Keeping companies out of harm's way

More businesses are seeking preventive advice on tougher global rules against corruption and money laundering

PUBLISHED : Tuesday, 14 August, 2012, 12:00am
UPDATED : Tuesday, 14 August, 2012, 8:59am

Tougher global rules against corruption and money laundering have sparked an increased demand for advice by companies in Asia trying to stay out of trouble.

Colum Bancroft, managing director of Kroll Advisory Solutions in Hong Kong, said previously, companies, including banks, mostly hired Kroll to check into situations of suspected fraud. But these days, he said, more and more companies are seeking preventive advice.

Kroll, headquartered in New York with operations in Europe and Asia, specialises in such things as investigating commercial fraud and corporate corruption, running background checks on potential business partners and conducting due diligence work for investment bankers.

"The latest trend in Hong Kong and Asia is that companies are not only taking action after they find red flags of alleged fraud or corruption in their companies, but they want Kroll to help them strengthen their compliance and internal control systems to prevent fraud or corruption from happening," Bancroft said in an interview.

He said the trend emerged as companies operating in Hong Kong and Asia were hit with increased regulation, particularly the UK Bribery Act, which was introduced in July last year. Enforcement of the US Foreign Corrupt Practices Act (FCPA) has also recently been stepped up.

In the wake of the UK bribery act coming into force, "we have been working with an increasing number of corporations requiring us to help them check on their compliance measures", Bancroft said. "They also want us to help in setting guidelines for staff and provide training to prevent any corruption from taking place," he added.

The British Bribery Act, said to be the strictest anti-corruption law in the world, holds companies liable for not only actual bribery taking place but for the failure to have measures in place to prevent corruption by employees or clients in the first place. Penalties include a maximum 10 years' imprisonment and unspecified fines. Both the US and British laws have almost universal jurisdiction, which means they can prosecute individuals or companies with links to Britain or the US, regardless of where the crime occurred.

These regulations made mainland and Asian companies more aware of corruption. Kroll's Global Fraud Report for 2011-12 showed a broader awareness among Chinese companies of the risks of corruption, with 84 per cent of mainland companies reporting that their exposure to fraud and corruption has increased in the past year.

Separately, Kroll recently conducted a straw poll among compliance and legal executives with Asian and global multinational companies, which showed alarming signs that many respondents don't understand the implications for them of the FCPA and the UK Bribery Act. More than 50 per cent of all respondents said they believed the FCPA applies only to interaction with foreign government officials.

In fact, the law applies much more widely. Kroll's survey also showed that 65 per cent of respondents believe the UK Bribery Act doesn't apply to conduct that takes place outside Britain, but, in actuality, the law applies to all British nationals, or anyone having business relationships with any British firm. "This showed companies have to provide more training for their staff to understand the regulations," Bancroft said.

He added that companies should pay attention to signs in the office of staff who may have committed fraud or accepted bribes.

For instance, he said, if a junior employee is clearly living beyond his income, "the seniors have to ask where the money came from".

And when a staff member is reluctant to take time off, it may be because that person is afraid of getting caught if he is not on the job to cover his tracks.