15th Global Fraud Survey by EY India

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This pdf by EY India talks about how companies can operate competitively in markets where corruption is present worldwide and in which corrupt practices may be identified as a common way of gaining a competitive advantage. Download pdf or know about anti-bribery services by EY India by visiting https://www.ey.com/in/en/services/assurance/fraud-investigation---dispute-services/ey-anti-bribery-and-anti-corruption-services

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Integrity in the spotlight The future of compliance 15th Global Fraud Survey Emerging markets perspective

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Emerging markets have experienced signifcant change and burgeoning development over the last fve years becoming economic powerhouses and stimulating global growth. However changing regulations and increased enforcement are altering the risk landscape. Organizations must face these challenges head-on: while emerging markets offer immense promise and abundant opportunities the ever-present risks of fraud bribery and corruption present potential obstacles to growth. Between October 2017 and F ebruary 2018 we interviewed 1450 executives from 33 emerging market countries and territories as part of a global study on fraud bribery and corruption trends. The interviews conducted found that fraud and bribery are perceived by respondents to be among the greatest threats to their businesses. Despite greater awareness of legal fnancial and reputational risks the adoption of sophisticated anti-fraud and anti-corruption frameworks and tools to aid compliance these risks still need to be managed with continual vigilance. There is also broad consensus that the risk of bribery and corruption is higher in emerging rather than developed markets. Over 43 of survey respondents from these markets feel that the macroeconomic environment changing regulation and fraud and corruption pose the greatest risks to their business signifcantly higher than their peers in developed markets. Fraud and corruption risks in emerging markets present a challenge for global multinationals operating in these regions. They may primarily be constrained by the extraterritorial reach of regulations and legislation of their home countries. In recent years however governments in emerging markets have begun to introduce more robust enforcement of strengthened anti- corruption laws. Many companies are faced with the stark choice: divest from certain markets or operate in an environment where the normal rules of fair competition are undermined. In this report we consider how companies can operate competitively in markets where corruption is widespread and in which corrupt practices may be perceived as a common way of gaining a competitive advantage. Arpinder Singh EY India and Emerging Markets Leader F orensic Integrity Services In trying times management needs to boost the ethical agenda redefne compliance programs and adopt a technology-centric approach driven by data analytics to minimize integrity lapses. 1Introduction 2 Integrity in the spotlight | Emerging markets perspective

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2 Fraud bribery and corruption in emerging markets F orty-two percent of respondents in emerging markets 1 believe that fraud and corruption pose one of the greatest risks to their business. This is signifcantly more than the 29 of respondents in developed markets. Unsurprisingly corrupt practices are believed to be more prevalent in emerging markets with 52 of respondents stating these occur widely compared with 20 in developed markets. Since our 2012 report perceived levels of bribery and corruption in emerging markets have doubled those in developed markets. With increased regulation enforcement and compliance efforts across emerging markets it is disappointing that this gap has not reduced. Bribery and corrupt practices are perceived to be more prevalent in emerging markets . Q Do bribery/corrupt practices happen widely in business in your country Base: 15th Global Fraud Survey 2550 Developed 1100 Emerging 1450 Emerging 52 Developed 20 All respondents 38 Geopolitical instability and volatile oil prices in a number of countries have complicated the regional business climate. However regional governments have continued to look for innovative ways to develop and diversify their economies. The ongoing challenge for most organizations in the Middle East continues to be striking a balance between seizing the commercial opportunity the region provides and the risks associated with transacting business. Regional snapshot Middle East Base: 15th Global Fraud Survey 2550 Middle East 125 Q. Do bribery and corrupt practices happen widely in business in your country Q. Has your company experienced a signifcant fraud in the last two years Q. Which of the following can be justifed if they help a business survive an economic downturn 42 believe bribery and corrupt practices occur widely in business. 14 of companies have experienced a signifcant fraud over the last two years. 35 would justify cash payments to help a business survive. 1 In the survey the following countries/regions are classifed as “emerging markets”: Argentina Brazil Bulgaria Chile China mainland Colombia Cyprus Czech Republic Hong Kong SAR Hungary India Indonesia Israel Jordan Kenya Korea Lithuania Malaysia Mexico Nigeria Peru Philippines Poland Romania Russia Saudi Arabia Singapore Slovakia South Africa Taiwan Turkey UAE Ukraine. 3 Integrity in the spotlight | Emerging markets perspective

