Corporate Compliance: Crime, Convenience and Control 303116122X, 9783031161223

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Corporate Compliance Crime, Convenience and Control Petter Gottschalk Christopher Hamerton

Corporate Compliance

Petter Gottschalk · Christopher Hamerton

Corporate Compliance Crime, Convenience and Control

Petter Gottschalk Department of Leadership and Organizational Behaviour BI Norwegian Business School Oslo, Norway

Christopher Hamerton School of Economic, Social and Political Sciences University of Southampton Southampton, UK

ISBN 978-3-031-16122-3 ISBN 978-3-031-16123-0 https://doi.org/10.1007/978-3-031-16123-0

(eBook)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1

Introduction References

1 8

2

Corporation Conformity and Compliance Research Perspectives on Compliance Legalistic and Formalistic Approaches Compliance Audits and Risk Assessment Fraud Examinations of Compliance Failures Maturity Model for Corporate Compliance References

15 16 21 23 24 29 32

3

The Theory of Convenience and Compliance Individual Convenience Orientations Financial Motive for Executive Deviance Organizational Opportunity for Deviance Personal Willingness for Deviant Behavior Disturbing Offender Crime Convenience Traditional Criminological Perspectives References

37 38 40 43 44 46 48 49

v

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Contents

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Lack of Compliance from Convenience Astellas Cultural and Compliance Failings Danske Bank Money Laundering in Estonia Fuji Xerox Customer Fraud in New Zealand Nordea Bank Tax Evasion in Luxembourg Swedbank Money Laundering in Lithuania Telenor in Vimpelcom Uzbekistan Corruption References

55 56 57 61 64 68 71 72

5

Barriers to Corporate Compliance The Complexity of Rules and Regulations Deficiencies in Compliance Functions Deterioration by Social Disorganization Heroic Status of the Chief Executive Inter-Bank Cooperation Challenges References

75 76 77 80 87 89 96

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Roles of Compliance Officers Statements by Compliance Violators Survey of Officers in the United States The Yara Corruption Scandal in Libya References

103 104 107 108 110

7

Restoration of Compliance and Control The Trust Repair at Siemens in Germany Financial Crime Specialists in Compliance References

113 115 120 123

8

Crime Signal Detection Perspectives White-Collar Crime Characteristics Organizational Crime Detection Functions Crime Detection by Whistleblowing Empirical Crime Signal Detections Characteristics of Crime Signal Detection From Crime Convenience to Detection Case Study of Betanien Foundation References

127 129 131 136 142 148 155 157 163

Contents

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Change Management for Corporate Recovery Organizational Reconstruction Approaches Recommendations by Fraud Examiners Preventive Measures in the Literature Detective Measures in the Literature Corporate Case Study of Siemens References

171 172 173 180 185 187 188

10

Change Measures for Corporate Control Recommendations in the Literature Investigations by Fraud Examiners Four Change Management Themes Reduction in Crime Convenience References

195 197 205 208 212 215

11

Strategies for Wrongdoing Investigation Investigative Fraud Examination Investigation Knowledge Strategy Information Sources Strategy Value Shop Configuration Strategy Computer Systems Strategy Crime Investigation Principles Investigation Maturity Levels Case Study of Gartnerhallen References

227 228 232 235 240 245 248 258 261 264

12

Profiling of Potential Offenders Structural Model of Convenience Profiling Offender Motive Profiling Offender Opportunity Profiling Personal Willingness References

269 270 271 275 278 281

Conclusion

287

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Contents

Appendices

291

Bibliography

325

Index

363

List of Figures

Fig. 3.1 Fig. 5.1 Fig. 8.1 Fig. 10.1 Fig. 10.2 Fig. 11.1 Fig. 11.2 Fig. 11.3 Fig. 12.1

Structural model of convenience theory Convenience themes in the Norfund case with lack of inter-bank cooperation Receiver knowledge after whistleblowing Illustration of the categorization process conducted by Hals and Sandvik (2019) Recommended change management effects on convenience Knowledge organization of investigation in the value shop Stages of knowledge management systems in white-collar crime investigations Maturity model for internal investigations by fraud examiners Structural model of convenience themes

41 95 157 210 213 241 246 259 272

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List of Tables

Table 8.1 Table 8.2 Table 8.3 Table 8.4 Table A.1

Table A.2 Table A.3

Detection of white-collar crime Comparison of journalist and non-journalist-detected criminals Financial crime categories by detection sources Characteristics of stimulus in detection of white-collar crime Sample of reports of investigations by fraud examiners (Investigation reports listed separately in the reference section at the end of this chapter) Investigated organizations and investigating firms Change management recommendations from investigating firms

