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VOLUME 6, ISSUE 3 – SEPTEMBER 2015
ECFA e-BULLETIN
EDITORIAL BOARD MESSAGE
Forensic Accounting Committee
Corruption is a major problem – Transparency International Survey. 2
(ECFA) of ICPAC has prepared
Economic Scandals ……………………………………………….…. 4
the ECFA e-bulletin with the Fraud Investigations …………………………………………….… 8 intention to familiarize members Fraud and Corruption ………………………….………. 9 of ICPAC on issues relevant to economic crime and forensic How to receive this e-bulletin ……………………………………… 15 addressing various contemporary issues and announcements. Please forward this e-Bulletin to Editorial Board: ECFA Committee
members of ICPAC that you consider will have an interest. Information on how to receive this e-bulletin is found on the last page. The Institute can accept no responsibility for the accuracy of
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83% of Cypriots believe CORRUPTION is a major problem - Annual survey
of the organization Transparency International – Cyprus

Corruption is one of the largest "industries" organised crime which is estimated to cost the EU economy about
€120 billion annually mainly in lost tax revenue and foreign investment. Of course, the rising levels of
corruption have enormous consequences not only in economic activity, but also in the everyday life of
citizens.
In the context of its activities, Transparency International – Cyprus has conducted two surveys, one in 2014
and another in 2015 in order to study and compare perceptions of Cypriot citizens in terms of corruption. The
two surveys were conducted within the framework of the programme "I demand transparency" and aim to
capture perceptions of Cypriots with regard to corruption and its extension to the society as a whole.
In 2014, 425 Cypriots participated in the survey and 442 in 2015. The survey was conducted via the Internet
and through written manuscript collection of questionnaires. The questionnaires were identical for the two
years in order to compare the results. All age groups 18-65 were included in both surveys. The majority of
participants were from the private sector.
The corruption in Cyprus
According to the findings of the survey, 1 out of 2 participants in the survey said they had experienced an
incident of corruption, while 4 out of the 5 participants said they would be willing to report such an incident in
the International Transparency – Cyprus. One-third of participants will report the occurrence of corruption
and declare his/her name, while the rest will be made anonymously.
As regards the views of participants about the corruption rate in Cyprus, 83% for both the 2014 and 2015
believe that corruption is a major problem. The Cypriot citizens firmly believe that corruption exists at
national level, however, is most evident in the political parties, local government, and in the banking sector.
The views about the existence of corruption in Cyprus were similar for both years, with the exception of local
governance.
After the recent scandals that have seen the light of publicity and were in particular the issues of local
government is not surprising that there has been an increase in the percentage of citizens who believe that
corruption in local government is high.
Research findings indicate that Cypriots feel that favouritism, nepotism and corruption restrain business
competition, while also, many believe that in order to have a successful business you must have political
connections.
What actions are considered to be corruption?
When you compare the results of two surveys, it is clear that the Cypriots have better understanding in 2015
as opposed to 2014 on what actions constitute acts of corruption and what are not. For example in 2014,
although the 72% of respondents indicated that the bail-in 2013 was an act of corruption, there has been a
decrease of people who believe the same in 2015 (61%).
Apart from this, in 2014, 65% incorrectly considered the non-delivery of goods to be an act of corruption, however, in 2015, the figure fell to 55%. The research findings demonstrate that in 2015 the Cypriots were better informed to answer correctly on the detection of acts of corruption. However, the data from both

