Tech-based compliance in emerging markets

Roderick M. Vega

The nature of business today is very different from how it was just a few years ago. Technology, innovation and new consumption behaviors are driving disruption every day. Yet, some things – such as fraud, bribery and corruption – have remained constant. This was the main finding of the EY Global Fraud Survey 2018: Integrity in the spotlight, which focused on emerging markets.

The survey included interviews with 2,550 senior business decision-makers from 55 countries and territories to gain in-depth insights into bribery and corruption conditions. The survey yielded the following:

· 52% of respondents from emerging markets stated that bribery and corruption happen widely in their business, compared to 38% globally.

· 19% said that cash payments can be justified to help their business survive.

· 16% said that it is a common practice to use bribery to win contracts.

Levels of perceived bribery and corruption are double that of developed markets, despite many emerging markets implementing stricter anti-corruption laws, enforcement and anti-fraud frameworks. This would indicate the need for more structured, integrity-based compliance cultures backed by new technologies that can provide better data insights. Some of these digital compliance tools include predictive analytics and real-time risk alerts, integrated into a forensic data analytics (FDA) system that can improve monitoring and reporting to maintain compliance.


More and more companies are embarking on digital transformation to enhance their operations in various aspects – with great implications for legal, compliance and internal audit functions. A great majority of respondents (91%) stated that their organizations will be leveraging advanced technologies – such as digital payments, Internet of Things, robotics and artificial intelligence within the next two years. A very small segment (4%) even expect to conduct transactions using cryptocurrency.

However, with the larger volumes of customer and employee data being maintained by companies, the need for greater data privacy also arises. Information governance is one of the new challenges for companies today. In the Philippines, the implementation of the Data Privacy Act spells increased vigilance for companies that are made more accountable for the data they safeguard.

While technology offers increased benefits for companies, the digital transformation also presents new fraud risks and fraud schemes using the same technologies. For example, wire transfer fraud has been increasing in recent years with more companies switching to digital payments. Fraudsters now have a wider global reach and can conduct illegal activities with more efficiency and speed. Their potential victims are frequently in emerging markets.


It is interesting to note that while respondents know of their management’s anti-corruption policies and training, whistleblower hotlines, and codes of ethics in their organizations, these seem to have had little impact on decreasing unethical behavior. The differences between management statements and employee conduct are evident in the following findings:

· While 97% of heads of compliance state that the company has anti-corruption policies in place, only 77% of sales and marketing respondents state this, implying a disconnect between high-level policies and the level of awareness of these policies in key employees.

· While 66% of internal audit, compliance and legal respondents stated that they had a customized, risk-based due diligence approach to third-parties, 29% of sales and marketing were not even aware of such due diligence approaches.

· While the penalties for misconduct are made clear to employees, less than 60% are aware of people being penalized.

· Over 25% of respondents state that people managing relationships with third parties are not required to complete fraud and compliance risk training, while only 30% of organizations incentivize third parties to act ethically.

These observations indicate that a more proactive approach is needed beyond simply laying down a compliance program which states the ethical intentions of the organization. Companies need more proactive and sustained communications and training to increase employee awareness of company policies and whistle-blowing programs.


Nevertheless, what is encouraging is that 97% of respondents recognize the importance of integrity in their organization’s operations. Not only does this help the company avoid regulatory scrutiny and penalties, but the business also gains more competitive advantages including enhanced customer and public perception, higher business performance, and better employee retention.

What is still lacking, however, is the individual responsibility for integrity among employees. Most employees still see integrity as a function of human resources, compliance, legal or senior management, rather than a personal responsibility. This is another area where leaders need to take proactive action and communication, including:

· Clearly defining principles and behavioral standards rather than simply issuing a blanket mission and values statement.

· Leveraging verifiable data about the behavior and culture in the organization.

· Developing enhanced metrics and accountability processes that go beyond standard policies.

· Consider transitioning into a Purpose-led organization. Studies have shown that having an overarching Purpose not only helps companies perform better overall, but also help employees achieve a stronger alignment with company values and ethical behavior.


As business models continue to evolve, compliance functions will likewise need to transform to better detect, respond to and prevent fraud and corruption. Compliance policies and procedures, supported by training and consistent enforcement, are necessary yet often insufficient. However, the application of FDA may bring significant improvements like the use of advanced analytics for continuous monitoring and employing artificial intelligence to provide more personalized, risk-based training and communications.

Given the importance of emerging markets in driving the global economy, it is worthwhile for companies and regulators in these areas to work together to implement effective practices, consultative policies and integrity-based corporate cultures that are strongly supplemented by powerful digital platforms and forensic data technologies.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Roderick M. Vega is a Partner and the Forensic and Integrity Services Leader of SGV & Co.

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