Detecting Fraud in Real Time
March 1, 2011
Joseph H Looby JD, CFE
Senior Managing Director
Multinationals today face proliferating compliance issues that essentially come down to one requirement: putting technology in place to detect wrongdoing at any time and in any location.
A perfect storm is brewing in the regulatory compliance arena. The push for stronger regulatory oversight ignited by corporate and Wall Street scandals is finally coming to fruition, with government agencies around the globe becoming more aggressive about — and more adept at — identifying and pursuing regulatory violations.
A compliance program could flag transactions involving people or firms on government watch lists.
Three forces are converging to shape this new regulatory environment. First, regulatory bodies are employing sophisticated technology to detect and prosecute transgressions. The U.S. Securities and Exchange Commission’s Office on Market Intelligence, for example, has equipped its new task force on market abuse with the technology to conduct “Facebook investigations,” essentially mining data on traders’ personal relationships and communications to flag potential incidents of insider trading. Second, a “whistle-blower lotto” provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act offers informants a bounty of 10% to 30% of any fine of more than $1 million resulting from a tip. And third, penalties for paying bribes in foreign markets are poised to escalate significantly under the U.K. Bribery Act of 2010.
This trend of intensifying exposure to myriad regulatory actions around the globe strongly suggests a need for multinational corporations — the most likely targets for government enforcement action — to develop integrated compliance programs that collect and monitor data in real time. Such systems could, for example, automatically monitor vendors and transactions, flagging those involving people or firms on government watch lists. If a company suspects a particular kind of violation, a custom inquiry can be written to mine the data and identify transactions for internal and compliance review.