Cost of fraud, corruption could hit US$500 billion as govts try to plug ailing economy

By Victor Ng | Jun 26, 2009

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The combined sum of US$5 trillion that major governments have poured into their economies worldwide has unintentionally introduced new opportunities for fraud and corruption worldwide, according to the latest edition of the Kroll Global Fraud Report.

Transparency International, the global coalition against corruption, estimates that as much as US$500 billion could be lost to fraudsters as a result of big-budget capital projects, which are traditional targets of corruption. The figure is based on 10% increase in procurement contract costs due to corruption and fraud.

In the latest edition of the Kroll Global Fraud Report, experts argue the need for greater transparency and strong compliance is more important than ever to governments combating this growing risk.

Government spending is often at risk from fraudsters. The nature of the projects - large sums of investment coupled with complex procurement processes - provide both the motive and the means for opportunists to take advantage of.

Tadashi Kageyama, senior managing director and head of investigations for Kroll Asia said: “The unprecedented amount of financial support that governments have pledged to help stabilize their economies creates a tempting opportunity for fraudsters to take a cut. Governments and businesses need to be aware of the heightened risk of corruption that goes along with stimulus funding, and be prepared to counteract them."

The Department of Justice in Hong Kong recently announced its plans to hire 19 more prosecutors to prepare for a feared rise in corruption driven by the financial crisis, and the PRC authorities have also demonstrated their resolve to clamp down on corruption through their actions.

China's National Audit Office has already uncovered some "minor but significant irregularities" of its RMB4 trillion stimulus package, and there continues to be concerns that the funds will be directed to inappropriate projects or stolen through corruption.

Kageyama continues: “Companies keen to identify whether they are entangled in corrupt schemes with intermediaries should look out for red flags such as, payments to offshore jurisdictions, excessive commission structures, services rendered having an intangible nature, a lack of any audit trail, a history of corruption in the country, and inflated prices."

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