Bribery and corruption red flags. Organizations must establish processes to identify the transaction and activities which may raise the risk of bribery and corruption. The mechanism should be triggered based, where any suspicious or unusual transaction of activity, whether performed by the employee or the customer, must be highlighted for review and scrutiny by the appropriate person, as per applicable laws and regulations.
Bribery And Corruption Red Flags
All the activities and transactions that fall outside the expected employee and customer activity should be generated as a “red flag” or “alert” for review and investigation by the ABC officer, in coordination with other relevant staff of the organization.
Red flags serve as a tool for monitoring the employees’ and customers’ suspicious and abnormal transactions and activities. Red flags are trigger points, which highlight the number of instances and events triggered in a particular period regarding the potential bribery and corruption incidents.
The total of the red flags in a particular period highlight the effectiveness of the implemented anti-bribery and corruption controls. The larger the number of red flags, the weaker the internal controls are supposed to manage the bribery and corruption risks.
ABC officers must ensure that the red flag mechanism incorporates the possible bribery and corruption risk factors considering the risk profiles of the different customers. Red alert thresholds are set for transaction monitoring purposes, and the thresholds are marked in the automated transaction monitoring system. Alerts are generated on the breach of the thresholds or occurrence of unusual transaction/ activity, and the ABC officer investigates such transaction and activity, in which an alert is generated.
Appropriate responses are sought from the employees and customers on the generation of alerts and the satisfactory provision of information from the respective employee and customer, and the alert is marked as closed by the ABC officer. Transaction monitoring is an ongoing process performed by the ABC officer through the defined monitoring processes and review mechanisms. Transactions or activities of the customers are also monitored through the trigger of the red flag or red alert.
Monitoring of a transaction or an activity due to the generation of a red flag is an event-based monitoring process. Such event-based monitoring is needed because of a breach of transaction threshold or irregular patterns of inflows or outflows, which may indicate the occurrence of money laundering, corruption, bribery, tax evasion, or terrorist financing risk incidents.
Trigger Event Monitoring
Trigger event monitoring of the customer relationship is likely to be based on a considered identification of transaction characteristics, such as:
- the unusual nature of a transaction, such as abnormal size or frequency of the customer transaction or peer group;
- the nature of a series of transactions;
- the geographical destination or origin of payment, such as origination of payment or transaction from or to the high-risk country.
Certain high-risk indicators must be highlighted, reviewed, and investigated when the related activities and transactions fall outside the expected customer activity or on the breach of predefined transactions threshold.
Many red flags may warrant enhanced due diligence or review. These red flags may be identified during various business activities discussed in this Guidance, including Intermediary engagement, acquisition or investment in a Target company, general business activity, gifts and entertainment, charitable contributions, among others. Red flags should be generated irrespective of the amount, customer type, and nature of the transaction.
Trigger Points For Red Flags
Below are some examples of trigger points for the red flags about corruption and bribery activities, which must be identified and investigated appropriately by the ABC officer:
- unnecessary payment of money by the employee, to any third-party in his or her account;
- payment received by the customer in the bank account, which is not matched with the risk profile of the customer or the details of the goods shipped by the customer are not matched with the details provided to the bank for trade purposes;
- unexpected repayment, of long-overdue financing or loan, by the customer to the bank;
- transaction and activities of the bank’s customer, are found inconsistent by the ABC officer with the customer’s risk and business profile;
- overinflated and unauthorized invoices processed by the employee, to make payments to someone outside the organization;
- transaction or payment made to any person residing in the country known for widespread corruption activities;
- payment made to unqualified third party or vendor, without supporting evidence and documentation;
- the invoice received by the organization from the vendor, for work that is not performed by the vendor;
- frequent cross border flow of funds and transactions by the employee of the organization, especially with high-risk countries operating in high-risk jurisdictions;
- payment made to a foreign public official;
- inappropriate invoices or purchases made by the employees from a supplier, with no obvious business reason or justification;
- a large amount of money deposited in different smaller portions or deposited at once, by the employee;
A red flag is a fact, event, or set of circumstances, or other information that may indicate a potential legal compliance concern for illegal or unethical business conduct, particularly corruption and noncompliance with anti-corruption laws.
When performing due diligence on a third party (or any intermediary), these red flag examples should always cause concern and prompt Legal review. While these examples are not exhaustive and may not constitute or indicate a violation of the FCPA or other applicable anti-corruption laws in and of themselves, they may be indicators of potential current or future anti-corruption noncompliance.