surveys indicate that Cypriots need more awareness about corruption and its meaning to be able to detect incidents of corruption. Who is responsible for preventing and combating corruption? The responsibility of preventing and combating corruption in 2015 the Cypriot citizens feel that the Government, the Police and the Auditor General. In all respects the percentages for all three bodies were higher in 2015 than in 2014, however, the largest increase (9%) It was for the Auditor General. This can be explained to the fact that during the year between the two investigations, the Auditor General Office has been particularly active in uncovering several scandals of corruption in the Cypriot society. It has to be pointed out and remains a fact that although the majority of respondents in both surveys believe that political parties are among the most corrupt institutions of Cypriot society, at the same time the majority of respondents believes that political parties have a responsibility to combat and prevent corruption. Enormous importance to this concept is the fact that the political parties have essentially the legislative power through their presence in the House of Parliament. Cypriots on both surveys give preference to the existence of a neutral agency like Transparency International Cyprus which in fact is the independent choice of the citizens with regard to the prevention and awareness of corruption. Where the Cypriots will report an incident of corruption? In contrast with the findings of 2014, the findings from the survey of 2015 shows that most people will only report an incident of corruption in the International Transparency Cyprus and the Auditor General. In 2015, there was a decrease of 1% compared with people who will report an incident of corruption to the police and the media and 2% in the law court. Apart from this, the data from both surveys indicate that Cypriots seek the establishment of an independent anti-corruption body. The majority of participants said they would report an incident of corruption in such a body.

ECONOMIC SCANDALS
Volkswagen scandal: the cost of a car crash like no other
Volkswagen stands accused of intentionally falsifying emission-test scores by installing "defeat device" software to make its cars seem cleaner when driving under laboratory conditions. This dishonesty has already seen tens of billions of euros wiped off its market capitalisaton, untold lost sales and its reputation mired in scandal with global health consequences. The first steps to uncover VW's scheme were made in an academic study carried out by a non-profit group, the International Council on Clean Transportation, in which it sent cars out on a loop through traffic-filled roads in downtown Los Angeles in 2013 and 2014. The cars' tailpipes were hooked up to an onboard monitor to test pollution in real-life driving conditions – and all but one of the 15 vehicles were in breach of the latest European limits for nitrogen oxide emissions. The research was published with the car models removed, but the data disturbed regulators so much they looked into it further. Vehicles were producing toxic gases at more than 35 times the US Clean Air Act limits. Measures to cut pollution, such as pushing exhaust fumes through a pipe of urea to break down the chemicals, were not working as advertised out on the road. After the federal watchdog was handed the ICCT data by the California Air Resources Board in early 2014, it set about poring over the data and opened talks with Volkswagen about its practices. The company insisted that this was merely a glitch, and made several recalls for an "emissions service action", without telling customers that it was a bid to ward off further criticism from the regulators. "This is one of the fixes they presented to us as a potential solution. It didn't work," said a spokesperson for CARB. Not long afterwards the two regulators decided they had had enough. They demanded that Volkswagen tell them the reason for the