1MDB Journalist to Keynote ACFE Asia-Pacific Fraud Conference

FRAUD CONFERENCE NEWS

Sarah Hofmann
ACFE Public Relations Specialist

One of the keynote speakers for the 2016 ACFE Fraud Conference Asia-Pacific, Clare Rewcastle Brown, is all too familiar with the reach of global corruption. Rewcastle Brown is an investigative journalist who has begun a heated international dialogue by publishing accounts alleging corruption occurring in Malaysia. Brown founded the Sarawak Report and Radio Free Sarawak in 2010 to first highlight local deforestation occurring in the Sarawak region of Malaysia. That led her to uncover a system of kickbacks between the logging companies and local officials.

In 2013, her investigations turned from deforestation to exposing potential bribery and theft involved in a Malaysian public development fund, 1Malaysia Development Bhd (1MDB). She obtained leaked materials from an employee of PetroSaudi, an investor in the 1MDB fund, which showed USD 700 million that should have been invested in 1MDB ended up in the personal account of the Prime Minister of Malaysia, Najib Razak.

While 1MDB was created and marketed as a fund set up for furthering Malaysian growth and infrastructure, Rewcastle Brown began uncovering how the fund was drained and moved into various shell companies that benefited a few investors. Multiple banks have been tied to the scandal, including Goldman Sachs, which led a number of outside countries, including the U.S., Singapore and Switzerland, to launch their own investigations into the fund.

Despite having an arrest warrant put out for her in Malaysia and dealing with potential stalking in her home base of London, Rewscatle Brown remains optimistic about what her investigations in 1MDB mean for corruption on a greater scale.

"I think we're seeing a swing of the pendulum. I think that 1MDB has cropped up at perhaps the right place, the right time," she said. "This whole off-shore financial structure that's been allowed to grow ... the whole thing's got out of control and I think governments all over the world are starting to realize they've lost control."

Be sure to register to hear her speak in Singapore, November 20-22 during the 2016 ACFE Fraud Conference Asia-Pacific and find out more about Rewcastle Brown in October in an exclusive interview on FraudConferenceNews.com.

The Netherlands: Tackling Corruption at Home, Challenged Abroad

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Cathalijne van der Plas
Associate partner at Höcker Advocaten and colleague of ICC FraudNet

Last year, Transparency International released its Corruption Perceptions Index (CPI) 2015, which evaluates the level of endemic corruption in countries across the globe. The Netherlands secured a spot on the CPI as the fifth least corrupt country in the world, moving up from the eighth ranking in 2014 to follow only Denmark, Finland, Sweden and New Zealand in the organization’s annual report.

While the Netherlands’ move toward less corruption signals the country is doing something right when it comes to keeping corruption at a minimum, the CPI’s analysis only covers the public-sector corruption that takes place within a country’s national borders. Its figures do not include corruption by residents of the Netherlands abroad.

The Effect of Out-of-Court Settlements on Perception
It is likely that out-of-court settlements keep a lot of information about alleged corruption out of the public domain. These settlements rarely lead to prosecution of the natural persons responsible for the corrupt actions.

Well-known cases of Dutch companies involved in bribery abroad are SBM Offshore and Ballast Nedam, which both were finalized with out-of-court settlements. Furthermore, in February of 2016, the Dutch Public Prosecution Service entered into another out-of-court settlement with Russian telecom company VimpelCom, headquartered in the Netherlands. It was part of a joint settlement with the U.S. Department of Justice (DOJ), in which VimpelCom and its subsidiary paid $397.6 million to the DOJ and the U.S. Securities and Exchange Commission in fines for bribes paid to a government official of Uzbekistan to win bids for Uzbek telecom providers. More recently, there has been an investigation into the involvement of Shell in corruption in Nigeria.

Improving Enforcement
This highlights what Transparency International in 2015 discovered — that the level of enforcement by the Netherlands abroad can be seen as “limited enforcement.”

In the December 2012 release of its “Phase 3 Report on Implementing the OECD Anti-Bribery Convention in the Netherlands,” the Organisation for Economic Co-operation and Development (OECD) expressed its concerns about the efforts of the Netherlands regarding the active investigation and prosecution of corruption by Dutchmen or Dutch companies abroad.

