On February 21st, Transparency International released its Corruption Perceptions Index, which listed numerous Latin American and Caribbean countries among the world’s most corrupt. According to Transparency International’s survey, 62% said corruption had risen in the previous year, more than half said their government is failing to address corruption, and nearly a third said they had to pay a bribe in order to use a public service.
Central America
The Central American countries of El Salvador, Guatemala, Honduras, and Mexico all ranked poorly in the latest index, with more than half of Mexico’s population saying they had to pay a bribe in order to use public services. Little faith resides with public institutions, such as the government and police. Despite the presence of organizations such as the International Commission Against Impunity in Guatemala, and the Support Mission Against Corruption and Impuinity in Honduras, corrupt forces in these jurisdictions remain entrenched. Citizens in these countries have recently protested government efforts to roll back anti-corruption campaigns, and hold their politicians accountable.
Brazil
In recent years, Brazil has suffered from budget cuts, increasing crime, and corruption scandals. Recently, tapes of Brazilian President Michael Temer encouraging bribes leaked to the public, leading to widespread public outrage. His predecessor, President Dilma Rousseff, was forced to resign after the country endured two massive corruption scandals involving Petrobras, Brazil’s state-owned oil entity, and Odebrecht, a Brazilian construction conglomerate. These bribery schemes undermined the integrity of bidding processes and public confidence in their government. In recent days, the Brazilian government has sought to militarize crime fighting efforts, beginning with Rio de Janeiro, while critics argue militarization does not address the systemic factors of what drives crime, and it risks further corruption amongst the troops.
Venezuela
Venezuela, which has held the distinction of the most corrupt country in Latin America since 2014, shows signs of deteriorating even further as it confronts plunging oil prices and critical food shortages. Venezuela’s President, Nicolás Maduro, expanded his powers last summer, electing a new law-making body that replaced the existing opposition-controlled legislature. Numerous oil industry executives have been arrested, and over thirty judges were forced to flee the country, setting up a “Supreme Court in Exile.” To make matters worse, allegations persist that Maduro has cooperated with terrorist groups such as Hezbollah, Bashar Al-Assad’s regime in Syra, and OFAC-sanctioned governments, such as Cuba and Iran.
Managing Risk
How can businesses effectively manage their risks in conducting business in Latin America? Partnering with a third party due diligence provider can ensure your company identifies concerning personal history, regulatory enforcement measures, ongoing litigation, and illicit activities. Due to the high risk nature of many Latin American countries, performing enhanced due diligence can not only help your company comply with AML, FATCA, FCPA, PATRIOT Act, and UK Bribery Act regulations, but it can help ascertain the overall reputational profiles of individuals and organizations, both positive and negative.
Vcheck Global helps you know more about the people and companies you do business with.
-Brock Treworgy
In May 2016, The United States Department of the Treasury’s Financial Crimes Enforcement Network issued its final rule on Customer Due Diligence Requirements for Financial Institutions. This rule requires institutions to establish and maintain written procedures to identify and verify the identity of the beneficial owners of all legal entity customers. These institutions include depository institutions, securities broker-dealers, mutual funds, and future commission merchants. This adds customer due diligence as the fifth pillar alongside the other four pillars of money laundering 1) development of internal policies, procedures, and related controls 2) designation of a compliance officer 3) thorough and ongoing training and 4) independent review for compliance.
Key Elements of the New CDD Rule
The new rule requires verifying the identity of customers, and beneficial owners, including not only those with a 25% or more equity interest of legal entity customers (the Ownership Prong), but also at least one individual form the “Control Prong,” or those with significant responsibility to control, direct, or manage the entity. These include CEOs, CFOs, COOs, General Partners, Presidents, Managing Members, Treasurers, and Vice Presidents. In addition, the rule also requires understanding the nature and purpose of customer relationships, conducting ongoing monitoring to maintain and update customer information, and to identify and report suspicious transactions. This rule applies to all accounts, including checking, savings, certificates, and loans. Non-governmental organizations, including charities and religious organizations, only need to list one person from the control prong.
What Entities are Covered?
The legal entity customers include the following: business trusts, corporations, general partnerships, limited liability companies, limited partnerships, entities created by a filing with a state office, and similar entities formed under the laws of a non-US jurisdiction.
Why is the Purpose of this Regulatory Action?
The failure to identify beneficial ownership allows criminals and others looking to hide illicit proceeds to gain access to the financial system anonymously. The new rules on customer due diligence will assist law enforcement and investigators to help prevent the evasion of targeted financial sanctions, improve the ability of financial institutions to assess risk, and facilitate taxation compliance.
How can you Prepare?
Financial institutions will be required to have written procedures to identify and verify beneficial owners after May 11, 2018. Identification can be accomplished by gathering personal identify information on forms provided by the Financial Crimes Enforcement Network. Businesses should take the next several months to enhance their due diligence practices and review their risk assessment and anti-money laundering methodologies, including suspicious activity monitoring, and on-boarding processes. Companies such as Vcheck can help conduct verification, identify ownership structures, and detect any red flags and risks involved with certain subjects. Partnering with Vcheck allows financial institutions to assess and mitigate risk, facilitate reporting requirements, including supporting taxation compliance, and to identify the assets and accounts of bad actors, including criminals and national security threats.
Vcheck Global helps you know more about the people and companies you do business with.