emission problems, and on September 3 the company admitted that the cars were installed with defeat devices. On September 18, the EPA put out its formal notice of violation of the Clean Air Act. However, the announcement went mostly unnoticed, with most of that day's news coverage around Volkswagen instead centred on a possible bid to take over the Red Bull Formula 1 team. Two days later, chief executive Martin Winterkorn gave his first apology for customers' "broken trust" because of falsified emissions data but stopped short of admitting guilt. Then the markets opened on Monday, and within a few hours Volkswagen was 20pc less valuable than it had been before the weekend. Beyond the initial shock of the scandal, the fact that millions of cars have been linked to rigged environmental data will have serious implications for Volkswagen, its stakeholders and suppliers, and the diesel car market as a whole. The company has set aside €6.5bn in its third-quarter accounts to help cover the costs of any fallout. VW represents 12.9pc of the global passenger car market, but its reach is even broader than that. The firm also generated 13pc of earnings per share for the entire DAX index of large-value German stocks, Deutsche Bank figures suggest, and its reputation is tied up with that of Germany's manufacturing clout. The company also buys 12pc of the world's semi-conductors, according to UBS, and even if the producers of this technology are not implicated in the scandal their sales could suffer as the market recalibrates. After Toyota's massive recall in 2009-10, suppliers to Hyundai benefited. "As such, we think a switch to US/Japanese vendors needs to be monitored going forwards," said the UBS analysts. The worst-case scenario for VW includes an $18bn (£11.9bn) fine in the United States – or $37,500 for each of the half a million diesel cars it has sold there – along with class actions lawsuits, a criminal investigation and further penalties around the world. Previous fines in the US for such transgressions have been much smaller. Caterpillar and others were in 1998 handed an $83.4m penalty for defeat devices on industrial diesel engines. General Motors recently agreed to pay $935m for covering up an ignition problem linked to 169 deaths. VW has felt some of this pain already. A sum greater than the possible fine has already been wiped from its market value, angering some shareholders, including Nordea Bank, which said it will retain its 2.2bn kronor stock and debt holdings but has banned its fund managers from buying any more VW stock. Other manufacturers including BMW, Daimler, Jaguar Land Rover and Renault have said they do not use defeat devices, although the listed carmakers have also been caught up in the sell-off of car stocks around the world in the past week. "The move against VW is going to act as a catalyst to speed up the fall in diesel market share in Europe and halt it in the US," Bernstein told clients. "In fact, regulators will now be much more conservative about what they permit and much tougher real-world tests may prove either too difficult or too expensive for diesel to meet." The UK, already struggling to meet European targets on air quality, might now accelerate measures to reduce the use of diesel cars. London, Birmingham and Leeds are forecast to exceed EU air pollution limits until 2030, and local governments are examining levies and even bans on certain disel vehicles to ensure that pollution readings fall. A study by King's College London published last year found that nearly 9,500 people a year were dying prematurely in London every year as a result of air pollutants including nitrogen oxide. Given the health implications of the scandal, the cost – both financially and in terms of reputation – remains incalculable, but what is clear is that it will be a long time before Volkswagen is able to fulfil its long-held desire to expand further into the lucrative US market, or anywhere else for that matter. View full article here:

Accessed: 26/09/2015


US settlements over forex rigging scandal opens door for UK lawsuits

Nine banks have paid a total of $9bn to investors in the US over claims they rigged foreign exchange markets,
and their lawyers hope to launch similar lawsuits in London.
Another five major banks accused ove settled claims in a New York court with complainants, including pensions funds and institutional investors. They join the four banks who settled earlier in the year, and the total payouts to investors now amount to more than $2bn (£1.28bn). The settlement announced this week coveGoldman Sachs, RBS, HSBC and BNP Paribas. The investors are still pursuing claims against Bank of Tokyo-Mitsubishi, RBC Capital Markets, Société Générale, Standard Chartered, Deutsche Bank, Credit Suisse and Morgan Stanley. View full article here:

Accessed: 14/08/2015


Toshiba Scandal Grew From Numbers ‘Too Embarrassing' to Show
"Get it done like your life depends on it." That was the message former Toshiba Corp. President Atsutoshi Nishida delivered to underlings in 2008. The shame of earnings considered "too embarrassing" to show publicly helped drive an accounting scandal at the Japanese industrial giant that led to the resignations of Nishida and his two successors Tuesday. Now the maker of nuclear reactors, memory chips and home appliances must correct at least $1.2 billion of earnings across more than six years. One of the irregularities highlighted by independent investigators was Toshiba's practice of selling personal-computer parts to Taiwanese contract manufacturers at a higher price than what Toshiba paid suppliers. While that was initially to hide manufacturing costs from rivals, the company abused the practice to temporarily inflate profits, and the costs were repeatedly carried over into subsequent quarters, the committee said. When the PC business was poised to report losses amid the global financial crisis in 2008, Nishida stepped up the pressure on subordinates to remain profitable with his decree, according to the investigators' report released Tuesday. The accounting irregularities were "skillfully" hidden from outside observers, and subordinates were unable to stand up to their superiors, according to the investigation. Improper practices continued under Norio Sasaki, who took over in 2009, and his successor, Hisao Tanaka, according to the report. All three men resigned from the 140-year-old pillar of Japan Inc. The accounting issues came to light in February when Japan's investigated irregularities related to "percentage of completion" estimates used on power and infrastructure projects, including nuclear, hydroelectric, wind-power equipment, air-traffic control and railway systems. Since a typical order was worth billions of yen, the business had a significant impact on Toshiba's profit. Toshiba $947 million stake in Finnish elevator and escalator maker Kone Oyj to bolster its balance sheet, the Tokyo-based company said Wednesday. The stake, which represents about 4.6 percent of the outstanding shares in the Helsinki-based company, generated a gain of about 113 billion yen ($913 million). The company ran into trouble when expected cost reductions didn't materialize or fluctuations in foreign exchange caused projects to lose money, the report said. Under pressure from the top brass, unit managers resisted booking loss provisions as required by accounting rules, it said. On May 8, Toshiba withdrew its earnings forecasts, canceled the year-end dividend and widened the accounting probe to include the entire company, with about $2.8 billion of market value vanishing since. The company has now agreed to correct its earnings statements by an amount equal to about 27 percent of pretax profit posted for years since fiscal 2009. The investigation found that Tanaka and Sasaki, who between them have led the company for the past six years, sought to delay booking losses, and employees were unable to go against management orders. When the company's unprofitable visual products segment came under particular stress, Tanaka delivered a blunt instruction to employees. "I made a public promise to return the TV business to profit in the second half," Tanaka said at a meeting in
September 2013, the committee said. "Use every conceivable means to achieve profitability."


View full article here:

Accessed: 22/07/2015


FRAUD INVESTIGATIONS

'Wolf' suspect behind $300 million Cynk fraud pleads not guilty
A man accused by U.S. prosecutors of running a $300 million penny-stock manipulation fraud that drove the market value of little-known Cynk Technology Corp past $6 billion pleaded not guilty. Gregg Mulholland, also known as "Stamps" and "Charlie Wolf," was arraigned on charges including securities fraud in an indictment recently filed in federal court in Brooklyn, New York, following the dual U.S. - Canadian citizen's arrest in June. U.S. regulators in July 2014 suspended trading in Cynk, a social media company with no revenue or assets, after its share price soared without explanation to $21.95 from 6 cents in less than a month. That surge, which followed a month when no Cynk shares were traded at all, briefly gave the company a market value higher than three dozen members of the Standard & Poor's 500. Prosecutors said that Mulholland was behind that volatility after amassing tens of millions of Cynk shares to conduct what is known as a pump-and-dump scheme. Also said Cynk was among about 40 public companies whose shares were manipulated by individuals overseen by Mulholland, resulting in $300 million in proceeds that were laundered through at least five offshore law firms. Mulholland also secretly owned Legacy Global Markets SA, a broker-dealer based in Panama and Belize that was part of a scheme to launder about $500 million in fraudulent proceeds for over 100 U.S. citizens and residents.
View full article here:

Accessed: 10/08/2015






FRAUD and CORRUPTION

Ex-Siemens top exec admits Argentina bribery
A former top dog of the German engineering giant has pleaded guilty to a massive bribery scheme to win a billion-dollar contract with the Argentine government. He is the first of eight defendants to speak out. Andreas Truppel, the former Chief Financial Officer (CFO) for Siemens Argentina, admitted his guilt before a Manhattan federal court, the US Department of Justice Truppel confessed to having played "a significant role" in a "massive Siemens bribery conspiracy," stretching from 1994 to 2007. US Attorney Preet Bharara said the former top executive had conspired to grease Argentine government officials "to reap the benefits of a billion-dollar contract" to produce national identity cards. The bribes amounted to "close to $100 million" (89.7 million euros), the prosecutor said. In 1998, the so-called DNI project was awarded to a "special-purpose subsidiary" of Germany's Siemens AG.
What many didn't know at the time was that to secure the deal, Truppel and his colluders had caused Siemens
to commit to paying tens of millions of dollars in bribes. The court said the recipients included "sitting
officials of the Argentine government, members of the opposition party, and candidates for office who were
likely to come to power during the performance of the project."

