Risky Business

While in some countries the incidence of corruption seems to be rising inexorably there has been a noticeable rise in prosecutions both at home and abroad. The Foreign and Corrupt Practices Act, a piece of 1970s US legislation recently revived to great effect, and joint efforts by the US and the UK authorities have blazed a trail highlighting the trend.

However, despite a real shift in focus from governments towards governance issues, some jurisdictions remain corruption hot spots. A glance at world news in the KYC360 newsfeed always delivers stories that tick all the boxes from a money laundering reporters’ perspective. The vast majority of these cases usually possess some of the typical key risk indicators for corruption, such as the involvement of a PEP in a transaction, industries which are susceptible to corruption such as arms and the extractive industries and also geographic indicators.  These always serve as useful reminders of what we should be on the lookout for when risk rating relationships.

The current case unfolding in China against Stern Hu, a former Rio Tinto executive accused of stealing commercial secrets and taking bribes, along with three other Rio employees, is a prime example. Rio Tinto had strongly denied the allegations until today when Mr Hu pleaded guilty in court, much to the company’s consternation. Some believed this case to be politically motivated since the Rio and Chinalco, the state-owned aluminium company, £19.5 billion investment deal fell through last year, however the guilty plea will now prove a serious embarrassment to Rio Tinto.

Increasingly it is company executives who will be prosecuted, as well as the company concerned, so robust measures need to be put in place to manage the escalating risks in this area.

Further Information

KYC360 News http://www.kyc360.com/welcome/regulatory_news

Best practices from the Organization for Security and Co-operation in Europe http://www.osce.org/item/13568.html 

Corporate Risk Governance tips: http://wjmc.blogspot.com/2010/02/practical-steps-for-corporate-risk.html

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