-Brock Treworgy
There are many signs your company is dealing with a potentially dishonest employee. Internal audit departments and supervisors can track the performance of company employees, but competence and honesty do not always go hand in hand. Internal controls and strict documentation can help prevent fraud and theft, but dishonest employees often find vulnerabilities they can exploit. There are several ways to identify and confront employees suspected of misconduct in the workplace, and it is critical for employers to make use of these techniques in order to prevent fraud, theft, and wrongdoing.
Identifying the employee
Missing or edited journal entries, sudden changes in work habits or behavior, refusal to take vacation, and employees making unexpected, large purchases, are red flags of misconduct. Body language is another common indicator of malfeasance. An employee that is inconsistent or uncomfortable in talking about their duties and performance, has trouble talking about their prior work experience, or has difficulties maintaining eye contact when asked probing questions should be identified and monitored. People experiencing heightened emotions typically fidget, lick their lips, and look either red, flushed or pale.
Approaching the employee
Approaching an employee suspected of dishonest conduct can be a volatile situation. Interviewing by surprise is the best tactic for disarming the person. Objections such as “I don’t have enough time” or “I am not ready” should be met with responses such as “this will be quick” or “this will be informal and I am simply gathering information.” In these interviews, individuals typically react rather than think.
During the interview, it is important to pay attention to verbal cues such as changes in speech patterns, timing of responses, fragmented or incomplete sentences, and making excuses. Deceptive subjects might experience a change in voice pitch as their vocal chords become tense, and may require additional time to answer a simple question in their attempt to contrive a false answer. Nonverbally, interviewers should pay attention to the subject’s physical signs of deception, including crossing of the arms or legs, covering their mouth with their hands, or changing their posture as if moving away from the interviewer in a “fleeing position.”
After obtaining evidence and there is a reasonable chance the subject commited wrongdoing, the interviewer should seek to obtain a written admission of guilt. This should only be conducted after all other investigative steps have been taken. As people rarely confess voluntarily, or if they believe the accuser doubts their guilt, the interviewer should present the evidence piece by piece, and ask for “comments.” An innocent person will not accept the premise of the question. The dishonest individual will often become quiet or offer weak denials. The interviewer should then seek to “establish a rationalization” for the dishonest action such as financial or family problems, or making it seem like a minor infraction in order to obtain the confession. People will rarely admit to wrongdoing if they are made to seem like a bad person.
Prevention
Maintenance of a strong internal audit program and internal controls and procedures is criticial to preventing fraud and theft. Employees prone to committing wrongdoing are not only more likely to do so if they sense weaknesses in internal fraud detection, but individuals with no prior criminal history will be tempted as well. All companies should have an anonymous company hotline dedicated to handling internal tips about dishonest practices. Employee tips are the most common way internal fraud and theft is identified, followed by internal audit, management review, and lastly, accidental discovery.
During the hiring process, it is important to watch out for warning signs of dishonest employees. Lying or stretching the truth is a common problem during the hiring process, and employers should seek to corroborate applicants resume claims by both challenging them during the interview phase, and during their first few months of employment. Background checks should always be ordered on all new employees, but particularly on any employees involved with handling company finances. Internal candidates eligible for increased responsibilities and should also be considered.
Brock Treworgy
How can Money Laundering Affect your Business?
In 2018, anti-money laundering (“AML”) regulations and enforcement measures are reaching new heights across the globe. While some countries, such as Colombia, are rife with illicit profits from criminal enterprises, they have also made strides in recent years strengthening their AML and terrorist financing programs. Other nations, however, facilitate money laundering through weak AML legislation, corruption, and lack of transparency surrounding financial flows. Money laundering undermines the integrity of a business, and the financial sector as a whole.
Institutions can become complicit in criminal enterprises, leading to damaging scrutiny from regulatory authorities, customers, and other businesses. Countries rampant with money laundering have witnessed entire industries overtaken by organized crime, leading to increased levels of bribery, corruption and criminal activity in their societies.
How is money laundering accomplished?
Initially, illegal profits are placed into the financial system, such as through monetary instruments or small deposits. Second, the launderer engages in a series of movement of the funds to distance, or, “layer” them away from the source. Finally, the funds are integrated back into the economy, such as by investing them in real estate or business ventures.
In this day and age, as technology increases exponentially, so too does the potential for money laundering. Methods include laundering through electronic transfer of funds, private banking, money remitters and money exchange houses, insurance companies, and securities broker-dealers. Alternatively, launderers also use casinos, travel agencies, and vehicle sellers to hide illicit gains. Shell companies and trusts are commonly used to mask beneficial ownership, many of which are located offshore.
Which regions should I be most concerned with?
Of the United States Department of State’s 2017 list of 88 countries of primary money laundering concern, 37 of these countries are located in Latin America. In addition, other noteworthy countries on the list include Canada, India, Portugal, Russia, Spain, Turkey, Ukraine, the U.A.E, and the United Kingdom.
Uncovering complex money laundering schemes requires professional assistance. Vcheck Global’s team not only includes investigators with expertise in financial investigations, but those who specialize in anti-money laundering investigations, particularly across foreign jurisdictions. This allows Vcheck Global to best serve our clients across a variety of sectors, including financial institutions and law firms. Vcheck Global helps you know more about the people and companies you do business with.