Corruption and Fraud in International Projects

DETECTION AND PROOF OF CORRUPTION AND FRAUD IN INTERNATIONAL CASES

Detection

Solicit Reports

The great majority of fraud and corruption cases are detected as the result of tips or reports, many anonymous, from disgruntled insiders, losing bidders or whistleblowers.

It is important, therefore, to set up systems to encourage and facilitate such reports, such as confidential "hotlines," whistleblower protection programs, and corporate compliance and voluntary disclosure programs. In the latter, contractors agree to investigate and voluntarily disclose their own wrongdoing in exchange for assurances that they will not be debarred.

Conduct "Fraud Audits"

Routine financial, procurement or technical audits that many managers rely on to detect fraud are not designed to do so and seldom do. In fact, more fraud and corruption cases are detected by accident than by audit. To be effective, auditors must be taught how corruption schemes operate, their red flags, and special "fraud audit" steps. These include identifying and tracing suspicious payments, testing prices and performance, and inspecting works and deliverables, through interviews as well as document reviews.

Proof

There are three basic ways to prove corrupt payments:

1. Prove the bribes from the point of payment by inspecting the books and records of the entity suspected of making the payment, and interviewing current and former company personnel;
2. Prove the bribes from the point of receipt by preparing a "financial profile" of the person suspected of receiving the payments by examining financial records and interviewing witnesses.
3. Solicit the cooperation of less culpable participants or inside witnesses

Proof from the Point of Payment

Obtain copies of the payer's bank account records, accounting records and supporting documents, through the exercise of contract audit rights, by subpoena or other means.

To find bribes, look for anomalous fees, undisclosed commissions and payments to agents, large or unusual cash withdrawals, and excessive expenditures for entertainment and business development. Be aware that bribes can be paid from subsidiary or affiliates, or through middlemen in secrecy jurisdictions, so watch for transfers or charges involving these entities.

Bribes also can be paid through "off-book" schemes; for example, a bribe payer can direct a customer that owes it money to make a payment on its behalf, which will not show up on the payer's records. Look for such transactions by identifying customers and funds owed to the payer

To find fraud, test prices for reasonableness, confirm deliveries and compare items received to contract specifications. Double-check reports from inspectors and site supervisors to assure that they are diligent and haven't been compromised.

Proof from the Point of Receipt

Begin by assembling a "financial profile" of the subject's income, expenditures, assets and liabilities, through the collection of salary and financial records, public records and interviews. Use the information to prove the receipt of bribes directly or circumstantially.

Public building permit records reflected that the subject and his wife spent a lot of money improving their home at the time the subject was allegedly receiving bribes. Investigators contacted the owners of the home-improvement contractors who did the work, who reported that they were paid hundreds of thousands of dollars in cash and travelers' checks. The travelers' checks were traced to a Swiss bank, where further inquires revealed that the subject and his wife had deposited three million dollars in bribe money in an account in his wife's maiden name.

A financial profile also might yield convincing circumstantial evidence of corrupt payments by showing that the subject lived beyond his means, suddenly accumulated unexplained wealth, or had unexplained cash income or expenditures. Such proof also might be used to corroborate evidence of cash payments.

Obtain the Cooperation of a Participant or Inside Witness

Proof of bribes by the means described above requires considerable time, effort, and expense, and is not always successful. Another tactic, often dictated by necessity, is to negotiate for the cooperation of a less-culpable party, such as a small contractor that was extorted, or an inside witness, such as a former employee or middleman, in exchange for lenient treatment or anonymity. This approach can evolve into formal voluntary disclosure programs, in which contractors who self-report bribe demands or even payments, and take steps to prevent recurrences, are not debarred.

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