The Business Times

Sherlock Holmes of Shenton Way

Shenanigans and non-standard deviations that Singapore forensic investigators uncover

Annabeth Leow
Published Fri, Jun 29, 2018 · 09:50 PM
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CALL them Nancy Drew or Sherlock Holmes. When companies smell a financial rat, forensic professionals are first picks for the A-team, and the need for their skills is on the rise. Institute of Singapore Chartered Accountants (Isca) chief executive Lee Fook Chiew tells The Business Times: "There is growing demand for forensic accountants and financial forensic professionals, in the wake of burgeoning and complex white-collar crimes involving money laundering, terrorism financing, financial statement fraud and corruption in recent years."

Lem Chin Kok, KPMG Singapore's forensic head, notes that one driver here has been an increase in compliance demands, which he attributes to higher regulatory expectations.

"Also, as companies enter new markets, particularly in more opaque jurisdictions, there is greater need to know more about the background of their business partners and their target companies to avoid investing in companies engaging in improper activities or anti-money laundering shells."

White-collar wrongdoing is indeed up worldwide, according to PwC's 2018 survey of global economic crime and fraud. It found that 35 per cent of Singapore firms were victims of such crimes in the past two years - up sharply from 22 per cent in 2016. Meanwhile, EY's Asia-Pacific fraud survey last year found 63 per cent of respondents agreeing that bribery or corrupt practices happened widely in their countries - about double the proportion who said so in 2013.

Christopher Leahy, founding partner of business investigative firm Blackpeak Group, says: "Singapore is a nice place in a bad neighbourhood ... Because of its banking system, the infrastructure here, the efficiency of the system and so on, the liquidity in it for exchange markets means that it's a good place to put money, legitimate or otherwise."

Shady businesses can even take advantage of Singapore's good name, says Morrison & Foerster corporate finance partner Jake Robson.

He warns: "Often, a target company will incorporate a company in Singapore to act solely as a holding company for operations carried out in other jurisdictions where there is a significantly higher risk of bribery or corruption, and a seller will sometimes use a Singapore holding company as a means of giving the target business a veneer of respectability and a perception of good governance and compliance."

Rajah & Tann partner Danny Ong, who tackles fraud and asset recovery, points out that banking hubs are routing posts that inevitably risk dirty money washing through. "Because it's usually US dollar-denominated, even if the money did not go through the US, the key financial centres are the routes by which money is passed through. There are instances where the money ends up in Hong Kong, Singapore or Switzerland, for example - towards purchase of properties and what-not. But that is more the exception than the norm."

Detective work

The private investigative landscape features accountants, lawyers and other consultants, who often work in tandem. They may be called in to do due diligence research, ahead of initial public offerings or mergers and acquisitions. In other cases, they help clients or regulators to unravel dirty business that has come to light.

"An investigation will involve the use of a multi-disciplinary team, including forensic accountants, computer forensic specialists, data analysts and business intelligence professionals to put all the pieces of the puzzle together in an independent and objective manner," says Jarrod Baker, senior managing director of forensic and litigation consulting at FTI Consulting.

Investigators can tap public and private records and may ask for information from banks and financial institutions like the Society for Worldwide Interbank Financial Telecommunication (Swift) network. Still, on-the-ground work is not unusual either.

Belinda Tan, a fraud investigation and dispute services partner at EY, once spent six months undercover in a Bengaluru office, over a suspected case of employee expense fraud. "I infiltrated as the client," she recalls. "I was issued a client's computer, I was issued a client's e-mail account, I was carrying a client's pass and I had to introduce myself as part of the internal audit team."

But not all clients are hospitable. Industry veteran Chee Yoh Chuang, a partner at RSM Chio Lim, notes: "Ideally, when a party engages our services to investigate or perform a review on certain irregular transactions, full co-operation will be provided to us in carrying out our work ... However, this was often not the case. We have encountered situations where we were placed in a warm and stuffy warehouse to carry out work for weeks."

He adds that "investigations into existing senior management who are still in control are the trickiest" when some do not take a leave of absence as they rightfully should.

"We have also seen cases where the senior personnel involved continued to hold office, call the shots, give instructions and manage the affairs of the company."

Situations can get even hairier, with Mr Leahy citing a client who was worried about a potential business partner's rumoured terrorist ties in the southern Philippines - an area known to harbour militant groups. "I can't go there myself - you can't have a white man show up," Mr Leahy, a former banker, says bluntly. "In fact, you probably couldn't even have a Tagalog speaker. You'd need to recruit a kind of asset to put there.

