Private Gain of both Parties Finance Essay

After having identified the above major issues, we should now consider the ways the transaction was carried and presumably how the money has generated and made disappeared. This scandal here illustrates that corporate vehicles played the principal role in hiding the abuse of public trust for private financial gain. Corporate vehicles are often considered to be “companies, trusts, foundations, and others”. We also find that despite the millions of euros involved in the illegal transaction, there has been no conviction made nor the investigations have managed to trace the actual owners of Anglo- Leasing. Reviews and researches suggest that these kind of ‘grand’ cases exist worldwide. Furthermore, in most of these cases, there are common characteristics. Similarly like these other cases, it was found that; “a corporate vehicle was misused to hide the money trail; the corporate vehicle in question was a company or corporation; the proceeds and instruments of corruption consisted of funds in a bank account and in cases where the ownership information was available, the corporate vehicle in question was established or managed by a professional intermediary” [2] . It is extremely difficult to measure with any precision the extent of misuse of corporate vehicles for wrongful purposes. Nevertheless, a number of reports and surveys have concluded that corporate vehicles are used largely in those criminal activities. For example, a recent survey conducted of EU member States “indicated that almost every criminal act, including economic crimes, involves the use of legal persons, and the Euroshore Report asserted that corporations throughout the world are used to launder money” [3] . According to the FATF, shell companies are frequently used to facilitate bribery [4] . In this extract we find that Anglo Leasing was an unknown UK shell company. Out of a large number of cases analysed that involved any sort of company, that company was a “shell company.” It can be defined as a non-operational company-‘that is, a legal entity that has no independent operations, significant assets, on-going business activities, or employees’.In a case study on “money laundering involving Riggs Bank, a U.S. Senate report declared that, “In many instances, a private banker will set up [a] shell corporation for a client and open accounts in the name of that shell corporation, in order to disguise the client’s ownership of the account or certain assets.” [5] It is found that unlike normal companies, shell companies have no economic activity, which makes it very difficult to find out much information about them. A normal company that is engaged in business will usually market itself, create a website, buy space in the phonebook, sponsor youth sporting events, and purchase supplies and equipment. It will have employees who can be interacted,A keep meeting minutes that may be consulted, and produce financial data. A non-operational company like a shell company may do some of these but are not obliged to do so. Now let us have a quick look at how shell companies help to corrupt funds. In its most usual form, a professional intermediary provides a company to a corrupt party who then uses it to conceal the money trail as the illicit funds in question are transferred into and through bank accounts. Key challenges and points of current weaknesses relate to the gaps in the information kept by company registries, the role of professional intermediaries, especially lawyers, and the difficulties faced by investigators in working across borders. It is suggested thatA “company registries are the first port of call for investigators, though too often the information held on file there is incomplete, out of date, or, in the case of trusts, which are not registered, entirely absent” [6] .These corporate service providers are too often negligent, willfully blind, or even actively complicit in laundering the proceeds of corruption. This shows us that due to a lack of compliance, a lot of non-operational (shell) companies get away easily. In this extract as well we find that a similar non-operational (shell) company was used in the proceeds of corruption. This was clear as the Anglo Leasing had only a post office box in Liverpool as its registered address. It was also impossible to find who controlled the Anglo Leasing. Finally, the fact that attempts to investigate those allegations were frustrated shows that the Kenyan government and these government leaders have misused their power to influence the investigations. It made it impossible to trace the one who controls the Anglo Leasing in order to hide the corrupted money. While corrupt PEPs may be a small portion of the entire number of PEPs, a single corrupt PEP’s behaviour can have a disproportionate impact on a country and sometimes an entire region. We have seen that corruption is a global problem and it carries a lot of risks. It is most severely felt amongst the poorest of the developing world. Unfortunately Kenya is found on the list of these developing countries where corruption is a key concern. It is reported that, opinion polls also constantly show corruption as a key issue for Kenyans, demolishing their faith in government, judicial and security structures. “In 2009, Kenya was once again classified amongst the most corrupt countries in the world, coming 146th out of 180 countries polled in the Transparency International Corruption Perceptions Index”. [7] Moreover, corruption and bribery affects Kenya and its international partners in a variety of ways. In most cases, these issues undermine governance, democracy and the rule of law, aggraviate injustice and conflicts. Corruption hurts the poorest most and deteriorates development, adding to basic daily costs and taking money away from fighting poverty and delivering services. It destroys investor confidence, raising the costs of doing business, driving investors and employers away and reducing economic growth. In addition, it is seen that corruption increases crime and seriously threatens security in Kenya and abroad, providing an attractive environment for terrorists, drug traffickers, money launderers and other criminals. “The World Bank Assessment of the investment Climate in Kenya 2009 notes that corruption cost Kenya up to 4% of annual sales value, and up to 12% where it involved public procurement. This a high amount by international standards and added to other indirect costs, like those associated with insecurity, negatively affects investor confidence and economic growth” [8] . Additionally there are also several risks associated with bribery. It affects the principle of fair competition and establishes bad governance in such countries, slowing down their efforts to mitigate poverty and often contributing to instability and human rights abuses.Bribery can lead directly to human suffering and death, for instance where it results in government contracts being awarded to companies that perform substandard construction work or provide substandard goods and services in the health sector. Bribery of foreign officials can help to establish corrupt elites by providing the incentive and the means to maintain a rigid grip on power. Last but no the least, based on the very first extract, the large amounts of money which are supposed to be invested on public services for the citizens are seen to be misused and to be pocketed by these government leaders. Due to this the lay people are deprived of the basic and most important needs and services making a whole population more vulnerable. After having analyse these above facts, let us now consider the last part of question (a), which requires us to examine how these above concerns stated can impact the global economy. As described above, we have seen the risks that are associated with corruption and bribery. However now we should demonstrate how these concerns could affect the economy worldwide. Corruption has several unfavourable consequences on the global economy. This may lead to a decline and disbelief of public institutions, lack of government revenues, weakening of the private investment climate, and collapse of social service delivery mechanisms. The A¬”šows of corrupt money damage the reputations of A¬Anancial institutions and undermine public conA¬Adence in the integrity of the A¬Anancial system [9] .The World Bank has estimated “that 0.5% of GDP is lost through corruption each year” [10] .A Indulging in corrupt practices may also create a very adverse business environment by encouraging unfair advantage and anti-competitive practices.A  Additionally, it allows organised crime to flourish; corruption is one of the chief obstacles to the economic growth of a country. Where corruptions exist, entrepreneurs are aware that some of the proceeds from their future investments may be claimed the corrupt officials. Payment of bribes is often required before necessary permits are issued. Therefore investors may consider corruption as a tax thus reduces incentives to invest. Mauro (1995) provides evidence that “corruption lowers investment and economic growth”. [11] More likely, it is observed that corruption can bring loss on tax revenue. This may cause adverse budgetary consequences. Finally, we find that corruption and bribery may affect the composition of government expenditure. Corrupt governments may prefer those types of expenditure that allow them to collect bribes and keep them secret. Corruption equally affects the fairness, efficiency and legitimacy of state activities.

