Massive in land size, population, and economic power, the BRIC countries—Brazil, Russia, India, and China—are global giants in every sense of the phrase. That includes the potential to give compliance executives giant headaches.
Like it or not, Corporate America is stuck with doing business in the BRIC nations. They comprise 40 percent of the world’s population and have a combined gross domestic product of $15.4 trillion. (By comparison, the U.S. GDP in 2006 was approximately $13.1 trillion.)
The BRIC nations also have an exploding middle class; by 2025, the number of BRIC citizens earning more than $15,000 annually—a king’s ransom for most of their populations today, who toil away in poverty—could surpass 200 million. Brock Philips, senior manager of forensic accounting at Microsoft, likes to say that those numbers “are going to affect everything.”
All that means compliance executives at U.S. companies have no choice but to learn the cultural differences, and obstacles, to conducting investigations and enforcing compliance in BRIC nations. A quick world tour of those obstacles and differences follows.
Employee Rights
An investigation can succeed or fail depending on how much protection a country gives its workforce. Phillips, speaking at an antifraud conference held in Boston recently, gave the example of Brazil: Employee rights are extremely favorable in investigations, he said. “It would be incredibly difficult to terminate somebody for cause in Brazil.”
While Brazilian law typically does allow companies to conduct employee investigations, most union agreements prohibit any type of employee surveillance. In addition, “people tend to be very loyal to the chain of command,” Phillips said. As a result, getting employees to rat out a senior manager who is the focus of a crime investigation, for example, may be difficult.
Chinese culture, steeped in communist history, also operates along very pro-employee lines and makes corporate investigations or surveillance difficult. Employee rights in Russia, however, are more lax.
“The biggest thing to remember is no one is going to adapt to you. You have to adapt.”
— Brock Philips,
Senior Manager of Forensic Accounting,
Microsoft Corp.
“In terms of employee rights [in Russia], it very much depends on the employer-employee relationships and the contacts that are involved,” said Shannon Grayer, senior manager of investigations at Microsoft. Russia does allow surveillance of employees, but Grayer advises Western companies first to speak with local counsel—a wise practice when doing investigations in any BRIC nation, really.
Perhaps least like the other BRIC countries when it comes to employee rights is India, where surveillance is typically allowed and few privacy laws exist, Phillips said. That said, Indian culture does value humility—so don’t expect employees to blow the whistle on fellow workers. “You can be blackballed for that,” he said.
Phillips also noted that only 8 percent of fraud is uncovered through whistleblowers, which means that companies will need to have ”better detection methods than just relying on tips from outside individuals,” he said.
Beyond employee rights, family ties can also bring investigations to a halt. Going against family, tribe, caste, or clan will often strike a BRIC citizen as simply unthinkable, no matter what threats or demands for cooperation a company might make. In China particularly, “The importance of family cannot be overemphasized,” Grayer said.
Like China, business in Russia depends on relationships. “Russians typically see themselves as members of some form of group,” whether they are part of a certain circle of family, friends, or an association, Grayer said. “Within the group, they can call upon each other for almost anything.” It’s an insider versus outsider way of thinking, and loyalty may come before the laws and regulations, he said.
Other Obstacles
Personal bonds aside, investigations can often be thwarted by simple bureaucracy or inaccessible information. In China and India, for example, a person may not get a receipt for purchases, so an investigator has no records to investigate. Databases of information Westerners consider commonplace might not exist. Business records might be boxed up, stored away, and difficult to search, Grayer said.
HELPFUL HINTS
So what can companies do to move their investigations along as quickly and efficiently as possible? Brock Phillips and Shannon Grayer, senior manager of forensic accounting at Microsoft and senior manager of investigations at Microsoft, respectively, have this advice to offer:
Never go it alone. Because some countries don’t offer the same level of protection to foreigners as they would state owners of a company, always coordinate with legal counsel before conducting an investigation in any of the BRIC nations.
Communication is key. In all of the BRIC nations, family takes precedence, so building strong, personal relationships would be extremely beneficial.
Save face. During a fraud investigation, conduct and end interviews in a manner that still allows the person being investigated to leave with dignity.
Choose outside parties wisely. When working with international vendors, for example, look for experience, and don’t be afraid to check references.
—Jaclyn Jaeger
In China especially, don’t count on public records actually being public. Data housed at government facilities, for example, is often moved from building to building, or from one family member to another; tracing information can be difficult for that reason, Grayer said. “Manual searches are sometimes very much necessary.”
How quickly and effectively an investigation is resolved also depends on the country where the investigation is being conducted. India’s court system, for example, has 350 years of backlogged cases, Phillips says—and those are just the cases where anything happens at all. “A good percentage of companies fail to take any action with fraudsters,” he said.
One fairly prominent fraud case in India occurred in 2004, involving an ID theft ring. In that case, three call-center employees, working at an outsourcing facility operated by MphasiS in India, improperly obtained the PIN codes of four Citibank customers. With the help of others, the trio then opened new accounts at Indian banks using false identities. Within two months, they used the stolen account information to transfer a total of $426,000 to those new accounts. Of that money, only $230,000 was recovered.
The employees involved had been at MphasiS for less than six months, and started the theft ring within weeks of their arrival, according to Phillips and Grayer. And while the fraud itself did not take long to commit—just five weeks—the perpetrators still have yet to be tried and sentenced.
On the opposite side of fence is China, where more than 30,000 bribery cases have been brought in the last two years. In 2005, 61,000 economic crime cases were solved. Punishment in these cases is serious to say the least; sentences can range from 10 years to life in prison and, in some cases, death.
Xiaoyu
Such was the fate of Zheng Xiaoyu, former head of the Food and Drug Administration of China. He was executed in 2007 for taking bribes from numerous pharmaceutical companies and personally approving tainted and phony drugs. His actions have been blamed for the deaths of hundreds—perhaps thousands—of people.
Another recent notable case involved the Bank of China, the second largest Chinese bank. Managers there embezzled $482 million from the bank between 1992 and 2001. In the most recent development, two of those managers, Hui Yat-sing, and his wife, Wong Suet-mui, were convicted of criminal conspiracy in 2007 by a Hong Kong court. They face up to seven years in prison. A third defendant fled to the United States, voluntarily returned to China, and pled guilty to a racketeering charge; he was later sentenced to 12 years in prison.
The key to conducting a fraud investigation, no matter how serious or minor the crime, is knowing how to adapt to that country’s culture, Phillips said. “The biggest thing to remember is no one is going to adapt to you. You have to adapt.”
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