Managing Fraud Risk: A Practical Guide for Directors and Managers

The Corruption Component of Fraud

Introduction

The Galleon scandal is usually portrayed as an insider trading and conflicts of interest case, which of course it is. However, it is also a case that has exposed business corruption on Wall Street. Those involved have been prosecuted through the criminal courts and, where found guilty, have received tough sentences. In this sense the case is part of a much wider crackdown on corrupt practices generally. This includes various robust pieces of legislation and regulations against economic crime, money laundering and the financing of terrorist movements around the world. Our focus here is on corruption, but all companies in the financial services industry in particular will be familiar with the far-reaching requirements of anti-money laundering legislation such as the USA PATRIOT Act and the Proceeds of Crime Act in the UK.

Often the global anti-corruption movement is thought to be focused primarily on politicians, and with good reason. It has long been known that political leaders in developing countries have been able to abuse their power to enrich themselves, their families, cronies and associates by embezzling public funds and stealing state assets. The Suharto, Marcos and Abacha regimes in Indonesia, the Philippines and Nigeria respectively are three of the most notorious examples of this, but there are many others. It is not only corruption by political leaders that causes outrage, but also the widespread “graft” payments that have ...