Camprosa’s International Conference

06 September 2016

agenda

the corruption landscape in Africa

the results of the 2015 ENSafrica Anti-Bribery & Corruption survey

profile of a fraudster

fraud triangle

understanding fraud risks

case study

how does RSA rate on the transparency international corruption index?

(transparency international 2008)

question

answer:

61 out of 176 countries – score 44

midway between highly clean and

highly corrupt

RSA were 43 in 2007

corruption rife in over two-thirds

of countries worldwide

latin america

the former soviet states

vast swathes of africa

(western oil a major lubricant of graft in Africa)

the corruption landscape in Africa

Africa is the investment destination of choice for South African companies expanding their business footprint

but

“Africa is no place for sissies”

TI Corruption Index reflects that two thirds of Africa score less than 3 out of 10 (indicative of endemic corruption levels)

facilitation payments are routine and almost mandatory

bribes often paid by third parties to facilitate setting up

meetings with government often come at a price

corruption perception index : 2015 results

Africa’s least corruptRating Score

28 Botswana (63)

40 Cape Verde (66)

40 Seychelles (66)

44 Rwanda (64)

46 Mauritius (53)

46 Namibia (53)

61 Ghana (44)

61 Senegal (44)

61 RSA (44)

three quarters of the African countries scored less than 3 out of 10 – a sign of rampant corruption (oil producers - worst of all)

“Corrupt politicians make the other ten percent look bad.” ― Henry Kissinger

Transparency International Corruption Perceptions Index 2014

global least corrupt – the top ten

Country/territory2015 Score

2014 Score

2013 Score

2012 Score

1 Denmark 91 92 91 90

2 Finland 90 89 89 90

3 Sweden 89 87 89 88

4 New Zealand 88 91 91 90

5 Netherlands 87 83 83 84

5 Norway 87 86 86 85

7 Switzerland 86 86 85 86

8 Singapore 85 84 86 87

9 Canada 83 81 81 84

10 Germany 81 79 78 79

10 Luxembourg 81 82 80 80

the most corrupt countries

©2009 S Powell

Country/territory2015 Score

2014 Score

2013 Score

2012 Score

167 Korea (North) 8 8 8 8

167 Somalia 8 8 8 8

166 Afghanistan 11 12 8 8

165 Sudan 12 11 11 13

163 Angola 15 19 23 22

163 South Sudan 15 15 14 N/A

161 Iraq 16 16 16 18

161 Libya 16 18 15 21

158 Guinea-Bissau 17 19 19 25

158 Venezuela 17 19 20 19

ENSafrica 2015 Anti-Bribery Compliance survey

• survey included 88 organisations across Africa, including Mauritius

• measurement of perceptions regarding Anti-Corruption Compliance commitment

• the extent to which local and global requirements complied with, and

• how local compliance processes compare to generally accepted anti-corruption compliance best practice

key finding

incidents of bribery have increased, but so has general awareness of anti-bribery compliance among organisations

24% of organisations have experienced an incident of bribery and/or corruption in the past 24 months (that’s an increase of 4% since 2013), with 5% experiencing five or more incidents within the last 24 months

just over 90% of organisations surveyed have a policy prohibiting bribes, 52% have an established anti-bribery compliance programme and 43% have conducted a detailed anti-bribery risk assessment of their bribery risks

(important caveat: ENS clients are more compliant than most – there is still large number of companies that are not doing any ABC compliance)

detailed findings

68% of those surveyed believe that third-party business partners pose the greatest source of bribery risk to their organisations

17% of organisations feel they are highly exposed to bribery in Africa (a drop of 33% compared to 2013), with 71% believing they are moderately exposed to bribery and corruption in Africa (which may be attributed to organisations embracing the challenges of anti-bribery compliance and starting to build workable compliance programmes that mitigate bribery risks)

Angola (score 19 rank 161/175*), the Democratic Republic of Congo (score 22 rank 154/175*), Ghana (score 48 rank 61/175*), Kenya (score 25 rank 145/175*), Mozambique (score 31 rank 119/175*), Nigeria (score 27 rank 136*), South Africa (score 44 rank 69*) and Uganda (score 26 rank 142/175*) were highlighted as corruption hotspots

only 36% of organisations surveyed:

are confident that they have proportionate procedures to mitigate bribery risks; or

believe they are well prepared to respond to the threat of an anti-bribery regulatory investigation

*Transparency International Corruption Perception Index 2014

detailed findings

62% of organisations now conduct due diligence screening on third parties, -increase of 22% from 2013

Only 40% of organisations have a dedicated anti-bribery training programme for their employees and 15% provide anti-bribery training to their business partners

Our survey further found that organisations:

• with an anti-bribery compliance programme,

• with a dedicated anti-bribery policy,

• with top-level commitment,

• who have conducted an anti-bribery risk assessment,

• who conduct anti-bribery due diligence on business partners, and

• who provide their employees and third parties with anti-bribery training

reported fewer incidents of bribery as opposed to those who do not.

summary of key ABC survey findings

Does your company have an anti-bribery compliance programme?