(b) Executive summary


This report describes the systems and controls, which financial services firms, should adopt in order to manage bribery and corruption risks. We expect regulated financial services firms to consider our findings and examples of good practices. We require regulated firms to lay down and maintain effective systems and controls to mitigate these financial crimes risks. Financial crime risk here includes the risk of bribery and corruption. In addition to these regulatory requirements, a section within this report will also focus on the risks associated with the management of foreign PEPS.


Over the past twenty-A¬Ave years, the whole world has learned about the gross abuses of corrupt “politically exposed persons” (PEPs), and through outrageous examples, the way in which they plunder state assets, extort and accept bribes, and use domestic and international A¬Anancial systems to launder their stolen assets. Grand corruption, asset theft, and international A¬”šows of stolen and laundered money have an insidious and devastating impact on development. They degrade and undermine conA¬Adence in public institutions. They taint and destabilize A¬Anancial systems, affecting trust. It is high time to develop and implement such systems and controls in order to mitigate these risks, which are associated to corruption and bribery.

Systems and controls

The UK’s six anti-corruption general principles:

Risk Assessment Top-level Commitment Due Diligence Policies and Procedures Effective Implementation Monitoring and Review [12]

Risk assessment

By conducting a corruption risk assessment at an early stage of a project, companies can take steps to deal with corruption risks. Such an evaluation will determine the level of corruption risk the project is likely to face, and identify any particularly challenging areas, such as at a specific stage of the business cycle or a particular aspect of a company’s interaction with governments, bureaucracy or private-sector players. With this information, a company can develop measures to protect itself from exposure to corruption and prepare its employees to respond effectively and consistently if they come across corruption. The organisation can also use the information provided by the assessment to introduce measures such as anti-corruption policies, and training appropriate to the political and business environments in which the company will be operating.Risk-based compliance programs allow organizations to properly design mitigation strategies and strategically set out resources to combat potential cases of bribery, corruption, and fraud.Significant advantages can be gained for global organizations that recognize the importance of identifying weaknesses throughout their business in terms of bribery, corruption and fraud prevention. Senior executives that are aggressive in filling gaps in current anti-corruption policies by implementing strong solutions can minimize future costs and improve business operations [13] .

Top-level Commitment

The culture of an organisation must be driven by total commitment from the most senior officers. For this to happen it should take responsibility at the board level for bribery prevention. There should be a zero-tolerance culture toward bribery. It is very important that the management not only demonstrates its engagement concerning this principle but this should also be projected in an effective way to all the relevant personnel. These personnel should make sure that as per the management’s determination, bribery should not be undertaken and that regardless of legal requirements, any individual who are engaged in this would be subject to rigid disciplinary action. In this case, it is clear that training and good awareness are key of this process. Training should be given a great importance in order to help and educate members in any firm. Training should be provided Board Members to make sure that they understand the threat and recognise the necessity to comply with the Act’s provision (Bribery Act). While the training should be high level, they should also ensure that a high level of commitment is maintained from their behalf. Moreover, while training the Bribery officer and his deputies, a detailed knowledge of the legal provisions should be required. They also be provided with practical training on the nature and indicators of corrupt practices as well as countermeasures. As for the finance personnel, for their training, they should make sure that there is a good understanding of the sort of mechanisms used to facilitate corrupt payments. Usually, these personnel must be very alert to suspicious transactions, such as “high payments to ‘ consultants’ or suppliers”. Above all, the Finance Department must be able to show transparency in all dealings. All these trainings, should be refer to the Policy of the organisations determination not to be indulged in bribery and should make the reporting mechanism very clear. Training should also be reinforced effectively in all departments of the firm.

