Muddy Money: The Dirty Truth About Political Corruption

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FROM THE ACFE GLOBAL FRAUD CONFERENCE

Mason Wilder, CFE
ACFE Research Specialist

Corrupt politicians are a common trope in society, but what's more uncommon is how to spot the red flags of shady dealings. Breakout speaker Michael Schidlow, CFE, CAMS-Audit, head of financial crime risk training and emerging risk advisory at HSBC Bank, took attendees at the 29th Annual ACFE Global Fraud Conference in Las Vegas last month on a ride through the world of political corruption combining pop culture references with infamous real-world examples involving names like Gaddafi and Putin. 

Schidlow clearly conveyed the message that political corruption is a massive problem with a wide range of consequences that affect everyone in the world. “The International Monetary Fund estimates that as much as $2 trillion is paid in bribes worldwide on an annual basis,” Schidlow said. 

In order to fight against corruption, as well as comply with regulatory requirements, financial institutions need to develop effective screening procedures for people more vulnerable to corruption — like politicians, their family members or their close associates.    

In his presentation, Schidlow described these people as Politically Exposed Persons (PEPs), and discussed the red flags fraud examiners can use to identify potentially corrupt transactions involving PEPs. One example is a PEP spending more on luxury watches than their official annual salary. Other red flags covered by Schidlow included: 

  • Payments of a PEP’s expenses, such as a mortgage or other bills, by a third party 
  • Transactions with no logical business purposes 
  • Regular wire transfer payments of round or even amounts 
  • Sovereign wealth fund transfers into an account linked to a PEP, which is extremely uncommon in the normal course of business 
  • Transactions involving jurisdictions known to be tax havens or secrecy jurisdictions, such as the British Virgin Islands 
  • PEPs paying their credit card bills multiple times a month, using cash 

By determining how they will screen for PEPs and assigning the PEPs a risk rating that helps inform the decision of whether to maintain a relationship with them, financial institutions can not only protect themselves, but help fight the kinds of extreme corruption cited by Schidlow in his colorful examples that have devastating consequences worldwide.  

Read the full recap of Schidlow's session and find more articles, videos and photos from the conference at FraudConferenceNews.com.