Detecting Corrupt Behaviour

How is corrupt behaviour usually detected?

Corrupt behaviour is generally revealed because of the obligations placed on financial services businesses and professional services firms to report suspicious activity. This is encouraging since the increasing frequency of revelations of suspicions of bribery and corruption suggests that the legislation designed to combat money laundering is attaining a minumum of one of its three important objectives of:

• Deterring acquisitive crime by which makes it hard for criminals to hide and retain the proceeds of their criminal activities;
• Deterring co-operative crime by enhancing the likelihood of detection with the reporting of suspicious transactions, and
• Assisting police force agencies in detecting crime and disgorging the proceeds of crime by providing evidential linkage between your flows of criminal proceeds, the individuals involved in the handling those proceeds and those who are in position to take advantage of those proceeds.

Whistleblowing, including self-reporting by corporates, may be the second best strategies by which corrupt behaviour is revealed. This is evidenced by a number of from the successes recently achieved through the Serious Fraud Office.

My expectation is that suspicious activity reporting and whistleblowing is going to be trumped by Unexplained Wealth Orders over the next few years. UWOs have great potential to reveal bribery and corruption.

Are audit procedures effective in detecting corrupt behaviour inside an organisation?

The short response is no. If senior officials of an organisation are experiencing corrupt payments, it is virtually sure that the organisation's auditors won't detect those payments due to the fact the organisation is not really a party towards the transactions under consideration.

If the organisation is making corrupt payments, audit procedures will have an opportunity of detecting the corrupt nature of these payments – however the chance is really a lot reduced by the fact that those with knowledge of the corrupt nature from the transactions will most likely go to great lengths to hide their true nature.

What is paramount hallmark of a corrupt transaction?

Dishonesty aside, the important thing hallmark is that a corrupt transaction will not make any commercial sense, since the fundamental element of the transaction is designed to be invisible. An organisation creating a corrupt payment, perhaps disguised like a consultancy payment, will not receive visible valuable consideration in return for the payment. Inevitably, assessing whether a company has gotten valuable consideration for a payment involves subjective judgment. This makes it hard for auditors and others to challenge an organisation's management about potentially corrupt payments.

Is this any different for transactions completed via blockchain technology?

The fundamental principles stay the same although you ought to always question why a transaction has been settled in cryptocurrency. Because of the volatility of cryptocurrencies, it is sometimes difficult to appraise the consideration paid in the reporting currency from the organisation which made the cryptocurrency payment. This will make the job of assessing whether the organisation received valuable consideration from the person receiving the cryptocurrency payment even more complicated.

Is it easy to trace transactions completed via blockchain technologies?

In practice the answer is no. In my experience, which may 't be surprising because of the nature of my job, cryptocurrencies are frequently used for dishonest purposes since it is possible to transact in cryptocurrencies, such as bitcoin, in ways that virtually assure anonymity – for instance using a different bitcoin address for each transaction, avoiding using hosted bitcoin wallets, connecting towards the bitcoin network via a VPN or a public WiFi network, or using the services of the mixer. Tracing transactions settled in cryptocurrencies is a thing; discovering the identity of the beneficial owner of the currency is yet another. Cryptocurrency mixers are specifically designed to guarantee anonymity.

In that position, should cryptocurrencies be regulated?

Most certainly, but effective regulation will not be introduced within my lifetime. Blockchain technologies know no national borders such that world-wide regulation could be required for any regulation to be effective. Inter-governmental co-operation has been around short supply recently.

What makes a transaction or an activity suspicious?

This is really a challenging question for every financial services business. It is usually dependent on identifying whether a transaction or an activity is unusual poor one's knowledge of an organisation's usual business operations. Without a great understanding of an organisation's business, it's impossible to make an educated assessment about whether something is suspicious because distinguishing between your usual and also the unusual could be based on little more than guesswork. Money Laundering Reporting Officers encourage internal reporting each time a employee is suspicious so the MLRO may utilise their knowledge of assessing whether further enquiries might be warranted before deciding whether or not to make a suspicious activity report to the relevant authorities. Of course, in deciding whether further enquiries might be undertaken the MLRO is going to be aware of the chance of tipping-off.

How are suspicions of bribery and corruption investigated?

It is tough to reply to this in a few words because all cases involving corruption have their unique attributes, but the starting point would be to find out the potentially corrupt payments and also the persons who ultimately taken advantage of those payments. This task is often made challenging by the use of offshore companies as conduits your money can buy flows – companies with opaque and sometimes impenetrable ownership structures.

The second task usually involves identifying the nature of the benefits that may have been derived through the maker from the corrupt payments in return for the payments. In cases when a series of payments has been created there is often some correlation between your amounts of the payments and the amounts of the financial benefit derived through the maker of the potentially corrupt payments. For instance, inside a recent case that I was involved, the amounts secretly received by a company's sales director from a supplier could be correlated using the amounts of the discounts on list prices charged to that supplier. Evidencing such correlation is most important because it has the ability to illustrate the deceptiveness of any documentation that could happen to be prepared contemporaneously to conceal the real nature of the payments.

The third task typically involves examining all documentation and correspondence surrounding the potentially corrupt payments having a view to demonstrating the falsity associated with a documents ready to conceal the real nature of the payments and also the dishonest intentions of the participants.

How do you present evidence of corrupt behaviour in the court?

To some extent this depends on if the evidence is to be utilized in civil or criminal proceedings. The utilization of graphics, for instance as one example of the correlation between the benefits derived by the recipients and makers of corrupt payments, is usually appreciated by a court however this becomes more essential in criminal trials, in which a jury requires more assistance than would a judge in civil proceedings. Evidencing the movements of monies and illustrating these movements with flowcharts frequently assists a court.

On occasions, specifically in circumstances by which monies flowed through a series of offshore bank accounts, it is also vital that you evidence the identities of those that authorised transactions to be made and to establish the identities from the persons on whose authority those persons were acting.

What initiatives are likely to prevent fraud within the next few years?

I am pleased that there's a straightforward answer to this. Authorised push payment fraud is a significant problem right now, and it is inadvertently facilitated because only a sort code and account number are required to match prior to making a web-based payment. The major UK banks are introducing a safeguard that requires the specific intended recipient of monies to match with the sort code and account number. This initiative is most welcome because it will significantly reduce APP fraud risks, although pre-payment precautions should be taken when remitting monies to overseas accounts.

Mark Ballamy

Ballamy LLP

85 Gresham Street

London

EC2V 7NQ

Telephone: 020 3705 9945

Website: www.ballamy.co.uk