5 Anti-Fraud Lessons From Southeast Asia

/
5-anti-fraud-lessons-southeast-asia.jpg

GUEST BLOGGER
Rupert Evill, CFE
Founder, Ethics Insight

Southeast Asia is an increasingly appealing market for organizations seeking to access the human capital and natural resources in the region, or capture the attention of the ever-growing middle class, which is currently estimated at 135 million people of the Association of Southeast Asian Nations’ (ASEAN) population of approximately 665 million.

It is also a complex and diverse region with considerable fraud challenges, which makes generalizations tricky. There’s a local expression that you’ll have heard if you’ve visited — “Same same, but different.” This phrase is used in a lot of contexts, including expressing deliberate vagueness or fraudulent misrepresentation. For example, you might ask someone a question like “Is this the official fee I must pay for this visa?” or “This T-shirt you’re selling, is it genuine Polo Ralph Lauren?”

Both might be answered with “Same same, but different.” This can mean several different things:

  • “There is no official fee.”

  • “There is an official fee but I’ve grossed it up.”

  • “I don’t know what the official fee is.”

  • “It’s counterfeit.

  • “It’s parallel trade.”

  • “It’s stolen.”

It’s a useful phrase in cultures where bureaucracy, regulation, enforcement and even laws are unclear, inconsistent, open to interpretation or just ignored.

I’ve found this colloquialism to be appropriate when looking at the anti-fraud landscape, so here are my five anti-fraud lessons from Southeast Asia.

1. Choose your partners and projects wisely

Many of the countries in the region are highly decentralized. To pick one example, Vietnam has around 58 provinces and five municipalities (big cities). As one executive said after five years in two of those cities, “When I lived in Ho Chi Minh City, I thought, ‘Everything is possible.’ Then when I lived in Ha Noi, I thought, ‘Nothing is possible.’” That statement speaks to an issue across the region — you should not expect the same standards of governance and will need to pick projects accordingly.

You also need to choose partners with considerable care. That is true in almost all places, but in Southeast Asia, where politics can be febrile and capricious, if you have chosen a partner who finds themselves out of favor, you may be saying farewell to your business. Make sure you understand if political connections are an asset or a liability, not just now, but in various political change scenarios.

Once you’re confident that the connections don’t pose a current or possible future liability, make sure you get on the ground with your partner. Don’t be like the company who partnered with an Indonesian mine concession owner but never visited the mine site, which subsequently “went missing,” along with the company’s investment.

2. Prepare to be extorted

Low salaries, poor leadership and the perception that employees of foreign firms are walking ATMs often see investors targeted for shakedowns. The most common one is a variation of, “You didn’t file this document properly.” The document might be a tax return, work permit, business license or product registration. In each case the alleged infraction, often concealed by opaque regulation, can be “resolved for a small fee,” usually to be paid in cash directly to the official.

As many such processes — the same requests also occur from clients — are crucial to your organization’s operations, there will be significant pressure to pay, especially if regulatory censure, detention, investigation, imprisonment or violence are threatened. The solution is seldom easy, but twofold: 1) make sure you understand all processes and get trusted local advice if confused, and 2) have contingency plans, including business continuity, altering routes to market and escalation procedures to allies in government.

3. Politeness doesn’t mean agreement

When you implement your anti-fraud policy, you may be met with some initial resistance. Once you stand firm, people will generally say they will comply and then not comply. This isn’t always ill-intentioned. It is often people telling you what they think you want to hear because the truth might create conflict and disagreement. If your local colleagues feel implementing zero-tolerance anti-fraud programs would kill the business, they may smile politely as you explain rather than tell you it isn’t (immediately) realistic.

Common gripes are gifts and entertainment, conflicts of interest, and facilitation payments, which can be very ingrained in cultures where showing face and giving gifts has traditionally been customary, as has giving business to related parties and relatives.

4. Don’t believe everything you read

Take a brief glance at the Reporters Without Borders index and you’ll see many Southeast Asian countries in the bottom quartile. This index — compiled by an international nonprofit organization that conducts political advocacy on issues relating to freedom of information and freedom of the press — is a very useful barometer for determining how (un)reliable public information is. With a few exceptions, the media in this region is heavily biased, censored and lacking rigor. Fake news is just “news.” Those choosing to accurately report fraudulent and corrupt acts — often bloggers — do so at extreme personal risk in many cases.

Don't assume corporate filings tell the whole story. Forget about court, property or criminal records. To know who you’re actually dealing with, especially establishing ultimate beneficial ownership, you will need to conduct intelligence gathering using on-the-ground resources.

5. Community matters

There’s a regional expression that can be paraphrased as, “The power of the emperor stops at the village gate.” For all the autocratic systems in the region, there remains considerable power at the provincial and local level. If your organization does not have social license to operate, you might as well strap a “defraud me” sticker to your back.

Marrying your corporate social responsibility (CSR) framework with your anti-fraud framework for any resource-intensive project (construction, manufacturing, infrastructure, resources, etc.) is a must. You need to ethically and legally appease the various political, community, religious and nongovernmental organizations (NGOs). A solid CSR framework that provides skills and transfers knowledge will often be your best defense against points one and two, and to a lesser extent, point three.

Same same, but different

This list will probably be somewhat “same same” to readers in other diverse, complex, emerging and maturing markets. Where the “but different” really applies is for organizations operating across multiple Southeast Asian countries expecting a level of homogeneity that just doesn’t exist in a region where there are 12 official languages across 10 countries with widely differing political, legal, bureaucratic, religious and ideological frameworks.

That’s what makes it so interesting to work here and why after nearly 10 years, no two days are the same!