LAW & COMPLIANCE

Rise in Fraud, Bribery and Corruption Seen Amid Tough Economic Times

Companies in Asia-Pacific will continue to face challenges when it comes to fraud, bribery and corruption, especially with compliance budgets expected to be squeezed on economic volatility concerns.

The same volatility could also play a role in management making unethical decisions in order to achieve better results, according to EY FIDS.

“Our previous surveys on fraud, bribery and corruption strongly indicate that senior management are more likely to take shortcuts in tough economic times,” says Chris Fordham, Asia-Pacific Managing Partner of EY Fraud Investigation & Dispute Services.

“2017 looks set to be characterized by geopolitical risk and economic uncertainty, meaning companies in Asia-Pacific need to prioritize measures to proactively address the risks of fraud, bribery and corruption.”

While fraud risk is on the rise, one of the biggest challenges facing companies is that the macro-economic climate could also see compliance teams asked to do more with reduced budget and resources.

“Over the last few years we have seen companies in Asia-Pacific continue to build-up their compliance teams to keep pace with the growth in global and local compliance regulations. However, many organizations have failed to fill all the roles required to operate a robust compliance framework.

“Heading into 2017, we anticipate compliance teams will face tightening budgets, potentially leading to a slowdown in hiring. We therefore expect senior management to examine how they can better use technology to get more out of their current compliance programs,” said Fordham.

EY FIDS also believes 2017 will be a year in which more large scale bribery, corruption and anti-competition scandals in Asia-Pacific involving large corporations are expected to be unearthed as regulators pay close attention to businesses that operate across multiple jurisdictions.

The major trends expected in 2017 include:

Unethical behavior on the rise with economic volatility

EY’s Asia-Pacific Fraud Survey 2015 found that close to 50% of respondents believe that when their organization experiences a slowdown in business, local management would act in an unethical or questionable manner to improve its market performance. With continuing economic volatility and the uncertain macro-economic outlook, management will be placed under significant pressure to achieve results in 2017.

This pressure could result in more unethical behavior or management ignoring the fraudulent behavior of others. Meanwhile tighter budgets will put the sustainability of compliance programs under threat and could leave many companies exposed to the risks of fraud, bribery and corruption.

Technology will become an essential component of compliance programs

Technology has always played a role in compliance programs. However, in 2017 compliance teams will be left with no choice but to better utilize technology to enhance their reactive and proactive fraud monitoring.

Compliance teams will need to review an ever increasing volume of transactions but with less resources and greater time constraints. Companies will need to be more efficient in their use of technology if they want to effectively detect potential fraud and keep ahead of the risks.

Anti-money laundering focus moves onto new industries

In Asia-Pacific, as well as globally, the financial services industry has been a big focus of anti-money laundering (AML) enforcement actions. However, in the next year it is expected that the Designated Non-Financial Businesses and Professions (DNFBPs), including sectors such as the gaming industry, will start to receive greater attention.

In 2017 we will see these sectors having to concentrate effort on more robust compliance programs in order to prepare for any AML audits of their industries.

Cyber and insider threats combine

There has been a lot of emphasis on cyber threats given the potential damage they can cause businesses. However, while cyber threats continue to pose a risk for companies, we expect to see insider threats to be firmly placed on the risk radar for companies. There will be greater recognition that fraudulent behavior and malicious intent could come from employees, former employees, contractors, business partners and other insiders.

Companies will no longer see cyber and insider threats as being separate. In 2017, management will increasingly come to understand that cyber and insider threats are part of one larger data risk that will require a holistic approach for its prevention, detection and investigation.

Multiple jurisdictions and third parties

In the last few years we have seen incidents of fraud, bribery and anti-competitive behaviors that involve companies based in multiple countries. As companies look to grow their businesses in emerging markets in Asia-Pacific, EY expects there will be ongoing incidents that cross over multiple jurisdictions. This means that compliance programs will need to raise the bar to include multiple anti-bribery and anti-competition laws and regulations, especially with various regulators continuing to focus on third parties due to the risks they pose to companies.

Related Articles

Luxury goods sellers – from jewelers and real estate agents to yacht builders...
According to ADB’s Office of Anticorruption and Integrity’s (OAI) 2016 Annual...
U.K.’s accounting watchdog, the Financial Reporting Council, reportedly plans...
The case involved intermediaries in a number of overseas markets, said Rolls...