Phil Beckett, Managing Director at Proven Legal Technologies – a corporate forensic investigation and edisclosure firm
The Serious Fraud Office (SFO) recently cautioned companies and banks, warning them that if they fail to prevent financial crime by their staff, they could face great fines and official blacklisting from European contracts. This proposed amendment to the Bribery Act put forward by the SFO would give Britain the power to take direct action against corporates, enabling it to levy US-style fines and brand them with assisted bribery.
Reinvigorating the Bribery Act
This is not the first time the Government has tried to shock organisations into taking action, and firms need to take it seriously. These developments can be seen as both a carrot and stick, however. The stick: organisations in the UK found guilty of offences under the Bribery Act could find themselves blacklisted from European contracts; the carrot: deferred prosecution agreements (DPAs) that the SFO stated they could use as of 24 February 2014.
Undoubtedly, the SFO will look to reinforce these messages by publicly taking action in both regards. To make the message even clearer, the SFO could showcase two cases side-side – one under a DPA and the other in the form of a traditional prosecution – in order to show the benefits of companies entering into DPAs.
A call to action
Firms should not take these latest developments lightly. The SFO, which recently had to ask for emergency funding, is trying to shift the cost focus onto organisations when it comes to investigations into allegations of bribery. To keep away from the wrath of the SFO altogether, all firms need to implement a mixture of good policies, procedures and training. Although to date, these have primarily been viewed as a defence mechanism and best-practice in terms of bribery avoidance, they can however have more far-reaching benefits if they are taken further.
When looking into cases of bribery, corruption and other similar offences, there are signs of the deviant behaviour hidden within the vast quantities of data that passes through or is stored on the company’s technical infrastructure. A detailed analysis of this information can provide remarkable insights and early warning signs into these issues.
Communication and accounts analysis
Analysis typically revolves around two key weaknesses in the bribery process. The first being that there is generally some need to communicate, either between the perpetrators and their associates, or internally to deal with internal queries around unusual activities. The second weakness is that money has to leave an organisation’s accounts, however well disguised, as the perpetrators do not generally use their own assets when funding a bribe. Both of these weaknesses can be intelligently targeted.
Communications are not normally maintained using the corporate email system, at least in respect to communications with external perpetrators. However, corporate systems including instant messaging or chat systems should not be ignored. They can provide a wealth of intelligence when it comes to spotting the peripheral signs of these actions, such as internal queries about payments or comments on behaviour or results. Chat systems are particularly valuable as people tend to use these in the same way they would a phone-call, which means they are often less cautious about what is said and how exactly it is said.
The development of technology
Technology is continually developing and there are a wide range of communication mediums that can be used, including web-based email accounts, social-media messaging (e.g. Facebook and Linked In) and Skype. Simply analysing internal systems alone is not enough. It is important to consider other legal constraints before engaging in a full-scale investigation into these, for example Data Protection and Human Rights legislation. However, given the appropriate circumstances and legal footing, these mediums can be thoroughly analysed looking for both patterns of communication and also the actual content of the communication itself.
Often both of these mediums create vast volumes of data that needs to be carefully analysed in order to identify potential warning signs. A number of techniques can be used here that do not rely on simple keywords, including the use of linguistic analysis and clustering to identify key themes within a data set, the analysis of communication patters between different entities, the use of sentiment analysis and using a ‘Frankenstein’s document’ to seed the data set to look for other documents similar to it.
The circle of knowledge
It is also important to consider the level of awareness amongst the suspects as to what it is believed they know or do not know about any investigation. As always, keeping the circle of knowledge about any investigation to a minimum to avoid any ‘tipping-off’, either accidentally or maliciously will benefit the case. If, for whatever reason, it is believed any suspects are aware that an investigation is imminent, then it is important to put added emphasis on methods by which they may try to destroy evidence. This can include analysing their computers to look for signs of wiping or mass-deletions. If specific files are wiped, it is practically impossible to recover them, unless you are able to find them in an alternative location. However, it is more challenging to both hide the fact that wiping has occurred and to remove all references to the wiped files from the computer as they are very often referred to in numerous system files, such as the Registry on a Windows system.