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Sixteen percent of respondents from emerging markets acknowledged “it is common practice to use bribery to win contracts.” In this context the survey also fnds that there are many situations in which organizations its employees or representatives may feel that some form of incentive to a third-party is necessary to guarantee their company’s survival. High-risk activities include licensing procurement invoicing payments materials and supplies. A bribe can range from a small facilitating payment to clear goods through customs to hundreds of thousands of dollars to win a public tender for a major infrastructure project. The risk to the company of prosecution extends beyond its own employees’ activities to the corrupt actions of third-party representatives such as distributors agents or joint venture partners. More critically the EY report also shows that still too many executives believe that it is acceptable to give cash payments in exchange for commercial advantage. Nineteen percent of emerging markets 2 respondents felt this could be justifed compared with just 6 in developed markets. Arguably the current business climate shows some signs of positivity in Africa much of which is attributable to political changes in Angola Botswana South Africa and Zimbabwe. These have brought hope of improved governance on the continent but progress in some markets is slow . The theme of the African Union’s summit this year was “Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation” bringing some much-needed impetus to the complex issue of tackling corruption. Companies should remain focused on the importance of following stringent due diligence procedures with regard to mergers and acquisitions and third-party / partner / supplier vetting to maintain appropriate proactive anti-fraud and corruption measures. Regional snapshot 86 believe bribery and corrupt practices occur widely in business. 18 of companies have experienced a signifcant fraud over the last two years. 11 would justify cash payments to help a business survive. Base: 15th Global Fraud Survey 2550 Africa 150 Q. Do bribery and corrupt practices happen widely in business in your country Q. Has your company experienced a signifcant fraud in the last two years Q. Which of the following can be justifed if they help a business survive an economic downturn Africa 2 Global Fraud Survey 2018: Integrity in the spotlight — The future of compliance EY 2018. Which of the following can be justifed if they help a business survive an economic downturn Emerging Developed Base: 15th Global Fraud Survey 2550 emerging 1450 developed 1100 Cash payments 19 6 4 Integrity in the spotlight | Emerging markets perspective

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In many countries cultural traditions such as wining and dining and the provision of high-value gifts and entertainment are considered integral to doing business. However such practices have become much less commonplace in recent years particularly in developed markets. More pertinently in emerging markets seeking to gain a commercial advantage through offering prospects or clients lavish corporate hospitality ahead of an important deal or contract makes a company — and its executives — potentially liable under anti-corruption legislation. Finally there are economic factors to consider . In most emerging markets there is a signifcant difference between the incomes of employees in the private and public sectors — and the urge to seek personal gain at the expense of the public can be diffcult to resist. • Visit the fraud surveys website. ey.com/fraudsurveys/emergingmarkets Numerous recent high-profle corruption related matters has arguably led to a greater focus on ASEAN with regards to compliance issues. The region has given rise to a large number of Foreign Corrupt Practices Act FCPA enforcement actions. Four of the nine companies that the U.S. Department of Justice DOJ Fraud Section includes on its list of 2017 FCPA Enforcement Actions are based or were operating in the region as were 7 of the 15 individuals prosecuted in 2017. However ASEAN may be on the cusp of a sea change having made considerable progress over the last two years in anti-fraud and anti-corruption initiatives. F or example Singapore and Malaysia have adopted the ISO 37001 Standard on Anti-Bribery Management Systems Thailand has introduced legislation to compel local enterprises to implement anti-corruption policies and Vietnam is rigorously enforcing the new Penal Code to underline criminal liability for corporations. In 2018 the Vietnamese Government is introducing amendments focusing on private sector compliance to the Anti-Corruption Law. Regional snapshot ASEAN Base: 15th Global Fraud Survey 2550 ASEAN 200 Q. Do bribery and corrupt practices happen widely in business in your country Q. Has your company experienced a signifcant fraud in the last two years Q. Which of the following can be justifed if they help a business survive an economic downturn 41 believe bribery and corrupt practices occur widely in business. 7 of companies have experienced a signifcant fraud over the last two years. 37 would justify cash payments to help a business survive. 5 Integrity in the spotlight | Emerging markets perspective