In its “Follow-up to the Phase 3 Report & Recommendations,” released in May 2015, the OECD noted that the Netherlands has demonstrated significant progress with regard to enforcement, fully implementing 11 out of 22 recommendations and partially implementing six others. Only five of its recommendations were not implemented.

Between the period of December 2012 and May 2015, the Netherlands opened seven new foreign bribery investigations, bringing the total number to 16. Ten of these are ongoing investigations and four have been closed. The remaining two investigations, the cases of the Dutch companies SBM Offshore and Ballast Nedam referenced above, were finalized with sanctions imposed on the defendants through out-of-court settlements. SBM Offshore agreed to a $40 million fine and a $200 million disgorgement for payments in Equatorial Guinea, Angola and Brazil. Ballast Nedam agreed to pay €17.5 million and, in the context of the same case, KPMG Accountants NV agreed to pay a €3.5 million fine and €3.5 million in confiscation for bribery related accounting misconduct.

Nevertheless, the OECD is also aware of 24 other foreign bribery allegations that do not appear to have been investigated.

Changes to the Criminal Code
On January 1, 2015, relevant amendments to the Dutch Criminal Code entered into force. The amendments simplify and harmonize the offences for foreign bribery, including removing the distinction between bribery to induce a violation of official duty and bribery to receive a benefit within the official’s duty. The amendments also increase the maximum sanctions for foreign bribery. Furthermore, the Netherlands has improved the regime of criminal liability of legal persons. However, the Netherlands has not amended its legislation since Phase 3 to increase protections for foreign bribery-related whistleblowing in the public and private sectors.

Enforcement Leads to Improvement
Although the Netherlands is perceived as one of the least corrupt countries in the world, there is room for improvement in its efforts of enforcement against corruption abroad. Stimulating active enforcement will deter from corrupt actions, although the tendency to settle out of court might reduce this effect.

Cathalijne van der Plas is an associate partner at Höcker Advocaten and colleague of ICC FraudNet, an international network of independent lawyers who are leading civil asset-recovery specialists in their respective jurisdictions. Recognized by Chambers Global as the world’s leading asset recovery legal network, FraudNet’s membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. 

Key Lessons from the Unaoil Scandal for Forensic Email Reviews

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Sundaraparipurnan Narayanan

Unaoil, a Monaco-based oil consulting company, was recently exposed in a media investigation for potentially supporting or facilitating bribes on behalf of large multinational firms in the oil and gas industry. Though the company is from Monaco, Unaoil is believed to have supported companies in winning contracts across Middle Eastern and African countries. The investigation, which Fairfax Media and The Huffington Post conducted, identified several emails providing references to the routing of bribes.

The Unaoil case provides several lessons on using forensic email reviews to help gather evidence or indications of fraud, misconduct and regulatory non-compliance. Investigators who use these reviews rely on communication as a raw form of evidence that exhibits subjects' unethical or illegal intent. Keyword searches are an effective method of identifying evidence in the huge volumes of data stored in digital devices. Investigators choose keywords based on context and relevance to the case.

An analysis of the evidence gathered by Fairfax Media and The Huffington Post on the Unaoil case reveals a number of lessons on forensic email reviews for investigators.

Using code words in communication

Many of the leaked Unaoil emails and excerpts contain several code words referring to individuals, organizations, events and the contexts of the communication. Individuals are referred to as "Doctor," "Ivan," or "Lighthouse." Keywords can help disguise intent in communication. For example, bribers or bribe receivers (public officials) might not be red-flagged in email if they identify themselves by code name or keyword.

Of course, these reviews wouldn't be effective unless investigators are aware of the keywords subjects are using because generic keywords might show inconsistencies.  
Investigators should look for:

1. Data (files created, system logs, etc.) and communication (email and chat logs) pertaining to a specific time period (a month, quarter or a year that's relevant to the incident or the issue in question). 

Dissecting the chain of events

The leak in the Unaoil case included emails referencing the opening of a separate bank account to channel funds; a request for depositing funds into an unknown, third-party, offshore account; and a payment rejected by a bank, which noted the transaction "may conflict with U.S. government sanctions." In that case, the rejected payment was subsequently cleared by the bank.

