Pulitzer Prize-winning Journalist David Barboza Named 2016 ACFE Guardian Award Winner

LETTER FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President and CEO

Fraud examiners have many friends in other professions. Our activities and skills, for example, overlap with investigative journalists. We both use interviewing and data analysis tools. Sometimes we can help each other in discovering evidence. And we both try to objectively seek the truth.

We instituted the Guardian Award because fraud examiners and reporters often reach for common goals. We present it every year to a journalist whose determination, perseverance and commitment to the truth has contributed significantly to the fight against fraud. We select nominees based on their contributions in exposing specific acts of fraud and white-collar crime or through helping to shine a spotlight on issues central to fraud and the worldwide effort to prevent and detect it. Sounds like most fraud examiners, doesn't it?

David Barboza, a business correspondent for The New York Times, is the 2016 Guardian Award recipient because he exposed corruption at high levels of the Chinese government, including billions in secret wealth owned by the prime minister's relatives. He received a 2013 Pulitzer Prize for International Reporting for his series of articles on the corruption.

In the cover article, Barboza says he began work on a series about what had been dubbed "state capitalism" with an envisioned final article about "princelings" — the sons and daughters of the political elites.  "And it was during the research on that piece that I began to discover that in China I could get access to corporate records, records of private companies, and records that listed current and former shareholders.

"I initially intended to look at the sons and daughters of Politburo members and write a little about their business deals. But then I found records related to the family of then prime minister, Wen Jiabao," he says. "I could hardly believe that within months of searching through government records and corporate filings of listed companies that there were indications the family might have a huge stake in Ping An, one of China's biggest insurance companies. I soon found that the family's wealth could be in the hundreds of millions of dollars. Eventually, we documented about $2.7 billion. But that was hardly all of it. I later found even more."

Read more about Barboza in this month's Fraud Magazine article, "Uncovering hidden billions in China." Also, Barboza will deliver a keynote message and receive the Guardian Award in person at the 27th Annual ACFE Global Fraud Conference, June 12-17 in Las Vegas.

FCPA Compliance in China

SPECIAL TO THE WEB

By Mark Jenkins, CFE; Sunny Chu, CFE, CPA; and Christopher Meadors, J.D., CPA

As you sip your frothy Cappuccino while basking in the glow of your most recent quarterly report, which shows a dramatic increase in sales in your China division, your assistant busts into your office with a letter from …. the Department of Justice! Hmmm. What could they want?? 

While foreign direct investment (FDI) in China has lost some momentum — it decreased from $116 billion to $111.7 billion from 2011 to 2012 — China still remains one of the most preferred locations for corporate investment. Of course, great opportunities can often precede large frauds. Some multinational companies, such as the British pharmaceutical giant GlaxoSmithKline (GSK), are finding themselves in the headlines faced with allegations of violations of the U.S. Foreign Corrupt Practices Act (FCPA) and Chinese anti-bribery laws.  

When multinationals decide to enter China through FDI, several underlying forces could be a problem: 

• Corruption that has long been the norm in China.
• The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) is now vigorously enforcing the FCPA.
• The existence of state-owned entities (SOE) that appear to be private entities.

CORRUPTION IN CHINA 

Although China is attractive for FDI, multi-nationals must know with whom they do business and be aware of the inherent risks of corruption. Transparency International’s 2013 Corruption Perceptions Index (CPI) ranks China a relatively poor 40th. (According to Transparency International, zero means highly corrupt, and 100 means limited corruption. To provide points of reference, Afghanistan and Somalia are 8 on the CPI, and Denmark and Finland are 90. Although China isn’t the highest in corruption, it remains a high-risk country.) 

What corruption risk could a multinational expect when doing business in China? In the GSK case, Chinese authorities are investigating the company for colluding with a travel agency to funnel money to government doctors using fraudulent invoices. (See “ GlaxoSmithKline Accused of Corruption by China,” by David Barboza, The New York Times, July 11, 2013.) In 2012, Eli Lilly had similar issues when its sales force employees were submitting expense reimbursements for cash, bathhouse visits and meals they were giving to Chinese government doctors in return for the doctors purchases of Eli Lilly products. 

The pharmaceutical industry is not alone in struggling with corruption in China. In 2012, Morgan Stanley’s real estate and fund advisory managing director, Garth Peterson, colluded with a former chairman of a Chinese state-owned enterprise, Yongye Enterprise Group. Peterson paid the Chinese official and himself “finder’s fees” of $1.8 million that Morgan Stanley owed to third parties. In exchange for the fees and personal interest in Morgan Stanley’s investments, the Chinese official brought business to Morgan Stanley. (See the SEC release, “ SEC Charges Former Morgan Stanley Executive with FCPA Violations and Investment Adviser Fraud.”) 

Read the full article on Fraud-Magazine.com.

