Investigating Common Fraud Schemes in the Middle East

In 2016, The Huffington Post and its Australian partner, Fairfax Media — led by reporters Richard Baker and Nick McKenzie — published the results of a months-long investigation of Unaoil, a firm that helped big multinational corporations win government contracts in areas of the world where corruption is common. The investigation spanned two continents and revealed that billions of dollars of government contracts were awarded as the direct result of bribes paid on behalf of firms including Rolls-Royce, Halliburton, Samsung and more.

"They used to be one of the biggest agents and intermediaries in the region," said Amine Antari, CFE, CISA, at the 2018 ACFE Fraud Conference Middle East in Abu Dhabi. "They were not only connecting international companies with local markets and local government officials, they were also an intermediarial funnel to make inappropriate payments to government officials.”

Antari, a managing director at Kroll, explained that the globalization of business has pushed for strategic expansion of international companies into various markets because there might be less demand in their local markets or they want less competition. This creates risks they aren’t used to.

Take the Unaoil case, for example. Agents or intermediaries can be used to facilitate business expansion, but corruption can run rampant in this field. 

“I’ve seen two types of agents," said Antari. "One agent that comes in, sees the contract, they get paid a percentage of the contract value — $5 million, $10 million — but there is no deliverable and he hasn’t issued any reports. He’s maybe attended one meeting. That’s quite questionable. I’ve seen another type of agent that is paid less or on a retainer basis, but they produce. They produce quality reports. They do market intelligence. They introduce you to multiple companies.” 

How does a fraud examiner tell the difference between agents with honest intentions and those with nefarious goals? According to Antari, fraudulent agents/intermediaries are used in high-risk countries. They might act as legal advisors, making it difficult to identify the ultimate beneficiary. Questionable agents will list their costs under a vague or questionable cost line item and they're paid significant commissions without having clear deliverables. They'll also take payments of fees in one lump sum. He explained that payments should be made throughout the life of a contract.

Antari suggested conducting detailed background checks on agents/intermediaries, reviewing agent agreements and contracts, visiting the agent's office, continuously monitoring and periodically auditing high-risk agents, and regularly training agents' representatives and employees.

According to Antari, regulatory compliance breaches are also a common occurrence in the region. These include:

• Financial institutions or banks that don't report suspicious transactions
• Non-compliance with visa regulations
• Non-compliance with tax VAT

Antari also often sees management conflict of interest and theft of physical assets. He explained that conflicts of interest are more common in the Middle East because culturally, the definition of a "relative" differs compared to other regions. But there's been a great push to get those conflicts of interest reported or disclosed to audit teams.

While no region is immune to fraud or corruption, Antari told attendees that there is an increased awareness in the Middle East region to put anti-fraud measures or compliance programs in place. He said that international companies now expect to see certain controls.