Automated communications from a banking channel on payouts or deposits might be ignored assuming they're irrelevant. However, if someone attempts to place some of these transactional communications into the overall chain of events relating to the issue or the incident in question, it helps in identifying relevant evidence on a violation or misconduct. Such communication might not contain any of the keywords (including names of key people) that are considered in the review.

When looking at the chain of events, investigators should consider the following three key factors:

1. Inconsistent nature of received communication.
2. Unusual patterns of communication and the use of "Bcc:" in emails.
3. Communication representing financial transactions or financial manipulation.

These outliers help put together events and look at them from a bird's-eye view. Looking at the chain of events in this way enables the investigator to identify potential red flags. For instance, a Bcc: communication might show that the perpetrator intended to involve the subject in the blind copy field without the receiver knowing it.

Forensic email reviews help uncover clues

Organizations should consider using forensic email reviews in new ways to uncover information to understand key players' communication patterns, including what and with whom they communicating, and files they're sending and receiving. If you conduct this type of analysis on each individual for an isolated sample period you might identify specific keywords.

These reviews should extend beyond keyword-based searches to examine communication among identified individuals, time-period-based information exchange, inconsistent/unusual patterns or nature of communication, and any suspect references to financial transactions and manipulation.

The Unaoil case demonstrates how you can use these tactics in forensic email reviews to help unravel large-scale, complex fraud schemes and discover communication patterns, preserved digital evidence and, most importantly, fraud perpetrators' own words — saved for posterity.

Read the full article, with even more tips for reviewing emails, at Fraud-Magazine.com.

Sundaraparipurnan Narayanan is the associate director of forensic services at SKP Business Consulting LLP. His email address is: SNarayanan@skpgroup.com.

India Makes Advances in the Fight Against Fraud and Corruption

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Martin Kenney
Managing Partner of Martin Kenney & Co., Solicitors

When news began filtering through to our network of international fraud and asset recovery lawyers that India was in the latter stages of drafting a Bankruptcy Bill, our ears immediately pricked up.

At ICC FraudNet, we know how important bankruptcy laws can be in preventing and tackling corrupt practices. Therefore in terms of engendering confidence from both investors as well as providing remedy for financial malpractice, the importance of the Bill cannot be underestimated. While India is one of the fastest growing economies in the world, it is no secret that it has struggled to overcome historically high levels of bribery and corruption.

We studied the draft Bill and on a pro-bono basis we set about compiling our own white paper detailing suggestions that would increase the Bill’s effectiveness. 

One of the amendments suggested was the addition of a chapter on cross-border insolvency cooperation. We recommended moderating some aspects of the Bill to bring it in line with current international standards. These amendments would enable Indian insolvency office holders to recover assets squirrelled away abroad, outside the Indian jurisdiction: an imperative move for justice. In fact, UNCITRAL (United Nations Commission for International Trade Law) has created an excellent Model Law on Cross-Border Insolvency (1997) and a Legislative Guide on Insolvency Law (2004). Recently, the UNCITRAL National Coordination Committee for India was established to deepen its engagement and be more receptive to views from India.

Much of India now knows the case of Kingfisher magnate Vijay Mallya, who has attracted international interest. Indian media has reported official sources stating the Central Bureau of Investigation (CBI) had filed various charges, including money laundering, and that an arrest warrant had been issued. Mallya left the subcontinent for the U.K. in March, owing about $1 billion to creditors. The Indian authorities are seeking his extradition.

Mallya sought to take advantage of the old, flawed Indian insolvency laws to delay and avoid creditor actions. In light of this case and others like it, India’s government acknowledged the need to address the failings with this new legislation.

Yes, the subject of bankruptcy is far from being chic. Yes, it is complicated and appears to be of interest to just the few specialists who work within its legislative constraints. But nothing could be further from the truth. Bankruptcy is of massive public interest and a central part of the legal infrastructure of any healthy and successful economy.

Indeed, World Bank figures suggest that in India creditors take 4.7 years to recover 25 percent of dues from a bankrupt firm, while in the U.S. they get 80 percent and without the inordinate wait. It is rumored that there are 60,000 ongoing bankruptcies in India awaiting resolution.

The new legislation will make those running companies take their liabilities seriously, and see unviable businesses wound up speedily, saving shareholders and creditors from greater loss. This natural selection process will ensure survival of the fittest and investment is available for those enterprises seeking to grow.