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3 The impact of changing legislation in emerging markets Overall corporate executives in emerging markets have seen little signifcant improvement in the business environment from a fraud and corruption perspective over the last four years. In some countries there were signifcant changes in the 3 Global Fraud Survey 2018: Integrity in the spotlight: the future of compliance EY 2018. Bribery and corruption — a persistent issue across emerging markets Argentina 68 Peru 82 Colombia 94 Brazil 96 India 40 Korea 18 China 16 . Q Bribery/corrupt practices happen widely in business in this country Base: 15th Global Fraud Survey 2550 Argentina 50 Brazil 50 China 50 Colombia 50 Hungary 50 Indonesia 50 India 50 Korea 50 Peru 50 Saudi Arabia 50 South Africa 50 Romania 50 Indonesia 42 South Africa 80 Hungary 66 Saudi Arabia 46 Romania 34 perceptions of fraud and corruption. Saudi Arabia for example increased from 26 to 46. There were also some improvements in certain emerging markets with India reducing from 67 to 40 and Romania dropping from 46 to 34. 3 6 Integrity in the spotlight | Emerging markets perspective

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An increasingly important factor that multinationals operating in emerging markets should be addressing is the introduction and more rigorous enforcement of local anti-corruption legislation. From a legal perspective most countries of the world including many in emerging markets have had anti-corruption embedded into their domestic legislation for many years. A number have signed the UN Convention against Corruption many have also signed the Organization for Economic Co-operation and Development OECD Anti-Bribery Convention. Many emerging markets have strengthened their enforcement regimes. China’s all-embracing anti-corruption campaign has been well publicized but there are other examples of governments making anti-corruption activities a priority . This includes Korea the Kim Y oung-ran Law 2016 and India • Visit the fraud surveys website. ey.com/fraudsurveys/emergingmarkets India’s business environment is buoyant demonstrated by its improved rankings in the World Bank’s Ease of Doing Business Report up from 130 in 2017 to 100 in 2018. The market has seen a transformation on multiple fronts including new domestic reforms initiatives for smart cities single window clearances for infrastructure and industrial projects and the ongoing battle against fraud and corruption. There have been concerted efforts to enhance corporate governance and transparency through regulatory reform such as the Prevention of Corruption Amendment Act 2018 penalizes bribe givers as well as commercial organizations including foreign companies Companies Act 2017 and Insolvency and Bankruptcy Code Amendment Bill 2017 as well as increased penalties for non-compliance. However fraud and corruption are still a major obstacle to growth. In the media the more frequent reporting of larger cases of corruption pose a greater reputational risk for companies doing business in the region. Regional snapshot India Base: 15th Global Fraud Survey 2550 India 50 Q. Do bribery and corrupt practices happen widely in business in your country Q. Has your company experienced a signifcant fraud in the last two years Q. Which of the following can be justifed if they help a business survive an economic downturn 40 believe bribery and corrupt practices occur widely in business. 12 of companies have experienced a signifcant fraud over the last two years. 20 would justify cash payments to help a business survive. Prevention of Corruption Amendment Act 2018 and Fugitive Economic Offenders Bill 2018 and the countries in Eastern Europe and Central Asia. More importantly these nations have started to enforce these statutes with more rigor than ever before. This has led to some high-profle cases that have seen prominent business leaders prosecuted and even heads of state impeached and removed from offce. While there continues to be a high volume of prosecutions from the U.S. Department of Justice under the FCPA domestic efforts to combat bribery and corruption are also being reinforced by growing cross-border cooperation through bodies such as the SEC G20 and the OECD. Other examples of cross-border initiatives include extraterritorial legislation such as F rance’s Sapin II. 7 Integrity in the spotlight | Emerging markets perspective