View full article here:
Accessed: 01/10/2015
Bill Gates sues oil giant Petrobras and PwC over corruption scandal
The charity foundation of multi-billionairefounder Bill Gates has sued Petrobras and accounting giant PwC's Brazil arm over investment losses due to corruption at the Brazilian oil giant. The Bill & Melinda Gates Foundation Foundation, together with WGI Emerging Markets Fund, alleged in the suit that Petrobras repeatedly misrepresented its operations and financial situation in raising billions of dollars from investors. It also alleges that PwC's Brazil affiliate, PricewaterhouseCoopers Auditores Independentes, played a key role by attesting to Petrobras financial statements and ignoring red flags. The suit seeks unspecified damages. "The depth and breadth of the fraud within Petrobras is astounding. By Petrobras's own admission, the kickback scheme infected over $80bn of its contracts, representing one-third of its total assets," the suit alleged. "Equally breathtaking is that the fraud went on for years under PwC's watch, who repeatedly endorsed the integrity of Petrobras' internal controls and financial reports. This is a case of institutional corruption, criminal conspiracy and a massive fraud on the investing public." Prosecutors in Brazil say Petrobras executives colluded with construction companies to massively overbill the state oil giant. The extra money went to kickbacks and political payoffs company executives, politicians and political parties that include the ruling Workers' Party. Portfolio managers for Gates and WGI probed Petrobras executives on questionable financial data, but were misled in a "series of materially false and misleading written and oral statements and/or omissions by Petrobras and/or PwC," according to the complaint. On Monday, the former treasurer of Brazil's ruling party was sentenced to 15 years in prison after being convicted of receiving bribes from Petrobras contractors and distributing them to members of the ruling party. View full article here:
Accessed: 25/09/2015
FIFA: A timeline of corruption
by Swiss authorities on Friday as a probe into soccer corruption reached the highest levels and left his grip on the top job in peril. The Swiss attorney general's office opened proceedings against Blatter for possible criminal mismanagement and misappropriation of FIFA money. Authorities also searched Blatter's office and seized data. The announcements came as FIFA wrapped up a two-day executive committee meeting and marked another stunning day of turmoil for the governing body and Blatter, who have been targeted by American and Swiss investigations into corruption. This comes aftery Swiss police It was part of an ongoing investigation into corruption awhich concerns racketeering, wire fraud and money laundering over the course of 24 years. View full article here:
Accessed: 25/09/2015

GSK faces new corruption allegations, this time in Romania
Drugmaker GlaxoSmithKline, which was fined a record 3 billion yuan ($483 million) for corruption last year and is examining possible staff misconduct elsewhere, faces new allegations of bribery in Romania. GSK confirmed it was looking into the latest claims of improper payments set out in a whistleblower's email sent to its top management on Monday. The company is already probing alleged bribery in Poland, the United Arab Emirates, Lebanon, Jordaand Iraq. The latest allegations say GSK paid Romanian doctors hundreds, and in one cases thousands, of euros between 2009 and 2012 for prescribing its medicines, including prostate treatments Avodart and Duodart and Parkinson's disease drug Requip.
View full article here:

Accessed: 29/07/2015
U.S. Identifies Insider Trading Ring With Ukraine Hackers
Exposing a new front in cybercrime, U.S. authorities broke up an alleged insider trading ring that relied on computer hackers to pilfer corporate press announcements and then profited by trading on the sensitive information before it became public. In morning raids in Georgia and Pennsylvania, federal agents arrested five traders in the plot, while four others indicted on hacking and securities fraud charges are at large. The suspected hackers, who are thought to be in Ukraine, allegedly infiltrated the computer servers of PRNewswire Association LLC, Marketwired and Business Wire, a unit of Warren Buffett's Berkshire Hathaway Inc., over a five-year period. They siphoned more than 150,000 press releases including corporate data on earnings that could be used to anticipate stock market moves and make profitable trades, the U.S. said. The hackers passed the information to associates in America and Ukraine, who allegedly used it to buy and sell shares of dozens of companies, including Panera Bread Co., Boeing Co., Hewlett-Packard Co., Caterpillar Inc. and Oracle Corp., through retail brokerage accounts.
View full article here:


Accessed: 11/08/2015

Corruption and Monopolies - An Endemic Problem
I have always been convinced that one of the structural causes of corruption is the existence of monopolies,
oligopolies and cartels. Due to their size and inefficiency, these market structures create a specially privileged
relationship with the authorities and the government.
A report on global corruption issued by the Organisation for Economic Co-operation and Development
(OECD) in December 2014 sheds more light on the situation. According to the study, some sectors are
generally more vulnerable to corruption than others. Approximately two thirds of all instances of corruption
are found in just four sectors: mining (19%), construction (15%), transport (15%) and communication and
information (10%). Annual losses in Europe alone amount to around 120 billion Euros, which is only slightly
less than the budget for the entire European Union. Worldwide, it is forecast that by 2020 losses caused by
corruption will reach a level of some 2.5 trillion dollars a year in the construction sector alone.
The corruption scandal in Brazil involving Petrobrás, seen in this light, contains all the ingredients of a recipe
which the OECD report made familiar. This makes it shocking that people are trying to label the scandal as a
one-off event, rather than a systematic pattern. The truth is that corruption is an endemic problem, supported
on a solid economic basis. This situation is common to a number of countries, all at different levels of
development but with similar ingredients.
View full article here:

Accessed: 20/07/2015




MONEY LAUNDERING
Deutsche Bank to invest more to prevent money laundering
Deutsche Bank plans to invest more in technology to prevent money laundering, according to the head of the division that processes its transactions. Germany's biggest bank was hit by a scandal over suspected money laundering at its Moscow office over the summer and last month said it was closing part of its business in Russia as part of a review of its global structure. It has also yet to settle with U.S. authorities over alleged sanctions-related violations, following investigations of peers like Commerzbank and Societe Generale for moving funds through the U.S. financial system for countries such as Iran and Sudan. Werner Steinmueller, head of Deutsche Bank's Global Transaction Banking (GTB) business, told Reuters the lender planned to increase spending on systems to prevent money laundering. He did not give any figures for this investment, but said it was part of the bank's plans to gradually double its annual investment of 100 million euros (£74.2 million) in the GTB division. View full article here:
Accessed: 02/10/2015
Real estate bought with offshore cash raises money laundering concerns

Investigator says Canadian real estate market has developed reputation as a place to launder money. A report prepared for Canada's anti-money laundering watchdog points to offshore cash in the real estate sector as a "significant risk" for criminal wrongdoing. The Financial Transactions and Reports Analysis Centre of Canada, commonly known as FINTRAC, commissioned a profile of the sector's vulnerabilities by accountancy firm Grant Thornton. "The purchase of Canadian real estate assets with offshore money and/or by offshore persons was noted as a significant risk factor," sayeleased through access to information. It also flags a lack of "quality and ethics infrastructure" in the sector as a concern of "critical importance." The warning comes as FINTRAC claims to have significantly increased enforcement around activities in Vancouver's overheated real estate market. The agency says it has conducted more than 200 compliance examinations in the real estate sector in Western Canada in the past three years. By law, real estate brokers, sales representatives and real estate agents have to report suspicious transactions and transactions involving the receipt of $10,000 or more in cash. But according to FINTRAC's records, the agency has only received a total of eight reports from January 2012 to June 2015 involving either suspicious or large cash transactions. The Grant Thornton report notes the use of legal trust accounts as a specific area of concern for the real estate sector; lawyers are exempt from FINTRAC's requirements because of solicitor-client privilege. View full article here:

Accessed: 25/08/2015



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