Investigating suspected frauds in the Middle East

Traveling to another part of the world to investigate global financial fraud can be challenging and daunting. Here are some things CFEs need to know before embarking on a white-collar crime investigation in the Middle East. 

An anonymous e-mail to a company's general counsel in the United States triggered a recent case I worked on in the Middle East. The e-mail contained a tip that two employees working in the procurement department in the Middle East were colluding with vendors by revealing sealed bid information in return for kickbacks. Our six-week investigation confirmed the allegations.

Investigating suspected financial frauds in the Middle East requires a unique set of skills, practices, and other considerations. Having lived in Kuwait for three years and then several months in Dubai, United Arab Emirates, I've conducted many investigations in the Middle East. Here are a few things I've learned so far that might help fraud examiners from other parts of the world.

WHOM ARE YOU INVESTIGATING?
Obviously, assessing the general environment is essential before starting an investigation. Many Middle Eastern nations are governed by royal families. So be careful whom you investigate. Compared to the United States and most other Western countries, Middle Eastern countries have fewer written laws and tend to rule by executive orders, or decrees, created and enacted by the rulers. While in the Middle East, some mornings I would read in the local newspaper that the head of state had declared an executive order that would mandate a new rule.

CULTURE
There are a variety of religions practiced in the Middle Eastern region but Islam is dominant. Friday is the prayer day; the weekend therefore takes place on either Thursday and Friday, or on Friday and Saturday. (Fridays were once considered the only day of rest in the Middle East, but now government workers often take the preceeding Thursday off as well. Employees in the private sector along with multinationals take Fridays and Saturdays off.) You need to be aware of the cultural and religious influences in the area. A promise by Middle Easterners to provide information to you the following day could imply "Keep your fingers crossed, I will get to it when I have the time."

While you might find some spots of tolerance such as Dubai, for example, it's wise to avoid all religious and political discussions and, above all, don't do anything that will make others notice you. While you might not necessarily have to worry about anyone physically harming you, it would hinder your investigation if you give Middle Easterners a reason not to cooperate with you.

LANGUAGE
Arabic belongs to the Semitic group of languages. The Arabic alphabets are written from right to left with numbers moving from left to right. However, because Middle Eastern countries once were British colonies, there's still a strong English influence, which makes life for the English-speaking investigator, at times, somewhat easier. Regardless, your team should include a person familiar with the region and language. Individuals you wish to interview - however informally - will have an uncanny ability to detect that you're not familiar with the region and its business practices and won't give you information.

BUSINESS PRACTICES
In the Middle East (as well as many other areas of the world), there's a great tolerance for kickbacks, bribes, conflicts of interest, favors, and use of clout. "Under the table" practices, which are deemed illegal by most Westerners, are often common practice. "So what is wrong with that?" is the response we often hear when we interview those suspected of conflicts of interest. Another common response is "Everybody is doing it, so why shouldn't I?" These practices are so widespread in some environments that employees are underpaid for their services because it's assumed they'll be accepting bribes during the course of their normal duties. Know the provisions of the U.S. Foreign Corrupt Practices Act, which are discussed at the end of this article.

COSMOPOLITAN SOCIETY
The majority of the workforce is expatriated which means that several nationalities will be represented in the Middle Eastern workplace: Indian, Pakistani, Bangladeshi, Sri Lankan, British, South African, Filipino, Egyptian, Persian (from Iran), Iraqi, Lebanese, Syrian, American, and many more. As people do around the globe, those of the same country, race, and religion tend to socialize together and even form syndicates in the company for which they work. A perpetrator is likely to have associates of the same nationality and/or religion. Obviously, if you know you'll be investigating a particular ethnic group, it would be absolutely critical to include on your team a member of that same group. As stated earlier, information is more likely to be provided to the investigator who's familiar with the environment and culture of those being investigated.

