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Britain’s FSA Targets Cross-Border Fraud
Following the global financial crisis, the spotlight on banks is intense, especially in Wall Street and The City of London. Now Britain’s Financial Services Authority (FSA) has radically stepped up its investigation of overseas banks and companies. With the crisis bringing to light potentially improper or fraudulent behaviour that crosses international borders, the Authority’s enforcement division investigated 30 overseas businesses in 2009, a six-fold increase over the five it looked in to in 2008.
As the Financial Times highlighted on February 2, this information was obtained from Freshfields, a London legal firm, by means of a freedom of information request. Of the 30 businesses involved, overseas companies accounted for 15 per cent, up from 2.4 per cent last year. The increase comes at a time when the FSA has also significantly expanded the assistance it renders to foreign regulators. The Authority received 830 new requests for help in the 2008-09 fiscal year, up 27 per cent from 2007-08. While the FSA has not particularly targeted overseas companies, the increase is a natural outgrowth of the financial crisis, which exposed a number of cross-border frauds and failures and prompted regulators to start working more cooperatively, Freshfields said. “London is a financial centre and governments are under pressure to respond to the crisis. If they are all talking to each other, someone is going to do something,” Raj Parker, one of the law firm’s partners pointed out.
Britain’s rising international focus is being replicated around the world. The US Securities and Exchange Commission (SEC) asked for overseas assistance 774 times during the 2009 fiscal year, an increase of 30 per cent. In London, the FSA went to the Court of Appeal on February 2 to challenge a lower court ruling that limited its ability to gather documents for the SEC after senior officials from both regulators met the previous day to hammer out new areas of cooperation. “The global banking crisis will only have reinforced the resolve of the SEC and [Department of Justice] to hunt down those responsible for such activity. Regardless of the outcome of this hearing, this trend of close cooperation is here to stay and means that both businesses and individuals are at risk of lengthy investigations in both the US and UK,” said Neill Blundell, head of the fraud group at Eversheds, another legal firm.
Guarding Your Company’s Customer Records
Mid-November brought an embarrassing admission from a mobile phone company in the UK. T-Mobile had to inform Commissioner Christopher Graham, Britain’s watchdog responsible for safeguarding personal information that staff had passed on millions of records from thousands of customers to third party brokers. Graham, whose office is currently preparing a case for prosecution, said the data breach was the biggest of its kind. A T-Mobile spokesman admitted that the data was sold “without our knowledge”. If you want to ensure that this doesn’t happen to your firm, consider calling in a team of experienced professionals straightaway. They are skilled in using sophisticated methods of investigation – like computer forensics and transactional analysis – to identify and reinforce the weakest links in your operational chain.
The Commissioner has explained how the brokers involved sold the data on to other phone companies, which in turn cold-called the customers as their contracts neared their expiry date. He also said that the case highlighted why there should be a prison sentence to dissuade people from trafficking in private data in this way. Britain’s Minister for Justice supported him, recommending custodial sentences to prevent the illegal trade in data. Graham believes that the existing “paltry fines” – £5,000 following a successful prosecution – are simply insufficient to deter people from engaging in this lucrative criminal activity.
Moreover, he said that data theft wasn’t just about mobile phone companies. It’s also about blagging information from databases to use to “put the frighteners on witnesses, attempt to knobble juries, pursue ‘nasty neighbour’ disputes, interfere in family courts, and in difficult divorce settlements. Personal data has value and there are people out there exploiting it.” The Conservative Party in Britain wants to go even further. It’s calling for the Commissioner’s authority to be beefed up, with him being provided with “a full set of punitive strings to his bow, including the power to fine organisations.”
Saab, US Company Accused of Bribery in South Korea
The Korea Times in Seoul reported on October 6 that an investigation into bribery cases involving foreign defence firms is widening as more evidence of illegal lobbying activities emerges. The move comes as the country’s authorities conduct a probe into the Swedish defence and aerospace firm, Saab, whose Seoul office has been raided on suspicion of paying for military secrets that might help it win lucrative contracts. Publicity like this hardly enhances a company’s reputation, particularly if the firm concerned and its employees happen to be innocent. But if you’re running a company and suspect that something devious might be afoot, then call in a team of professional investigators, especially in computer forensics, without delay. An experienced group will be able to match up such things as budgets, expenditures and communication patterns and forewarn you of danger areas inside your operations.
The Saab case comes at a time when South Korea plans to create a new strike force of up to 100 fighter aircraft by 2020, so competition with other manufacturers like Boeing and Lockheed Martin is intense. While the new aircraft, known as the KF-X, will be produced by South Korea and is being touted as “home-grown”, it will require foreign involvement in its development and production.
Pivotal to this case is a private South Korean defence think tank, the Security Management Institute, which plays an advisory role to the country’s National Assembly. Seoul authorities claim that they became aware earlier this year that classified information on the KF-X program had been leaked to the Swedish firm, after which they raided both Saab’s office and that of the Institute. Documents and computer files were seized in a bid to uncover the alleged connection. Bank accounts of Saab employees and officials at the Institute were also traced. Saab has acknowledged that it did make a payment to the Institute to sponsor a seminar last March, but that this simply related to a Swedish trade fair attended by its chief executive.