142 143 144 152

291 303 313

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1 Introduction

Compliance has long been identified by scholars of white-collar crime as a key strategic control device in the regulation of corporations and other complex organizations. Nevertheless, this essential process is largely ignored within criminology as a specific subject for close scrutiny. The current book seeks to address the anomaly. This initiating book applies the theory of convenience to provide criminological insight into the enduring self-regulatory phenomenon of corporate compliance. Convenience theory suggests that compliance is challenged when the corporation has a strong financial motive for illegitimate profits, ample organizational opportunities to commit and conceal wrongdoing, and executive willingness for deviant behavior (Asting & Gottschalk, 2022; Braaten & Vaughn, 2019; Dearden & Gottschalk, 2020; Desmond et al., 2022; Gottschalk & Hamerton, 2022; Stadler & Gottschalk, 2021; Qu, 2021). Focusing on white-collar deviance and crime within corporations (Benson & Simpson, 2018; Sutherland, 1939, 1983), the book argues that lack of compliance is recurrently a matter of deviant behavior by senior executives within organizations who abuse their privileged positions to commission, commit, and conceal financial crime. Some deviant executives apply creative compliance (Nurse, 2022: 69): © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_1

1

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Creative compliance involves the use of techniques which can be argued to be ‘perfectly legal’ despite the purpose and impact of such techniques being to undermine the whole purpose of reporting and regulation and in practical terms using the letter of the law to defeat its spirit, arguably ‘with impunity’.

Rather than focusing on the regulatory formalities and staged procedures of compliance and audits, we emphasize the organizational challenges involved in compliance work when trusted corporate officials exhibit deviant behavior, refining and advancing knowledge in this field by reference to contemporary international case studies and associated original evaluative research. The themes and cases covered are carefully selected to provide the reader with an insight into professional conduct and procedural practice—the organization of corporate compliance success, failure, and corruption—with theoretical convenience placed at the fore. Crucially, compliance is often executively received as an inconvenience, a process capable of disturbing perceived convenience by increasing the subjective detection risk for potential offenders. Furthermore, with compliance officers habitually positioned at the very tip of the corporate governance spear, they emerge as uniquely able to communicate the terrible experience of executive fall from grace. We contend that learning from cases of conflict and failure of corporate compliance helps to identify the authentic challenges inherent to compliance functions within the contemporary workplace. As suggested by Antonsen and Madsen (2021: 7), compliance functions are typically established and strengthened in response to business scandals that expose “weaknesses related to regulatory risk management and internal control”. Consequently, the lacking substance of compliance is evident whenever executives are caught in corporate wrongdoing—a fundamental premise explored and illustrated throughout this book. Corporate compliance is concerned with the ability and practice at corporations to act without violating laws, the spirit of the laws, regulations, ethics, corporate culture, and other forms of rules and guidelines for the business. Corporate compliance is the ability to lead large groups of people toward achieving certain standards of conduct. Compliance refers to obeying the formal rules and regulations as well as the informal

1 Introduction

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norms and attitudes in force at a given time and place (Desai, 2016; Durand et al., 2019). Compliance is a challenge in situations where wrongdoing and misconduct have a potential of great benefits without significant perceived costs. In such situations, compliance functions within corporations are tested. For example, a small bribe in a corrupt country can result in a major profitable contract for a corporation. Refusing bribery might cause a competitor to obtain the profitable contract instead (Berghoff, 2018; Cuervo-Cazurra, 2016). Blokland et al. (2021) argued that corporate noncompliance is widespread in terms of corporate rule breaking, where drivers of corporate rule breaking include the extent of relative convenience of noncompliance versus compliance. While there is no shortage of standard recommendations regarding formal compliance programs (e.g., Adreisova, 2016; Biegelman & Bartow, 2012; Desai, 2016; Graham, 2015; Haines & Macdonald, 2021; Kawasaki, 2020; Kurum, 2020; Lehman et al., 2020; Majluf & Navarrette, 2011; Marchetti, 2012; McKendall et al., 2002; Peterson, 2013; Roberts, 2008; Thottoli, 2021), there is no abundance of literature on why compliance functions fail and how to fix them (e.g., Chen & Soltes, 2018; Eberl et al., 2015; Rooij & Fine, 2020; Rorie, 2015). Some published works are concerned with specific industries, such as Braun (2019) who addressed compliance norms in financial institutions. Rooij and Rorie (2022: 2) attempted to introduce some kind of measurement of compliance where they emphasized two core challenges in corporate compliance measurement: The first is to assess to what extent the organizations being studied (or the people in that organization) have been complying with or breaking the law. This is a highly difficult and sensitive question to answer, and also presents major ethical challenges. The second challenge is how to situate the interaction between the compliance behavior in the organization and potential influences on compliance in such a way that demonstrates a clear causal relationship. Establishing causality in a way that is both valid, yet also representative of a broader set of cases outside of those studied is extremely challenging. Any approach to compliance measurement must contend with both of these challenges.

