Thursday, July 08, 2004

Companies today are increasingly vulnerable to criminal attack. With the advent of high technology and instant communication, businesses are particularly exposed to theft, fraud and other criminal conduct.
Even though organisations employ large teams of in-house auditors, external auditors, risk managers and the like, the level of crime is staggering.  The priorities are obviously vigilance and prevention but what can organisations do?
The new constitutional dispensation also imposes laws of secrecy, which often deny regulators and the relevant law enforcement agencies, access to information relevant to crime prevention.
Let us illustrate by way of an example:  a business negotiates a contract with another business.  As often happens, negotiations are contacted via email and the agreement is drafted in Microsoft Word. Each party can mark the agreement up and make changes as it deems fit.  The agreement is then concluded and the parties sign the last page.  Of course, the one party can then easily alter the contents of that agreement.  For example, the sale price might be reflected as R1 million. The document can be altered to reflect R100 million.  The party altering the agreement need simply make  the alteration, print out that page of the agreement and present the document as proof of a deal.  It can then even go further and generate an invoice for the R100 million because it now has the other party’s letterhead on its computer.  The invoice is generated and on the invoice is reflected an individuals’ bank account details.  The R100 million is then paid straight into the individuals’ bank account and voilà– we have a fraud.
The individual concerned has a source document: the agreement, he has an invoice on the other business’ letterhead as proof of a requirement for payment, and the only loophole of the document would be the actual bank account details.  It would take an extremely vigilant investigator to pick that up.  A bit of advice – make sure that each and every page of an agreement is initialled!!  That should help to prevent events such as outlined earlier.
The South African government has embarked on a multi-teared approach in an attempt to stem the tide of economic crime.  There is now a plethora of legislation dealing with it.  For example, the Financial Intelligence Centre Act 38 of 2001, the Prevention of Organised Crime Act 121 of 1998, the Public Finance Management Act 1 of 1999, the Prevention and Combating of Corrupt Activities Act 12 of 2004, the Executive Members’ Ethics Act 82 of 1998; the Protected Disclosures Act 26 of 2000, the Promotion of Access to Information Act 2 of 2000 and the Public Protector Act 23 of 1994.  All of these have to be read within the broader framework of the Constitution, as well as the Criminal Procedure Act.  Essentially, the legislation is designed to identify the proceeds of unlawful activities, to combat money laundering, organised crime and criminal gang activities including racketeering, and to assist in the recovery of proceeds of unlawful activity. Corruption is identified as a major target as well, of the legislation.  However, all this legislation comes to naught if business and the members of society, do not act as whistleblowers and work together to stamp out illegal activities.  What is extraordinary, is how many perpetrators of white collar crime are, on the face of it, extremely well-off financially. What it means is that sheer greed causes people to go on the take and not necessity, like, for example, an unemployed mother with children to support who has been evicted from her home.
What it does mean of course, is that organisations will need to employ more and more lawyers for their investigations as it will be the lawyers who interpret the provisions of the legislation and advise organisations on how best to apply the legislation.
Finally, don’t think it won’t happen to you.  Think Master Bond, think Parmalat, think Enron.  Did their shareholders think it would happen to them?  Did they think their life savings would be wiped out?