ISO 37001:2016

The automotive industry is a huge worldwide business, and corruption and “pay-to-play” schemes make the headlines on a regular basis. Considering the markets involved include steel, labour, shipping, and others, it stands to reason that the industry can be a target for bribery and corruption problems.

One example is Rolls-Royce Motor Cars, which was punished to the tune of an $800 million (U.S.) global settlement that included a deferred prosecution with the UK’s Serious Fraud Office (SFO), the U.S. Justice Department and Brazilian authorities. The company was found to have engaged in systemic bribery spanning 13 years and 22 countries.  There were multiple schemes in various countries and locations, including Indonesia, Thailand, India, Nigeria, China, and Russia.

CASE STUDY

Learn more in detail about the Rolls-Royce investigation in the case study, titled “Ethics, Compliance and Rolls-Royce”:

The aviation industry is facing a series of pressures that challenge each airline’s profitability and growth. Over the course of the next 20 years, the global commercial aircraft fleet is expected to double to approximately 45,000 aircraft, driven by increased air travel due to an expanding middle class in emerging economies. Risk of bribery and corruption is ramped up, however, by the fact that the supply chain struggles to keep up with demand due to the ramp-up in production, volatility in the geopolitical and economic environment is increasing, and a growing labour shortage is lurking in the background.

Look at major cases like Pakistan International Airlines (PIA), which has been embroiled in a scandal. The allegations involve “organised failure of institutional management, state, and internal controls,” in some cases connected to air accidents with loss of lives. PIA is just a high-profile example of what can result when such corruption goes unchecked, with mismanagement, corruption and kickbacks causing irreparable harm. Read more about the PIA case in the CRI Group white paper, “Organised Catastrophe of Pakistan International Airlines: Major Critical Risk Elements – Mismanagement – Corruption.”

While every type of insurance is ripe for fraud, did you know that bribery and corruption are among those schemes in the insurance industry? Fraudsters are opportunists who look for an opening, and that can involve collusion, such as between claimants and adjusters, for example; or bribing officials to provide false reports or otherwise fabricate evidence in support of an insurance claim.  In fact, there are well-known cases of highly organised criminal gangs who have built money-making enterprises on insurance fraud.

With the enormous liability presented by insurance fraud, every organisation should address their risk with proper control systems in place. This includes vigorous anti-bribery anti-corruption measures such as those implemented in ISO 37001. Successful risk mitigation includes conducting regular risk assessments, staying in compliance with all major laws and regulations, and regularly measuring and evaluating results.

Corruption involving pharmaceutical companies and healthcare providers is a major concern around the world. With varied layers and a complicated supply change, corruption can easily gain a foothold even among the most well-meaning healthcare providers and their companies, especially with the industry overburdened with inflating costs and increasing fraud schemes. The World Health Organisation (WHO) estimates that, where losses have been measured and the types of health expenditure have been covered, the average annual cost of fraud totals 7.29 per cent of healthcare budgets (Gee and Button, 2014). For fraudsters, big pharma and healthcare represent a target-rich environment.

Take global pharmaceutical giant GlaxoSmithKline. The company was accused in China of a large-scale bribery scandal, charged with systematically paying bribes and “gratuities” to doctors and hospitals in return for favourable product use and promotion. China was in the midst of an emerging anti-graft campaign and imposed tough penalties against GSK and its executives: In the end, various company leaders were arrested and eventually given suspended prison sentences; GSK was fined $490 million; and the corporation published a statement of apology to the Chinese government and its citizens (BBC, 2014). Read more about pharma and healthcare fraud in “Pharma and Healthcare Companies can Benefit from ISO 37001.”

Property and real estate provide ample opportunity for bribery and corruption, unfortunately. Every step of the process, from zoning and permits to construction and sale or resale represent vulnerabilities and risk. Unfortunately, for as long as there has been a market for buying and selling land, property and resources, there have been schemes that aim to defraud.

Property fraud can be difficult to detect and prevent. Fraudsters often produce fake or forged documents, and there is likely to be collusion involved. For example, a crooked investor might provide kickbacks to an appraiser in return for inflating the value of a property, or he/she may sell a property to a “straw buyer” at an inflated price, with the straw buyer intentionally going into default (and splitting the proceeds of the loan with the fraudulent investor). There are “handshake deals” and “facilitation payments” ready to be made, many in direct contradiction to ethics and the law.

Internet technology (IT) and telecommunications providers are the engines that help power commerce on a global scale. This massive industry includes companies that provide the infrastructure for communication across multiple countries and continents, including phone and internet providers. Given their role and the technology on which they (and all of us) depend, these services must always be on guard for vulnerabilities to fraud. There is a high risk, however, for bribery and corruption in such a massive market.

In one example, Sweden-based telecommunications provider Telia Company AB agreed to pay $965 million in a global settlement with the Securities and Exchange Commission, U.S. Department of Justice, and Dutch and Swedish law enforcement to resolve charges related to violations of the Foreign Corrupt Practices Act (FCPA) to win business in Uzbekistan. According to the SEC’s order, Telia entered the Uzbek telecommunications market by offering and paying at least $330 million in bribes to a shell company under the guise of payments for lobbying and consulting services that never actually occurred. In another case, Cinergy Telecommunications (based in Miami) pleaded guilty to violating the FCPA after admitting to a role in a bribery scheme aimed at locking down a contract with the state-owned telecommunications company in Haiti. The case included large fines and criminal prison sentences for the key players.

The oil and energy sector is a massive portion of the world’s economy, dealing mainly in petroleum – including upstream (exploration, development and production of crude oil or natural gas) and downstream (oil tankers, refiners, retailers and consumers) pipeline. The need to prospect, discover, and realise oil and energy production in various (and often far-flung) locations lends to the vulnerability to fraud – but geographic considerations aren’t the only risk factors.  Perhaps even more impactful is the complexity of business relationships required to operate in the industry – relationships with governments, contractors, regulators, investors/venture partners, equipment suppliers and other parties. Every such interaction and dealing can be considered susceptible to bribery and corruption where cutting corners may be considered profitable or even perceived to be “business as usual.”

An infamous example is the case of Petrobras. In December 2017, the world’s largest builder of offshore rigs agreed to pay $422 million in penalties after entering a guilty plea for bribery charges connected with the Petroleo Brasileiro (Petrobras) scandal. Keppel Offshore & Marine Ltd. made illicit payments to both Petrobras officials and government representatives for more than a decade, between 2001 and 2014 (Reuters, 2017). The sweeping multimillion-dollar bribery scandal that rocked Petrobras led to numerous investor lawsuits and the downfall of disgraced government officials. It also served as the embodiment of the huge risk of bribery and corruption that confronts the entire oil and energy sector. See “Oil and Energy Companies Look to ISO 37001.”