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Maybe the most challenging task for corporate compliance functions in practice is to prevent and detect white-collar crime. White-collar crime is financial crime committed by persons of respectability and high social status in the course of their occupation to benefit themselves or the organization (Sutherland, 1939, 1983). Corporate executives and board members belong to the class of elite members who can abuse their positions for illegal gain (Davidson et al., 2019; Ferrell & Ferrell, 2011; Gangloff et al., 2016; Schnatterly et al., 2018). When there is suspicion of corporate white-collar crime, the governance branch typically involved should be the compliance function, potentially cooperating with internal and external auditors as well as various controllers. Internal or external fraud examiners have the task of investigating suspicions by reconstructing past events and sequences of events (Machen & Richards, 2004). If fraud examiners find sufficient evidence of law violation, then the case stops, moves internally, or moves externally to the national criminal justice system. If secrecy to protect corporate reputation is the main concern, then the case typically stops and remains internal (Gottschalk & Tcherni-Buzzeo, 2017). Corporations with inefficient or non-existing compliance functions or governance branch generally contribute to disorganized institutional deterioration (Crosina & Pratt, 2019; Rodriguez et al., 2005). White-collar crime is a growing area of academic interest, partly due to the ongoing increase in the importance of compliance and partly because of the repeated, large-scale incidents of corporate misconduct that keep happening. Examples include Danske Bank in Denmark (Milne & Binham, 2018), Fuji Xerox in New Zealand (Deloitte, 2017), Siemens in Germany (Berghoff, 2018), Swedbank in Sweden (Milne, 2020), Telia in Sweden (Schoultz & Flyghed, 2021), Toshiba in Japan (Deloitte, 2015), VimpelCom in the Netherlands (Hovland & Gauthier-Villars, 2015), Wells Fargo in the United States (Shichor & Heeren, 2021), and Wirecard in Germany (Storbeck, 2020). The research interest in executive wrongdoing is growing given the high profile nature of white-collar crime as well as the growth of private policing, internal fraud examinations, and forensic accounting in recent years.

1 Introduction

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Lack of compliance is frequently demonstrated in fraud investigation reports. For example, Scandinavian banks Danske Bank and Swedbank were investigated by Bruun Hjejle (2018) and Clifford Chance (2020), respectively, resulting in the dismissal of the chief executives for lack of compliance related to anti-money laundering measures. Russian oligarchs and organized criminals could transfer proceeds from illegitimate business operations through the banks’ East European branch offices. The non-resident clients were extremely profitable for the banks. Similarly, Scandinavian bank Nordea lacked compliance when helping clients in their wealth management to potentially avoid taxes in tax havens as revealed by the Panama Papers. In their internal investigation, Mannheimer Swartling (2016) revealed that bank executives had illegally backdated documents to benefit their rich clients. Professional services firms such as law firms and audit firms can offer so much more than the police: risk assessments, regulatory compliance services, policy and program development, training, due diligence, review of suspicious transactions, and asset tracking and recovery (Schneider, 2006). Outside governments’ criminal justice systems, private investigators can be found internally in organizations and externally (King, 2021; Meerts, 2020). An example of internal investigators is fraud examiners in insurance companies who investigate insurance customers’ claims. Another example is internal investigators in banks who investigate suspicions of fraud and money laundering (Kurum, 2020). A final example is internal auditors and compliance officers who investigate suspicions of financial crime (Friedrich, 2021). Norway is a small country with five million inhabitants. Some global companies have their headquarters in Norway. Examples include fertilizer company Yara and telecommunication company Telenor. Both companies operate in a number of countries worldwide. They are expected to respond to the globalization challenge by acknowledging a new political role of business that goes beyond mere compliance with legal standards and conformity with general ethics. As Dion (2019: 836) states, “ethics is not equivalent to laws”. However, both companies have been caught in corruption scandals. The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (“Økokrim”) was prosecuting executives from both