Yes No

Does your company have a dedicated anti-bribery training for employees?

Yes No

Does your company conduct due diligence screenings on third parties*?

Yes No

28%

15%28%

29%

Has your company conducted a detailed anti-bribery risk assessment of its bribery

risks?

Yes, in the past year

Yes, more than a year ago

No

why does anti-corruption compliance matter?

ethically & morally – right thing to do, but also legal req

increased global regulatory enforcement activity i.e.

• risk of being penalised is higher than ever

• more and more jurisdictions fining companies that bribe

• reputational harm

• share price and company value can be devastated

• expensive legal and remediation fees

• derivative action risk

• director accountability

• jail time for offending directors

The new Corporate FCPA Top 10 List now reads as follows:

Company Total

Resolution DOJ

Component SEC

Component Date

1 Siemens

AG* $800,000,000 $450,000,000 $350,000,000 12/15/2008

2 Alstom S.A. $772,290,000 $772,290,000 -- 12/22/2014

3 KBR/Hallibur

ton $579,000,000 $402,000,000 $177,000,000 02/11/2009

4 BAE

Systems** $400,000,000 $400,000,000 -- 02/04/2010

5 Total S.A. $398,200,000 $245,200,000 $153,000,000 05/29/2013

6 Alcoa $384,000,000 $223,000,000 $161,000,000 01/09/2014

7 Snamprogett

i/ENI $365,000,000 $240,000,000 $125,000,000 07/07/2010

8 Technip S.A. $338,000,000 $240,000,000 $98,000,000 06/28/2010

9 JGC Corp. $218,800,000 $218,800,000 -- 04/06/2011

10 Daimler AG $185,000,000 $93,600,000 $91,400,000 04/01/2010

top ten FCPA cases

financial distress = fraud risk

staff are financially distressed

spiralling debt and the inability to manage debts is a massive factor inducing fraud and corruption

don’t allow staff to get caught in the micro lending trap

monitor the situation (how many garnishee orders?

controls must be tighter than ever

White collar crime statistics reveal that more than 80% of fraud involves internal employees, most of whom have more than 5 years of service

Many companies who fall victim to fraud rely on trust rather than controls

The fraudster could be your most capable, most reliable & most trusted employee

Generally the profile of the typical fraudster is:

Older than 30, stable family situation, above average education, first offender and has been with the company for more than 5 years

The fraudster is often the last person that anyone would suspect and the “red flags” (symptoms) that become known are often ignored due to high levels of trust

the profile of the typical fraudster

Telegraph UK

rationalization

fraud

the fraud recipe

the fraud triangle - Psychology behind itconductfraud takes place when the 3 factors described below converge

fraud takes place

when employees

under pressure

identify the

opportunity to

commit fraud -

coupled to a

perceived low risk

of detection

The employee will

justify committing acts

of dishonesty by

rationalizing his or her

behaviour

Rationalization takes

the form of finding

justification for the

behaviour by re-

labeling to remove

moral stigma

fraud pressures

Often, formally honest employees commit fraud as a result of pressure which presents itself in a variety of ways:

living beyond means

insecurity regarding tenure of position, retrenchments

trigger events

divorce

extra marital affairs

medical emergency

peer pressure

gambling alcohol or drug problems

opportunity

When employees experience the pressure, they often start looking for gaps or weaknesses in the control environment

Opportunity to commit fraud presents itself in a variety of forms:

• Weak control environment

• Shared passwords

• Limited segregation of duties

• Limited independent review

• Poor management oversight

• Remote location

• High trust

examples of “rationalizations”

Rationalization takes place when employees try to justify or re-label their illicit activity in order to make it seem less morally reprehensible

Examples of rationalisations that have been verbalized:

“it was just a loan I am going to pay it back”

“it was a spotters fee”

“it was just a commission”

“the company makes huge profits but does not pay us enough”

“the company has retrenched a lot of staff”

