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“Just One Rotten Apple” Leader – Marie- Louise Rossi , FIRM Head of Insurance and Risk Management, New Security Foundation and John Burbidge-King WB MCMI CEO Interchange Solutions. IRM Risk Forum 2008 raising the game. Background.

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Irm risk forum 2008 raising the game l.jpg

“Just One Rotten Apple”

Leader – Marie- Louise Rossi , FIRM

Head of Insurance and Risk Management,

New Security Foundation

and

John Burbidge-King WB MCMI

CEO Interchange Solutions

IRM Risk Forum 2008raising the game


Background l.jpg

Background

  • Post 9/11 heightened international inter-governmental concern about bribery and money laundering

  • Concerted development of anti bribery / anti money laundering compliance regime

  • Links to terrorist funding

  • Links to kidnap and ransom as well as other political / terrorist risks


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Overview

  • Implications for corporate governance at all levels, but especially the Board and risk management


Overall proposition l.jpg

Overall Proposition

Notwithstanding corporate commitment to compliance, how dynamic / holistic / ? enterprise is the risk management function / culture?

Implications for cultural change, training and remuneration structures

Insured Risks, eg:

Directors & Officers

Employers’ Liability

Terrorism / K&R cover

Property and business continuity


Overall proposition cont l.jpg

Overall Proposition (cont)

Management of Uninsured / “Uninsurable” Risks, eg:

Reputational risk

Brand value

Shareholder value

Corporate survival

CRIMINAL PENALTIES?


Interchange solutions limited l.jpg

  • Anti-corruption audit AbcSure® audit tool to determine the level of corruption risk mitigation in a company’s compliance policies and business processes

  • Risk assessment and specific research for markets and projects

  • Reputational due diligence for third parties in context of applicable law, market and the corruption environment

  • Consultancy and training Delivering tailoredanti-corruption mitigation processes, both internal and external

Individual

Corporate

Interchange Solutions Limited

All content

AbcSure and the Interchange Solutions logo are ®registered trade marks in the UK.


Our journey l.jpg

Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


Some definitions l.jpg

Corruption:

“The misuse of entrusted power for personal gain.”

Bribery:

“An offer or receipt of any gift, loan, fee, reward or other advantage to or from any person as an inducement to do something which is dishonest, illegal or a breach of trust in the conduct of the enterprise's business.”

Extortion

“The abuse or threat of power in such ways to secure response

In payment or other items of value”

Some definitions


Corruption canvas but this is the way you have to do business to win the contract in l.jpg

Corruption canvas“But ~ this is the way you have to do business to win the contract in…”

  • Financial pressures (individual and corporate)

  • Banking system

  • Mortgage fraud

  • Competition ~ level playing field

  • Economic cost of corruption

  • Associated with other crime

  • Emerging pacts and industry agreements

  • UK SMEs and weakness in the supply chain.


Legal and regulatory landscape l.jpg

Legal and regulatory landscape

  • United Kingdom (L) Prevention of Corruption Acts 1906 and 1916

    (L)Anti Terrorism Crime and Security Act 2001(L)Proceeds of Crime Act 2002 (L)Fraud Act 2006(L)Company’s Act 2006(L)3rd EU Money Laundering Directive and UK AML

    (P/R) Listing and FSA Rules

    National laws in other jurisdictions(including Scotland)

  • Foreign Corrupt Practices Act (USA)

  • ConventionsOECD ConventionUN Convention Against CorruptionUN Global Compact

    NB UK Law Commission drafting a new anti bribery and corruption bill


Our journey11 l.jpg

Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


People bribe not companies l.jpg

People bribe ~ not companies


What is this l.jpg

What is this?


Grooming l.jpg

23 year old graduate Ben has worked for Sharpes Media plc for 4 months. The regional manager of Dynamedia, a long standing key supplier, phoned Ben to tell him how much he enjoyed the business relationship. Ben is flattered.

A week later, Ben received an unmarked case of wine, delivered to his home. Inside he discovers an envelope marked “With Thanks” containing a cheque for £100.

Ben assumes the gift is from Dynamedia, although there’s nothing on the box to indicate this. A little naive and unsure whether this is normal he considers reporting the gift to his operations manager, a slightly remote lady in her late 50’s. He falters and asks a colleague more his age.

Linda told him “Oh ~ you too? Well, there’s no rule against it; it would be rude not to accept. Besides, keeping the suppliers on-side means we can get better rates for our clients… so it’s a win-win situation all round”.

Ben banks the cheque. He places increasingly more business with Dynamedia, encouraged by their matching generosity and what he perceives as their recognition of his building a good personal relationship.