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companies in Norwegian courts in 2015 and 2016. While Yara executives were prosecuted for corruption in Libya (Berglund, 2015; NTB, 2020), Telenor executives were investigated for corruption in Uzbekistan through the partly owned subsidiary Vimpelcom (Deloitte, 2016; Hovland & Gauthier-Villars, 2015; Klevstrand, 2020). VimpelCom paid $835 million to the U.S. Securities and Exchange Commission and to the public prosecution service of the Netherlands for corruption in Uzbekistan to obtain mobile frequencies in that country (Ekeberg, 2016). When a sales manager was sent to prison in Norway, he claimed that his employer did not emphasize compliance or anti-corruption efforts at the company. Even when such topics received more attention, he claimed that his employer had no guidelines to help its sales force. He also claimed that all the payments to consultants and agents originated at company headquarters in Norway. “I had nothing to do with the payments”, he testified in court. He felt that responsible executives attributed blame to him as a scapegoat. While the corruption amounted to a few million US dollars, the contract achieved for his employer, the Norwegian military communication systems provider Kongsberg, amounted to several hundred millions US dollars in Rumania (Berglund, 2017). At Telia in Sweden, compliance failed and three former executives from the Swedish telecommunication company were brought to trial in 2018. The company had already paid $965 million to resolve charges relating to the violations of the Foreign Corrupt Practices Act in the United States and of Dutch law. The three former executives were charged with corruption when entering the Uzbekistan mobile phone market. Both the district court and the court of appeals in Sweden acquitted all three defendants in 2021 (Schoultz & Flyghed, 2021). Both the sales manager at Kongsberg Defense in Norway, who was convicted, and the three executives at Telia Telecom in Sweden, who were acquitted, felt scapegoated by their former employers that were accused of lacking corporate compliance (Schoultz & Flyghed, 2021: 12):

1 Introduction

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Scapegoating involves the corporation transferring the responsibility for an act or event from the corporation itself on one or a few symbolic figures. It reduces complexity and allows a corporation to avoid security.

In the Swedish trial against three executives, the company distanced itself from its former employees. Telia’s lawyer asked himself during the court hearings: “Does it constitute a crime? The company Telia has no opinion on this; we leave that to the court to determine” (Schoultz & Flyghed, 2021: 12). This book applies the theory of convenience to provide insights into the phenomenon of corporate compliance. Convenience theory suggests that compliance is challenged when the corporation has a strong financial motive for illegitimate profits, ample organizational opportunities to commit and conceal wrongdoing, and executive willingness for deviant behavior (Asting & Gottschalk, 2022; Braaten & Vaughn, 2019; Dearden & Gottschalk, 2020; Stadler & Gottschalk, 2021). Focusing on white-collar crime (Benson & Simpson, 2018; Sutherland, 1939, 1983), the lack of compliance is a matter of deviant behavior by executives in the organization who abuse their privileged positions to commit and conceal financial crime. Rather than focusing on the formalities and procedures of compliance and audits, this book emphasizes the challenges involved in compliance work when trusted corporate officials exhibit deviant behavior. Learning from cases of failing corporate compliance helps identifying the real challenges for compliance functions. As suggested by Antonsen and Madsen (2021: 7), compliance functions are typically established and strengthened in response to business scandals that expose “weaknesses related to regulatory risk management and internal control”. The lacking substance of compliance is evident whenever executives are caught in corporate wrongdoing. The book identifies the problem of noncompliance within the global business practices as related to the matter of convenience. The book is not another title referring to compliance through the prism of regulatory requirements (e.g., McBarnet, 2004; Rooij & Sokol, 2021; Sergi & Teichmann, 2018). Rather, it refers to convenience in a number of case