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4 Integrity in emerging markets The EY survey results show a mismatch between the 97 of respondents in emerging markets that believe it is important to demonstrate their organization acts with integrity and 19 who would still justify making a cash payment to win a contract. The declared intentions of an organization may be clear: policies and codes of conduct are in place senior leaders demonstrate commitment via formal and informal communications. Y et recent high-profle scandals at major corporations show that aberrational misconduct by executives has persisted and gone unnoticed for long periods of time. When the misconduct fnally surfaced publicly expensive investigations have ensued fnes have mounted and individuals have been prosecuted. The Integrity Agenda has four foundational elements that align an individual’s actions with the organization’s objectives: 1 governance including policies that guide organizational behavior 2 culture 3 controls and procedures and 4 insights. The core challenge is to infuence the behavior of diverse and dispersed employees and third parties amidst intense competitive pressures and rapid technological change. Two areas of the Integrity Agenda that could deliver signifcant beneft in emerging markets are Culture and Insights. These are highlighted on page 9. Closing the gap between intentions and behavior — the Integrity Agenda Intentions Mission and values statement Code of conduct S t andar ds policie s and practices Management communications Actual behavior Defned principles and behavioral standards Verifable data about organizational behavior and culture Improved metrics and enhanced accountability 8 Integrity in the spotlight | Emerging markets perspective

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F orensic data analytics FDA The EY Global Forensic Data Analytics Survey 2018 shows the extent to which companies are introducing data analytics in their compliance systems. This technology provides insights into specifc compliance risks at the market country regional and customer level. It also delivers real-time business information at the point of an employee’s interaction with vendors or third parties in a high-risk territory . T o achieve the full potential of FDA companies should aim for better integration leverage the right technologies data and people and secure strong leadership support. When integrated correctly data analytics can both detect and prevent wrongdoing. In emerging markets it is particularly challenging to create a raft of integrity across the company not to mention in third-party agents and distributors in the supply chain. It is imperative to enhance the effectiveness of compliance procedures and technology and build a sound corporate culture to promote integrity at all levels. Corporate culture plays a crucial role in building a system that truly safeguards a company’s reputation. But for executives in some emerging markets creating a culture that achieves this goal may be a relatively new concept. Culture Governance Insights Controls Measurable effectiveness • Visit the fraud surveys website. ey.com/fraudsurveys/emergingmarkets Culture Insights Culture Governance Insights Controls Measurable effectiveness 9 Integrity in the spotlight | Emerging markets perspective

