Insight

Fraud is on the rise in high-risk markets

Investigations Insider

Jilane Khakhar

Jilane Khakhar

Director, Advisory-Forensic, KPMG US

+1 212-954-1181

Fraud is on the rise in high-risk markets. Here’s how to help address it.

It’s unfortunate but true: chaos breeds opportunity for people with bad intentions. That’s why we can say the COVID-19 pandemic has not only been a health and economic crisis; it’s been a breeding ground for corruption and criminal activity, especially in so-called high-risk markets, where rule of law and enforcement are sometimes lax.

In KPMG Forensic’s field work during this uncertain time, we are seeing instances in which bad actors are looking to exploit the situation in a variety of ways. They are approaching corrupt government officials and bribing them to win contracts. They are also finding weaknesses in certain jurisdictions to establish sophisticated money laundering schemes in an effort to hide assets or evade taxes.

In general, conflict-of-interest schemes are on the rise. In these instances, individuals in positions of authority are exploiting their position for personal gain. Some of the most elaborate schemes involve setting up a fake company, with an individual installing him or herself or a family member as an officer of the fake company, and then funneling business funds to that entity or perpetrating procurement or bid rigging schemes.

Not surprisingly, we’re also seeing increasingly sophisticated cyber threats and a growing number of cyber-attacks. Spread of the pandemic has correlated with an onslaught of financial fraud phishing schemes for stimulus funds, ransomware and software attacks, many having significant economic consequences for organizations in both the public and private sectors.

Combating wrongdoing with technology

Technology can be very effective in combating wrongdoing. Usually, “desktop” research using primary and secondary data sources is a good way to begin researching and examining a topic. But when you’re looking deeper, you need computing power to analyze and decode trends and patterns.

For example, we have been involved in investigating matters such as cyber breaches for global clients where the clients are required to report on the events that occurred over a specific period of time due to information on thousands of customers being compromised. In one instance, part of our objective was to establish the identity, current address and contact information of all policy holders whose data may have been affected – something that could not be done quickly using manual processes given their volume. We worked with the company to segment the data population, normalize it and access public record data sources that could aggregate, match and summarize pertinent information about these policy holders. This allowed our client to meet its regulatory compliance requirements in an efficient manner and maintain the trust of its customers.

Other fraud investigation cases have involved embezzlement by key management individuals who collude with other parties to move and hide funds. In one particular case we unearthed a complex asset purchase scheme across different jurisdictions involving multiple parties and shell companies through the use of forensic corporate intelligence gathering and analysis techniques.

Many of these issues are not new, but the chaos of the pandemic has revived them, and global complexity makes them more challenging to detect. Financial and economic pressures during these times impact both companies and their employees. At the same time, there is a reduced scrutiny on internal controls and oversight functions when the focus shifts more toward revenue generation and cost preservation. It is during these times that bad actors are pressured to perform better and, in some cases, they see opportunities to perpetrate illegal acts.

KPMG Forensic’s investigations and corporate intelligence team helps clients to proactively manage and reactively respond to address these risks. We conduct investigations relating to fraud and misconduct. We can also assist with assessing and uplifting organizations’ compliance programs – be they in relation to anti-fraud and anti-corruption or third-party risk.

Takeaways:

  • The pandemic has been a breeding ground for fraudulent activity, especially in high-risk markets where enforcement is relatively weak.
  • Now is the time to assess your vulnerabilities and strengthen your defenses.
  • Combating fraud and corruption on this level requires a multi-disciplined approach and can benefit from leveraging technology whether it is for intelligence gathering or data analytics. 

On-Call Investigation Services

Fraud allegations require a swift response and skilled resources. When fraud occurs in a global setting, it is essential to perform a thorough investigation.

Fraud allegations require a swift response and skilled resources. When fraud occurs in a global setting, it is essential to perform a thorough investigation.