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studies that illustrates the deviances from appropriate behaviors due to the negligence or even orchestrated actions that result in malpractices. The book attempts to guide the reader in better comprehending corporate white-collar crime by means of an analysis of the functioning of corporate compliance. Convenience theory is used as the principal theoretical framework for interpreting the enduring self-regulatory phenomenon of corporate compliance. The book refers to contemporary cases of corporate crime to exemplify the theoretical reasoning and to support it with empirical evidence. Overall, the book provides a criminological perspective on the role of compliance in corporate white-collar crime. Chapter 2 provides a review of the research literature on corporate compliance. Chapter 3 introduces the theory and concept of convenience, applied throughout this book, to gain insight into compliance challenges. Chapter 4 presents a number of international case studies where corporate compliance can be seen to have failed. Chapter 5 discusses individual and organizational barriers to corporate compliance. Chapter 6 describes and evaluates the pivotal role of corporate compliance officers as a specialized bulwark against white-collar offending. Chapter 7 discusses how corporate compliance, when lost, might be restored. Chapter 8 introduces and explores crime signal detection in terms of its relevance for compliance functions. Lack of compliance requires change management and change measures as presented in Chapters 9 and 10. Finally, Chapter 11 presents an approach to wrongdoing investigation for compliance officers, while Chapter 12 provides compliance officers with a structural model for profiling of potential offenders.

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Gottschalk, P., & Hamerton, C. (2022). White-collar crime online: Deviance, organizational behavior and risk. Palgrave Macmillan, Springer Nature. Grabosky, P. (2018). The prevention and control of economic crime. In P. Larmour & N. Wolanin (Eds.), Corruption and anti-corruption (pp. 146– 158). ANU Press. Gyõry, C. (2020). The institutional context of financial fraud in a posttransition economy: The Quaestor scandal. European Journal of Criminology, 17 (1), 31–49. Hilger, S., Mankel, S., & Richter, A. (2013). The use and effectiveness of top executive dismissal. The Leadership Quarterly, 24, 9–28. Hovland, K. M., & Gauthier-Villars, D. (2015, November 5). VimpelCom bribery investigations spark Telenor review. The Wall Street Journal . www. wsj.com Kawasaki, T. (2020). Review of comparative studies on white-collar and corporate crime. In M. L. Rorie (Ed.), The handbook of white-collar crime (ch. 27, pp. 437–447). Wiley. King, M. (2021). Profiting from a tainted trade: Private investigators’ views on the popular culture glamorization of their trade. Journal of Criminological Research Policy and Practice. https://doi.org/10.1108/JCRPP-07-2020-0050 Klevstrand, A. (2020, November 11). Jo Lunder fikk null kroner i erstatning— nå går den tidligere Vimpelcom-toppen til søksmål mot staten (Jo Lunder received zero kroner in compensation—Now the former Vimpelcom top is suing the state), daily Norwegian business newspaper Dagens Næringsliv. www.dn.no Kurum, E. (2020). RegTech solutions and AML compliance: What future for financial crime? Journal of Financial Crime. https://doi.org/10.1108/JFC04-2020-0051 Lehman, D. W., Cooil, B., & Ramanujam, R. (2020). The effects of rule complexity on organizational noncompliance and remediation: Evidence from restaurant health inspections. Journal of Management, 46 (8), 1436– 1468. Machen, M. J., & Richards, R. E. (2004, Winter). The use of fraud examiners in the battle against occupational fraud and abuse. The Journal of Investment Compliance, 67–71. Majluf, N. S., & Navarrete, C. M. (2011). A two-component compliance and ethics program model: An empirical application to Chilean corporations. Journal of Business Ethics, 100 (4), 567–579.

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Mannheimer Swartling. (2016). Report on investigation of Nordea private banking in relation to offshore structures, law firm Mannheimer Swartling, Stockholm, Sweden, 42 pp. Marchetti, A. M. (2012). Enterprise risk management best practices: From assessment to ongoing compliance. Wiley. McBarnet, D. (2004). Crime. Routledge. McKendall, M., DeMarr, B., & Rikkers, J. C. (2002). Ethical compliance programs and corporate illegality: Testing the assumptions of the corporate sentencing guideline. Journal of Business Ethics, 37 , 367–383. Meerts, C. (2020). Corporate investigations: Beyond notions of public-private relations. Journal of Contemporary Criminal Justice, 36 (1), 86–100. Milne, R. (2020, March 23). Swedbank failings on E37bn of transactions revealed in report. Financial Times. www.ft.com Milne, R., & Binham, C. (2018, September 19). Danske Bank chief Thomas Borgen quits over money laundering scandal. Financial Times. www.ft.com NTB. (2020, May 4). Tidligere Yara-sjef Thorleif Enger krevde 16 millioner i erstatning—fikk ikke medhold i tingretten (Former Yara boss Thorleif Enger demanded 16 million in compensation—was not upheld in the district court), Norwegian daily newspaper Aftenposten. www.aftenposten.no Nurse, A. (2022). Cleaning up greenwash: Corporate environmental crime and the crisis of capitalism. Lexington Books. Peterson, E. A. (2013). Compliance and ethics programs: Competitive advantage through the law. Journal of Management and Governance, 17 (4), 1027–1045. Qu, J. (2021). The challenge against economic regulation ethics under the Covid-19 epidemic: An analysis of unethical behavior of convenience. Converter Magazine, 2021(5), 74–79. Roberts, P. (2008). Evaluating agency responses: The comprehensiveness and impact of whistleblowing procedures. In A. J. Brown (Ed.), Whistleblowing in the Australian Public Sector (pp. 233–260). Enhancing the theory and practice of internal witness management in public sector organisations, ANU Press, Australian National University. Rodriguez, P., Uhlenbruck, K., & Eden, L. (2005). Government corruption and the entry strategies of multinationals. Academy of Management Review, 30 (2), 383–396. Rooij, B., & Fine, A. (2020). Preventing corporate crime from within: Compliance management, whistleblowing, and internal monitoring. In Melissa L. Rorie (Ed.), The handbook of white-collar crime (ch. 15, pp. 229–245). Wiley.