Ben and his colleagues are being groomed to receive and accept bribes. They have been enticed into placing more business with Dynamedia through the receipt of increasingly disproportionate incentives. These would probably be viewed as bribes by the authorities.

Grooming


Risk behaviour l.jpg

Risk behaviour

Examples:

  • IndividualThe CBRN Team

  • GroupSiemens

  • CorporateEnron

  • MarketUK Premier League football

  • DenialWembley plc


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Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


Companies may provide the framework l.jpg

Companies may provide the framework


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Tone from the top

XYZ plc

Strategy & M&A

Procurement

Supply Chain

Financials & performance

Board

Board

Management

Operations

Regulation

Management

Governance

Direct/ indirect sales channels

‘At Risk’ Transactions

[D&O weak link]


Where can bribery occur l.jpg

Suppliers

Over-

invoicing

Bills of

quantity

Procurement

Brown

envelopes

Kickbacks

Management

Contracts

Gain

Gifts & Hospitality

Favours

Sales &

Agents

Slush

fund

Customers

Where can bribery occur?

Employees

Joint Ventures

& Offset


Supply chain sensitivities l.jpg

Overseas

Plants

Exports

Overseas Agents

Customer

Cross Shareholding

Regulatory Enquiry

Media report

Buyer Bribed

Supply chain sensitivities

Provides Key

Component


Sme s at risk l.jpg

ABC Limited is a small Borders based manufacturer of specialised encrypted circuit boards, only used by a small number of aerospace, defence and military customers. One of the company’s key customers is Grantham plc, a prime supplier of communications equipment to the UK Ministry of Defence.

ABC is investigated by the City of London and MOD Police after a tip off by a disaffected employee about paying bribes to a foreign defence official to win a tender to supply a part government owned military electronics plant.

The Operations Director suffers serious depression after his home is searched at 0500 and is sent on sick leave. The investigation completely disrupts ABC’s production schedule; the legal and other costs quickly escalate. The board discovers that their legal costs insurance is insufficient and due to an oversight, the Director and Officer Liability (D&O) insurance renewal premium was not paid when it had became due two weeks previous to the raid.

A cash crisis follows; ABC is unable to meet its commitments to its bankers who have become unhelpful in present economic circumstances. Critical deliveries fall behind and as a consequence, Grantham plc fails to deliver a crucial order of infantry radios to the MOD as the alternative supplier to ABC, based in Canada, cannot respond to Grantham’s urgent demand.

Within two months of the allegation, ABC is forced into bankruptcy and supplies to Grantham plc, now struggling to meet its commitments to the MOD, have stopped.

SME’s at risk


Our journey22 l.jpg

Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


Criminals and terrorists l.jpg

Criminals and terrorists????


Triangle of corporate crime l.jpg

Asymmetric

Risk

Anti-competition

Money laundering/fraud

Triangle of corporate crime

Bribery / corruption / extortion

“A blurring of the lines between terrorism, organised crime, bribery and corruption,

money laundering and fraud is already apparent. Organisations will need to

take a more holistic approach to what is becoming a single area of risk.”

Fraud Advisory Panel 10th Annual Review June 2008.


The global village l.jpg

The global village

Business

“Trust”

Crime &

Terrorism

“Advantage”

Law enforcement

“Evidence based”


Criminal and terrorist risk links to the criminal network l.jpg

Criminal and terrorist riskLinks to the criminal network

Fraud

Money

laundering

Counterfeiting/IPR Theft

Prostitution/

Pornography

Weapons

Bribery

& Extortion

Terrorism

Organised

crime

People Trafficking

Drugs


Commission and contracts some simple maths l.jpg

Mountain highway @ £250 million @ 5% commission

Commission and contracts(some simple maths!)

5 ambulances @ £50,000 each @ 5% commission

= £12,500 for the agent

= £12,500,000 for the agent


Follow the money scenario british company wins major road contract in bolivia l.jpg

Follow the money ~ scenario“British company wins major road contract in Bolivia”

£12,500,000 for the agent

  • Nice chap, company helps set up bank account(s)

  • Salesman gets kick-back from agent

  • Agent has cousin in Colombia and supports family

  • Unbeknown to agent family close to FARC

  • Agent wire transfers $500,000 through forex shop

  • Transfer picked up by US Secret Service

  • Collection of funds in Medellin

  • Funds buy explosives expert/materials from ETA

  • ETA uses part funds for drugs ring in Bilbao

  • Head of ring arrested by UK police at Heathrow

  • Extradited to Spain: cooperation UK/Spain/US

  • After 12 months, out of the blue , Scottish company and their bankers raided by Strathclyde Police


Ipr theft l.jpg

IPR theft


Thoughts so far l.jpg

Thoughts so far

  • Relationship between corruption and money laundering

  • Relationship between corruption and tax evasion

  • Relationship between corruption and organised criminal groups… at least

  • Exposure to criminal prosecution

  • Exposure to civil liability in an action to recover corrupt payments

  • Risk to insurers ~ what’s the potential cost, especially in USA


Our journey31 l.jpg

Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


They won t get me l.jpg

They won’t get me!