Back-up tape extraction
If it is believed the data may have been deleted, then it is also worth considering the analysis of back-up tapes (or equivalent) from a time frame before they may have been aware. Not only can this provide a snap-shot of the data at the time before there was any opportunity to delete anything that could have been useful to the investigation, but also by analysing what files were deleted (i.e. looking at what files are on the back-up but are not on the live server) can be like a big, flashing arrow pointing at what was deleted. This could therefore be of great potential value to the investigation.
What is of upmost importance is that the analysis is not performed in isolation for the rest of the investigation and that it is a dynamic process that grows and morphs as the findings are evaluated and considered with the findings from other dimensions of any investigation.
When considering the monies leaving an organisation, there are many techniques that can be used to try and identify unusual transactions or patterns of transactions within an organisation’s accounts. Before performing any analysis, it is important to ensure that all data is captured and then normalised to ensure that transactions are consistently and completely analysed. The analysis can take on simple forms such as checking for payments of round-sums, looking for payments to entities in high risk countries or can be linked to politically exposed people or identifying payments to entities before or around key contractual dates. Although, it can also take more advanced and complex forms, such as Benford’s Law, which looks for unusual frequencies of transactions with the same leading digits, and statistical clusters and outliers that seeks to identify transactions that are statistically deviated from the norm.
Basic analysis can also reveal surprising and unusual findings and therefore should not be overlooked. This can include identifying payments outside of normal working hours, round-sum payments, payments clustered just below authorisation limits and unusual relationships between the person who enters and the person who authorises payments.
Analysis like this can be more effectively performed using specialist software as opposed to trying to perform these tests on the organisation’s own accounting platform. This has the added benefit of being able to sense-check the data being extracted, for example looking for invalid dates (for example, 00/00/0000) or dates outside of the norm (for example, 13/03/1914 or 13/3/2114), which can be used to try and disguise unauthorised transactions.
An integrated approach
Organisations can really benefit by looking at all analyses in conjunction with each other. Allowing the results of one to feed into the other can help achieve a higher level of analysis. If the results from any human-side investigations are then combined, it allows an organisation to analyse the data in a more informed and complete manner. For example, a review of transactions may identify an unusually named party or there may be a certain date or time when a series of unusual payments get made.
This information can be used to target searches across the communication data, looking for communications relating to that party, or content discussing it; or by analysing communications at those dates and times, as well as the surrounding time frames. This approach can help draw out findings that can be otherwise opaque.
Taking preventative methods
Whether investigations into fraud are undertaken as part of regular internal audits seeking to identify issues before they come to the surface, or in response to other suspicions, they can help an organisation avoid large fines, unwarranted bad publicity and now being blacklisted for European contracts. Rather than the ongoing fines, a preventative approach should be taken by firms to protect potential reputational and financial damage to their business. Implementing the right systems needs to be a priority for firms so that they can stop any suspicions before they rise to the surface. At present, this is not something that many firms are doing well.
Everything you need to know about APIs for business
By Omar Javaid, president, Vonage API Platform, Vonage
If your work brings you into close proximity with technology, chances are that you’ve come across APIs. Like many of the tech acronyms we hear – DNS, VOIP, SaaS – APIs fall into a category of terms that most of us would consider best left to the IT department. However, APIs are a vital tool for any tech-enabled business, and a basic understanding of them at management level can help to drive sales, increase customer satisfaction, and improve the user experience.
Although they seem daunting, getting to grips with APIs is surprisingly straightforward. API stands for Application Programming Interface, and can be simply defined as a software tool used to control programmes. Essentially, APIs create sets of rules that allow applications to communicate with each other – they are the part of the server that receives requests and sends responses. Today, when data is transferred between a pair (or more) of programs or applications, an API normally makes it happen.