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Rooij, B., & Rorie, M. (2022). Measuring compliance: The challenges in assessing and understanding the interaction between law and organizational misconduct. In M. Rorie & B. Rooij (Eds.), Measuring compliance—Assessing corporate crime and misconduct prevention (pp. 1–24). Cambridge University Press. Rooij, B., & Sokol, D. (2021). The Cambridge handbook of compliance. Cambridge University Press. Rorie, M. (2015). An integrated theory of corporate environmental compliance and overcompliance. Crime, Law and Social Change, 64 (2–3), 65–101. Schnatterly, K., Gangloff, K. A., & Tuschke, A. (2018). CEO wrongdoing: A review of pressure, opportunity, and rationalization. Journal of Management, 44 (6), 2405–2432. Schneider, S. (2006). Privatizing economic crime enforcement: Exploring the role of private sector investigative agencies in combating money laundering. Policing & Society, 16 (3), 285–312. Schoultz, I., & Flyghed, J. (2021). Performing unbelonging in court: Observations from a transnational corporate bribery trial—A dramaturgical approach. Crime, Law and Social Change. https://doi.org/10.1007/s10611021-09990-x Sergi, B. S., & Teichmann, F. (2018). Compliance in multinational corporations: Business risks in bribery. Emerald Publishing. Shichor, D., & Heeren, J. W. (2021). Reflecting on corporate crime and control: The Wells Fargo banking saga. Journal of White Collar and Corporate Crime, 2(2), 97–108. Stadler, W. A., & Gottschalk, P. (2021). Testing convenience theory for whitecollar crime: Perceptions of potential offenders and non-offenders. Deviant Behavior. https://doi.org/10.1080/01639625.2021.1919037 Storbeck, O. (2020, August 25). Wirecard: The frantic final months of a fraudulent operation. Financial Times. www.ft.com Sutherland, E. H. (1939). White-collar criminality. American Sociological Review, 5 (1), 1–12. Sutherland, E. H. (1983). White collar crime—The uncut version. Yale University Press. Thottoli, M. M. (2021). The relevance of compliance audit on companies’ compliance with disclosure guidelines of financial statements. Journal of Investment Compliance, 22(2), 137–150.

2 Corporation Conformity and Compliance

This chapter seeks to define the concept of compliance and examine enduring models of corporate conformity. Research perspectives on compliance are evaluated, highlighting the distinction between external and internal compliance processes, allied to the social control goal of organizational conformance (Abadinsky, 2007; Ahrne & Brunsson, 2011; Eberl et al., 2015; Kawasaki, 2020). Existing perspectives have established a close connection between compliance and corporate social responsibility, an adaption which confers dominant norms toward globalization (Scherer & Palazzo, 2011; Zhang, 2021), and the pivotal positioning of the chief executive officer (CEO) within such processes (Davidson et al., 2019; Plesner, 2020; Sands, 2019). The chapter develops to evaluate the efficacy of legalistic and formalistic approaches in delivering perceptions of integrity and trust—a significant challenge when set within a multilayered global landscape of differing individual and cultural values (Alon et al., 2019; Chen & Soltes, 2018; Eberl et al., 2015). Prevailing regulatory tools are then considered, in terms of compliance audit, risk assessment, and fraud examinations of compliance failures, to gauge organizational response to legislative and regulatory measures (Boateng et al., 2021; Gottschalk, 2012; Shichor & Heeren, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_2

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2021; Thottoli, 2021). Here, an analysis of fraud examination processes is illustrated by a series of contemporary cases, to include the Community Bank at Wells Fargo, British Petroleum and General Motors in the United States, Wirecard in Germany, Samherji in Iceland, and Oceanteam in the Netherlands. The chapter concludes with the provision of a maturity model for corporate compliance, such modeling having been previously used to assess and evaluate a variety of multifarious phenomena in terms of 4 developmental staging within complex organizations (Chen et al., 2021; Mondani & Rostami, 2021; Masood, 2020; Röglinger et al., 2012; Solli-Sæther & Gottschalk, 2015).

