NEW DELHI: The fraud allegedly perpetrated by jeweller Nirav Modi against Punjab National Bank reflects a common pattern of swindling at banks and financial institutions in developed markets such as the US and the UK, according to KPMG’s global head of forensics, David Hicks.
Government-owned banks are not necessarily more susceptible to fraud, Hicks said. “Frauds take place when institutions fail to test their systems for circumvention of controls,” Hicks told ET.
KPMG’s analysis reveals that the modus operandi of stealing assets and manipulating accounts remains common to financial criminals across geographies.
“There is a misconception that it is a wild west outside of mature markets and financial crime is more rampant in emerging markets. The size of frauds taking place in developed markets is huge,” Hicks said.
The quantum of fines imposed by regulators in settlements has increased awareness about the repercussions of ignoring financial crime as a big business risk, according to Hicks, adding that an almost $2 billion fine imposed on HSBC in 2012 by the US Department of Justice for potentially facilitating money-laundering activities was a ‘wake-up call’ for institutions.
“Money-laundering poses the biggest risk to the global financial system. Regulators need to begin deeper scrutiny of sources of funds used to purchase properties in upmarket suburbs of London or even New Delhi. This is where most of the unaccounted money is flowing into,” said Hicks, who oversees a team of 4,000 fraud investigators across more than two dozen countries for KPMG.
India’s non-performing loans are due to common underlying factors such as misstatement of financials by borrowers and diversion of funds to uses that were not authorised by lenders – trends that cut across global lines, he said.
There is an increasing need for Indian companies to address financial crime risks in their global operations as regulators such as the UK’s Financial Conduct Authority and the US Department of Justice increase scrutiny of businesses operating in multiple jurisdictions where their regulations apply, he stated.
“We are not seeing Indian companies being cautious enough about these risks in their overseas operations. Typically, when there is a large case which involves heavy penalties, it usually acts as a trigger for greater compliance,” Hicks told ET.
Hicks highlighted the importance of having heads of financial crime risk on the boards of companies, citing this as a trend that had caught up globally.
KPMG has investigated financial crimes such as the probe into the Satyam Computer Services fraud and alleged misuse of funds during the 2010 commonwealth games in New Delhi.
More recently, it looked into fraud prevention systems at Axis Bank.economictimes