Fraud, money laundering, and financial irregularities

Why is this a risk? 

After the Enron scandal in 2001 and 2002 the United States Congress introduced the Sarbanes-Oxley Act to help combat fraudulent financial statements of United States corporations. Similarly, the False Claims and Dodd-Frank Acts can enforce action against companies for fraud and financial reporting irregularities.

Anti-money laundering laws reflect an effort made governments to stop money laundering methods involving financial institutions. Under the guidelines set forth by anti-money laundering (or AML), financial institutions are required to verify all large sums of money they process, and must report suspicious transactions.

 

Examples of where this risk could affect you

  • The practices by which resellers obtain money or introduce it into the financial system

  • A supplier falsifies their financial statements to improve their position and give a false sense of stability

  • Your suppliers transferring or concealing the source of the money through complex or multiple transactions

  • Your third parties returning money back into the financial world so that it appears legitimate

 

What sort of suppliers could be engaged in this risk area?

Almost any supplier could be engaged in fraud, money laundering or financial irregularities. Areas where this is often seen are suppliers:

  • Falsifying financial statements by overstating sales

  • Filing falsified tax statements

  • Transferring money from bank to bank or from account to account

  • Breaking up large amounts of money into small bank deposits

  • Reopening operations under a new name to hide a previous bankruptcy

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