Due Diligence

Banks should perform reasonable judgment while designing and implementing policies, procedures, and processes in regards to PEPs. They should obtain risk-based due diligence information on PEPs and establish policies, that provide for appropriate surveillance and monitoring. Having convenient risk-based account opening procedures for large amount of sums or higher-risk products and services is very important. The opening of an account is the main opportunity for the bank to acquire information for all customers, including PEPs. Corresponding with the identified level of risk, due diligence procedures should include, the following: “Identify the accountholder and beneficial owner, including the nominal and beneficial owners of companies, trusts, partnerships, private investment companies, or other legal entities that are accountholders. Seek information directly from the account holder and beneficial owner regarding possible PEP status. Identify the accountholder’s and beneficial owner’s country of residence and the level of risk for corruption and money laundering associated with these jurisdictions. Obtain information regarding employment, including industry and sector and the level of risk for corruption associated with the industries and sectors. Check references, as appropriate, to determine whether the account holder and beneficial owner is or has been a PEP. Identify the account holder’s and beneficial owner’s source of wealth and funds. Obtain information on immediate family members or close associates either having transaction authority over the account or benefiting from transactions conducted through the account. Make reasonable efforts to review public sources of information”. [14]

Policies and procedures

While dealing with this principle, we should ensure that, any policy document should state without question that all forms of corrupt practices are prohibited. It must be stated clearly and in a way where it is easily accessible to those who are administered by it. The policy should be described in full detail the procedures which are active to enforce prohibition of bribery and corruption.

Effective Implementation

The UK’s Bribery Act was set forward in July 2011. So any firm will need to implement the measures as soon as possible. These measures are will be also subject to constant and routine review and assessment. This should be carried out in order to ensure the continuation of effective application and make such amendments, as it may be necessary. The UK Bribery Act and the FCPA is considered as the most harsh bribery laws in the world. This is why the organisations need to implement their compliance strategy cautiously and effectively.

Monitoring and Review

In regards to all the procedures, it will be very vital to ensure that these controls and systems is being enforced by the firms and if it is working. Checks should be made by the Bribery Officer in order to know whether reporting, due diligence and the monitoring processes are being constantly and properly applied. Appropriate sanctions will be required where there is a failure in this case. Reports would also be provided to the regulator or the law enforcement agency if such incidents are identified.

List of cases in regards to the above facts:

The Aon Company. It was fined by the FSA as the company failed to take reasonable care in order to implements system to fight the risk of bribery and corruption. BAE Systems. It was faced with investigation on the basis that the company paid large sums to government officials. There are however many other cases where companies have failed to implements effective controls and where bribery and corruption occurred.

Risks associated with the management of foreign PEPS.

Lastly, we should now focus on the risks, which are likely to be associated while managing the foreign PEPS. The identification of foreign PEPs is also one of the major requirements outlined in the US Patriot Act of 2001. Distinguishing between PEPs can be challenging for banks and their specific compliance departments because of limited tools and resources, such as a lack of ‘subscriber access to a global PEP database’. Furthermore, a potential foreign PEP client might provide false information or fail to disclose key data. Not all financial institutions require clients to self-identify as PEPs on account-opening forms. Banks usually depend on the information provided by clients, that is available in the media, on global PEP databases and occasionally on private databases. Many of the banks most at risk of having corrupt PEPs as clients cannot distinguish between foreign and domestic PEPs. In fact, most banks stressed that a distinction made little business sense and that it was easier to set up systems to include both domestic and foreign PEPs. Often it is easier and less resource intensive to identify domestic PEPs. In addition, they were also concerned about the reputational risk of banking a corrupt PEP more generally, a risk that exists equally among domestic and foreign PEPs. [15] Foreign PEP databases are usually not comprehensive and can differ greatly in their coverage of different geographical regions. Relying on commercial foreign PEP databases, as the only identification tool in cases of high money laundering risk is unlikely to be sufficient. [16] So these are the facts on the risks, which can be often seen in the management of foreign PEPS.


So based on these above facts on corruption and bribery among PEPS, we find this is a very serious issue worldwide and immediate action should be taken in order to mitigate all risks which are associated. If firms implement good and effective controls internally, there is not any doubt that these concerns can be tackled.

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Private Gain Of Both Parties Finance Essay. (2017, Jun 26). Retrieved July 31, 2021 , from

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