GlobalSep 28 2021

World's biggest corporates are hit hard by crime

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World's biggest corporates are hit hard by crime
Photo by Kindel Media from Pexels

The world’s biggest corporates are suffering from significant levels of corruption and other illicit activity, according to a new report by global business services company Kroll.

In March this year, Kroll surveyed 1,336 senior decision-makers, including chief compliance officers, chief finance officers and chief executives, for its Global Fraud and Risk Report 2021.

The survey covered 17 countries and regions, including the UK, France, Australia, Russia, India and the Middle East. More than half (60 per cent) of the organisations surveyed had annual revenues of $250m (£182m) or more, and 34 per cent had annual revenues of more than $1bn.

The responses revealed that 57 per cent of companies surveyed with turnover of more than $15bn were being “very significantly” affected by illicit activity such as fraud, corruption and money laundering. And nearly half (48 per cent) of companies with an annual revenue of between $10bn-$15bn also reported that their company had been affected similarly by these issues.

However, the respondents also indicated that problems are being addressed. The survey highlighted that big businesses are taking corrective action, strengthening their focus on proactive measures to manage bribery and corruption risk, including enterprise-wide risk assessments (82 per cent) and the use of data analytics (86 per cent). 

And the issues are under scrutiny at the very top of these organisations. Nearly three-quarters (72 per cent) of respondents said that bribery and corruption were being given sufficient board-level attention and investment. 

But there are reports of lingering problems, as despite the defences put in place, 82 per cent overall said that they still felt corruption and illicit activity were having a significant impact on their organisation. 

Causes and potential solutions

As corruption continues to prevail, despite much time and investment directed at resolving the issue, this raises questions about potential causes. Coronavirus may be a factor, but it is not the only one.

Zoe Newman, managing director and global co-head of the financial investigations practice at Kroll, says: “It has been an unprecedented year for corporate risk, with firms simultaneously facing threats from all angles, including increasingly complex supply chains and the impact of Covid-19 measures.

“While it is good news that so many organisations are bolstering defences with proactive measures such as data analytics and that bribery and corruption risk is on the boardroom agenda, the findings from this year’s report leave us with an important question: why are bribery and corruption threats persisting and still having such a big impact?”  

The report’s findings showed that global organisations were feeling vulnerable to both internal and external threats, with 46 per cent of respondents citing lack of visibility over third parties as the number one threat relating to bribery and corruption risk. Weaknesses in internal record-keeping was second on the list of top concerns (31 per cent) followed by employees’ actions at 23 per cent. 

Newman says: “Poor record-keeping or the inability to adequately monitor frontline teams and regional offices are typical vulnerabilities that are often overlooked. Then there’s the human factor: an organisation can have the best possible compliance programme in place on paper, but if the human elements of the chain aren’t well managed, educated or equipped to act, non-compliance or illicit behaviour will continue to prevail and go undetected.” 

Looking at the issue of external supplier management, Howard Cooper, managing director and global co-head of the financial investigations practice at Kroll, says: “In today’s complex environment, businesses need to have a tight grasp of their internal data as well as the ability to ‘zoom out’ to the external environment.

"This is only possible if a business is able to look outward and close the gap between internal policies and external developments. If a business can pass on some of its wisdom to one of its long-term suppliers through training or ‘meeting the team’ sessions, for example, that supplier will become less vulnerable, making it a stronger link in the chain. Company culture is a key component of any successful strategy to curb bribery and corruption risk.” 

Jeremy Summers, head of business crime at solicitors Osborne Clarke, agrees that the pandemic has had an impact, including on third-party supplier management: “Covid has been a factor. Supply chains have had to change due to the pandemic and the ability to ensure effective oversight of both internal actors and external third parties has been weakened because of the difficulties in achieving face-to-face interaction.”

But leaving Covid and suppliers aside, there is another reason why the world’s biggest corporates are being hit hard by illicit activity despite bolstering their defences, as Summers explains: “Large, multi-national companies operating in high-risk sectors and jurisdictions will always be at increased risk of fraud and corruption due to the sums involved in the contracts that they are involved in, which often acts as a magnet for criminal activity seeking illicit profit.”

To address the issue, he echoes the focus on risk and technology: “Big corporates should continuously conduct and review risk assessments to ensure that risks are understood and mitigated. Where appropriate, data analytics including AI should be used to obtain a detailed picture of the criminal risks faced by a particular business.”

In the meantime, at government level, the UK is taking further steps to tackle corruption.

In a statement to parliament in April, then foreign secretary Dominic Raab announced the UK’s first sanctions under the global anti-corruption sanctions regulations 2021 on 22 people who had been engaging in serious levels of corruption. Referring to other government actions, he said that 4.5m companies were now listed on the public register of company owners, which was established in 2016, to address the issue of anonymous shell companies used to shift corrupt money around.

He also reported that following the introduction in 2017 of the five-year anti-corruption strategy and the International Anti-Corruption Coordination Centre in London, the UK had moved up in global rankings from 20th to 11th place, out of 180 countries. 

But there is more it could do, as Summers says: “The most obvious need is for adequate and urgent resourcing to be given to our lead enforcement agencies, in particular the Serious Fraud Office.” 

Fiona Nicolson is acting deputy features editor of FTAdviser