Companies lack resources for cross-border investigations: KPMG survey

Jan 10, 2014
<p>Language and cultural differences in the many markets companies now operate in have increased the complexity of cross-border probes</p>

With regulators stepping up efforts to combat bribery, money laundering and other forms of corruption, companies should be going all out to fortify their ability to investigate possible breaches across business units worldwide. But that isn’t happening, according to a new report from KPMG.

The findings in Cross-border investigations: Are you prepared for the challenge? answer the question in the title with a resounding ‘No.’ More than half of the 60 executives from around the world surveyed said their companies have limited or no protocols for cross-border investigations. KPMG requested responses from companies’ most senior executives responsible for cross-border investigations, so the participants were a select group.

By not establishing investigative practices or letting those they have atrophy, companies expose themselves to elevated risk, particularly when regulators are keen to uncover illegal cross-border activity.

‘Every company should have protocols. A few missteps in a cross-border investigation can put a company in the headlines, causing damage to its reputation, and huge financial losses,’ says Phil Ostwalt, US. forensic network leader for investigations at KPMG.

More than two of five respondents said they lack the internal resources needed to fulfill their responsibility to oversee cross-border probes. That’s a big increase since KPMG's last survey on cross-borders investigation in 2007 when 75 percent of respondents said their investigations were effective, compared to 54 percent in the latest survey. Meanwhile, 95 percent said they expect their needs for cross-border investigations to either increase or stay the same over the next year.

Cross-border investigations are not only growing in volume, but in complexity, posing myriad challenges. Five years ago, the barriers to enter many markets in parts of Latin America and Southeast Asia were much higher than now, partly due to resistance to US-based competitors and complex regulatory structures, says Scott Hilsen, director, KPMG's investigations practice. But with companies now operating in many more countries, they require ‘the resources to do investigations in places where English is not even the second or third language,’ he says. ‘There are cultural differences in how you conduct an investigation and how you interview people.’

Demands for investigations have increased with the advent of new country-specific laws such as the UK Bribery Act and emerging standards in other countries that now prevent US companies from conducting cross-border investigations as they do at home, says Ostwalt. According to the report, foreign data privacy laws and regulations are perhaps the toughest nut to crack because of restrictions on the kinds of data that can be collected and transferred out of the jurisdiction. The top challenge for 46 percent of respondents was data privacy and other information issues, followed by lack of internal resources (42 percent) and cultural obstacles (37 percent).

’Companies have to be prepared for a set of circumstances they can't imagine,’ says Ostwalt. ‘They have to be able to rally resources and the right team across the world at a moment's notice.’

In building teams internally, companies are often limited by linguistic and cultural differences. In those cases, they need to use external resources like local accounting and law firms, or firms with cultural experience in a particular region to bridge the gap.

Companies can’t afford to let budget constraints compromise their commitment to establish protocols for cross-border investigations, says Ostwalt. Although providing continuing training to compliance staff is one criterion of an effective program, only 35 percent of respondents said their internal investigations team receives some form of training annually.

Among the tips the report offers to corporations is the need to develop a plan and determine which managers should be notified of a potentially significant compliance allegation and that an investigation is coming.

Boards also play a key role in improving investigation protocols. ‘The board needs to understand the complexities involved. They also need to listen to management,’ says Ostwalt. ‘If management is growing less and less confident in the resources they have for cross-border investigations, that has to be addressed, to be high on the agenda.’

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