White Collar Crime Brief – 24/10/2012

24 October 2012|In White Collar Briefs

In this issue:

  • South Africa: Gordhan slams corrupt municipal officials
  • South Africa: Report reveals metro police and corruption
  • Africa: Transparency International claims corruption in Africa no different to elsewhere in the world
  • Nigeria: Anti-corruption agents jailed for accepting bribes
  • United States: Brokers charged for fraud
  • United States: Lack of leniency for whistleblowers

South Africa: Gordhan slams corrupt municipal officials

At a conference organised by the Institute of Municipal Finance Officers, Finance Minister, Pravin Gordhan, took municipal finance officials to task for what he describes as "unacceptable" management of public funds, when he stated that there was R15.5bn in irregular spending last year.

He stated that municipal officials had to take the blame for fraud, corruption and interference with tender processes and that: "It is disconcerting that government is consistently underperforming in this regard… it is unacceptable when officials take this responsibility lightly". Gordhan told the conference it was vital to get rid of this "cancer of corruption, this cancer of greed", whether it was among officials or business people. "If you can’t demonstrate creating a system of financial management that has integrity and honesty then you are failing in your core responsibilities," he said.

Earlier in July this year, Auditor-General, Terence Nombembe, said that there was R11bn in unauthorised, irregular, fruitless and wasteful expenditure in the 2010-11 financial year. Further, only 5% of all municipalities got clean audits for that period.


South Africa: Report reveals metro police and corruption

A report by independent researcher, David Bruce, produced for Corruption Watch has found that between November 2010 and February 2012 over 50% of police officers have asked for bribes and one in four motorists have been targeted in order to solicit bribes.

The report also revealed that the Johannesburg Metropolitan Police Department’s (“JMPD”) internal affairs division tasked with the investigation of cases of corruption, is not performing properly mainly because of friendships among staff and the power exerted by unions in disciplinary hearings.

The report noted that for two years the JMPD has been identified most associated with corruption in traffic enforcement, with corruption rising steadily from 2003 and 2010 whilst corruption related to driving licences rising from 9% to 15% since 1998.

The report’ recommends the compulsory wearing of uniforms with embroidered name tags and Johannesburg’s leaders in the JMPD taking responsibility for addressing corruption in order to combat corruption.


Africa: Transparency International claims corruption in Africa no different to elsewhere in the world

The outdated image of Africa as a continent beset by corruption has dominated the popular imagination for decades. However, a new book from Transparency International claims corruption in Africa is no different to elsewhere in the world.

In "Global Corruption: Money, Power and Ethics in the Modern World", Laurence Cockcroft (“Cockcroft”) argues that the main drivers of corruption, namely the informal economy, political funding, the role of multinationals and organised crime, are common to many countries and not intrinsic to Africa.

Whilst African countries are generally found in the lower half of most anti-corruption indices, Transparency International's latest Corruption Perceptions Index shows that the bottom 10 has only two African states, namely Somalia and Sudan. The annual index ranks countries from 0, highly corrupt, to 10, – very clean. Most African nations, however, score below 4.


Nigeria: Anti-corruption agents jailed for accepting bribes

The Nigerian Economic and Financial Crimes Commission (the “EFCC”) said its officers had been found guilty of asking for about £390 from a politician to stop a supposed investigation.

The EFCC stated that Douglas William and Abba Ishaku were arrested in October 2010, after trying to obtain money from Kullima Kachalla, the chairman of a local government administration in Borno state, to destroy documents related to an investigation into the mismanagement of public funds.

The EFCC noted that they had caught the anti-corruption agents red-handed as “it was in the course of the receipt of the money that the two staff were arrested and subsequently arraigned".


United States: Brokers charged for fraud

Charges were filed by the Justice Department accusing two former brokers at the New York office of Linkbrokers Derivatives, Marek Leszczynski and Benjamin Chouchane, of securities fraud and conspiracy for secretly adding small amounts of money to the cost of securities trades processed by the firm to generate $18.7 million in gains.

The charges include charging a slightly higher price for a trade, or lowering the sale price, and then hiding the actual cost from the clients. According to the Securities and Exchange Commission (the “SEC”), more than 36,000 trades from 2006 to 2010 involved such manipulation, with the amounts ranging from a few dollars to as much as $228,000 in one instance. The brokers benefit from this practice through higher bonuses ranging from $1.2 million to $2 million from 2007 to 2009.

Robert Khuzami, the head of the SEC’s enforcement division said in a statement that: “These brokers stole millions of dollars by overcharging customers for trades involving stocks with high trading volumes and price volatility, which are characteristics they wrongly thought would conceal their illicit pricing scheme.”


United States: Lack of leniency for whistleblowers

A recent study by the New York University found that companies that voluntarily report their violations of the Foreign Corrupt Activities Act (the "FCPA"), the U.S. Securities and Exchange Commission (the "SEC") and the Department of Justice (the "DOJ") don't necessarily receive leniency on sanctions from regulators. This finding has led to business call for clear-cut cooperation rules.

The study looked at FCPA enforcement actions from 2004 until 2011 and found that FCPA sanctions rose along with the size of the bribes, the profits tied to them and the amount of business they affected. According to the study, the DOJ and SEC also doled out disproportionately greater sanctions for violations in poorer countries and to companies based in countries with strong local anti-bribery institutions.

According to the study, the lack of leniency for self-reporters is the most interesting finding.

Chris Cook, partner at Jones Day, said that "it seems to me that it reinforces the position of the business community for the need for binding guidelines for the benefits to be gained from self-disclosure… The conclusions support the business community's request for either an amnesty program or binding guidelines".

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