Research Perspectives on Compliance The word compliance can be defined as the act of adhering to or conforming to a law, rule, guideline, code, demand, or request. In a business environment, conforming is referred to as corporate compliance. Corporate compliance involves keeping a watchful eye on an everchanging legal, regulatory, and moral climate, and making the changes necessary for the business to continue operating in good standing within its industry, community, and customer base to the satisfaction of all stakeholders. Compliance can be defined as “the internal programs that organizations adopt in order to educate employees, improve ethical norms, and detect and prevent violations of law” (Baer, 2009: 949). Corporate compliance is a matter of organizational ability to carry out business activities without violating formal laws, the spirit of the laws, regulations and rules, ethics within and outside the organization, corporate culture in terms of norms and values, and other forms of guiding principles for the business. Corporate compliance is the ability to lead large groups of people toward achieving certain standards of conduct when performing their activities. Compliance refers to obeying the formal rules and regulations as well as the informal norms and attitudes in force in a given situation (Desai, 2016; Durand et al., 2019). Corporate compliance extends beyond mere legal and regulatory conformity into the realm of promoting organizational ethics and corporate integrity (Dion, 2019). Corporate compliance programs require

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monitoring, auditing, corrective actions, and system modifications or redesign to prevent future problem behavior (Andreisova, 2016; Majluf & Navarrete, 2011; Peterson, 2013; Remisova et al., 2019). A company’s intolerance for wrongdoing is evidenced by corporate action taken consistent with its corporate compliance effort. Corporate compliance functions need internal and external intelligence to collect information on a continuous basis to prevent and detect deviant behaviors. If a corporate compliance function never prevents or detects actual incidents of wrongdoing, then it is likely that incidents escape under the radar (Desai, 2016; Williams et al., 2019), rather than it is a situation characterized by the absence of wrongdoing. A distinction can be made between external and internal compliance (Kawasaki, 2020). External compliance is concerned with the laws, rules, and other regulations from a government that spell out how an organization should conduct itself. External compliance is also concerned with the local norms and values in the organizational environment. Internal compliance is concerned with internal policies and procedures that are implemented in the organizational structure as well as the organizational culture, where structure refers to the division of labor to complete tasks, while culture refers to the norms and values among organizational members when completing tasks. It is a matter of external and internal restraints from social control that influences organizational members toward conformance (Abadinsky, 2007). When reviewing the corruption scandal at Siemens in Germany, Eberl et al. (2015) emphasized organizational rule adjustments such as strengthening of internal guidelines in order to close potential gaps, extension, and specification of compliance rules for all employees and suppliers, general interdiction of consultancy contracts in sales and distribution, and guidelines on presents and invitations. Ahrne and Brunsson (2011) described the characteristics of an organization as membership, hierarchy, monitor, and sanctions. Organizations decide about membership and thus who will be allowed to join the organization as employees. Membership brings a certain identity with it, where the identity differs from that of non-members. Organizations include a hierarchy where there is a duty to oblige others to comply with decisions. Hierarchy entails a form of organized power. Organizations

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can issue commands, and they can decide upon rules that their members are expected to follow in their actions. An organization has the right to monitor compliance with its commands and rules (Kawasaki, 2020; Rooij & Fine, 2020). Organizations have the right to decide about sanctions, both positive and negative. They can decide to change a member’s status by using promotions, grading systems, awards, diplomas, and medals. In this hierarchical perspective, compliance at the top is far more difficult to monitor than compliance further down in the organization. Compliance is linked to corporate social responsibility. To take on corporate social responsibility (CSR) means to pay back to society. Payback is the opposite of causing costs to society. CSR is supposed to be a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and national and international norms (Zhang, 2021). CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in the interaction with their stakeholders on a voluntary basis (Ditlev-Simonsen, 2014). While research perspectives on compliance are still very limited, CSR is receiving increased attention, sometimes linked to the concept of governance. Corporate social responsibility, governance, and compliance with laws and regulations are three approaches often suggested to combat fraud and corruption in organizations. CSR is defined as discretionary corporate initiatives and activities intended to further social welfare (Carnahan et al., 2017). Today, companies are expected to take on responsibilities beyond regulatory compliance and posting profits (Ditlev-Simonsen, 2014: 117): How companies engage the environment, human rights, ethics, corruption, employee rights, donations, volunteer work, contributions to the community and relationships with suppliers are typically viewed as components of CSR.

