Global Fraud Survey 2016: Corporate misconduct – individual consequences

EY’s latest Global Fraud Survey of senior executives comes at a time of overwhelming calls for enhanced transparency and heightened volatility in financial markets.

The escalating threats of cybercrime, terrorist financing and, more recently, the revelations regarding widespread possible misuse of offshore jurisdictions, have increased pressure on governments to act and companies to identify and mitigate fraud, bribery and corruption issues. The extent of global cooperation between regulators when pursuing the corrupt has never been higher.

The call for increased transparency will resonate with many of the respondents to our survey. Over 90% consider that understanding the ultimate beneficial ownership of the entities with whom they do business is important.

The demand for beneficial ownership transparency is unsurprising as the threat posed by bribery and corruption shows no sign of abating. Just over half of respondents in rapid-growth markets believe that corruption is endemic in their country and one fifth believes it to be widespread in developed markets too – up from seventeen percent since our last survey. Globally, one in ten respondents consider cash payments or personal gifts as acceptable to win business.

This provides food for thought for those UK companies seeking to invest overseas, particularly given developments in enforcement by UK authorities over the last 12 months. This should also be of concern to boards and executives as global enforcement trends are increasingly focusing on individual misconduct.

The G20 major economies recognise bribery and corruption as a blocker to economic growth and continue to focus on methods to prevent and reduce such activity. They have highlighted the abuse of legal and corporate structures to hide or disguise inappropriate business relationships and movements of funds and have committed to increasing transparency in this area.

Fraud continues to present a serious challenge to businesses: 12% of respondents told us they had experienced a fraud they considered to be significant in the last two years. It’s arguable whether that is a result of increased fraudulent behaviour or the result of improving compliance and identification: almost 40% of respondents told us that they have made it easier for employees to report concerns.

However, challenges certainly remain and the willingness of individuals to engage in inappropriate behaviour to maintain perceptions of performance is very real. For example, in Africa, almost half of our respondents could justify unethical conduct to meet financial targets.

The UK perspective

With the UK the home of the headquarters of many multinational businesses, the fact that the majority of respondents in 20 of the 62 countries and territories our survey covered believed that bribery and corruption happened widely in their countries represents a clear challenge for such companies.

This perception is not restricted to emerging markets – UK executives don’t consider their own region to be corruption-free.

Whilst nearly a third believe corruption to be widespread in the UK, only two percent believe that to be the case in their own industry, suggesting they view it as someone else’s problem. This perception is at odds with our respondents’ personal experience of misconduct at work, with 22% of respondents recognising that they have had concerns about fraud, bribery and corruption at work.

UK executives recognise the need for transparency when dealing with third parties, with 98% believing it is important to know who ultimately own and controls the entities they do business with. The vast majority of UK respondents also believe that publishing the ultimate beneficial ownerships of companies that participate in public tenders will mitigate the risks of fraud, bribery and corruption.

They will be heartened, therefore, by global moves towards increased transparency and the UK government’s response to this challenge. New regulations have been implemented requiring all UK-incorporated companies and LLPs, subject to certain exceptions, to maintain a register of all “natural persons” with significant control. These registers will be made publically available from mid-2016, making it possible for the first time to see not just who owns shares in a company but also who influences or controls a company through other means.

Fraud remains a challenge, with 20% of UK respondents experiencing a fraud they considered to be significant in the last two years. Efforts to combat this appear to have improved, with almost half of UK respondents indicating that they have made it easier for employees to report any concerns that arise.