September 8, 2010
The Sydney Morning Herald
THE global financial crisis increased instances of fraud and corruption as companies attempted to cut costs, a report shows.
Ernst & Young's Fraud and Corruption in Mining and Metals report has found that as companies moved into developing countries to satisfy demand for minerals, cost pressures from the financial crisis forced many to pare back safeguards against corporate impropriety.
However, Mike Elliott, Ernst & Young's global metals and mining leader, said he believed that beefed-up legislation and high-profile cases involving BHP Billiton and Rio Tinto showed that legislators and markets would punish fraudulent behaviour.
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In April the British government brought in its Bribery Act, which is like the US Foreign Corrupt Practices Act in that it doesn't apply only to locally based companies. But the British legislation goes further through its ability to penalise companies it deems not to have adequate bribery controls in place.
Rio's reputation took a battering earlier this year when four iron ore traders, including Australian citizen Stern Hu, were jailed for accepting bribes and stealing commercial secrets. BHP also faced allegations earlier this year about its Cambodian bauxite joint venture and claims it paid ''tea money'' to the Cambodian government
''The BHP example is a good example of where the market responded immediately to the reports that were coming out which, I think, shows that companies aren't just dealing with reputational damage,'' Mr Elliott said.
''Just the mere fact that BHP was subject to a regulatory process at that time is a more tangible reflection of what it might mean to a company's valuation in addition to the obvious reputational risk.''
Mr Elliott said the fraud report was prompted by the number of documented cases of corporate fraud since the financial crisis and how exposed companies had become. He said boards needed to ensure they had substantial systems in place to protect against fraud and meet corporate governance responsibilities.
Ernst & Young's Fraud and Corruption in Mining and Metals report has found that as companies moved into developing countries to satisfy demand for minerals, cost pressures from the financial crisis forced many to pare back safeguards against corporate impropriety.
However, Mike Elliott, Ernst & Young's global metals and mining leader, said he believed that beefed-up legislation and high-profile cases involving BHP Billiton and Rio Tinto showed that legislators and markets would punish fraudulent behaviour.
Advertisement: Story continues below
In April the British government brought in its Bribery Act, which is like the US Foreign Corrupt Practices Act in that it doesn't apply only to locally based companies. But the British legislation goes further through its ability to penalise companies it deems not to have adequate bribery controls in place.
Rio's reputation took a battering earlier this year when four iron ore traders, including Australian citizen Stern Hu, were jailed for accepting bribes and stealing commercial secrets. BHP also faced allegations earlier this year about its Cambodian bauxite joint venture and claims it paid ''tea money'' to the Cambodian government
''The BHP example is a good example of where the market responded immediately to the reports that were coming out which, I think, shows that companies aren't just dealing with reputational damage,'' Mr Elliott said.
''Just the mere fact that BHP was subject to a regulatory process at that time is a more tangible reflection of what it might mean to a company's valuation in addition to the obvious reputational risk.''
Mr Elliott said the fraud report was prompted by the number of documented cases of corporate fraud since the financial crisis and how exposed companies had become. He said boards needed to ensure they had substantial systems in place to protect against fraud and meet corporate governance responsibilities.
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