In less than a month’s time, the biggest global extravaganza will kick off in Russia. Thirty-two national teams will fight for the top spot in the 2018 Football World Cup. FIFA estimates that more than $5.7 billion in revenue will be generated from the showpiece event, and that more than a million tourists are expected to travel to Russia. This event will indeed be a good time for more than 3.2 billion fans worldwide, but it will also be a potentially lucrative time for fraudsters.Read More
FROM THE RESOURCE GUIDE
A seemingly endless stream of fraud stories hits the headlines every day. On Monday you could read that an Ivy league-educated financier defrauded his victims of more than $38 million and by Friday, a European soccer star is spending his day in court.
It can be disheartening to see these stories splayed across your computer or TV screens. There is, however, a silver lining. If we’ve learned anything from taking history classes in school it’s that understanding the past helps to avoid repeating it.
In a new ACFE online self-study course, 10 Infamous Fraud Cases of the 21st Century, we do just that. By exploring 10 notable fraud cases of the 21st century, fraud examiners can identify the methods the major players used to conduct their schemes, and analyze the aftermath and impacts of various frauds. Learning from past cases means you can help protect your clients, employers and the general public from similar schemes in the future.
In 2002, the WorldCom scandal became one of the largest accounting frauds in history when the company revealed its wrongdoing and was subsequently forced to file bankruptcy and write off $50 billion in losses. The scandal began when WorldCom CEO Bernie Ebbers employed a business strategy of achieving growth through acquisitions. He acquired MCI Communications and then proposed a merger with Sprint, but was forced to abandon the Sprint merger in 2000. Determined to show increased revenue despite a slow-down in mergers and acquisitions, Ebbers manipulated the books to satisfy Wall Street’s expectations. The scheme was detected when a capital expenditures audit revealed suspicious journal entries. WorldCom’s internal audit team discovered improper accounting in expenses over five quarters. The WorldCom accounting scandal was a situation in which corporate governance failed and the board of directors were caught unaware. WorldCom’s accounting system was faulty and Ebbers’ close relationship with external accounting firm Arthur Andersen presented a conflict of interest in which the auditors were unable to exercise professional skepticism when performing their audits.
High-profile sports are big business in many countries. Unfortunately for the International Federation of Association Football (FIFA), alleged corruption and money laundering means its big business operated with little or no oversight. The FIFA scandal involved the collusion between FIFA executives, sports marketing executives and officials of continental football bodies. The scandal erupted in May 2015 when Swiss authorities raided a hotel in Zurich and several FIFA executives were arrested. The U.S. Department of Justice (DOJ) has cited more than 40 defendants in the FIFA scandal. Some charges involved bids for World Cups and for marketing and broadcast deals that amounted to nearly $150 million. Future World Cups are now in question — the scandal has caused the bidding process for the 2026 World Cup to be suspended. Proposed changes have been made, but only time will tell in an organization that has historically dealt with bribery and corruption.
In 2012, British pharmaceutical company GlaxoSmithKline (GSK) was at the center of the largest health care fraud settlement in history when the company agreed to pay $3 billion in fines to U.S. regulators. The crime? According to the U.S. Justice Department, GSK unlawfully promoted certain prescription drugs, failed to report safety data, paid kickbacks to health care professionals and engaged in fraudulent pricing practices. The settlement arose from a number of GSK policies and practices that largely involved the promotion of prescription drugs, like Paxil and Wellbutrin, for off-label use. While doctors may prescribe drugs for off-label use, it’s illegal for pharmaceutical companies to promote or market off-label uses. The U.S. government also claimed that GSK paid unlawful kickbacks to health care professionals to encourage them to prescribe certain drugs. Although much of GSK’s misconduct was unique to the pharmaceutical and health care industries, the case contains broad lessons. A company’s culture should stress compliance and ethical conduct. The nature and prevalence of GSK’s misconduct suggest that its culture rewarded profit rather than compliance and patient safety. That type of culture is a recipe for fraud.
The Target data breach in late 2013 was the largest in U.S. retail history and resulted in the exposure of approximately 40 million credit card numbers and the personal information of 70 million customers. Unidentified hackers — thought to be from Eastern Europe or Russia — surreptitiously installed malware into Target’s computer networks. The hackers accessed Target’s systems using the credentials of a third-party heating and air conditioning contractor.
Before the company was hacked, Target had installed a security system that caught five instances of malware graded at the highest severity. Members of corporate headquarters were notified, but apparently ignored the alerts. In this day and age when cybersecurity has become a hot topic thanks to the increasing advancements in technology, the Target debacle shows that companies need a strong response plan to deal with alerts of possible network intrusions.
The Olympus financial scandal exploded in late 2011 when then president and CEO Michael Woodford came forward with information exposing fraudulent accounting practices in the organization. Woodford had only served as CEO for two weeks when he revealed the financial malfeasance. The fraud is one of the most significant corporate corruption scandals in the history of Japan. In 2000, standards in Japan changed significantly after the failure of Yamaguchi Securities in 1997. The new accounting standards required losses on certain assets to be noted at the end of each accounting period. Rather than comply with the standards and disclose mounting losses, Olympus constructed a complicated system of hiding its bad assets. The company began selling bad assets for exorbitant prices to newly created entities under its control without recognizing losses from the sales. The Olympus fraud shows that tone at the top matters. Woodford wrote letters to the board about his concerns and was subsequently fired. This exemplified the company’s unethical culture. C-level executives must act according to the principles expected of employees at all levels and across the enterprise.