To give a real-world example: when a user types Instagram’s URL into their browser and hits the Return key, a request is subsequently transmitted to Instagram’s remote servers. That browser then processes the response code it receives and displays the page. For the browser, Instagram’s server is an API – allowing it to communicate and relay information back to you without interruption or delay.
The job of the API is to simplify the complex data exchanged between these servers, and to make the interaction as seamless as possible for the end user. Considering that the vast majority of our business and personal lives now take place virtually, any solution that optimises the online experience is extremely valuable.
Using APIs to improve the customer experience
One of the core benefits of APIs is that they enable businesses to free themselves from the time consuming and costly process of developing in-house software to power a single core application. Instead, developers can outsource certain tasks to remote “off-the-shelf” APIs, saving time, money, and allowing resources to be channeled elsewhere. These add-on services allow businesses to offer a more complete, one-stop solution to customers, whilst streamlining the process to optimise user experience.
Although we may not always realise it, APIs are playing a vital silent role in almost every purchase and interaction we have online. Take booking a holiday for example. As we browse comparison sights, APIs are working furiously behind the scene to aggregate information from airline databases, hotel websites, and excursion providers. The API performs the back and forth needed to retrieve the information, whilst we are able to sit back and view all of the results on the same page. Simplifying this process enables travel comparison websites to make the search for holidays quick and easy, and encourages customers to stay on the site by offering all that they need in one easy to consume package.
APIs also allow smaller businesses to utilise tools provided by some of the world’s largest and most successful companies. Google’s Calendar API for example could be used within a beauty salon website to enable customers to book and schedule treatment reminders, whilst Apple’s weather tool could be plugged-in to an events company website to give customers real-time weather updates. While the API’s developer does retain ultimate control over how the API is used, there are still countless ways to integrate these tools to benefit your business and improve the functionality of your website.
The recent Covid-19 pandemic in particular has highlighted the value of an API class that normally receives little attention; communication APIs.
Today, companies are boosting spending on unified communications-as-a-service (UCaaS), along with video conferencing, collaboration, and voice technology solutions given the exponential growth in home and remote working as a result. Where face-to-face contact is limited by necessity, businesses need to be able to communicate with employees and customers in ways which are secure, simple, and cost-effective.
Given how rapidly the technology landscape changes, APIs are the clear solution to avoiding the expense of developing tools from scratch, in addition to harnessing the power of the advanced features offered by established API providers.
Using them, businesses are able to adapt to suit changing customer preferences; for example offering an online chatbot to handle customer queries, or by using multi-channel messaging to connect with customers via WhatsApp or Messenger. These tools are not only useful, but can also allow you to gain intelligence into a customer’s preferences and habits – both useful marketing gauges.
On the other hand, comms APIs can also help to address problems that may crop up internally within organisations and workforces. There are APIs which allow callers to automatically sync calendars, meaning that meetings will only be scheduled when all parties can attend. There are also APIs for timezone conversion, permissions requests, and for video link calls and messaging. With the work from home trend continuing for the foreseeable future, investing in these areas is critical if businesses want to keep delivering at the highest levels.
Considering all of the above, it’s clear that we can expect to see the adoption of APIs continue. Developers are constantly working to create increasingly sophisticated products, and many have moved towards exclusively building and hosting APIs, rather than building the apps themselves – creating a so called “API Economy” of sorts.
This focus on creating the best possible APIs has allowed smaller businesses to harness the collective expertise of the world’s largest and most successful companies, and the chance to use these tools represents a fantastic opportunity for growth. The reach of APIs extends far beyond the IT department, and with a basic understanding, they can be used by senior management and leadership teams to optimise all areas of the business – not bad for three small letters.
Unexplained Wealth Orders: Rightly Celebrated or Over-Rated?
