Global Bribery Hits $1Trillion states Gray Matter Group
Updated: Apr 11, 2019
According to Daniel Kaufmann, president of the Natural Resource Governance Institute, a nonprofit organization that provides policy advice, advocacy, and research, bribery around the world is right at $1 trillion USD per year! With bribery on the rise and governments more committed than ever to exposing it, what is a firm to do? This is where independent investigative due diligence into politically exposed persons (PEP) helps.
“A Politically Exposed Person is defined as an individual who has been entrusted with prominent public functions in foreign or domestic countries, such as Heads of State, senior government officials, judicial or military officials, senior executives of state-owned corporations, or important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves.”
The first step eliminating risks associated with PEPs is identifying the PEPs. Sounds simple right? Not so. If a PEP is engaged in bribery, etc. they will go through great lengths to cover their tracks - mainly distancing themselves from beneficial ownership of entities, organizations, so forth and so on.
According to the FATF, past cases have demonstrated that corrupt PEPs often use legal entities to obscure their identity in order to distance themselves from transactions and to access the financial system undetected. Third-party intermediaries, such as lawyers, real estate and escrow agents, lobbyists, and bankers, have accessed the financial system on behalf of PEPs to conceal the true controller of the assets.
So what are the risks associated with politically exposed persons? There are two major risks that can cause severe damage. Legal risks and repetitional risks. Legal risks can be considered a more concrete risk as this risk will take the form of judgements, defense costs, fines, penalties, and so forth. Repetitional risks are just as bad if not worse than legal risks. It takes a life time to build a reputation and one single act to destroy it. Headlines associating a person who has engaged in bribery and your organization destroys your company's reputation and brand equity. This has a long lasting affect that some companies may never be able to recover from.
Organizations should be proactive in identifying and exposing risks associated with politically exposed persons by retaining independent investigative due diligence firms like Gray Matter Group Inc. Our search begins by combing known politically exposed persons lists maintained by specific government agencies. The due diligence spreads outward from that point picking up associates, family, friends, etc. along the way and identifying entities that may be associated with the PEP or that a beneficial ownership is highly likely in certain entities. Gray Matter Group will provide a very detailed overview of the individual and any potential liabilities.
You can protect yourself and your firm from politically exposed persons and the risks associated with these people. In this business environment it is not only the smart choice, it is the only choice.