“The more I got away with ~ the more a game

it became, a game I knew I would ultimately lose”

Frank W Abagnale Jnr


Enforcement net l.jpg

UK

FSA

USA

SEC

Regulation

Regulation

GCHQ

NSA

Monitoring

Monitoring

MI5/MI6

CSS

HMRC

Investigation

SFO

FBI

Investigation

Border Agency

SOCA

O/s A-C Unit

OECD monitoring

National Contact Point

CPS

Prosecution

Prosecution

Dept of Justice

Promotion

Dept of State

F&CO

Promotion

International

CISC

OLAF

Other State organisations

Disclosure

INTERPOL

Bribe Line

AML clearance

Enforcement net

POLICE


Discovery l.jpg

Discovery

  • Third party, whistleblowing, disclosure

  • Money laundering suspicious activity reports(SARs)

  • Dawn raid business premises

    company professional advisors

    directors homes

  • During searches, individuals (including staff) may be questioned

  • Specific intelligence (profiling and research)

  • International co-operation

  • By happenstance and loopholes…Oops!


Enforcement radar screen l.jpg

Enforcement radar screen

Profile

Case Fit

Industry Sector Industry Reports

Countries~Operation/Export

Association

Patterns travel and banking

Press and NGO

Allegation

SARs & AML PEP connection

Supply chain exposure

US and other intelligence

Whistle blowing

Reports


Our journey36 l.jpg

Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


Reputation l.jpg

Reputation

“It takes twenty years to build a reputation

and five minutes to ruin it. If you think about that,

you will do things differently”Warren Buffet

TRUST


At what risk to company l.jpg

At what risk to company?

  • Reputation and public opinion

  • Catalyst for other corporate crime and vice versa

  • Share volatility, loans, covenants

  • Adverse ratings and risk of contract blacklisting

  • Diversion of resource and employee morale

  • Impact on customers, suppliers and partners

  • Costs, legal, accounting, IT support, PR management etc

  • US dimension

  • Criminal conviction


Headlines l.jpg

Headlines

Paradigm BVfined $1m for $12,500 bribe[2007]

“WSP Internationalfaces Indonesia graft inquiry”

[Aug 2006]

“Weir Grouppledges fresh inquiry into £2.5 million 'bribes' to Saddam”

[Oct 2005]

De La Rueconfirms that a police investigation is being conducted at the Company(July 2007)

Birmingham City FC“Corruption raid on Premier League club”

[March 2008]

“Compassprofit halved as UN investigation continues”

[Nov 2005]

“Bribery probe forDaimlerChrysler”

[Aug 2005]

“Vetcohit by record fine for bribes”

[Feb 2007]

“AWBchief grilled on ‘bribe’ plan”

[Jan 2006]

Sainsbury

“Potato buyer arrested over alleged£3m bribe from Greenvale” [March 2008]

“Siemens“fined €201m by German court in bribery case”

[Oct 2007]

“ABBdiscloses possible bribery”

[Feb 2006]

“FormerWembleychief jailed for bribery attempt”

[Oct 2005]

“The CBRN TeamMD admits bribery and awaits sentence”

[Aug 2008]

“BHP Billitondenies trying to bribe Saddam with wheat”

[March 2006]


Share volatility compass group l.jpg

Share volatility:Compass Group

UN and SFO investigations

commence Sept 05

= 24% decline between Aug 05 and Oct 05

and did not recover value until June 06


Share volatility industry comparison main competitor l.jpg

Share volatility:Industry comparison (main competitor)

Investigations

commence

Compass Group

Sodexho Alliance


Share volatility ftse 100 comparison l.jpg

Share volatility:FTSE 100 comparison

Investigations

commence

Compass Group

FTSE 100


Slide43 l.jpg

Best practice

Self deception

  • Arrogant leadership

  • Showcasing

  • Complexity

  • Embedded processes

  • Business benefits

  • Sustainable business

Corporate attitudesApproach to anti-corruption

In denial

  • Unaware

  • No leadership

  • Poor administration

  • Banks rely on AML

?