By Nicola Sharp of financial crime specialists Rahman Ravelli considers the attention given to unexplained wealth orders – and emphasises that they can be challenged.
There is little doubt that many sectors of the media – and their readers – enjoy a story that involves an unexplained wealth order (UWO). They do, after all, have many of the ingredients that many look for in a good tale: allegations of wrongdoing on a large scale, someone being made to hand over assets worth more than most people will earn in a lifetime and the sense that justice has been seen to be done.
In the latest UWO, which was widely covered in the media last week, Leeds businessman Mansoor Mahmood Hussain was compelled to hand over property worth just short of £10M, after being accused of acting as a money launderer. He has been ordered to surrender the assets because the National Crime Agency (NCA) believed his wealth was the proceeds of crime, and so considered him a suitable target for a UWO.
Introduced by the Criminal Finances Act 2017, UWOs give law enforcement agencies powers to require persons to explain how they came to possess their assets, and to show that their wealth has come from legitimate sources. A UWO can be sought without any civil or criminal proceedings having begun. There is no need for the subject of a UWO to have been convicted of an offence or to have had a civil law judgement against them. Agencies can apply to the High Court for a UWO against any property valued at over £50,000, if the person owning it is reasonably suspected of being involved in serious crime (or connected to a person who is) and there are reasonable grounds to suspect that a person’s lawfully-obtained income would be insufficient to allow that person to obtain that property.
Like Zamira Hajiyeva before him, Mansoor Hussain’s inability to provide a credible, innocent explanation for his wealth has cost him – and generated headlines. Hajiyeva may be best known for somehow racking up £16M of expenditure at Harrods. But this only became known when she was the first person to be the subject of UWOs. The NCA expected her to explain how she had bought a £11.5M Knightsbridge house and a £10.5M golf course in Ascot, bearing in mind her husband is the former head of the state-owned International Bank of Azerbaijan, had a salary of no more than $70,000 and was convicted of fraud and embezzlement. Earlier this year, she lost her appeal against the UWOs, thus enabling the media to re-run her story and giving the NCA the chance to make approving noises about UWOs being a valuable tool in tackling illicit finance.
But before there is a rush to applaud UWOs, it should be said that the NCA’s relationship with them has been a chequered one, to say the least. Since becoming available to the NCA, the agency’s success rate with UWOs has been patchy. This is despite the standard of proof for UWOs being significantly lower than that required in criminal cases. Last year saw the NCA granted three UWOs for London property valued at £80M. Yet less than a year later, these UWOs were discharged, with a judge criticising the NCA’s “unreliable’’ assumptions and “artificial and flawed’’ reasoning. The Court of Appeal then refused the agency permission to appeal this decision.
While a UWO is a tool that enables law enforcement agencies to seize assets they believe are the proceeds of crime without anyone ever being convicted, it does not yet appear to have become the great weapon against illicit wealth that many would have hoped. Of the four cases begun since UWOs were introduced, two are still being contested. Mansoor Hussain’s case is the first time a UWO has successfully led to the recovery of assets from an individual.
Although, a UWO can be seen as effective in certain situations, it will often be considered the most (and perhaps only) viable option when a prosecution has failed or when the authorities do not believe there is enough evidence for a realistic chance of a conviction.
When being faced with an UWO it should be remembered that whilst agreeing to settle and hand over property is not an admission of guilt, anyone facing a UWO must consider carefully how they respond to the authorities. It is vitally important to take the right advice. Deciding how to proceed when assets worth millions are at stake can be the biggest decision a person ever has to make.
In such circumstances it will often be the case that an intelligent, robustly-argued challenge to a UWO – and, in particular, to the allegations being made by the law enforcement agency seeking the UWO – will bring success. But that success will depend on knowing precisely how to respond – and who to turn to – if and when you become the intended target of a UWO.
How Siloed Data Leaves Financial Institutions Open to Fraud
By Stephany Lapierre, CEO Tealbook
Reducing the risk of fraud is a top priority for all financial institutions since fraud is responsible for massive profit loss, as well as the degradation of an institution’s integrity and brand.
