The Discreet Science
Conduits for Bribes and Guarantors of Corrupt Deals
In my last post I began analysing what it is that makes intermediaries such powerful instruments of corruption. I touched upon their ability to create opportunities for those seeking corrupt practices by transposing into the grey economy a whole host of services that are typically available in the realms of legitimate business.
The most widely acknowledged role of intermediaries is their ability to act as conduits for illicit payments. There are several reasons for this:
- Intermediaries are a vehicle for the creation of illicit funds. They provide numerous alternatives for a company to divert funds off-book, for example by invoicing for fictitious services, artificially inflating prices for real services, or fraudulently remitting discounts. Because of their versatility, intermediaries can be used to siphon off funds from virtually any department within a company; sales, marketing, and procurement to name but a few. They are also the perfect instrument for corruption schemes involving skimming. For example, when large volumes of raw materials change hands, a negligible price discrepancy can enable the generation and concealment of significant corrupt funds.
- Intermediaries are also the perfect instrument for the payment of bribes. Once intermediaries have been used to create off-book funds, they are the obvious choice for channelling such funds to the ultimate recipient of corrupt payments.
- Using intermediaries is a tested method to conceal the identity of those that are parties to a corrupt transaction. The possibility to interpose several layers of intermediaries between payers and receivers of bribes provides a level of complexity that results in the effective concealment of the nature, purpose and outcome of a corrupt transaction.
- Finally, intermediaries are often used for converting proceeds of corruption on behalf of those receiving bribes. In our work, we see countless examples of corporate vehicles, generally offshore, controlled by middlemen that hold assets such as prime real estate or luxurious yachts on behalf of those benefitting from corruption.
It is should therefore come as no surprise that the pervasive role of intermediaries has been emphatically underscored by Transparency International (TI), the leading civil society organization devoted to combating corruption. In presenting the results of its flagship Corruption Perception Index (CPI) of 2006, TI’s press release stated that:
“…facilitators of corruption continue to assist political elites to launder, store and otherwise profit from unjustly acquired wealth, which often includes looted state assets. The presence of willing intermediaries – who are often trained in or who operate from leading economies — encourages corruption; it means the corrupt know there will be a banker, accountant, lawyer or other specialist ready to help them generate, move or store their illicit income… Corrupt intermediaries link givers and takers, creating an atmosphere of mutual trust and reciprocity.”
Trust is paramount. None of these transactions could occur if the parties involved did not trust each other. Trust, however, should not in this case be mistaken for good faith. The rationale for trust is purely commercial, and consists of the repeated benefits which payers and receivers of bribes are able to obtain from a continued and trusted relationship with an intermediary. Intermediaries are able to ensure that the sought after benefits are obtained by both sides of a particular deal based on the promise of future benefits to come. This enables intermediaries to position themselves as guarantors of corrupt deals.
In my next post I will spend some time discussing how intermediaries provide an aura of legitimacy to corrupt transactions, something that enables them to operate with considerable – and unsuspected – openness and freedom.
Analyst’s View: Google vs. Bing (Private Investigators Win)
As my colleagues have discussed here at “The Discreet Science”, we investigative analysts spend much of our time finding, sorting through, and choosing the best information to focus on for our clients. In the course of any investigation — whether it deals with fraud and corruption, due diligence, political or economic risk assessment, or dispute resolution – a K2 analyst may utilize dozens of websites. We use everything from professional public records databases to user-generated content and social media sites.
With all of these tools at hand, it can be easy to forget just how important a basic search from less esoteric engines like Google, Bing and Yahoo can be. These companies spend huge amounts of time and significant resources trying to refine their interfaces and their capabilities in the hope that more internet users will think of them as the “best” way to search. They even spend a fair amount of time going after each other (for readers in the U.S., the most recent ad campaign by Microsoft’s Bing is a good example).
Luckily, there is no collateral damage in the search engine wars. When Google and Microsoft compete, the upshot for all of us (especially in the investigation community) is a better array of products.
For instance: I prefer using Google for searches. I think the results are smart, easy to digest, and I’ve been using it for long enough that I know how to tweak and refine my searches quickly. However, Bing is now a part of almost every case I work on. Why? Because it offers a few great features that Google doesn’t, especially in their mapping application.
It seems like every investigation reaches a point where you need to find out everything you can about a specific street address. I used to rely solely on Google maps. Pop in an address and almost instantly you have a satellite view, a map view, related businesses at that address and an option to click to a photo of what that address actually looks like (the ‘street view’ feature). It’s actually pretty astonishing how much information you can get for free.
