Case studies

My professional case work includes a wide range of complex issues and industries including: financial services, information technology, construction, oil and gas, explorative/extractive, logistics, air transportation, insurance, luxury products, and municipal government.

 

To protect confidentiality, the case studies below do not reveal the names of any parties involved. Some of the cases did not enter the public domain; in those cases that were publicized, details have been changed in order to protect innocent parties.

Case work portfolio
  • Corruption and bribery

  • Money laundering

  • Financial-statement reporting fraud

  • Earnings manipulation (revenue acceleration)

  • Slush funds & off-books funds

  • Embezzlement

  • Expense reimbursement schemes

  • Warranty schemes

  • Procurement schemes

  • Securities trading schemes

  • Investment schemes (Ponzi)

  • Forged documents

  • Bullying/intimidation

  • Facilitation payments

  • Informal remittance systems (Hawala and Black-Peso exchange)

  • Grey marketing and product diversions

  • Conflicts of interest and diversion of business

  • Due diligence - corporate intelligence

  • Asset tracing

CASE STUDY 1: Securities trading violations and money laundering – financial services

 

The British Columbia Securities Commission (BCSC) issued a freeze order against a broker-dealer in the Cayman Islands alleging security trading violations which led to the failure of a US broker-dealer.

 

The Cayman company’s director requested an investigation into the company’s security transactions and the activities of another company director who had fled the island. An initial review of the company’s accounts revealed that the subject director executed multiple trades over a long period in several listed and unlisted securities, however the trades were not booked to any client accounts, nor had trading house statements been reconciled. The ensuing investigation led to a ten month forensic audit of all of the company’s security and bank accounts and reconstruction of client accounts spanning several years. 

 

The investigation revealed multiple complex international share dealing and money laundering schemes involving known criminal parties and boiler-room activities. The subject director, along with his accomplices, established a network of fictitious trading accounts, and used the accounts to inflate share prices by increasing trading volumes and creating excess commissions. The schemes also involved dumping the stock at an agreed time to ensure a significant profit for the criminals at the expense of the company’s clients. The subject also moved physical and electronic securities and cash across his network in order to obscure the document trail and facilitate the laundering of proceeds of crime.

 

One scam was large enough to lead to the collapse of the US broker-dealer. Co-conspirators operating within foreign broker-dealers facilitated the scheme by establishing fictitious accounts at multiple securities dealers involving clearing houses in Canada, the United States, and the United Kingdom.

 

During the investigation the remaining director placed the company into voluntary liquidation. The liquidator issued Mareva injunctions against several entities to assist in the recovery of client and company assets. Under the direction of the liquidator and legal counsel, the forensic investigator collaborated with legal counsel and Canadian and US authorities to assist with multiple criminal investigations.

 

CASE STUDY 2: Corruption and money laundering – global products group

 

A global products company requested a covert investigation under the guise of an internal audit where a forensic investigator was deployed within the company’s audit team to conduct a forensic audit of customer transactions, manage a team reviewing 1.5 TB of unstructured data, complete background research on 30 suspicious entities around the world, and conduct interviews. The investigation team was also a liaison for law enforcement and the assistant district attorney for an ongoing investigation involving the company. This engagement was particularly challenging as internal audit had previously given the company’s division a clean bill of health.

 

The main objective of initial investigation was to provide evidence to confirm or refute a series of allegations made by a whistle-blower who stated that senior management was receiving kickbacks (in the $millions) for supporting two Central American customers who were diverting products to the parallel market. Although the investigation did not find direct evidence of kickback payments, investigators uncovered several schemes including misappropriation of assets, conflicts of interest, and money laundering.

 

The investigation identified deficient business processes disregarding key controls which resulted in a lack of transparency in relation to the source of customer funds and the final destination and end user of products. The company did not know the identity of intermediaries involved in trading their products, which facilitated the shipping of contraband between free trade zones in the US and Panama. Unknown agents were remitting multiple small dollar payments to settle the Central American customer’s accounts and moving products through a complex freight forwarding network. 

 

The investigation resulted in the resignation of general manager and termination of the CFO. The investigation team also assisted legal counsel and the district attorney in drafting their subpoena.

 

CASE STUDY 3: Corruption, false accounting and money laundering – extraction services

 

A multi-national mining company was in the final stages of its initial public offering (IPO) when a whistle-blower made a series of allegations against the company’s foreign country manager. The allegations alluded to corrupt schemes involving violations of the Foreign Corrupt Practices Act (FCPA). 

 

A team of investigators including a forensic accountant were deployed to Russia. During his initial interview, the key subject was uncooperative, fled the interview, and did not return to work. The investigation team was requested to assist management during the ensuing crisis, which was not limited to the initial foreign jurisdiction.

 

The investigation uncovered multiple schemes to divert company assets, divert business to agent-competitors controlled by the subject, bribes and kickback payments, and money laundering activities. 

 

The investigation also exposed false accounting practices in EMEA, where a local management team released an inventory provision to offset the profit and loss impact on a significant commission payment to a Russian agent. According to the terms of the contract, the commission was overstated by USD 500,000.

 

The investigation revealed how the subject exploited internal control weaknesses to divert millions of dollars to offshore accounts controlled by the subject. The money was eventually repatriated via Estonia to a bank in Moscow, and the bank paid cash to several individuals including employees of government-controlled entities resulting in serious FCPA violations. The company made a voluntary disclosure to the DOJ.