In trying to prevent fraud, most executives look to protect themselves from the outside in, implementing layers of security and launching reactive measures. However, in order to truly protect your organization from fraud, it’s imperative to begin by looking at your existing internal structures. The most critical and often overlooked area to assess is how your organization obtains, enriches, and distributes data.
Streamlining and scrubbing your data can increase profitability without adding to resource spend. Having good data allows you to complete your due diligence on vendors and external entities your organization regularly deals with. It favorably adjusts your efficiency ratio and reduces risk by eliminating redundancies, conflicting information, and information gaps. In addition, it allows smaller teams to operate with increased scale and effectiveness. In turn, this leads to a more effective vendor vetting process and less room for error in payment information verification.
Conversely, poorly managed data is confusing and deceiving and can play an unfortunate role in giving fraudulent access to outside parties through internal miscommunications. For example, updates could be made in one system and not another, and suddenly different departments are working with different data sets like payment information or legal formation documents that regulators look for in audits, and no one knows what is true or accurate. This effect snowballs over time, creating massive holes in the integrity of the data, creating unnecessary risk exposure and audit failures.
All of these vulnerabilities can serve as the foundation for developing a risk management protocol that may be rendered useless if it is based on poor data. It is impossible to properly vet vendors and suppliers or verify payment information if the data is unreliable.
By investing in a solid Data Foundation, you’ll see an increase in the success of your risk management and fraud prevention measures. In many instances, you won’t need to add more steps or resources, just power your existing systems with clean, agile, and accurate data to see improved efficiency.
Here’s a closer look at the most common vulnerabilities within a typical financial institution’s data ecosystem:
Fragmented Organization Structure
As organizations grow and scale, it’s inevitable that different subsections will become isolated from one another and begin different processes for data management. Poorly managed systems can exacerbate this lack of communication and threaten data integrity.
It may not seem like cause for concern if a few different arms of an organization aren’t completely in sync. However, in the financial space, this issue rarely applies to just one or two organizational divides. For example, a prominent US-based financial institution boasts over 90 business units, all of which need to be synergized in order to prevent inaccurate data, redundancies, and problems with regulatory information gathering. This siloed information is, unfortunately, a common practice that needs to be addressed.
Unmanaged Proprietary Systems
In an attempt to serve data in a highly specialized way, many institutions have explored developing proprietary data systems for internal use. However, because of factors like employee turnover or an inability to keep up with data integrity best practices, these legacy systems quickly become obsolete and unmanaged. Their custom nature also renders them inflexible and unable to integrate with other solutions.
When trying to work around an unmanaged system, different branches of an institution may turn to different solutions. When work is being done across different platforms, this reduces visibility and increases risk for inaccuracies, which leads to poor decisions, costly rework, and potentially fraud.
If your organization is reliant on a proprietary system, consider if that system is functional and scalable. If it’s not, you may want to look into a flexible data management system that can work with other technologies.
Disparate Information Across Systems
Mergers, acquisitions, and growth also lead to using and implementing many different ERP solutions and antiquated legacy software that are forced to communicate with each other using painful manual efforts. A major problem arises from the fact that these systems operate across numerous lines of businesses, all with different siloed data. By having so many siloed systems that could be compromised with harmful data, these disparate data sources leave banks and other financial institutions exposed to unnecessary risk.
Different departments have different needs, so it makes sense that they would use different solutions, but it’s important that those solutions pull from a single source of truth in order to prevent the types of data inaccuracies that lead to vulnerabilities.
Closing the holes in your data integrity is the most proactive way a financial institution can defend against fraud. As hackers get increasingly creative and aggressive, it becomes even more critical that organizations have a trusted Data Foundation to base their decisions on. This can be achieved by ensuring that siloed systems are powered by consistent and accurate data from a single reliable source.
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