Gulf Insider Fraud

Fraud is down globally and the proportion of companies that suffered an incident slid to 61%, from 75%, according to a report published today from Kroll Advisory Solutions that was prepared with the Economist Intelligence Unit.

“But the biggest threat is from within,” the report says, with two-thirds of the firms hit by fraud in the company’s survey citing an “insider” as a key perpetrator.

Things start getting interesting in the Middle East section of the report, which is mainly focused on the Gulf states, including Saudi Arabia.   Though Gulf state respondents reported a lower prevalance of fraud than the global average, the “main perpetrators of fraud in the Gulf differ in some ways from the norm.”

Here’s the juicy bit:

Insiders are as likely in the region as elsewhere to be involved: 68% of companies that reported a fraud and knew the culprit said it was either an employee or an agent and in 85% of cases of information theft employee malfeasance was to blame. More striking, however, is 26% of frauds involved a government official or regulator in the Gulf, compared to just 14% worldwide. This does not mean that the region’s officials are inherently less trusthworthy than other regions: the survey puts corruption levels in the Gulf slightly below the global average. Instead, the relative absence of other types of frauds throws into sharper relief one of the problems that does exist – a tendency of some managers and officials to work together in inappropriate ways.

The report offers some veiled advice to the Gulf.

This issue should be addressed. Although companies in the region are more active than most in fraud prevention – they are much more likely than average to be planning to invest in every anti-fraud strategy covered by the survey – they are not addressing the risk of corruption nearly as aggressively as their peers. For Gulf companies affected by the US FCPA and the UK Bribery Act, for example, over half have not trained senior staff, vendors and foreign employees in complying with these laws, compared to just 28% worldwide.

Unfortunately the prevalence of family-run and owned companies and opaque business practices mean the Gulf is unlikely to turn a corner on transparency and therefore corruption any time soon.

Just today, the Financial Times reported that a directive was sent to embassies in the United Arab Emirates by the UAE’s ministry of foreign affairs warning that direct talks between envoys and local banks, exchanges and investment companies were “contrary to international norms” and that the ministry itself was the only approved point of contact. The central bank issued a similar warning to lenders in a separate circular, the FT reported.

The backwards step highlights “rising sensitivities in a country that is both a major global investor and central to western economic pressure on Iran.”




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