Global Fraud Spreads in Organizations

November 30, 2007 | BY

clpstaff

Business fraud has become more of a phenomenon in corporations globally as many mergers and acquisitions and business transactions are taking place between…

Business fraud has become more of a phenomenon in corporations globally as many mergers and acquisitions and business transactions are taking place between Asia and foreign corporations, according to a recent report conducted by Kroll, a risk consulting company.

The survey, which had 900 multinational organization respondents, looked at a broad range of financial losses or reputation loss, finding that nearly four out of five companies have been the victim of fraud. Such an issue is affecting not just developing countries like the PRC and India but is an issue globally, according to the report.

“Some businesses are blind to the investment risks when faced with the vast PRC market and its opportunities,” reported Orrick, Herrington & Sutcliffe, an international law firm, in Kroll's global fraud report.

Daniel Karon, an executive managing director and counsel for Kroll, said that the increase in fraud is due to a tremendous increase in activities of companies from the US and other Western countries in Asian markets, such as those partnering with business entities in the PRC and other countries in Asia. The phenomenon has created a higher level of insecurity about transactions in the PRC and with partners in other regions.

In the US, corporations have a higher level of understanding of who their overseas counterparties are, Karon said. Companies are particularly alert when they are hiring a third party service representative. They want to make sure that the money is not being used for bribery, he said.

The level of awareness of their own organizations in Asia is rising, said John Tudorovic, an executive director of Forensic Services in Hong Kong and a member of the Association of Certified Fraud Examiners. He says that it is crucial to conduct thorough due diligence on new business partners. Industries and corporations have become more proactive in fraud issues, educating staff and the people they work with about the reporting mechanism within the organization. Tudorovic said he's seeing more whistle blowing hotlines established in organizations in Asia than before.

However, though the Chinese government has been working hard on eradicating fraud in the country, they might still need some time before successfully dealing with fraud issues, Tudorovic said. The government has been focusing more on enforcement than regulations about mergers and acquisitions, but the absence of a regulator or government department that deals with due diligence make enforcement effort difficult, he said.

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