Financial Crime
Corruption presents a daunting challenge to societies and economies worldwide. It undermines development, destabilizes governments, erodes societal trust and curbs economic growth. Corruption, in its various forms (bribery, embezzlement, nepotism, patronage and graft), permeates many facets of societies globally. Resources intended for public goods and services are siphoned off, leading to substandard infrastructure, including poor quality education and health care systems. In the political realm, corruption undermines public trust, leading to societal instability and conflicts.
Over half of the world’s population resides in countries rated as having endemic corruption, which dissuades foreign investment and heightens lending costs. Corruption also acts as a challenge for companies seeking to operate internationally, particularly in remote locations, often beyond the reach of their corporate compliance programs and domestic regulators. With ongoing economic anxiety in the background, the barrier of bribery and corruption demands a more deliberate and effective response from global regulators, banks, corporations and financial gatekeepers.
Direct impacts on banks and multinational corporations are vast, ranging from the financial costs associated with goods and services to reputational damage. Anti-bribery and corruption (ABC) law breaches in most of the surveyed countries have led to substantial civil and criminal liabilities. Many companies representing household brands have paid fines or settlements for contravention of bribery and corruption laws well over USD 500 million.
Given that most survey respondents believe that financial crime is a top challenge for governments, the question remains: What gaps are the private sector expected to fill to address corruption and bribery risks?
The leading global factors contributing to increased financial crime risks in the next 12 months include cybersecurity and data breaches (33%), financial pressure (16%), the impact of remote work (14%), increased regulatory enforcement (13%) and geopolitical tension (12%). This ranking of factors closely aligns to sentiments found in Kroll’s benchmarking surveys of recent years. However, for 2023, increased regulatory enforcement tied for the second-highest rated factor for U.S. respondents (18%).
These factors also align with respondent sentiment of the top reasons why governments are or will lose the fight against financial crime. If organizations believe that governments cannot keep pace with the rapidly evolving technology, how can they be expected to protect the private sector against cyber threats? As cybercriminals advance their tactics, data breaches have increased, exposing sensitive company information. This gap between government and technology can be exploited by financial criminals, either internally or externally, posing significant risks to organizations and their ABC programs.
Whether organizations are most impacted by challenges from technological change, digital currencies, data privacy policies or geopolitical tension, investing in technology, cybersecurity and other preventative measures ensures resilience for ABC programs.
Investing in advanced technology allows financial institutions (FIs) and multinational corporations to proactively combat financial crime. This includes artificial intelligence (AI) and machine learning (ML) algorithms that analyze vast amounts of data more efficiently and accurately than any human alone could, which helps organizations identify suspicious patterns indicative of fraud, money laundering or other financial crimes.
Blockchain technology, for instance, is increasingly being adopted for its ability to provide a transparent, immutable record of transactions. This technology could be instrumental in deterring and detecting corruption and bribery, thus enhancing the effectiveness of ABC programs.
Additionally, as financial systems become increasingly digital, the threat of cybercrime correspondingly escalates. Data breaches and cyberattacks not only pose a significant financial risk but also have the potential to cause severe reputational damage. An effective cybersecurity strategy thus forms a critical component of an effective ABC program. Organizations must consider investing in cybersecurity measures like managed detection and response, encrypted communications, effective vulnerability patching and strong authentication protocols. Also, conducting regular cyber risk assessments and implementing comprehensive employee training programs can help detect vulnerabilities, prevent cyberattacks and enhance the overall security posture of the organization.
Due to the intertwined nature of financial crime compliance programs detailed throughout Kroll’s 2023 Fraud and Financial Crime Report, another solution to increased risks and greater cost controls may begin with integrating anti-money laundering (AML) and ABC functions. Many headlines regarding significant bribery and corruption claims include breaches of AML regulation, and vice versa, highlighting opportunity for a collaborative approach within organizations.
AML and ABC functions are distinct specializations within most financial crime compliance programs; however, they travel in the same direction and utilize similar tools, methodologies and trainings. Efficiencies can be gained when organizations intentionally seek integration by leveraging shared resources for investigations, audits and risk assessments.
Given the dynamic nature of bribery and corruption and its associated risks, regular risk assessments are crucial to ensuring an effective ABC program. These assessments should identify, measure and understand both current and emerging risks, including geopolitical tensions, changes in regulations and technological innovations.
