grasp until some time later (and only when it was too late) was that I had just crossed what was probably the single mfalost significant invisible and irreversible line in this entire journey," Holzrichter wrote in his 2011 book, with Patrick A. Horton, Ph.D., A Just Cause: A True Story of Courage, Hope, & the Integrity of the American Dream.

"At that moment, the nightmare that was to become my life and that of my longsuffering family had been set in stone," he wrote. "It was not that I had just officially pronounced finding problems with procedures and possibly a few rogue employees: I had discovered the first visible signs to institutionally intentional and pervasive practices that if fully known and verifiable by the right parties, could threaten the very existence of the company itself."

Holzrichter eventually discovered alleged overcharging of the government and selling of defective equipment to the tune of millions of dollars.

He and another Northrop whistleblower filed a qui tam suit under the U.S. False Claims Act. The aerospace community blackballed him, so he had to deliver the Chicago Tribune newspaper and clean toilets for a living. Holzrichter and his family would live in a homeless shelter and later subsidized housing. Someone would actually try to kill Holzrichter, his oldest son and his oldest daughter. Not death threats but attempts.

Yet, Holzrichter wouldn't relent. Finally on March 1, 2005, 17 years after the qui tam filing, Northrop Grumman settled with the U.S. government for $134 million.

Holzrichter has said that he's far from a perfect man. But early in his life he took to heart his dad's words: "When is it ever wrong to do the right thing?" Those words propelled and sustained him through almost 20 years of suffering. During the 26th Annual ACFE Global Fraud Conference in June we presented Holzrichter with the 2015 Cliff Robertson Sentinel Award "For Choosing Truth Over Self." Well deserved.

For more details about Holzrichter's harrowing account, read his recent interview on Fraud-Magazine.com. 

Bribery, Corruption and Money Laundering at FIFA: What Did Banks Know?

GUEST BLOGGER

Dennis Lawrence, CFE

Lawrence is a former U.S. Army Counterintelligence Special Agent, Investigations Manager at a publicly traded software company and member of a Big Four forensic investigations team. He currently works as a Denver-based risk consultant.

A lengthy Department of Justice indictment released in late May recounted an orgy of corruption at FIFA. Soccer officials allegedly spent years pocketing an estimated $150 million in dirty money while selling media and marketing rights of major sporting events along with voting on federation issues including the selection of host countries for World Cup tournaments. At one point, former FIFA vice president and executive committee member Jack Warner went so far as to direct a family member to fly to Paris and meet in a hotel room with a high ranking South African World Cup bid committee official to collect a cash-filled briefcase meant for Warner as part of a World Cup vote scheme. When it comes to untraceable transfers of money, however, this example appears to be the exception rather than the rule, as most illicit payments purportedly involved bank transactions. Although the allegations of wrongdoing at an international sports federation may not come as a surprise to some, the extent to which the global banking system was apparently leveraged to transmit an abundance of bribes raises the question: What did banks know, and what were they reporting to authorities?

According to court documents, foreign bank accounts and secretive banking jurisdictions were routinely leveraged by defendants in order to mask corrupt payments. In January 2008, for instance, a FIFA official in Switzerland wired $616,000 in misappropriated funds to an account held in the name of various FIFA affiliate organizations, but controlled by defendant Jack Warner at Republic Bank in Trinidad and Tobago. Warner then instructed Republic Bank to apply $200,000 of the funds from the organizations’ account to a personal loan account held in his name. Such an unusual transfer would have likely caught the attention of anti-money laundering (AML) staff at a U.S. bank, but is likely to have gone unnoticed in the black hole of Caribbean banking culture at the time of occurrence. To create additional layers of obfuscation, defendants and co-conspirators are reported to have also used intermediaries and shell companies to funnel money to bribe recipients, making cross-border money transfers even more difficult to examine for anyone who did happen to be looking.

Not all transactions can be readily explained away by the involvement of bank secrecy havens and intermediaries. In May 2011, a soccer official and member of the FIFA congress received an envelope containing $40,000 in cash as part of a campaign to secure votes for an upcoming FIFA presidential election. Days later, the official deposited the entire cash sum into a bank account in the U.S. Any reputable Know Your Customer (KYC) program would have presumably established that the official was a politically exposed person. As such, the handsome cash deposit would have likely set off an alert requiring a review by AML staff, possibly resulting in a Suspicious Activity Report being sent to FinCEN. Other reports indicate that while soccer officials receiving corrupt payments were advised to refrain from using bank accounts in their own names, they did not always follow this common sense suggestion and would have consequently left a trail of footprints for AML teams.