But recently, I learned about something pretty amazing from Bing: Bird’s eye. When you search for an address in Bing maps, under the ‘aerial’ drop down, there are two options marked ‘aerial’ and ‘Bird’s eye’. This second option is something like a combination of an aerial map and street view photography, but that doesn’t really do it justice. It allows you to look at a piece of properly from literally every angle (and looking at information from every angle is, of course, what we analysts do).
Try it for yourself. Compare what happens when you look at both Bing and Google’s headquarters via their respective mapping applications:
Google Headquarters: Google Maps | Bing Maps (select Bird’s Eye view from the “Aerial” menu)
Microsoft Headquarters: Google Maps | Bing Maps
I’m sure that these tech giants have even more up their sleeves. There are more (free!) features to come. The search engine wars are far from over.
As a private investigator, I couldn’t be happier.
Intermediaries: Creators of Corruption Opportunities
In my last post I began discussing how a broad category of actors typically defined as “intermediaries” provide the perfect instrument to those pursuing corrupt practices. It is now worth taking a closer look at the key characteristics that make intermediaries so fit for this purpose.
Intermediaries are first and foremost creators of opportunity, in more ways than one. They do this by providing their clients (bribe payers and bribe receivers) with a range of services that go well beyond a concealed transfer of cash. They operate as advisors, head-hunters, market entry strategists, bankers and risk managers. In essence, they transpose to the grey economy those services which are typically utilised in legitimate business transactions.
Some examples:
Intermediaries are corruption’s market makers. They are instrumental in identifying opportunities for those willing to pay bribes, particularly where searching openly is too risky. They may even be in a position to advertise their services by disclosing track records and therefore establishing a reputation for getting deals done. Conversely, it is also common for those on the receiving end of bribes to establish a relationship with trusted intermediaries who are forcefully interposed in a transaction or, at times, may be mandated to identify companies or individuals from whom bribes may be sought.
This is particularly true in the case of highly regulated industries, where government licenses are required for businesses to operate and where the authority to grant such licenses is placed with government agencies created ad hoc. An example that has recently come to light involved the Kyrgyz operations of a subsidiary of Alliance One International Inc, a global tobacco merchant. According to an August 2010 filing, in the mid 1990s the government of Kyrgyzstan had established “an agency and instrumentality of the government, to manage and control the government-owned shares of the tobacco processing facilities throughout Kyrgyzstan” to which bribes were paid to assure “access to the tobacco processing facilities” controlled by the special purpose government agency.
Intermediaries are also cost efficient. Companies seeking to engage in corrupt practices are bound to face costs, such as: searching for illicit partners, determining agreement conditions and enforcing agreement terms. Intermediaries can significantly lower these costs by providing information to potential clients in respect of the capability of a government official, or representative thereof, to actually provide the required services.
Intermediaries offer a forum to the parties involved. Because payers and receivers of bribes operate outside the law, they need to trust each other: intermediaries provide this trust by virtue of the repeated nature of their interactions with both parties. Whereas loyalty between two parties of a corrupt transaction is often limited to the transaction itself, intermediaries are typically vested in the continuance of their relationships. Jeffrey Tessler for example, the indistinct British solicitor who came to world fame courtesy of the largest FCPA settlement in the history of US companies, reportedly had long standing relationships with both Halliburton and the Nigerian government for decades prior to the scandal coming to light. Tellingly, Tesler’s pivotal role in the corruption scheme was first explained to the authorities by a former employee of Technip, a French partner of the Nigerian consortium led by Halliburton, perhaps an indication that Tesler had failed to establish with Technip the same relationship of trust he enjoyed with Halliburton.
I could go on, but believe the point has been made. The extent and sophistication of the services offered by intermediaries is such that their role cannot be reduced to that of an ancillary instrument for the payment of a bribe. Where there is a company or an individual prepared to gain an advantage through corrupt practices, intermediaries will open up a world of opportunities. With the clear advantage of doing so in an informal, concealed yet trusted manner. This combination is at the root of their ability to thrive in corrupt environments.
There’s more to come on this topic — in my next post I will address the more traditional perception of intermediaries as conduits for bribes and also touch upon their unique ability to act as guarantors of corrupt transactions.
The Work of Professional Investigators
Ever wonder what professional investigators bring to the table? This article in Sunday’s New York Times nicely illustrates where the investigative tools available to the merely curious (Google, public records on the Web) end and where the skills and training of professional investigators (in this case a journalist) must come into play to keep an investigation alive. Investigators have their own personal methods, contacts and approaches, but without their efforts the question of who funded a political ad posed by this article’s author would have no chance of getting answered.