 

Once the company’s IPO was successfully concluded, along with the company’s counsel, the investigation team conducted a worldwide FCPA risk assessment. The team completed its assessment and highlighted significant corruption risks and control weaknesses in operations and accounting processes, and provided recommendations to ensure the company’s and their agent's compliance with the FCPA.

CASE STUDY 4: Embezzlement and corruption – mining company

 

The Directorate on Corruption and Economic Crime (DCEC) for the Republic of Botswana requested forensic audit services to assist with their corruption investigation involving embezzlement of state assets. 

 

The DCEC had seized a considerable volume of files from a parastatal mining company. Investigators reviewed the files, conducted witness interviews, and obtained further supporting documentary evidence from employees of the company and third parties. 

 

The investigation found evidence of significant management override of key controls which allowed the subject to trade and misappropriate state assets for his own personal benefit. Investigators provided a detailed report, chronology, and an evidence bundle to be used in court to support the public prosecutor.

 

As a result of the findings, the Chief Magistrate brought 36 counts of graft and corruption charges against the subject, where investigators were requested to provide expert witness testimony, however the subject died during the ensuing trial, so the testimony was not required.

 

CASE STUDY 5: Embezzlement and false accounting – oil and gas services

 

An oilfield services company requested an investigative audit at their offices in Africa, where an internal compliance review had uncovered a number of areas for concern, including irregularities in relation to expense claims made by an employee responsible for logistics.
 
The investigation uncovered that the company advanced USD 400,000 in cash over 18 months to the subject who submitted invoices and supporting documents to offset cash advances. Investigators found that the subject was submitting false hotel invoices – in some cases the hotels did not exist. The loss to the company was USD 40,000.
 
The investigation discovered that the subject also submitted fake transportation invoices with forged authorization signatures for deliveries to well sites. His submissions were placed on the accounts payable clerk’s desk who prepared checks totalling USD 100,000 to three of the subject’s accomplices. The cheques were signed by the authorized signatory, however he failed to look at the supporting documentation attached to the cheque voucher. Had he flipped the page, he would have noticed his signature was forged on both the cheque request voucher and the fake invoice.
 
The subject was terminated and the investigation report was turned over to the police.
 
In addition to the false reimbursements, investigators uncovered that the company’s local management failed to record a liability for USD 550,000, which was negotiated with a customer to settle rectification expenses. The costs were deferred to the following year by issuing quarterly credit notes to offset sales revenue. The accounting treatment was approved by an operational VP at headquarters, but not approved by finance at that level. The liability was 10% of the division’s turnover. 

CASE STUDY 6: Corruption and bribery – financial services

 

A global financial institution was involved in creating slush funds which were to be provided to public entity customers for a government-sponsored charitable donations matching programme. 

 

The investigation found that the subject employee, in collusion with a vendor, inflated product values and miss-classified assets on the vendor’s invoice in order to create excess margin and qualify for financing. The company financed the project based on the manipulated invoice.

 

The investigation determined that the company’s books and records did not reflect that the funds were charitable donations, however the vendor had agreed to set the funds aside to be managed by the company’s subject employee. The subject eventually directed a payment from the fund under the guise of a charitable donation.

 

As the public entity customer was obligated to pay back the money set aside by the vendor over the term of the finance agreement, the payment did not qualify as a donation under the terms of the government matching programme. The public entity submitted the transaction as a donation and received matched funding under false pretences.

 

The investigation also found that the subject directed the off-books funds to be used to provide gifts, awards, entertainment, and other benefits to public officials during a public tender process, and that these transactions were not disclosed according to the company’s policy, nor were they recorded in the company’s books and records.

 

The subject resigned and the company self-reported to the anti-corruption authority under the under the country's AB&C Act.

 

CASE STUDY 7: Corruption and bribery – information technology

 

A global IT products and services company was implicated in a graft scandal involving a technology upgrade for a government customer. The foreign anti-corruption authority had arrested a previous employee of the company, and the allegations against the subject included bribery of a foreign government official, who was also arrested. As the highly publicized actions and allegations made by the authority alleged violations of the Foreign Corrupt Practices Act (FCPA), the US Department of Justice (DOJ) and the US Security and Exchange Commission (SEC) also initiated their own investigations.

 

In order to co-operate with the regulatory investigations, forensic investigators reviewed suspect contracts spanning five years and the associated channel party transactions, including the use of third party vendors involved in service delivery. The objective of the forensic review was to determine if and how slush funds and excess margin was created to be potentially used for corrupt purposes, and to establish the mechanism for managing and directing the use of those funds.

 

The investigation found that margins on the suspect contracts were higher than benchmarks, and that there was a lack of competition for the contracts which suggested unfair and potentially collusive trading practices. Evidence also indicated the use of preferred vendors, revealing a potential route to pass the excess project margin to a third party. The investigation exposed historical weaknesses in internal procurement controls and project accounting/reporting, however the company’s books and records did not reveal direct evidence of bribes or kickbacks.

 

In order to end the investigations, the company negotiated a settlement with the DOJ and SEC.

 

© 2014 by ROD CUNNINGHAM. Wix.com

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