New York (4/19/2016) — EY’s 14th Global Fraud Survey 2016: Corporate misconduct – individual consequences finds a worldwide clamor for enhanced transparency at a time of increased geopolitical tensions and heightened volatility in financial markets. The escalating threats of cyber crime, terrorist financing and, more recently, the revelations regarding widespread possible misuse of offshore jurisdictions, have increased pressure on governments to act and companies to identify and mitigate fraud, bribery and corruption issues.
Conducted between October 2015 and January 2016, the survey of nearly 3,000 senior business leaders from 62 countries and territories highlights overwhelming corporate support for enhanced beneficial ownership transparency, with 91 percent of executives recognizing the importance of establishing the ultimate beneficial ownership of entities with which they do business.
David Stulb, EY Global Leader of Fraud Investigation & Dispute Services, says:
“With the continuing anti-corruption enforcement focus on third-party conduct and the recent revelations on the possible misuse of offshore financial structures, business leaders are right to be focused on securing a deeper understanding of their clients, partners and suppliers. Enhanced transparency is clearly a focus of broad public interest.”
Increased transparency is, however, only one facet of the solution to a problem that shows no sign of abating. In total, 39 percent of respondents believe that bribery and corrupt practices happen widely in their country, little change from 38 percent in 2014 and 38 percent in 2012. In a question introduced in this year’s survey, 32 percent of respondents report that they have had personal concerns about bribery and corruption in their workplace.
Coordinated efforts by regulators to root out corruption
Regulators recognize the threat that bribery and corruption pose to a financial system already under stress and are increasingly cooperating across borders to hold individuals accountable for illegal acts. Such enforcement efforts appear to be heavily supported by survey respondents, with 83 percent agreeing that prosecuting individuals will help deter future fraud, bribery and corruption.
However, with 42 percent of respondents admitting that they could justify unethical behavior to meet financial targets and 16 percent of finance team members below the CFO ready to justify making a cash payment to win or retain business, those executives responsible for ethics and compliance appear to be facing a significant challenge if they are to keep their organizations clear from the scrutiny of prosecutors.
“When viewed in light of the recent guidance memorandum issued by the U.S. Department of Justice (DOJ) that outlines incentives for companies that self-report misconduct on the part of individuals, our findings reveal a persistent risk of individual unethical behavior warranting enhanced scrutiny within global organizations,” suggests Brian Loughman, EY Americas Leader, Fraud Investigation & Dispute Services.
The survey also identified a perception in emerging markets that individuals responsible for corruption are not being held to account, with 70 percent of respondents in Brazil and 56 percent in both Africa and Eastern Europe believing that although governments are willing to prosecute, they are not effective in securing convictions.
Stulb says, “Increased levels of global cooperation between law enforcement agencies are making it harder for fraudsters and bribe-payers to evade prosecution. However, with respondents indicating that such misconduct is showing no sign of abating, better use of technology is certainly part of the answer. More can be done to leverage forensic data analytics to manage these risks and improve compliance and investigative outcomes.”
There are some positive indicators in markets where governments and regulators have taken steps to crack down on impropriety. In India, for example, where steps to increase transparency and crack down on corruption have been taken by the government, the proportion of respondents from this country believe that bribery and corruption happens widely in the country declined from 67 percent in 2014 to 58 percent this year. In China, 74 percent of local respondents report that enforcement is effective, indicating the apparent effectiveness of the Chinese government’s commitment to tackle corruption.
Robust compliance, robust growth?
Expanding into new markets is essential for most companies, yet such expansion brings new and less familiar risks. The research shows that companies are frequently failing to take appropriate steps to respond and reduce their risk exposure:
- One in five do not identify third parties as part of their anti-corruption due diligence
- One in three do not assess country or industry-specific corruption risks before making investments
- Only half utilize technologies such as forensic data analytics to identify and mitigate risks
Innovation is critical to responding to emerging risks
Whistleblowers remain a critical source of information on alleged misconduct. According to this year’s survey, 55 percent of companies have whistleblower hotlines in place. Regulators welcome such tips, and in some jurisdictions, including the U.S., whistleblowers are offered substantial monetary rewards. Yet such mechanisms are not always effective. Survey respondents report barriers to using such mechanisms: 18 percent cite that loyalty to colleagues would deter them from reporting an incident of fraud, bribery and corruption and 19 percent cite loyalty to their company as a deterrent.
David Remnitz, EY Global and Americas Forensic Technology and Discovery Services Leader noted, “As recent headlines suggest, rogue actors in an organization can exploit the trust of colleagues to perpetrate acts of fraud or acquire sensitive information that may later be sold or disclosed in cyberspace and yet, 59 percent of CFOs view cyber crime as a low risk. Anticipating cyber crime, particularly insider threats, should be a top priority for management and Boards.”
View the report online at: www.ey.com/FIDS
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About EY’s 14th Global Fraud Survey 2016: corporate misconduct – individual consequences
Between October 2015 and January 2016, our researcher — the global market research agency Ipsos MORI —conducted 2,825 interviews in the local language with senior decision makers in a sample of the largest companies in 62 countries and territories.
 For the purposes of this report, “emerging” countries and territories include Argentina, Brazil, Bulgaria, Chile, China (mainland), Colombia, Croatia, Czech Republic, Egypt, Estonia, Hong Kong SAR, Hungary, India, Indonesia, Israel, Jordan, Kenya, Latvia, Lithuania, Malaysia, Mexico, Nigeria, Oman, Philippines, Poland, Romania, Russia, Saudi Arabia, Serbia, Slovakia, Slovenia, South Africa, South Korea, Taiwan, Thailand, Turkey, UAE, Ukraine and Vietnam.