Anti-Fraud Training Heads to Asia-Pacific Region in 2014

AUTHOR’S POST

Mandy Moody, CFE
ACFE Social Media Specialist

This week I came across an article highlighting the challenges multi-national companies face when doing business in China. The piece describes the risk that China’s unique culture of bribery places on companies like JPMorgan Chase, GlaxoSmithKline and Avon. While I have little remorse for JPMorgan right now, information like this is a vital tool for companies to gain a true understanding of a single country’s distinct vulnerabilities and their intricate, specific legal systems. While we all work towards the end goal of fighting fraud, the means to get there can be just as diverse as a country’s culture, language and customs.

Through dedicated training and education, companies, small businesses, government entities and investigators can truly gain an understanding of what lies beyond their own state, country or continental lines. It is with this intent that we decided to create training events outside familiar territories that cover bribery and corruption, investigations, interviewing and fraud risk management specific to individual areas and their culture.

Here are a few of the upcoming events we will be holding in new areas:

Bribery and Corruption
20-21 January 2014
Hong Kong

Conducting Internal Investigations
13-14 February 2014
Auckland, New Zealand

Professional Interviewing Skills
17-18 February 2014
Sydney, Australia

Using Data Analytics to Detect Fraud
24-25 April 2014
Singapore

Be sure to check back regularly on ACFE.com to see the latest international cities we will be visiting in 2014.

ACFE Wraps Up Seminars in Asia-Pacific Region

AUTHOR'S POST

Mandy Moody, CFE
ACFE Social Media Specialist

Donald Cressey’s Fraud Triangle is not a concept that only applies to one gender, culture or country. Whether you are investigating fraud in Bangkok or Belfast, pressure, opportunity and rationalization are three universal factors that know no regional boundaries. Just as these motives are universal, so are the training and skills needed to fight them.

In April the ACFE was proud to host seminars in Shanghai, Jakarta and Melbourne in an effort to offer more anti-fraud training and education in the Asia-Pacific region. With a diverse group of anti-fraud professionals in attendance at each course, the enthusiasm and need for education regarding internal fraud and investigations, as well as fraud risk management, were apparent.

“The fraud schemes themselves are universal – there seem to be very few differences in the schemes from one part of the world to another,” ACFE Faculty Member Gerry Zack, CFE, CPA, CIA and President of Zack, P.C. said. “When I was asked to teach these courses, I expected to really enjoy meeting anti-fraud professionals from all over the world and hearing their stories. And I was not disappointed.”

Zack traveled first to Shanghai, China, April 15-16 to teach the two-day Auditing for Internal Fraud. The fraud fighters assembled there explored the challenges auditors face when identifying fraud and learned about the common schemes, detection techniques and methods of preventing occupational fraud. He then taught Conducting Internal Investigations in Jakarta, Indonesia, April 18-19 and wrapped up in Melbourne, Australia, April 22-23 with Fraud Risk Management.

Lim Kurniawan, CFE, is the Managing Director at Awesome Consulting in Jakarta. He knew of Zack before attending the Conducting Internal Investigations course because he bought the book, Fair Value Accounting Fraud, written by Zack. In the book, Zack highlights the risks of the International Financial Reporting Standard, a standard that is adopted as a local accounting principle in Indonesia. Kurniawan and Zack not only share the challenges of implementing global standards, but they also experience the same successes and trials during the interviewing process.

Kurniawan plans to use the lessons from a simulation Zack used in the course to help clients interview witnesses. “The skills taught in this course were practical, which I believe to be very applicable,” Kurniawan said. “Gerry offered specific examples from his own life, not fictitious ones. It was such an honor for Indonesia to be visited by an amazing international speaker. I hope in the future such a richly rewarding course could be attended by more people, thus Indonesia could be more blessed in this way.” 

Read more about the seminars in the ACFE's latest Global Spotlight.

Greetings from Sunny Singapore

GUEST BLOGGER

Dewi Malik

Business Support Manager

ACFE Asia Pacific Regional Service Centre

Combatting fraud has no geographical boundaries. That is why the nature of fraud in global business today calls for an international presence. With the opening of the new Asia-Pacific office in Singapore we wish to strengthen our presence throughout this area and beyond. We also want to greatly improve support for our ACFE members in the region.

My colleagues and I are extremely excited to be a part of this huge step towards fulfilling ACFE's No. 3 New Year's Resolution-Expand International Growth Efforts to New Regions. This move to set up an ACFE office in the hub of Singapore truly represents the astounding membership growth in the Asia-Pacific region.

The ACFE Asia-Pacific office offers timely language-specific support to new, existing and potential members in this culturally diverse region. Whether you are from Korea, Japan, Australia or China, my colleagues and I are here to answer any queries or give feedback relating to the ACFE's membership, conferences, programmes and services. In addition to English, we have support staff members well-versed in Mandarin, Japanese and Korean.

I cannot tell you how thrilled I am to join the global ACFE family. I hope to be able to meet you and colleagues from around the world at the upcoming 2012 ACFE Asia-Pacific Fraud Conferencein Hong Kong, 4-6 November 2012.

We welcome your queries and feedback. Please contact us at +65 6496 5503 or AsiaPacific@ACFE.com. I certainly hope to speak with you soon.