"But, operationally, that was quite difficult. That inquiry involved people connected to terrorists and all sorts of other strange things."

Sleuths take this in their stride. Mr Ong, who once had a bullet sent to his hotel room in South-east Asia, says: "That taught me that obviously, you have to be very culturally aware and sensitive to the environment."

Mr Leahy also notes that his firm has an internal risk committee that assesses possible minefields, such as office raids: "That's a stressful environment, and so we have a sort of protocol in place where we manage resources and plan it out very carefully. But it is very much the exception. We're not some sort of Swat team."

Serving up justice

"We also work very closely with the authorities," says EY's Ms Tan. For example, "special appointments" crop up if regulators need an external review of listed company accounts: "Usually, there will be open communication among the three parties to make sure that the client and the regulators are kept in the loop."

PwC forensics leader Chan Kheng Tek adds that private players may be asked to step in when the authorities already have a probe under way, since "the company can't sit around and do nothing, so the company will commission its own independent investigation". His team then also shares findings with the authorities.

One case was in the early 2000s, when Asia-Pacific Breweries executive Chia Teck Leng cheated lenders of more than S$117 million. He had set up fake accounts in his employer's name, using forged signatures. "He had been arrested, and so the company called us in because they didn't know how much was stolen and how it happened," Mr Chan recalls. "The banks subsequently sued the company to recover money. We helped the company defend the suits based on findings in our investigation."

What does it feel like being on the side of the angels? Mr Leahy says: "Economies are growing very fast and complexity is growing. Transparency is not necessarily improving.

"Why shouldn't a foreign investor, a Singaporean fund, be able to invest safely in Thailand without being ripped off? Or, likewise, a Thai investor invest in Malaysia without being taken to the cleaners by some unscrupulous person?

"That's not the way it should be. It's the way it can be, and often is - not always - and therefore you do feel like there's a slightly altruistic element to what we do, perhaps."

Warning signs: the non-standard deviations

ACCORDING to Chan Kheng Tek, forensic leader at PwC Singapore, businesses must regularly review their procedures: "What we find that companies may do are one-off assessments, and then they will put in place controls. But they stop there."

KMPG Singapore forensic head Lem Chin Kok also warns: "The inherent problem is that businesses do not even have a detection mechanism for red flags. This is particularly an issue for their overseas operations. With the enhancement of technology, businesses can actually put in place red flag detection mechanisms in an effective and cost-efficient manner."

"Very high entertainment expenses that are incurred by a particular salesman" could point to bribery, says Mr Chan, and competition in sectors like building and construction or oil and gas make business "high-risk" for bribes too.

Morrison & Foerster partner Daniel Levison adds that, in regional deals, firms "often face challenges in adequately screening and monitoring business intermediaries and other third parties".

Lawyers "look for anything that looks like a conflict of interest", says TSMP Law Corp managing partner Stefanie Yuen-Thio, "because you have to wonder whether somebody is making a cut from the transaction that is illegitimate". This includes sniffing at middlemen, since "if it's just a pass-through company, then you would ask yourself what value is this company giving".

Jarrod Baker, a senior managing director at FTI Consulting, says: "For red flags from the accounting perspective, it's about looking for unusual deviations from standard accounting practices, resulting in irregularities in the accounting system, and checking for anomalies in documents, reconciliations, journal entries and financial statements."

Staff in the same accounts post for a long time, or who never take leave, may also fall under suspicion, say observers. These workers could fear that a replacement will uncover funny business. They may also be spending beyond their means, or have known financial or addiction problems.

Stefanie Yuen-Thio Managing partner, TSMP Law Corp

"ONE of the senior management team in a high-profile listed firm called one day and asked for a fee quote for what he said would be a simple review into an interested person transaction. It would be more a hygiene check than a full-blown investigation, he said, and the independent directors just wanted to be thorough.

We started to suspect that the case was going to be more complicated when, shortly after our appointment, the Commercial Affairs Department seized the company's documents because the group was being investigated. The company was initially very forthcoming with their data, but they must have realised along the way that there might be disadvantageous information in their files, because they immediately sent a couple of grim-faced men to our office to ask for their files back, claiming they had been passed to us in error, were incomplete or had not been properly verified.

Lawyers are trained to be suspicious and our antenna starts twitching wildly when we are given more than one reason for anything, so my partner kicked into high gear.