BACKGROUND CHECKS
Personal background checks, which are a very common investigative tool in the Western hemisphere, are difficult, if not impossible in the Middle East because: (1) very little information is publicly available; (2) there are restrictions on non-GCC1 citizens to invest in securities, real estate etc.; and (3) the majority of the work force (expatriates) remit their savings to the country of their origin. In fact, many of the typical "follow the funds" investigative procedures become difficult due to this fact.

For example, an expatriate who doesn't have access to a bank might use the informal "hawala" ("in trust" in Hindi) - an unregulated international financing network - to transfer funds to his family in his native country. He gives his cash (plus a transaction fee) to a "money broker" who arranges for his counterpart in the expatriate's country to deliver the money to the family. Because there's no paper trail the originator and the recipient remain virtually anonymous. Only a reputable private investigator from the region in which you're conducting your examination can hope to obtain the details of a hawala transaction. Otherwise, sweet talking the hawala operator by explaining why you need the information may be a course of action.
(For more information see: www.acfe.com/newsletters/6-2006-tfe-hawala.asp)

CURRENCY
Accounting data in Middle Eastern countries is usually available in the local currency and U.S. Dollars (USD) but don't assume that an amount you find actually represents U.S. dollars just because it's preceded by the "$" symbol. Fraudsters often hide defalcation using exchange rates. So always use foreign exchange converter tools such as the free Universal Currency Converter (www.xe.com/ucc/) to ensure that you receive complete data.

DATA MINING
A standard data-mining procedure such as matching employee addresses to vendor addresses might be futile because there are no street addresses in many Middle Eastern countries. Employees tend to use their employers' post office boxes (called the Post Box in the Middle East) as their own personal addresses. For example, when I worked in Kuwait, a representative from our office would pick up the employees' mail from the post office - both business and personal - twice a week. (The post office never delivered mail.) We would use our employer's post box number as our addresses. Matching addresses might not reveal bogus vendors, but if the company pays its employees via direct deposit, a check issued to their own address may reveal anomalies.

FOREIGN CORRUPT PRACTICES ACT
For years, the U.S. government has taken a strong stand against international corruption by imposing substantial penalties for the corruption of foreign officials. In general, the U.S. Foreign Corrupt Practices Act (FCPA) prohibits American companies, including their subsidiaries and branches, from paying bribes to foreign officials. In Middle Eastern countries, the public sector (government-owned enterprises) flourishes. Additionally, the government, through a series of complex structures (subsidiaries, joint ventures etc.) participates in a variety of business ventures. So take extra care because you might be dealing with a foreign official and not be aware of it.

The management working at the plethora of foreign-owned companies in the Middle East might not be aware of conflicts of interests, lack of financial integrity, and unfair trade practices in those countries. Of course, all areas of a Middle Eastern company must be periodically tested for compliance not just those common responsibilities that employees focus on because they know they'll be monitored.

Certain payments to government officials are permitted as "facilitating payments." However, when attempting to discern payments that are permitted and those that aren't, it's best to go by this rule of thumb: if your payment to a government official is given to quicken the process of evaluating your proposal or claim, it's usually permitted by the FCPA; if it's given to secure a favorable decision on your proposal or claim, it's likely a violation of the FCPA. Without question, seek the advice of competent counsel when facing these issues.

This discussion is just a quick summary of the considerations you should take into account before embarking on a white-collar crime investigation in the Middle East. A very thorough resource containing important tips for travelers to the Middle East and North Africa can be found on the U.S. Department of State's Web site: http://travel.state.gov/travel /tips/regional/regional_1175.html. If you have any questions or need more information, please feel free to contact me.

1. GCC is the Gulf Cooperation Council, which includes United Arab Emirates, Saudi Arabia, Kuwait, Bahrain, Qatar, and Oman. 

[Some source links referenced in this article are no longer available. — Ed.]

Sulaksh R. Shah, CFE, CPA, CA, is a manager in Pricewaterhouse Coopers' Investigations and Forensic Services practice in Chicago, Ill.