Laying the Foundation

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Laying the Foundation
Presentation for

• Investigations in the BRIC Countries

Shannon Grayer, CFE, CBM, CCEP Investigations
Senior Manager sgrayer_at_microsoft.com
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Agenda
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Conducting International Investigations The
Devil is in the Details

• Risk Assessment
• Safety, logistics
• Business Protocols
• Suitable conduct
• Business Ethics
• Gifts, Entertainment
• Legal Issues Employee Rights
• Privacy Laws
• Working with International Vendors
• What to look for

Image obtained from http//www.wizardzofwealth.co
m/notes/personal-growth/power-of-words.html
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Laying the Foundation - Origins of "BRIC"

• Term was first prominently used in a thesis by
  Jim ONeill, Head of Economic Research at Goldman
  Sachs in 2003
• Potential to become among the four most dominant
  economies by the year 2050
• Forecasted to be 39 of worlds population and
  combined GDP of 15.4 Trillion Dollars
• By 2025, it is estimated that over 200 million
  people in BRIC nations will earn over 15,000 per
  year, creating a large middle-class

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Economic Development

• India and China
• Service, Manufacturing High-Tech
• The Indian and Chinese economic juggernaut is
  sometimes referred to as Chindia
• Brazil and Russia
• Natural Resources
• Brazil - Huge new oil reserves off the coast of
  Rio de Janeiro
• Russia - 20 of the worlds production of natural
  gas and oil

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BRIC challenges

• Managing Growth
• Infrastructure - roads, communications, food
• Standards of living and inflation
• Income Disparity
• Political Issues
• Economic Policy - restrictions
• Legal Environment constraints and censorship
• Human Rights

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BRIC's and Mortar Fraud Examination in the BRIC
countries

• Whats in a name?
• Kickbacks/Conflicts
• Phantom Companies
• Expenses Receipts

• Company Asset Search Limitations
• Legal Limits Difficulty of Prosecution
• Protectionism Police Limitations

Source ACFE Fraud Magazine Booming Fraud in
China
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(No Transcript)
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Fraud Statistics - Brazil

• 74 of companies consider fraud a large problem
• 77 of respondents are concerned about organized
  crime impacting the organization
• 83 of offenders are male
• 26 40 years old
• 2 5 years in the company
• Earn between R1k R3k per month (Staff level)

Typical Fraud Schemes Check Falsification,
Money Laundering, Cybercrime, Bribery, Tax Fraud
Source KMPG - A Fraude no Brasil Relatorio da
Pesquisa 2004
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Brazil Core Values and Implications for Business
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Fraud Statistics - Russia

• 64 of companies surveyed lost gt1M USD
• 20 lost more than 10M USD
• Direct cost of economic crime is 5x the global
  average
• 89 of offenders are male
• 84 have University degrees
• With company less than 2 years
• Senior Management responsible for 50 of all
  cases, which is more than 2x the global average
  of 20
• 51 of companies responding felt they had lost an
  opportunity to a competitor they believe paid a
  bribe.

Typical Fraud Schemes Money Laundering,
Cybercrime, Bribery
Source PriceWaterhouseCoopers 4th biennial
Global Economic Crime Survey - Russia
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Russia Core Values and Implications for Business
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Russia Case Study Baker Hughes
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Fraud Statistics - India

• 36 of companies fail to take action against
  fraudsters
• Indian legal system
• 89 of respondents indicated lack of faith in the
  legal system is a concern
• 10 conviction rate 73 of jail population
  awaiting hearing/trial 350-year backlog of legal
  cases awaiting resolution
• Typical offenders are male
• 81 have University or post-graduate degrees
• 70 are either middle or senior management
• Only 8 of frauds are uncovered through
  whistle-blowers
• 34 of companies responding felt they had lost an
  opportunity to a competitor they believe paid a
  bribe.

Typical Fraud Schemes Corruption/Bribery,
Intellectual Property, Identity Theft
Source PriceWaterhouseCoopers 4th biennial
Global Economic Crime Survey - India
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India Core Values and Implications for Business
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Fraud Statistics - China

• Over 30,000 bribery cases in the past 2 years
• Many cases where sentences range from 10 years to
  life
• Death sentences for most serious offenses
• e.g. Zheng Xiaoyu Former Head State Food and
  Drug Agency (executed)
• 2005 61,000 Economic Crime cases solved
• 9.7 increase over 2004
• Compliance Reporting Mechanisms are crucial
• Black mails
• Red Chip companies
• 24 of companies felt they had lost an
  opportunity to a competitor they believe paid a
  bribe.

Typical Fraud Schemes Payroll Fraud,
Counterfeiting, Bribery Supply Chain
Sources KPMG Anti-Bribery , Anti-Corruption
and the FCPA Hong Kong
University Stock Exchange Statistics
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China Core Values and Implications for Business
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China Case Study Bank of China

• Money laundering scandal
• Three branch managers at Bank of China (BOC)
• Bank managers allegedly laundered the stolen
  money (485M) through Hong Kong, Canada and the
  U.S.
• Fled to US
• Sham marriages under false pretenses
• Multiple Indictments

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China Case Study Bank of China
The United Nations Office on Drugs and Crime
(UNODC), 2006
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Bank of China - Complexity
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China Case Study Bank of China

• Outcomes and Implications
• Two bankers - racketeering conspiracy, money
  laundering and transporting stolen money, plus
  visa and passport fraud
• If convicted, each faces a maximum of 70 years in
  prison and a 1.5 million fine.
• Third banker - pleaded guilty to racketeering in
  2004 and voluntarily returned to China, where he
  was prosecuted for embezzlement and bribery
• Agreed to extradition on condition that he would
  not be tortured, executed or jailed for more than
  12 years that his wife and children would be
  allowed to stay in the U.S.
• Several others indicted, awaiting trial or
  sentencing
• Raises questions about the security of the
  banking industry abroad, and potential capital
  punishment for crimes committed in China
• corruption, racketeering, tax evasion, etc.

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Beyond BRIC TheNEXT ELEVEN (N-11)

• Eleven countries on the
• short list with promising outlooks
• for investment and future growth
• Bangladesh
• Egypt
• Indonesia
• Iran
• South Korea
• Mexico
• Nigeria
• Pakistan
• Philippines
• Turkey
• Vietnam

• Considerations
• N-11 are volatile marketplaces
• Growing at 6 per year
• Bribery and Corruption are the greatest fraud
  risks in emerging markets

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Into the Future

• Faster Comparative Growth due to US Financial
  Crisis
• BRICs now 16 percent of global GDP
• First BRIC Meeting held in May 2008
• Impact of Russias recent military actions?

the world doesn't want a separate club just
looking after the growing countries the same as
it doesn't need an old club looking after the
declining -- it needs a better club, involving
them both"
Jim ONeill Goldman Sachs
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Q A