Regular risk assessments allow organizations to stay ahead of the curve, identifying potential vulnerabilities before they can be exploited. Furthermore, they enable organizations to adjust their risk appetite and controls in line with their evolving operating environment, ensuring their compliance program remains fit for purpose and resilient in the face of change. This is why organizations are increasingly investing in integrated risk technologies that unify risk with compliance, cyber and audit to help an ABC program pivot as quickly as world events occur.
ABC programs, in particular, need to stay nimble as the global enforcement environment develops. Globally, the anticipation of increased enforcement actions is on the rise, with over 60% of survey respondents predicting an escalation in the next 12 months.
In the U.S., the high expectation of increased enforcement aligns with the continued growth and investment in regulatory enforcement functions. The U.S. Department of Justice (DOJ) has consistently stressed that it views corporate criminal enforcement as a national security issue, which results in an accompanying surge of resources for Foreign Corrupt Practices Act (FCPA) enforcement. While sanctions were dubbed as the “new FCPA” by U.S. Deputy Attorney General Lisa Monaco, the FCPA is still the FCPA and will maintain its prominence in corporate criminal enforcement.
Brazil respondents, always with high expectations for an annual increase in enforcement, demonstrated the highest level of expectation among the surveyed countries at 72%. A new presidential administration may be influencing sentiment; however, new regulations enacted in 2022—Decree No. 11,129/2022— enable administrative and civil liabilities under the Brazilian Clean Companies Act (BCCA). The decree further describes the evaluation parameters for compliance programs that are similar to the U.S. DOJ’s 2020 Guidelines on Evaluation of Corporate Compliance Programs. With the maturation of Brazil’s anti-corruption law, the effectiveness of compliance programs is expected to follow.
The UAE being a country with a developing regulatory framework and no comprehensive anti-corruption legislation at present, expectations of increased enforcement are relatively high with 56% of respondents. The Penal Code provides provisions for ABC in the private sector, however, ABC compliance programs are not regulated. As is the case with many international business hubs, companies operating in the UAE often follow guidelines from international regulators and their sentiments may reflect the global expectation of increased enforcement. Domestic ABC laws may, nonetheless, be influenced in the coming years by the impact of grey listing from the Financial Action Task Force (FATF). The UAE’s progress to be removed from the grey list has drawn attention to a need for improvements to compliance cultures for banks and multinational corporations, which leads to more resilient ABC compliance programs.
Looking ahead, regulations on third-party gatekeepers is the next frontier for ABC enforcement frameworks seeking to better combat financial crime, such as in the U.S.
Third-party gatekeepers play pivotal roles in facilitating large financial transactions. Given their positions, they are poised perfectly to detect and prevent corruption. Regulators are moving to take a stricter stance, seeking more accountability, stricter regulations, rigorous oversight and heavier penalties for non-compliance by the gatekeepers themselves.
According to the FATF, of all the countries assessed to date, only five still do not regulate gatekeepers. Out of more than 150 countries, only the U.S., Australia, China, Madagascar and Haiti, are yet to regulate gatekeepers. In the U.S., the pending ENABLERS Act, aimed to close loopholes for gatekeepers, continues to be at the mercy of the American legislative process. However, in 2023 or 2024, bipartisan support may be sufficient for the law to be reconsidered. While the majority of global respondents believe that third-party gatekeepers increase financial crime risks, 16% disagree. U.S. respondents have the highest level of disagreement at 24%, which may indicate the proportionate opposition to laws such as the ENABLERS Act.
As the fight against bribery and corruption evolves, so do the measures used to combat it. Corruption is a pervasive challenge, but our collective efforts can and must rise to meet it. Strong, collaborative measures from governments, regulatory bodies, corporations and individuals globally are critical to curbing its destructive impact.
Despite the considerable challenges, the progress made thus far in combating bribery and corruption offers cause for optimism. We are witnessing a global shift towards increased enforcement, enhanced regulatory frameworks and more sophisticated, technology-driven measures to prevent and detect corruption. By understanding the landscape of economic crime, we can develop proactive strategies to curb corruption, foster ethical conduct and build a more equitable society.
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