X


Actions for companies checklist for insurers l.jpg

Actions for companiesChecklist for insurers

The Best Practice

corporation

Policy:

Process:

  • Ethics

  • Compliance

  • Code of conduct

  • Gifts and hospitality

  • Know your customer

  • Oversight

  • Robust with accountability

  • Auditable, internal and external

  • M&A, IPO, JVs, Offset

  • Part of strategy and normal business process

  • Benchmark

People:

Communications:

  • Tone from the top

  • Zero tolerance of corruption

  • Board responsibilities

  • Independent due diligence/screening

  • Risk register and monitoring

  • Train, educate and train again

  • Single message

  • Cross culture, across organisation

  • Disclosure in reports

  • Openness in business

  • Suppliers and customers

  • Known for high standard of integrity


Minimising the risks l.jpg

Minimising the risks

  • Anti-corruption systems, review, monitor, audit (NB Woolf Committee Report : sales and supply chains)

  • Maintain adequate dawn raid response procedures in force, review them,

  • Train staff globally ~ common approach

  • Ensure business continuity ~ specialist legal, accountancy, IT, media support

  • Check extent of D&O insurance policy ~ does it cover proceedings in the US?

  • What cover is in director’s and key executive contracts?

  • Is bribery and corruption on the risk register

  • How is the board organised to address this risk?


Benefits of anti corruption policy and process l.jpg

Benefits of anti-corruption policy and process

  • Enhances reputation ~ a business with integrity

  • Increases investor attractiveness ~ sustainability

  • Enter new markets with more confidently

  • Better supplier and manufacturing choices

  • Avoids contract blacklists and sanction (World Bank, EBRD etc)

  • Embedded as a business practice and company culture

  • Reflected in bottom line

  • Keeps you on the right side of the law

  • Risk reduction and lower premium opportunity

    And Significantly less costly than an investigation / prosecution

    And

    Do You REALLY Know Your Customer and Suppliers?


Our journey47 l.jpg

Our journey

  • Definitions, backgound and law

  • People risk

  • The corporate dimension

  • Criminality and terrorism

  • Discovery

  • Risk ~ downside and upsides

  • References


Key reference materials l.jpg

Key reference materials

1997 OECD Convention

http://www.oecd.org/document/21/0,3343,en_2649_34855_2017813_1_1_1_1,00.html

http://www.oecd.org/dataoecd/4/18/38028044.pdf

UN Convention against Corruption

http://www.unodc.org/unodc/en/treaties/CAC/index.html

US Foreign Corrupt Practices Act

http://www.usdoj.gov/criminal/fraud/fcpa/

Other useful websites:

http://www.iccwbo.org/policy/anticorruption/

http://www.ibe.org.uk/

http://www.transparency.org/

http://www.traceinternational.org/

http://www.ethic-intelligence.com/?l=2&id_titre=

http://www.interchange-solutions.co.uk/

Other useful sources:

World Bank / Transparency International Corruption Perceptions Index


Slide49 l.jpg

Q&A


Conclusion l.jpg

Conclusion

Next steps

Opportunities

Threats


Slide51 l.jpg

Marie-Louise Rossi

Over a nearly 30 year career, Marie-Louise has specialised in political, (including terrorism), credit and export credit risks, as a broker and as a management consultant. She has also had extensive experience in the fields of regulation and compliance. She was, for 11 ½ years,

Chief Executive of the International Underwriting Association (IUA) (and its predecessor, London International Insurance and Reinsurance Market Association (LIRMA)), representing an over £11bn pa international insurance and reinsurance market to governments, regulators and the international institutions worldwide.


Slide52 l.jpg

John Burbidge-King WB, MCMI

Founder and CEO of London based Interchange Solutions, specialists in business reputation and risk management.

Operational service in the Royal Marines included Yemen, Oman, Ethiopia, the Far East and Northern Ireland; his international business experience ranges from banking electronics, biometrics to security printing. He was an active participant of the World Economic Forum, especially on preventing the counterfeiting of goods (paper discussed at Davos 2004) and on anti-corruption.

He has interacted with all levels of government and companies around the world; lived in the Far East, Arabian Gulf and California; a member of the UK Fraud Advisory Panel, a consultant on Middle East culture, speaks Arabic and is a Court Assistant to the Company of World Traders. Interchange is a member of the Society of British Aerospace Companies.

E: jbk@interchange-solutions.co.uk

T: 0044 (0) 208 528 1011


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