• Thu
  • Oct 30, 2014
  • Updated: 9:07pm

Corporate investigator sees boom times as fraud cases multiply

PUBLISHED : Monday, 11 April, 2011, 12:00am
UPDATED : Monday, 11 April, 2011, 12:00am

Can fraud create legitimate business growth? Risk consultancy Kroll expects it will.

The United States-based firm, which specialises in corporate investigations, will triple its fraud business in the next two years in China, according to president Tim Whipple.

An earlier global fraud report commissioned by Kroll suggested fraud was rampant in China, with 98 per cent of respondents to its survey reporting they had experienced fraud over the preceding 12 months.

To expand its corporate investigation business on the mainland, Whipple said in addition to Kroll's internal resources, the firm now had funding resources available from its new owner, global security group Altegrity, which bought Kroll from US insurance broker and consultancy company Marsh & McLennan (MMC), for US$1.13 billion last year.

The purchase price was 40.5 per cent less than the US$1.9 billion that MMC paid for Kroll in 2004.

Altegrity is owned by private equity firm Providence Equity Partners, led by chief executive Mike Cherkasky, a former president of Kroll.

Mainland firms has been buying corporations globally, and state-owned enterprises need advice to understand their foreign partners.

'There has been a dramatic shift in the past 15 years since we have been operating in Greater China,' said Whipple.

Over the past five years, the number of companies based on the mainland that sought due diligence and compliance investigations from the firm had seen double-digit growth, he added.

With regulators globally clamping down on corruption and poor due diligence, the costs of compliance for business is surging.

Whipple sees opportunities for itself in the US Foreign Corrupt Practices Act, which makes it a crime for US firms to engage in bribery abroad; along with the UK Bribery Act.

Hong Kong's financial regulator the Securities & Futures Commission has said it is concerned about damage done to the listing process in the wake of a number of high-profile frauds by newly listed firms.

The most recent was China Forestry Holdings, whose former chief executive, Li Han Chun, was arrested on the mainland for allegedly embezzling 30 million yuan (HK$35.5 million).

The SFC has been campaigning for tighter regulation of sponsors of initial public offerings, hoping to make them liable for false statements in their clients' prospectuses.

Kroll has advised sponsors of IPOs and private equity firms.

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