MG Rover boss destroyed files as investigators sent
Computer forensics came to the fore once again during an investigation into four top British executives with allegations that one of them had used special software to destroy critical financial documents shortly after the investigation was launched. Digital forensic investigators seized and forensically imaged multiple computer, laptop & server hard drives as part of the government agency investigation in the U.K.
MG Rover Group Limited was best known for manufacturing the MG spitfire sports car as well as the Rover sedans after it emerged from the nationalised British Leyland Car Company in 1986. In 1994, Rover was sold to BMW which made heavy investments into the company to revive the brands’ appeal. However, by 2000 BMW decided to sever links and Rover was sold for £10 [US$16] to Phoenix Venture Holdings, headed by John Towers. [Land Rover was sold off separately to Ford whilst BMW kept an interest in the production of the Mini].
Though Phoenix Venture Holdings had bought Rover for just £10 [US$16], there was a side transaction whereby Phoenix and it’s four directors bought the Rover cars finance and lease loan book from BMW for £313 Million [US$515 Million] in 2001.
Geeks Crack Spy Trade
For anyone interested in the sophisticated art of computer forensics and analysis, whether you work for a government agency or a business, an article in The Wall Street Journal on September 4 had particular relevance. One of the Journal’s writers, Siobhan Gorman, revealed a major technological breakthrough, one that intelligence insiders claim is the world’s most effective analytical tool for investigating terrorist networks. And it’s come from a virtually unknown software start-up.
Based in Silicon Valley, Palantir Technologies has created a user-friendly search tool that can scan multiple data sources at once, something that previous search tools couldn’t do. That means an analyst who is following a tip about a planned terror attack, for example, can more quickly and easily unearth connections among suspects, money transfers, phone calls and previous attacks around the globe. Palantir’s software has helped root out terrorist financing networks, revealed new trends in roadside bomb attacks, uncovered details of suicide bombing networks and discovered a spy infiltration of an allied government, according to current and former US officials familiar with the events. It is now being used by the CIA, the Pentagon and the FBI.
Yet Palantir remains an outlier among government security contractors. It rejected advice to hire retired generals to curry favour with the agencies and hired young government analysts frustrated by working with slow-footed technology. The company’s founders knew little about intelligence gathering when they started out. Instead, they went on a fact-finding mission, working with analysts to build the product from scratch. The technology they’ve produced is increasingly valuable to spies confronting an information explosion, where terrorists can hide communications in vast data streams on the Internet. A former US Assistant Secretary of Defense has said that this is a new way of war fighting.
Lessons According to Saint Bernard: The Madoff Case Laid Bare
Even if Bernard Madoff does manage to complete his 150-year sentence, due to exceptional family genes and a nutritious prison diet, he’s already earned his place in history. And that’s not just because he’s laid down the ground rules for becoming a bold and brazen con man. Rather, it’s due to key lessons he’s taught us about weaknesses in the regulatory system that were just waiting to be exploited. Those same shortcomings exist in businesses too, big and small, around the globe. The message is, if you think something might be awry in your firm get onto the appropriate professionals without delay. Make sure they’re experienced and able to handle state-of-the-art forensic investigation because that’s what you’ll need.
The full 477-page report of the US Securities and Exchange Commission’s inspector-general, recently released, makes for heavy reading. It’s scathing, and one thing leaps out from its meticulous detail: the number of opportunities to catch Madoff that were missed, and why.
Even when the SEC’s own officers remained extremely worried about his integrity, the Commission’s enforcement division closed down its investigation into Madoff’s business, claiming it was a “fishing expedition”. That was less than a year before Madoff confessed to running one of history’s biggest ever Ponzi schemes. The inspector-general concluded that the breakdown on the SEC’s part was not the result of the “misconduct of a particular individual or individuals, and found no inappropriate influence from senior-level officials”. At least that’s comforting. What isn’t, is his conclusion that the Commission failed systematically during its inquiry into Madoff’s 17-year long scheme, missing the significance of eight separate complaints. Each of these offered an opportunity to expose the fraud.
US investigators Kroll all clear to allged Ponzi pair Barry Tannenbaum & Dean Rees
The perils of focusing too strongly on identifying `red flags’ during due diligence profiles has come to haunt Kroll, the well known risk consultancy firm based in New York. Kroll, also known for its Kroll Consulting, Kroll Associates, Kroll Ontrack, Kroll Factual Data businesses is the author of the recent Kroll Global Fraud Report. It has been reported in the media that Kroll screened and gave the green light to two alleged fraudsters.
The matter involves alleged Ponzi scheme operated by two fraudsters with links to South Africa which resulted in a loss of around US$250 Million to investors. In 2007, Kroll was requested to profile Barry Tannenbaum, a South African, and Dean Rees on behalf of a New York-based asset management firm that was considering investing a substantial investment with their venture.