“I should have been promoted long ago”

the detection of fraud

0%

10%

20%

30%

40%

50%

60%

management

auditors

tip-offs

accident

Michael J ComerMany frauds are discovered as a result of tip-offs (Colour green because many tip-offs come from disgruntled mistresses or ex wives)

most frauds are discovered by accident when fraudsters become careless or greedy

the symptoms of fraudulent behavior

the red flags or warning signals in respect of the corrupt

employee are always present - make sure that staff report

suspicious activity

fraud red flags

excessive lifestyle

gambling alcohol or drug problems

staff who constantly claim underpaid

close relationships with suppliers

sole suppliers - not shopping around

poor credit rating

poor communication and reports

indulging in affairs

not taking leave

refusal of promotion

excessive & unexplained overtime

criminal record

divisional red flags

too much trust placed in key employees

limited segregation of duty

no independent checks on reconciliation and payments

no clear lines of authority or responsibility

proper authorization procedures not enforced

inadequate documentation & records

infrequent independent reviews

inadequate disclosure of interests & investments management override of the controls

operating on a crisis basis

inadequate attention to detail

case studySAA appoints Monwabisi Kalawe as the new CEO

Johannesburg, Friday, 19 April 2013. South African Airways (SAA) today announced Mr. Monwabisi Kalawe as its Chief Executive Officer (CEO) designate. This comes after the DPE Minister’s challenge to the SAA Board of Directors to continue to focus on improving SAA’s governance.

“The Board worked tirelessly to find a suitable leader who will lead by example and stabilise the internal environment whilst working towards ensuring good corporate governance within the airline,” said Ms. Dudu Myeni, acting Chairperson of the SAA Board of Directors. “Mr. Kalawe will also lead SAA, as a strategic national asset, towards contributing to the socio-economic development of the country and the continent.”

case study cont’SAA CEO cites suspension as unfair November 2014

Former South African Airways (SAA) Chief Executive Officer (CEO), Monwabisi Kalawe, says no reasons was given by the board as to why he had been suspended.

He says he was also not given an opportunity to defend himself. Last week, the SAA appointed Nico Bezuidenhout to stand in as acting CEO following Kalawe's suspension. Kalawe now claims his suspension was both unlawful and unfair.

It’s being reported that SAA chairperson Dudu Myeni seems to have disregarded an order by Public Enterprises Minister Lynne Brown to withdraw Kalawe's suspension.

Kalawe's lawyer Mushtaq Parker said, “We’ve been engaged in a process of negotiations around the suspension and trying to resolve the impasse. In the negotiations there was an offer that he takes special leave which he didn’t take.”

case study cont.’SAA suspended Kalawe over allegations including that he used company equipment to record colleagues in his fight against a sexual harassment claim and that he had an affair with a colleague;

Analysis of Kalawe’s iPhone and iPad showed that he searched for keywords such as “covert cameras” and “McKinsey” and also revealed data records, the report prepared for SAA shows.

Kalawe failed to get the approval of SAA chief financial officer Wolfgang Meyer when he sought to hire management consultants, the airline said in the report.

Kalawe appointed McKinsey on an R80m contract, even though several other companies offered their services for less, SAA alleges in the document.

Kalawe was having an extramarital affair with a colleague whom he had promised an executive position at Airchefs, an SAA unit, according to an interview with the colleague’s husband contained in the report.

case study cont.’Kalawe was leading a process for SAA to purchase “an equity stake in the Senegal Airline,” the airline alleges. Kalawe did this without providing a business case to the board and without the board’s approval and signed a letter of intent, which was beyond his authority, the airline said.

The airline paid R24m for a three-month trial with Bagport, the documents show. Kalawe contacted a Bagport SA director 93 times as other companies expressed interest in the contract, the attorneys’ report shows. About 41% of these calls were outside normal working hours, it shows.

The airline’s security team acquired three devices for the CEO’s office costing a total of R18 000 at Kalawe’s request, the report shows: a desk-top clock concealing a motion-activated camera and recording gear, a pinhole camera with microphone, and video-recording equipment disguised as a vehicle keyring.

“This was a highly unusual request and that ordinarily this type of service does not fall within their domain,” a member of SAA’s security team said in the report. “They had to procure the listening devices for Mr Kalawe.” After discussing Kalawe’s request, SAA head of security Johann de Waal sent the CEO a text message saying “Yikes Sire, this is crazy,” according to the document

case study cont’A further allegation against Kalawe involves appointing a former colleague, Moroka Phalane, as an executive assistant on a salary more than double his former wage level and higher than recommended by SAA, the report says. Kalawe said in his court document that, aside from allowing the process of recruiting Phalane to start prematurely, he did not engage in inappropriate conduct.

Kalawe is also accused of pushing for SAA to pay Bagport South Africa R400m for a three-year contract to wrap luggage

be prepared

prevention is better than cure

people will try to tempt your staff

promote a strong ethics culture

review your anti-fraud controls annually

do not rely only on controls - only as effective as the people enforcing

train people to recognize the symptoms

do not work in a vacuum - use the tools and technology & experts

conclusion

©2009 S Powell

Questions

Derek McMasterdmcmaster@ensafrica.com

+27315638653

+827880526