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The U.S. Federal Bureau of Investigation expanded its anticorruption force last year, as it sees opportunity to track down more of the estimated US$1 trillion that bribery takes out of the global economy each year. A top enforcer on the FBI’s Foreign Corrupt Practices Act (FCPA) team, William McMurry, who heads the New York unit, said in an interview that compliance professionals would benefit from knowing the corruption landscape wherever their company does business.
In an interview with Thomson Reuters Regulatory Intelligence, McMurry outlined practices the FBI uses, red flags it watches for, and issues compliance might consider. Two veteran compliance and regulation consultants also weighed in on how financial firms should prepare for a rise in enforcement of the FCPA in an era of expanded global enforcement cooperation.
1. Knowing high-risk locations is not as simple as looking at historical records on enforcements.
Today’s list of bad actors is different from the past. “Robust risk assessments” need to keep up to date, McMurry said. Once known for its bank secrecy, Switzerland played a key role in international corruption probes in Brazil, where local authorities were pressing bribery cases to the highest level of government. Conversely, China and the Middle East remain reluctant to work with global enforcement groups. “The number of countries and the number of agents we have changes over time,” he said. “We go to places where we have a willing partner that is working corruption issues and is serious about corruption.”
“There has been significant anticorruption activity in Brazil over the last couple of years, and if you go back four or five years ago, there was very little,” said Richard Girgenti, national and Americas leader for KPMG LLP’s Forensic Advisory Services. Risk assessments should reflect the shifting landscape.
2. Coming forward with information carries risks – but firms should consider their long-term involvement in helping enforcement “level the playing field by getting rid of corruption.”
Sometimes it is difficult and even dangerous to cooperate in high-risk places, and business goals could be jeopardized. But even a tip as pain-free as giving information on a lost deal can help FBI investigators. Those tips often lead to cases. “We are doing outreach getting in front of compliance people on a regular basis. They are our partners and allies, and we are all trying to do the same thing,” McMurry said. “And we want people to know we are in it for the long haul.” Withholding information can be costly if fingers point back to a firm’s own involvement.
“It is going to be a case-specific decision. Lawyers that represent the company should decide what the best course of action is – whether to cooperate and come forward or not,” said Girgenti, but he adds that the government has created “enormous incentives” to self-report.
3. There is no replacement for “face time.” Risk assessments are essential, and third-party research can be helpful in rating local risk factors.
But the FBI corruption unit chief said that firms might want to follow the “old-school” model his FBI unit uses and spend time in the field learning the local business culture and its players, including a firm’s own people. “The best cases are made by human beings,” he said, “and if you don’t have agents out there cultivating and learning the arena that you are operating in, you are not going to get the best cases.”
“Look at how the business is conducted and transactions are recorded and conducted. There is value (for compliance teams) in having face time,” Girgenti said.
4. Big data can help firms shrink the globe by spotting potential corruption practices and analyzing data from units operating in far-flung places.
Despite the need for face time in location, unusual patterns of third-party payments, costly entertainment, communication records, and travel can be sorted with the help of “big-data” tools. “The FBI’s effort is bolstered by assistance from the Securities and Exchange Commission’s data mining unit,” said McMurry, “They have great data analytics and smart people who know how to use data and understand business cultures.”
“Fraud always leaves footprints in data, so it can always be seen somewhere,” said Dan Zitting, chief product officer for audit and risk firm ACL. “You can study customers’ data sets to try to identify risk scenarios and patterns. With big data, what you are doing is actually watching the transactions go by, and you can identify concerns over all of your operations. Regulatory pressure is increasing on big banks and financial services. For a while the firms were behind the curve, but now they are evolving much faster than other sectors.”
5. Know the “middle man” as well as you know your own staff.
Direct payoffs to government personnel are passé. Consultants and gatekeepers handle the dirty money. “The type of information that a company has is potentially really valuable to us – about who you were negotiating with in that country if you were asked to pay a bribe.” The pressure is growing on companies’ compliance teams to know whom they are paying and why, McMurry said.
“They would be well advised to look at any connections they might have with employees or third parties who deal directly with government officials to satisfy themselves that they have done everything from a prudence or due diligence perspective,” said Girgenti.
6. Advances in anti-money laundering technology and disclosures.
A growing body of data on AML transactions, including the Panama Papers, has given investors valuable leads – but AML red flags are just a starting point in tracking corruption cases. “AML is a big part of what we do,” said McMurry. But following the money is just step one. The FBI has “a very good relationship with banks for the most part,” McMurry continued. “We go to them with the information we have and say, ‘We have good reason to believe bank account X that belongs to an individual is involved in a crime.’ But we need to go to the country and see how responsive they are for us to act, with them, (to investigate suspected cases) through our own laws and rules.”
“I am amazed when you go to places like South Africa, a place where the American bias would say, ‘This place is rife with corruption, and it has been high-risk for a long time and that’s what you have to contend with if you do business here,’ ” said Zitting. “But the South African authorities have dealt with these issues for a while, so they know a lot about how corruption works, and they have pretty high transparency in corporate registrations. It helps a lot. In other places, shell corporations hide a lot.”
7. The corruption risk is highest for firms and their advisers when they are entering a new market.
Certain businesses have a reputation for payoffs – oil and gas, mining, transportation, telecommunications, pharmaceuticals, engineering, and construction – because there is a high level of contact with government. But the FBI increasingly is focusing on companies and their financial advisers in a widening range of industries. Financial firms helping advise entrants and arranging transactions also face risk. “It’s the emerging, middle-market companies that are the ones at the biggest risk from what we see. Maybe they are new to a geographical area, or they are new to a particular industry, and they are in a position with their company where they are at a tipping point where you make it or you don’t,” said McMurry.
“Companies building FCPA programs should consider how the FBI and other enforcement agencies work,” Girgenti said. “Compliance should understand enforcement activity and what they can learn about what the government is looking at as part of an ongoing risk assessment to see if there are any concerns.”
McMurry said, “There are a couple of cases going on now in places where the typical thought process had been, ‘That country is so corrupt, what could ever be done about it?’ But the reality is that there are a lot of places around the world where that might have been the right question a few years ago, but not so much now. We are finding out that it doesn’t have to be that way.”
The views and opinions expressed in this paper are those of the author and do not necessarily reflect the official policy or position of Thomson Reuters.
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