To take on the daunting task of writing this new legislation is a testament to those involved. To recognize that there may be scope to improve the draft is evidence of their determination to make the Bill as effective as possible, and we are honored to be able to assist.

On May 5, the Lok Sabha lower house passed the draft Bill, whereupon it moved to the upper house, Rajya Sabha. On May 11 it was passed by the Rajya Sabha and will soon be enacted. We hope that some of our suggestions will make it into one of the Bill’s subsequent amendments.

These are exciting times for the Indian business community, who will now be able to conduct their commerce safe in the knowledge that they will have the support and protection afforded by a piece of modern, fit-for-purpose legislation. A strong bankruptcy law for India, that prevents tactical bankruptcies and garners confidence within the international community, will buoy investor confidence. This is a classic example of how the private and public sectors can come together and work as one with mutually complimentary goals and ambitions.

Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative & asset recovery practice focused on multi-jurisdictional fraud & grand corruption cases. He is Co-Chair of ICC FraudNet's Task Force India www.martinkenney.com | @MKSolicitors

Shreyas Jayasimha is Advocate and Co-Founder of AARNA LAW, Bangalore and New Delhi, and National Co-ordinator, UNCCI. He is Co-Chair of ICC FraudNet's Task Force India www.aarnalaw.com

The Drug Trade Ruins Lives, But Why Is Fraud Ignored?

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Martin Kenney
Managing Partner of Martin Kenney & Co., Solicitors

Fraud has become a global “pandemic.” That was the view of bestselling author and organized crime and fraud expert, Jeffrey Robinson, when he spoke at the 2016 ACFE Middle East Fraud Conference last week.

Robinson said, “If fraud were a disease, political leaders of all our nations would have to declare a global health emergency.” I couldn’t agree more. I know that many of my colleagues attending the conference would also concur with Robinson’s perspective.

What I particularly liked was Robinson’s overview concerning drug trafficking and fraud, with the comparative cost of both crimes. Law enforcement focuses on terrorism first, he said, then drug trafficking, followed by firearms and sex offenses. In terms of monetary impact, fraud was second only to drug trafficking, yet it remained far down on the list of crimes that get investigated.  I personally consider fraud as having the greatest intrinsic value of the two crimes. I will explain why.

The former U.K. detectives who lead my investigations unit described how “value is attached to a consignment of drugs. Effectively, the pure drugs (let’s use cocaine as the example) leave the shores of South America/wherever in a nearly 100 percent pure state. The wholesale value of the drugs is what the next purchaser values them at, currently in the region of $1,800 per kilo of cocaine.

As the drugs pass through the marketing chain, they are constantly being “cut” or “bashed,” meaning they are mixed with other materials to bulk them up. So the kilo of cocaine reaches New York, for example, and will now be represented by multiple kilos of the cut drugs — one can see the fiscal sense this makes to a drug dealer. The new price per kilo of the bashed cocaine is now approximately $30,000. This figure can be extrapolated further when we commence talking about the street value of the drug.

Once we apply this rationale to the equation, it is easy to see why the drug business is a multi-billion-dollar enterprise. But herein lies the paradox: if a fraudster like Bernie Madoff steals $17.5 billion, the value of the loss to the victims is $17.5 billion (putting aside damages claims). If the Drug Enforcement Agency (DEA) intercepts a $17.5 billion shipment of cocaine, they actually acquire nothing (other than a problem over how to safely destroy the consignment) — the drugs are effectively worthless in law enforcement hands, and only acquire a value once they hit the streets.

However, the losses in fraud cases are tangible. They are made up of real money that has a face value. Therefore, by any comparison, fraud should be dealt with as a policing priority.

Drugs ruin lives, but so does fraud. When pensioners invest their savings in a boiler room scam, the effects on both the pensioners and their families are devastating (and they have done nothing illegal, either). The impact is compounded by families having to bail out elderly relatives and the state having to contribute to their welfare. Businesses, too, that are ripped off may end up having to lay-off employees, leading to severe hardship. The effects of fraud can be endless.

So while the drug trade is a major issue, fraud is real money and real dollars, with genuine innocent victims. It deserves to be a law enforcement priority.

Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors of the British Virgin Islands, a specialist investigative and asset recovery practice focused on multi–jurisdictional fraud and grand corruption cases www.martinkenney.com | @MKSolicitors