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Corporate Fraud and Corruption Annual Review

This year’s Corporate Fraud and Corruption Annual Review 2020 gathers expert analysis on these key issues and how they impact organizations as well as the wider economy.

Ankura expert Jacqui Record, based in Dubai, shares her insights on corporate fraud and corruption in the United Arab Emirates in an interview with Financier Worldwide Magazine for the Corporate Fraud & Corruption Annual Review 2020.

Jacqui talks about how the United Arab Emirates region is witnessing an increased momentum in enhancing anti-corruption laws and transparency, and reveals more about recent regional state initiatives, and how the region is impacted by regulatory developments.

Reprinted with permission.

Q1 – To what extent are boards and senior executives in your region taking proactive steps to reduce incidences of fraud and corruption from surfacing within their company?

With the recent regional state initiatives to improve corruption perceptions coupled with high-profile cases such as the Abraaj scandal, there’s a heightened awareness of compliance, sanctions, fraud and reputational risk in UAE companies. Additionally, being a regional hub means most companies in the UAE are impacted, in one way or the other, by international legislation such as the FCPA or the UK bribery Act.

All these factors have prompted many companies to scrutinize the weaknesses in their governance and internal control environment and proactively seek to improve them whether internally or by approaching specialized firms. As a result, we’ve noticed an increase in companies taking steps to set clear policies and procedures, train employees and conduct fraud risk assessments.

Q2 – Have there been any significant legal and regulatory developments relevant to corporate fraud and corruption in your region over the past 12-18 months?

The region is witnessing an increased momentum in enhancing anti-corruption laws and transparency. This has resulted in the UAE improving its Corruption Perception Index score from last year and is now ranked 21st globally ahead of both France and the US. These improvements are a driven in part by State initiatives to improve anti-corruption legislation.

In 2018, there were several developments in UAE anti-corruption laws. Amendments enacted through Federal Law No.24 expanded the range of the Anti-Corruption provisions contained in Federal Law No.3 of 1987. Crucially, these amendments provided extra-territorial effect to the anti-corruption laws and to confiscate the proceeds of crime. Federal law no. 20 was issued covering AML, in line with the recommendations of FATF. Finally, the Financial Audit Authority was established via Federal Law no.4 with the aim of protecting the country’s public funds from criminal abuse.

Q3 – When suspicions of fraud or corruption arise within a firm, what steps should be taken to evaluate and resolve the potential problem?

Every company should have an incident response plan to deal with suspicions of fraud or other illegal activities. This plan should include having communication protocols in place, assessing the allegation and the information received, initial data preservation and collection, launching a discreet investigation, initially with the use of internal audit and when deemed appropriate engage external forensic accountants to conduct an in-depth investigation and conduct interviews. Where the suspicions are confirmed it’s important to seek legal advice on the next steps.

Q4 – Do you believe companies are paying enough attention to employee awareness, such as training staff to identify and report potential fraud and misconduct?

Fraud committed by employees is dependent on three factors: opportunity, incentive, and rationalization. Training employees and increasing their awareness to fraud schemes relates to factors associated with ‘opportunity’ of fraud and the ‘incentive’ behind it.

Typically, we find that companies put irrational faith in their management and staff to act ethically in identifying fraud schemes, preventing them, and reporting them when identified. As such, organizations end up with a reactive fraud program. Given that 50% of occupational frauds in 2018 were detected by employees, mandatory fraud awareness training should be a priority. In the Middle East, there remains a significant lag in organisations’ ability to first recognize and then enhance the agility of their fraud program to be both proactive and reactive.

Q5 – How has the renewed focus on encouraging and protecting whistle-blowers changed the way companies manage and respond to reports of potential wrongdoing?

Whistleblowing involves the reporting of a wrongful/illegal act, the company’s response to such act and the company’s response to the person reporting it (whistleblower). Companies/countries struggle to define the response in dealing with whistleblowers. For Middle eastern countries, whistleblowing is not defined by law; but rather, it is branded as a “disclosure” of confidential information to expose illegal activities. As such, there has been a slow progress in companies implementing whistleblowing procedures.

At this stage, the main venue for whistleblowing relating to sanctions, AML, and bribery acts in the Middle East is performed through the US via DOJ/OFAC. However, the 2018 addition of the Financial Crime Law in the UAE (DIFC) has included a narrow mention for protection of whistleblowers, which only applies for disclosures against “registered persons” but not entities. Despite the narrow scope of this law, there has been an increased focus on governance to create and maintain a whistleblower program with a contractual obligation on employees to report wrongdoing, which is a positive indicator that whistleblowing as a concept is progressing in the Middle East.

Q6 – Could you outline the main fraud and corruption risks that can emerge from third-party relationships? In your opinion, do firms pay sufficient attention to due diligence at the outset of a new business relationship?

In recent years, managing third-party relationships has been a focus area for many organizations but the level of third-party risks varies between industry sectors and countries. Some of these risks include bribery of public officials, dealing with entities engaging in AML, dealing with sanctioned entities/individuals, and public tenders’ manipulation.

Generally, companies tend to ignore some due diligence procedures in efforts to quickly sign on new clients. In the UAE, companies began paying close attention to due diligence procedures surrounding new and existing business relationships. This was propelled by the new initiative of KYC (known-your-client) in the UAE to redefine ‘trust’ between companies and their customers under the new AML law implemented in 2019. Additionally, given the recent US sanctions on Iran, companies in the Middle East that continue to trade with Iran’s unsanctioned sectors must be careful in performing all the necessary due diligence procedures to avoid dealing with sanctioned third-party entities or individuals.

Q7 – What advice can you offer to companies on implementing and maintaining a robust fraud and corruption risk management process, with appropriate internal controls?

It has become progressively more important for companies to take a critical look at their risk management process. Fraud risk needs to be assessed for each operation in the business. Once risks are identified companies need to develop strategies to deal with each risk. At the organizational level, there should be effective ethics policies in place, and it should be communicated to all levels of the organization. At the operational level, there should be constant review and monitoring of the effectiveness of implemented controls.

© Copyright 2020. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals.


financial services, forensics & investigations, anti-corruption, f-risk, fraud & recovery, memo, f-conflict, compliance

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