She commandeered every photocopier in the office, formed a human chain of trainees and associates and told everyone they were not allowed toilet breaks until the documents had been photocopied in full.

Sometimes companies may think that, as a corporate lawyer with no litigation background, I will be a pushover. But, being the mother of a 19-year-old boy, I've had every excuse and deflection in the book thrown at me, and have developed a healthy store of scepticism.

We were not asked to handle the second stage of the review, in part, I believe, because we refused to back down from the uncomfortable questions we kept putting to management. I'm very happy to be vindicated because when the actual report was issued by the forensic accountants, many of the questionable items they flagged were transactions that we had pointed out.

Darren Cerasi Partner, Deloitte Forensic, South-east Asia

"OUR client was a contact lens manufacturer based in Singapore. They had been approached by a company that wanted to distribute their products across Asean.

During contract negotiations, the company requested information such as lens formulas. Naturally, our client refused and the negotiations ended.

A number of months later, three employees in the re+search and development department left. A few weeks after that, they were sighted at an industry event with business cards for the company that had wished to distribute their former employer's products.

Needless to say, alarm bells rang and the client called its lawyers, who in turn appointed us as forensic investigators.

We performed computer forensic analysis on the laptops of the three former employees and found evidence that they had sent secret and confidential information to their personal e-mail addresses. The communications clearly showed that they intended to use this information to the detriment of their former employer.

The matter was litigated in the High Court of Singapore over 35 days. I had to appear twice as an expert witness. The result was an injunction which prevented the defendant from using the same technology as our client for five years.

Companies should invest in measures to prevent data leakage, which can happen inadvertently - and, as can be seen from this story, also quite maliciously.

Christopher Leahy Co-founder, Blackpeak Group

"WE did an investigation into a whistleblower inquiry at a Singapore company where the allegation was that someone within the purchasing department was self-dealing - meaning that certain vendors had been set up to effectively benefit the employee.

We met with the company on a couple of occasions, discreetly. We came in after hours, under their supervision, to forensically image certain computer material. And then we went away and we looked around with access to relevant human resources files and so on, to understand this person's background and lifestyle. We did lifestyle checks, and pretty quickly you could see that there was a disconnect between the way he was living (the car he was driving, for example, particularly in a place like Singapore - that can be a fairly clear indicator) and what we knew his salary and terms were in his job.

Eventually, the more we pulled on the string, the more we found. What we discovered was a fairly systematic attempt to set up a number of different kinds of vendors to ensure that money leaked from the company. There were ghost employees in the warehousing department - people who were just on the payroll, who didn't exist. We found information technology suppliers where the contract was completely overspent - in other words, it was far more than was required. We found that this person had entered into a warehousing contract for space that wasn't required or for space far more than was required. That money was paid to companies that ultimately came back to this person. So, with family members or friends, close associates, it became clear that this person had created a sort of ecosystem around himself and around the company, which was leaking money. It was referred to the authorities for criminal investigation.

This wasn't as complicated as other cases, actually, because the person hadn't been all as clever as he might have been, but it took about 12 to 14 weeks, all told.

Jarrod Baker Senior managing director, FTI Consulting

"EACH investigation I have worked on is different and will generally have its own reasons for being memorable.

One investigation - which wasn't the most complex or high-profile that I have conducted - comes to mind, given that the victims were innocent investors.

An investment adviser set up a Ponzi scheme by way of promising large returns to investors and having them sign up as legitimate clients of the reputable financial services firm he was employed by.

He provided a variety of falsified paperwork so investors would deposit funds in his own personal accounts. In turn, he would provide interest payments which were funded through money provided by other investors whom he duped.

Most of the money he received was spent on personal high-risk investments, gambling and funding a mistress.

The Ponzi scheme came to light when an investor contacted the financial services firm and started asking questions, which alerted them to a problem. In turn, the financial services firm notified the financial regulator.

I was able to help the financial services firm with its internal investigation, as it assisted the regulator, by determining how the Ponzi scheme operated and the number of investors duped, and building a profile of each of them around the funds they had deposited and returns they had received. My team and I did this by reviewing the investment adviser's emails, analysing data contained on his laptop and reviewing bank statements to piece everything together.

Building upon the work of the investigation, I also assisted in calculating compensation for those who had been defrauded.

Ultimately, the investment adviser was sent to prison and his investors were appropriately compensated by the financial services firm.

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