Learning by Example
These are just five of the 10 cases covered, and here we only scratch the surface of what can be learned from these schemes. 10 Infamous Fraud Cases of the 21st Century contains analysis from experts and experienced fraud fighters. It dives deep into each case to interactively explore the pressures, opportunities and rationalizations of the fraudsters, and how fraud examiners can take these lessons into the field.
Find more products and events in the latest ACFE Resource Guide.
ACFE Public Relations Specialist
Hundreds of anti-fraud professionals from Europe will gather in Brussels, March 20-22 for the 2016 ACFE European Fraud Conference, where they will hear from president and founder of TRACE International, Alexandra Wrage. She hopes that she can shed some light on corruption and compliance issues around the world, including those affecting football’s governing body.
As both an anti-corruption expert and a former member of FIFA’s Independent Governance Committee, Wrage believes not much could have prevented the FIFA scandal that continues to unfold. She said, “The problems at FIFA were so widespread and so broadly accepted, that I am not sure anything could have been done to prevent the corruption. The problems, and especially the sense of entitlement, had been entrenched for decades. It’s possible that the corruption could have been stopped earlier if the sponsors, the Swiss government or the enforcement agencies had stepped in sooner. But for years, it seemed that Mr. [Sepp] Blatter and his friends were almost untouchable. They exchanged favors, made secret deals, funded their own extravagant lifestyle … all at the expense of the sport they were meant to protect and promote.”
At the conference, she will share her thoughts on not only the FIFA scandal, but important issues she sees through her work at TRACE International regarding global anti-bribery standards and the importance of setting the right tone at the top when implementing controls to prevent corruption. Wrage said a common challenge she sees is, “The sense at headquarters that nothing can be done because bribery is simply unavoidable in some countries. I certainly don’t believe this and your local employees won’t thank you for that sort of pessimism. They’re living with corruption every day and the head office should be backing them up, providing tools and training and helping them to avoid extortionate demands.”
She will be joined at the conference by other keynote speakers including award-winning investigative journalist and acclaimed author Anita Raghavan, Chief Commissioner of the Belgian Federal Police Johan Denolf, Head of the Security Division and General Services Division, International Court of Justice Maarten Daman, Attorney Mark Livschitz and Deputy Training Director of the Association of Certified Fraud Examiners Liseli Pennings, CFE.
Breakout sessions will include discussions about cybercrime, bitcoin and how linguistic and cultural influences can be used to fight against money laundering. This conference will give attendees an opportunity not only to hone their techniques, but also network and build relationships with other anti-fraud professionals.
Don’t miss your chance to hear from experts on today’s most pressing fraud and corruption issues. Register now for your chance to attend the 2016 ACFE European Fraud Conference in Brussels.
LIVE FROM THE ACFE GLOBAL FRAUD CONFERENCE
ACFE Communications Coordinator
"Sixteen years of clean audits at FIFA shows that corruption is mostly invisible," said Paul O'Sullivan, CFE, senior consultant at Paul O’Sullivan & Associates. "These people don't need a receipt for their crimes." Like the FIFA scandal, corruption isn't always loud and it isn't always in your face. Corruption is calculated. "Corruption is a proverbial iceberg — it's not always visible," said O'Sullivan.
When I think of transnational organized crime, I think of the mafia, terrorism cells or human trafficking — how are these groups thriving and what is being done to stop them? They thrive because all transnational organized crimes simply begin with corruption — dishonest behavior by those in positions of power. There has to be someone to initiate the crime, someone greedy, someone who is willing to take the risk to get what they want, to initiate corruption.
In O'Sullivan's session, ”How Corruption Facilitates Transnational Organized Crime,” he provided insight into corruption and how it facilitates Transnational Organized Crime (TOC). TOC is crime that is coordinated across national borders, involving groups or networks of individuals working in more than one country to plan and execute illegal business ventures. Corruption is a global issue, one that includes, but is not limited to: drugs, human and weapons smuggling, terrorism, and more.
The session concentrated on terrorism related to these kinds of crimes. Terrorist cells exploit opportunities created by corruption and organized crime in order to fulfill their agendas. "When you put corruption, TOC and terrorism together, it is a hell of a mixture," said O'Sullivan. An example he used is the 2004 double plane bombing by two Russian black widows. The women bribed a policeman at Moscow's Domodedovo Airport to circumvent airport security systems and then detonated bombs on two different airplanes within 30 minutes of each other. Because of the officer’s corruption, 89 people died that day.
For fraud examiners, ethics must prevail. "If you can tackle corruption anywhere in the world then do it," said O'Sullivan. “If you want the change, then be the change.”
Find more conference coverage at FraudConferenceNews.com.