While it may be too soon to know whether banks were aware of bribes and may have tipped off law enforcement to what was occurring, the FIFA scandal serves as a reminder that financial institutions often hold the power to uncover many small clues to big crimes long before governments become aware that a law has even been broken in the first place.

ACFE Women’s Panel: Sayonara Old School Gender Roles

FROM THE ACFE GLOBAL FRAUD CONFERENCE

Mandy Moody, CFE
ACFE Media Manager

Thick skin and confidence. Those are just two of the skills the first-ever women’s panel offered female anti-fraud professionals during the ACFE Global Fraud Conference in Baltimore, Maryland, June 16, 2015. Cynthia Cooper, CFE, CEO of Cooper Group, moderated a panel of five women representing public, private, government and corporate worlds. The panelists included Tiffany Couch, CFE, CPA, CFF, Principal at Acuity Forensics; Sharon Curry, CFE, Director of Global Investigations at Wal-Mart; Francine Gross, Chief of the Economic Crimes Unit at the FBI; Leah Lane, CFE, CFS, Global Investigations Director at Texas Instruments, Inc.; and Liseli Pennings, Special Agent at the U.S. Department of Treasury. 

Below are a few of the important takeaways that any female professional would benefit from implementing: 

Say ‘no’ more. You don’t have to say ‘yes’ to everything to show that you are competent and able. You can say ‘no’ to certain projects. Pick the quality ones to step up and handle.

Hone two important skills: communication and confidence. As Lane said, “You must know how to communicate both verbally and in writing. You need to be able to present findings and give directions.” Along with that, you need confidence. You even need confidence when you may not have it. “You have to find ways to make yourself more confident,” Gross said. “You have to believe in yourself.” And even if that confidence is lacking, according to Couch, “you have to fake it until you make it. You have to act confident even if you don’t feel like it.”

Being a female can be an advantage. Characteristics that many women exhibit, like multitasking and an attention to detail, play huge roles in being a successful anti-fraud professional. Use these skills, perfect these skills and own these skills. Gross also mentioned that some people are more comfortable talking to women and sharing information with them. She recommends using the assumption that you are easier to talk to and get the most information you can. 

Accept the mommy-guilt and don’t listen to the nay-sayers. Balancing parenthood with your career is simply that, a balance. Two of the panelists, and some of the audience members, mentioned that their husbands are or were stay-at-home dads. That’s okay, they said. It works and it is what is best for their families. There are no specific gender roles assigned to working and parenting. If you hear different, ignore it.

Develop really thick skin. One attendee asked for advice in dealing with inappropriate jokes or male-dominated environments that unknowingly exclude females. The panel’s response was to never get emotional about it and don’t be too sensitive; it isn’t personal. Use a sense of humor to lighten a situation and know your personal threshold for dealing with these potential situations. And, if a line is crossed, hold people accountable for their actions.

No one is going to help you, but you. If you are lacking in a professional area, look for training. If you need a mentor, find one. You are in control of how far you will go.

The last piece of advice that definitely received the most laughs and some applause was what Couch’s mentor shared with her many years ago: “He told me, ‘Tiffany, you may be the smartest person in the room, but don’t act like you know you are the smartest person in the room.’”

Find more articles, videos and photos from the 26th Annual ACFE Global Fraud Conference at FraudConferenceNews.com.

The War Against Herbalife: Pyramid Scheme or Multi-level Marketing Master?

FROM THE ACFE GLOBAL FRAUD CONFERENCE

Emily Primeaux
Asst. Editor, Fraud Magazine

On Dec. 19, 2012, activist investor William Ackman publicly confirmed that he was “betting” against the stock of Herbalife because “the company operates like a pyramid scheme.” Ackman claimed in a 334-slide, three-hour presentation, “Herbalife is a pyramid scheme because, among other reasons, distributors earn more than 10 times as much from recruitment as they do by selling the company’s overpriced products to bona fide retail customers.” During his presentation, Ackman disclosed that he had an “enormous” short position in Herbalife’s stock, betting that shares in the company would fall. 

