EY: Fraud and Corruption Trends to watch this year

Companies and their boards are struggling with increased regulatory burden and the risks associated with operating in emerging Asian markets, according to a recent report released by Ernst & Young's (EY's) Fraud Investigation & Dispute Services group.

The findings, culled from EY's first Asia-Pacific Fraud Survey 2013 titled "Building a more ethical business environment", shows that regulators are challenging corporate compliance and governance models as companies aim to mitigate risk while shareholders expect growth. The changing landscape for cross-border disputes, bribery and corruption and cyber-crime continues to test compliance and governance models, especially in new markets.

Chris Fordham, Asia-Pacific Managing Partner of EY FIDS, commented: "Our clients are continually looking for ways to improve their approach to anti-bribery and corruption risk in emerging Asian markets. However, we see related risks gaining traction with multinational and local companies, as well as industry specific risk issues that will persist into FY14. FIDS has identified six key themes where we expect our clients to focus in 2014."

Here's what is expected to emerge in this year:

1. Dealing with reputational harm and the business risk associated with cyber crime will become part of a General Counsel's responsibility set.

Traditionally, the chief information security officer (CISO) has focused on information security attacks and compromises due to their damaging and potentially public nature. Increasingly, however, these risks now require immediate and planned responses organised by inside and outside counsel.

Additionally, the potential loss of highly valuable intellectual property or client data has elevated the responsibility for cybersecurity to Board level, since the related disclosure issues to regulators and shareholders can be complex.

2. Balancing significant growth opportunities in Asia with perceived corruption risk.

Although multinational companies continue to invest heavily across a wide range of industry sectors, the perceived level of corruption in the region, and the attention of authorities from both the U.S. and U.K. on business conduct, is prompting organisations to reassess their controls, governance and compliance programs.

Nearly half (48 percent) of the executives polled said that their companies' anti-bribery and anti-corruption policies are good in principle but do not work well in practice. Organisations setting up operations in Asia need to continue to perform robust due diligence in order to manage these risks.

3. The impact of regulation will be felt stronger than ever by the financial services industry.

Notwithstanding the billions of dollars in restitution, fines and litigation costs incurred to date by banks and securities firms globally, regulatory pressure is not expected to dissipate in 2014. Important themes from 2013 will likely continue as the industry responds to broad regulatory focus on systemic risk.

4. FCPA (Foreign Corrupt Practices Act) compliance will remain a top priority for life sciences companies operating in emerging markets.

Gone are the days when enforcement was led solely by U.S. authorities. Staying on top of the differing anti-corruption laws and standards, particularly in markets where the rule of law is not always clear, will present a challenge and opportunity for companies that depend deeply on growth in those markets.

5. Anti-money laundering and corruption programs to face greater scrutiny.

Global and local regulators continue to press large financial institutions on the issues of money laundering, trade sanctions and bribery and corruption, stressing the need for robust program controls, sophisticated monitoring systems and knowledgeable personnel in positions of oversight. The regulatory scrutiny is now moving beyond the traditional banking sector into non-banks, including credit card issuers, insurance providers and gaming enterprises, prompting the need for these businesses to seriously review and enforce their compliance programs and controls.

6. The opportunity to leverage "Big Data" in the context of compliance and anti-corruption will allow companies to ask new questions.

Data analytics, traditionally the domain of marketing and sales, has effectively migrated into the realm of internal audit, compliance and corporate oversight. Companies now have opportunities to use forensic data analytics for proactive monitoring of business data. Organisations will be able to develop a better understanding of the risks and rewards of forensic data analytics and how these techniques can be used to transform data to help detect potential instances of fraud and implement effective fraud risk mitigation programs.

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