Global Fraud Survey 2018

EY Published 08.05.2018

The scale of bribery and corruption has shown no improvement globally since 2012, despite the unprecedented level of enforcement activity and introduction of new corporate criminal liability laws in that time. This is according to the 15th EY Global Fraud Survey, which surveyed 2,550 executives across 55 countries, including Luxembourg. Of importance for the Luxembourg part of the survey was the fact that despite the importance of the Luxembourg financial sector, two thirds of the total number of respondents were from non-financial companies, thereby allowing a real assessment of the Luxembourg specificities across all the relevant economic sectors.

This year’s survey found that despite regulators and law enforcement agencies around the world imposing more than US$11b of financial penalties since 2012, 38% of global executives still believe bribery and corrupt practices remain prevalent in business.

Gérard Zolt, Fraud Investigation & Dispute Services Leader at EY Luxembourg, says:

“The lack of improvement in global levels of corruption over the last six years shows that unethical behavior in business remains a daunting challenge, despite intensified global enforcement.”

“While corruption remains so prevalent, businesses remain vulnerable to significant financial and reputational harm. Management teams must identify and address the root causes of unethical conduct in their organization. Compliance programs need to keep pace with the impact of rapid technological advancements and the increasingly complex risk environment on business operations. More robust risk management should be considered a strategic means of improving business performance.”

Emerging markets still exhibit higher levels of corruption

The difference in levels of corruption between countries remains significant, with 20% of respondents in developed markets indicating that bribery and corruption occurs widely in business, compared with more than half (52%) of those in emerging markets.

Regions in which corruption risks were higher than the global average included Central and Eastern Europe (47%), the Middle East (62%) and Latin America (74%), despite improved anti-corruption legislation and more active enforcement in some countries.

Overall, the findings show that there is often a lag between the introduction of stronger anti-bribery laws and reduced corruption, with Brazil, the Netherlands and the UK showing this trend. Brazil, for example, has seen the introduction of legislation and increased enforcement over the last four years. Yet, 96% of Brazilian respondents indicate that corrupt practices occur widely in business – an increase from 80% in 2014 when the new laws were introduced. In the US, however, where enforcement of the Foreign Corrupt Practices Act (FCPA) intensified in the mid-2000s, perceived levels of corruption fell this year to 18%, an improvement from 22% in 2014. It is to be seen what impact an eventual introduction of a similar updated Luxembourg anti-corruption legislation would have on Luxembourg businesses, especially taking into account that the vast majority of Luxembourg companies are export-oriented.

Mismatch remains between intention and performance

Integrity sits high on the board agenda, the survey finds, with 97% recognizing the importance of their organization being seen to operate with integrity. Although improved customer perception, staff retention and business performance were all seen as benefits of demonstrating integrity, there remains a mismatch between intentions and actual behavior. Thirteen percent of respondents say they would justify making cash payments to win or retain business. Interestingly, this rises to 20% among those that are under the age of 35 years old.

The report suggests that organizations need to make it clear that acting with integrity is everyone’s responsibility, and while that includes the importance of management setting the right tone from the top, it also involves individual employees. The findings show that 22% of respondents feel that individuals should take primary responsibility for their organization behaving with integrity, while 41% say it is management’s primary responsibility. Interestingly enough, for Luxembourg, on this particular point, the percentage believing that it is Management’s responsibility is in the Top10 percentage, while the percentage believing the Board has a responsibility is one of the lowest in the survey. Who in your organization is responsible for ensuring that employees behave with integrity? The report indicates that there may be some level of disillusionment among companies with regards to their ability to “walk the walk” when it comes to managing misconduct. Seventy-eight percent of respondents believe their organizations have the clear intent of penalizing misconduct, but only 57% are aware of people having actually been penalized. For Luxembourg, the percentage of respondents being aware of people having actually been penalized falls down to the third-lowest of all countries reviewed. This raises some important questions on how risk is actually managed, especially when one considers the substantial number of career moves undertaken on the Luxembourg labor market.

Ensuring that ethical conduct is managed effectively is not only an issue that needs to be dealt with internally, but also with third parties and those acting on behalf of the organization, according to the report. Yet third-party due diligence also seems to be a low priority, with only 59% of respondents indicating they have a tailored risk-based approach to due diligence on third parties.

Another interesting aspect of the Luxembourg part of the survey was that contrary to what one could expect, on the question “Which of the following pose the greatest risks to your business?”, cyber threats and cyberattacks only came in second position and was surpassed by the impact from complex and changing regulatory environment.

Gérard Zolt says: “The pressing challenge for management and the board, therefore, is to build a robust culture of integrity and compliance in which employees do the right thing because it’s the right thing to do, and not just because a company code of conduct says they should. 6% of the Luxembourg respondents recognize that they have experienced significant fraud in the last 2 years, which classifies Luxembourg at the same level as France, Switzerland or the US.”

“The encouraging news is that with today’s advances in forensic data analytics, companies can leverage new technologies to increase the effectiveness and efficiency of their efforts as they seek to improve investigation and compliance outcomes.”

The author of this article is solely responsible for the content published.

 

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