“Here is an investor that’s not just taking a financial stake,” said Jim Conversano, CFE, CFA, Principal at Berkeley Research Group, LCC. “He’s announcing it to the world.”

Were Ackman’s claims correct? Conversano discussed the investor’s qualms about Herbalife, one of the world’s largest multi-level marketing companies, in his breakout session, “The War Against Herbalife: Pyramid Scheme or Multi-level Marketing Master?”

Conversano started the session by giving attendees a brief overview of the difference between Ponzi and pyramid schemes. In short, investors in Ponzi schemes expect to earn a return from profitable investments. Participants in illegal pyramid schemes expect to earn profits from recruiting new members.

Multi-level marketing companies, on the other hand, are legal companies that sell legitimate products and services, use pyramid-like sales and distribution structures, and participants earn commission for products or services they and the distributors in their “downline” sell to others. Your downline consists of the participants you recruit and their recruits.

So where does Herbalife fit into this equation? Herbalife is a global nutrition company founded in 1980 that develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products as well as personal care products. Members can earn profits by purchasing Herbalife products at (discounted) wholesale prices and reselling those products, and earning commissions and bonuses by establishing and maintaining their own sales organizations (i.e. sponsoring other members). 

“Herbalife does require its participants to invest in a start-up fee,” said Conversano. “This is very widely out there, it’s not a secret fee. That’s what this investor [Ackman] had a problem with.”

According to Conversano, cases against Herbalife’s business structure, including Ackman’s, have brought into question the legal nature of their operations. In March 1985, Herbalife was sued by the California Attorney General and two other California regulators, alleging that the company made false claims about its diet products and employed an “illegal endless chain” to market them.

In October 1986, Herbalife announced that it agreed to pay $850,000 to settle the suit brought by the California regulators, but they admitted no wrongdoing in the settlement.

Most recently, on March 11, 2014, Pershing Square Capital Management, L.P. argued that Herbalife is violating China's direct-selling law by paying multi-level royalties based upon unlimited downline levels, and paying royalties and commissions totaling more than 30 percent of sales volume, among other accusations.

Despite all accusations, Herbalife vehemently defends its business practices and hasn’t yet been convicted of any wrongdoing. Opinions in the session were varied and active debate ensued. Conversano explained that while Herbalife doesn’t technically present itself as a pyramid scheme, it can’t be denied that there are red flags that should be considered.

So he left it up to us. Could Herbalife really be a decades-long fraud, similar to Madoff? What do you think?

Find more articles, photos and videos from the ACFE Global Fraud Conference at FraudConferenceNews.com.

Maryland Chapter’s Harbor Cruise Raises $3,500 for Ritchie-Jennings Memorial Scholarship

GUEST BLOGGER

Ashley Stone, CFE
ACFE Chapter Development Manager

When Baltimore was selected as the host city for the 26th Annual ACFE Global Fraud Conference, the Maryland Chapter decided to plan an event to showcase the city while giving back to the fraud-fighting community.

After brainstorming, chapter vice president (and president elect) Steve Lesniewski, CFE recommended that a great way to entertain conference attendees, while raising funds for the ACFE Foundation, was a sunset cruise through Baltimore’s Inner Harbor.

On Monday, June 15 more than 360 conference attendees boarded the Spirit of Baltimore for a two-hour cruise complete with hors d'oeuvres, a cash bar, a live DJ and dancing. The cruise traveled along the Patapsco River and offered views of Baltimore’s Inner Harbor area, historic Fort McHenry (birthplace of the U.S. national anthem), Federal Hill, the Francis Scott Key Bridge and even the world headquarters of athletic apparel company Under Armour.

The chapter paid for the full cost of the cruise but requested that those who wanted to attend pre-register by purchasing $10 tickets. The chapter is donating the entire proceeds from these ticket sales (more than $3,600) to the ACFE Foundation’s Ritchie-Jennings Memorial Scholarship fund as part of the Scholarship Fundraising Challenge.

Chapter president John Grimes, CFE, said that feedback from those that attended was overwhelmingly positive. “From all reports, everybody had a great time. Many people had kind words about Baltimore and the Maryland Chapter,” Grimes said.

On behalf of the ACFE, I would like to thank the Maryland Chapter for hosting this unique event and for their generous contribution to the ACFE Foundation.