How should organisations respond to red flags?
By Majella Gomes
Lee Shih, Dispute Resolution Partner, Skrine offered some key steps that organisations should take during his talk “To Catch a Thief – The Legal Strategies” at the recent MIA Forensic & Fraud Investigation Conference 2018
The first sign of wrongdoing is usually identified as irregularities which are picked up during the internal audit process, Lee said, adding that breaches in standard operating procedures (SOPs) may indicate the involvement of middle- or senior-level management. Lee advised organisations to focus on three main areas in combating corporate fraud: strengthening processes, managing situations and the civil/criminal remedies available.
Lee set out the following strategies for companies:
Strengthen Your Processes
“Protection processes should start right from the outset, from the point of hiring, even.”
Importantly, employees should be briefed on the company’s policies concerning the use of their own devices to do official work, as opposed to using company equipment like laptops and mobile phones.
All employment contracts and employee handbooks should be clear and unambiguous. They should be clear about the difference between protected and unprotected data, how to manage it and access it legally. Companies should also pay attention to data security. Just as obtaining data should be carefully monitored, so too should archiving and document destruction processes.
In the future, there may be a need to conduct credit and litigation checks on employees or suppliers. There should be a clear process on whether you need consent from your existing employees or suppliers to do this.
First Sign of Suspected Wrongdoing: Managing the Situation
Regardless of the level of the perpetrator, he emphasised the need to preserve evidence if organisations suspect wrongdoing.
“Digital preservation is always necessary. Use forensic accountants to produce a digital trail of the chain of custody of the data – (through) forensic imaging. Most times, the information or evidence cannot be found in hard copy,” said Lee.
From his experience, evidence can also be obtained through e-mails and postings on social media.
Lee also advised employees who were being investigated to protect themselves. While it was unlikely that they would have access to legal advice, they should sign off or authenticate their initial responses.
Where there is more serious wrongdoing suspected, private investigators can be used to conduct discreet asset checks. They may be able to build a full profile of the suspect to establish a case, with information on whether the suspect is living beyond his/her means or has many cars, for example, which are red flags for fraud.
Know Your Legal Remedies
What are some civil and criminal remedies available in the event of fraud? Lee suggested the Mareva freezing order, the Anton Piller search order and Bankers Trust discovery order as three methods which could be applied.
Used for asset preservation, the Mareva order “freezes” assets like houses, cars, insurance policies and money, to prevent them from being dissipated while the suspect is being sued in legal proceedings.
The Anton Piller search order is applied where there is a need to search premises to prevent the destruction of evidence.
In cases where a bank has become an unwitting conduit of funds dissipated in a fraud, a Bankers Trust discovery order can be applied to obtain crucial bank information on where the funds flowed to.
Additionally, such monies often may not stay in the country of origin for long; these are likely to be diverted to other countries, which raises cross-border issues. Lee said it may be difficult to obtain standalone freezing orders in countries outside Malaysia. However, reports can be lodged with the police or the Malaysian Anti-Corruption Commission (MACC). These agencies may be able to coordinate with other foreign agencies to order the freezing of assets overseas, or to compel their disclosure.