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• Visit the fraud surveys website. ey.com/fraudsurveys/emergingmarkets Talk to us EY Forensic Integrity Services can help you protect the fnancial and reputational value of your business. We help prevent detect and resolve threats. Local contact Name Telephone EY Global Leader Andrew Gordon +44 20 7951 6441 EY Americas Leader Brian Loughman +1 212 773 5343 EY Asia-Pacifc Leader Emmanuel Vignal +86 21 2228 5938 EY EMEIA Leader Jim McCurry +44 20 7951 5386 EY Japan Leader Ken Arahari +81 3 3503 1100 Afghanistan and Pakistan Shariq Zaidi +92 21 3567 4581 Argentina Andrea Rey +54 1145 152 668 Australia and New Zealand Rob Locke +61 28 295 6335 Austria Andreas Frohner +43 1 211 70 1500 Baltic States Liudas Jurkonis +370 5 274 2320 Belgium Frederik Verhasselt +32 27 74 91 11 Bolivia Javier Iriarte +591 2 2434313 Brazil Marlon Jabbur +55 11 2573 3554 Bulgaria Ali Pirzada +359 2 817 7100 Canada Zain Raheel +1 416 943 3115 Chile Jorge Vio Niemeyer +56 2 676 1722 China mainland Diana Shin +86 21 2228 2371 Czech Republic and Slovakia Tomas Kafka +420 225 335 111 Denmark T orben Lange +45 2529 3184 Ecuador Geovanni Nacimba +593 22 555 553 Finland Markus Nylund +358 405 32 20 98 France Philippe Hontarrede +33 1 46 93 62 10 Germany Stefan Heissner +49 221 2779 11397 Greece Y annis Dracoulis +30 210 2886 085 Hong Kong SAR Chris Fordham +852 2846 9008 Hungary and Croatia Ferenc Biro +36 30 567 0582 India and Bangladesh Arpinder Singh +91 12 4443 0330 Indonesia Alex Sianturi +62 21 5289 4180 Ireland Julie Fenton +353 1 221 2321 Israel Ofer Erez +972 3 6278661 Local contact Name Telephone Italy Fabrizio Santaloia +39 02 8066 93733 Japan Ken Arahari +81 3 3503 1100 Kenya Dennis Muchiri +254 20 2886000 Luxembourg Gérard Zolt +352 42 124 8508 Malaysia Joyce Lim +60 374 958 847 Mexico and Colombia Ignacio Cortés +52 55 1101 7282 Middle East Charles de Chermont +971 4 7010428 Netherlands Brenton Steenkamp +31 88 40 70624 Nigeria Linus Okeke +234 1 271 0539 Norway Frode Krabbesund +47 970 83 813 Peru Rafael Huamán +51 1 411 4443 Philippines Roderick Vega +63 2 8948 1188 Poland Mariusz Witalis +48 225 577 950 Portugal Pedro Subtil +351 211 599 112 Romania Simona Radu +402 1204 7970 Russia Denis Korolev +74 95 664 7888 Singapore Reuben Khoo +65 6309 8099 South Africa and Namibia Sharon van Rooyen +27 11 772 3150 South Korea Steven Chon +82 102 791 8854 Spain Brenton Steenkamp +31 88 40 70624 Sri Lanka Averil Ludowyke +94 11 2463500 Sweden Erik Skoglund +46 8 52059939 Switzerland Michael Faske +41 58 286 3292 Taiwan Chester Chu +86 62 2757 2437 Thailand Wilaiporn Ittiwiroon +66 2264 9090 Turkey Dilek Cilingir +90 212 408 5172 UK Richard Indge +44 20 7951 5385 US Brian Loughman +1 212 773 5343 Venezuela Jhon Ruiz +58 21 2905 6691 Vietnam Saman Wijaya Bandara +84 90 422 6606 10 Integrity in the spotlight | Emerging markets perspective

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EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance tax transaction and advisory services. The insights and quality services we deliver help build trust and confdence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing we play a critical role in building a better working world for our people for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member frms of Ernst Young Global Limited each of which is a separate legal entity. Ernst Young Global Limited a UK company limited by guarantee does not provide services to clients. For more information about our organization please visit ey.com. About EY Forensic Integrity Services Dealing with complex issues of fraud regulatory compliance and business disputes can detract from efforts to succeed. Better management of fraud risk and compliance exposure is a critical business priority — no matter the size or industry sector. With approximately 4500 forensic professionals around the world we will assemble the right multidisciplinary and culturally aligned team to work with you and your legal advisors. We work to give you the beneft of our broad sector experience our deep subject-matter knowledge and the latest insights from our work worldwide. © 2018 EYGM Limited All Rights Reserved. EYG no. 011355-18Gbl ED None In line with EY’s commitment to minimize its impact on the environment this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting tax or other professional advice. Please refer to your advisors for specific advice. The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover they should be seen in the context of the time they were made. ey.com/forensics

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