The revelation is a further blow for Kroll as the New York based firm is still reeling from the revelation that one of its top investigators gave a similar upbeat endorsement to Sir Allen Stanford, the Texas billionaire accused of orchestrating a $7 Billion Ponzi scheme which is under investigation by US Federal Authorities.
The due diligence profile was said to focus on identifying any `red flags’ which would indicate a serious flaw in their background, but found nothing unusual with either Tannenbaum or Rees and is instead reported to have portrayed both businessmen in a “very positive light”.
Charges Dropped in Australian Wheat Scandal
The head of the Australian Federal Police made a bombshell announcement at the end of August, days before stepping down from a position he had held for eight years: no criminal charges would be laid against executives responsible for the country’s biggest trade scam ever.
The Australian Wheat Board (AWB), which until recently had a longstanding government-backed monopoly on the wheat trade, had been paying kickbacks to Iraq under the United Nations Oil-for-Food program. The purpose: to secure about 90 per cent of that lucrative market. Of the thousands of companies around the world that were involved in rorting the program, which ran between 1996-2003, AWB topped the list. It paid $A300 million ($US222 million at the time) in bribes, disguised as “trucking fees”. Now no one’s to blame – at least, not in Australia – but the stigma remains. Professional investigation, combining state-of-the-art skills like computer forensics and transactional analysis, could have picked this activity up quickly and nipped it in the bud, even if the culprits had cleverly covered their tracks.
Today, AWB Limited is an independent trader, without its earlier monopoly and without the 11 executives who tarnished its reputation. It wants to move on, but is dogged by the scandal. This latest development – arising out of legal advice from a senior Australian attorney who declared that, “the prospect of convictions was limited and ‘not in the national interest’” – only serves to exacerbate the situation. The Australian Government too, is left in the lurch, for it was the government of each supplying country that had promised the UN that it would scrutinise the bona fides and activities of each of the companies involved.
While the Australian Securities and Investments Commission, the nation’s corporate watchdog, still has its own investigation under way, legal experts doubt that it will now achieve much.
Cybercrime’s Kingpin Nabbed
The indictment this week of 28-year-old American, Albert Gonzalez, has to be a salutary and sobering warning to business of the need to have a top computer forensics team working on your side. The sheer scale of the global operation that Gonzalez and his two Russian accomplices are alleged to have masterminded is mindboggling: to steal data from more than 130 million credit and debit cards by hacking into the computer systems of five major companies, including Hannaford Bros supermarkets, 7-Eleven and Heartland Payment Systems, a credit-card processing company. The fact that Gonzalez once worked with Federal authorities is just one of the ironic twists in this tale.
This is not the sort of story The Wall Street Journal enjoys running, but in its August 18 edition it provided all the gory details. Federal prosecutors have charged the threesome with carrying out the largest hacking and identity-theft exploit in US history. Welcome to the reality of today’s cyber world.
The indictment in the New Jersey Federal District Court comes after at least five years of criminal activity that has seen the alleged orchestrator, Gonzalez of Miami – a high-school graduate and self-taught programmer – fall in and out of the federal grasp. Detained in 2003, he was briefly an informant to the Secret Service before allegedly returning to commit even bolder crimes. Authorities have previously claimed he was the ringleader of a data breach that siphoned off more than 40 million credit card numbers from the TJX companies and others last year, costing the parent company of the TJ Maxx retail chain $US200 million. Gonzalez, who is currently in Federal custody in New York, is awaiting trial for alleged efforts to hack into the network of a national restaurant chain, plus he faces charges in Boston on the TJX matter.
Survey of Enterprises Shows Data Breaches on the Rise
If you’re worried about cyber-attacks on your company’s data – and you won’t find many people in business today that aren’t – the latest survey confirms that the trend is on the rise. When Australian organizations were first studied a year ago by a US-based research body, 56% revealed that they had been hit by at least one breach in the past 12 months. Now the 2009 Annual Study: Australian Enterprise Encryption Trends has shown that the figure has soared to nearly 70%. The writing is on the wall: make sure you have a good computer forensics team on hand that can handle the sort of transactional analysis and investigation you need to avoid a ‘worry’ turning into a nightmare.
The Australian survey, carried out by The Ponemon Institute and the PGP Corporation, both involved in data protection, also reveals that the number of firms experiencing multiple breaches is up from 28% in 2008 to 41% this year. Of those organizations admitting to a breach in the last 12 months, 65% were never publicly announced. In many countries, there is no legal or regulatory obligation to disclose such penetrations, so the only thing we can be sure of is that we’re only seeing the tip of the iceberg. PGP president and chief executive, Phillip Dunkelberger, put this into perspective by noting that, “Data is being treated like currency by organised crime, and not just mischief-makers these days, and is now highly valuable.”
If you’re concerned about your company’s vulnerability, call in a rapid-response team without delay and put your mind at ease. Not only will you discover what sorts of breaches have occurred, but you can also put in place the protection you need as well as have your staff briefed on other dangers lurking in both cyberspace and on the ground.