Scherer and Palazzo (2011: 906) claimed that globalization is a given and not something we can opt out from and that this makes a new perspective on CSR necessary and unavoidable:

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In order to respond to the globalization phenomenon and the emerging post-national constellation, it is necessary to acknowledge a new political role of business that goes beyond mere compliance with legal standards and conformity with moral rules.

Corporate social responsibility is described as a leadership task. Board members and chief executives in an organization have a particular responsibility to make sure that the organization is in compliance with laws and regulations, and that the organization makes contributions to society wherever relevant. Chief executives should make the organization accountable, compensate for negative impacts, contribute to societal welfare, operate business ethically, take responsibility for society, and manage in relation with society. Engdahl (2013: 332) found that duality in terms of segregation of duties might ensure regulatory compliance in banking and finance: Today the segregation of duties is commonly used to ensure regulatory compliance in various industries. (…) The argument is made that an effective duality-based segregation-of-duties type control system presupposes social relations characterized by relative autonomy and third-party dependence, along with work task interdependence.

The chief executive officer (CEO) is the only executive at level 1 in the hierarchy of an organization (Davidson et al., 2019). All other executives are at lower levels. Above the CEO, a number of board members who have major positions elsewhere, show up from time to time. Hambrick et al. (2015) found that boards often fail in their monitoring responsibilities. One reason is that many board members are missing some of the following attributes: independence, expertise in the domain, bandwidth, and motivation. Hambrick et al. (2015: 324) expressed surprise that investigative journalists succeed while board members fail: On the face of it, this study applauds the role of the press as governance watchdog, but it also raises deeper questions: If journalists could spot these frauds using public sources, why couldn’t the companies’ boards have detected them? For that matter, why couldn’t the boards have spotted the frauds when they were first being perpetrated? And what kind of tone

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did these boards set that would prompt their companies’ CEOs and other executives to engage in such acts and think they could get away with it?

CEOs typically enjoy substantial individual freedom in their professions with little or no control (Khanna et al., 2004). Fraud examiners recommend more control of CEOs because of failing compliance (e.g., Bruun Hjejle, 2018; Clifford Chance, 2020; KPMG, 2020a, 2020b; Plesner, 2020; Sands, 2019). It starts already with travel expenses by CEOs that typically find approval from a subordinate—the chief financial officer (CFO). Control of the CEO is less likely to succeed by a group of people—the board. Rather, the chairperson of the board should control and approve all financial activities of the CEO. Furthermore, the CEO should never be able to act alone in major business activities. The chief compliance officer in the organization should have a special assignment of monitoring CEO activities and reporting findings to the chairperson. Cowen et al. (2016: 152) suggested that employment contracts for CEOs should have a clause related to misconduct and crime: For example, a claw back could be triggered by a financial restatement that happens after an executive’s dismissal or by new evidence that surfaces indicating he or she engaged in misconduct while serving as CEO. Claw backs can also force terminated executives to repay benefits if there is evidence their actions have violated restrictive covenants.

As suggested in agency theory, CEOs have a tendency to become opportunistic agents (Shen, 2003). Based on their charisma, external stakeholders and board members lose control over CEO activities (Fanelli & Misangyi, 2006). Therefore, Cowen’s (2016) proposal of employment contracts with repayment option may cause a decline in white-collar crime by CEOs. In the perspective of preventing and prosecuting corporate crime, Haines and Macdonald (2021: 299) argued that addressing corporate crime and harm is not simply an issue of enforcement and compliance:

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Neither is it one of digging deeper to find the ultimate root of the problem – the reproduction of power relations is nothing new to criminology. Understanding the direction of prevailing winds that shape business activity is important though in understanding where change is possible. Grappling with injustice is just that – looking for sources of influence ultimately requires going beyond blanket classifications of law – in all its forms – as either helpful or unhelpful, and understanding which law, from which place and used in which way within a field of struggle is important.

Lehman et al. (2020) introduced rule complexity as a research perspective on compliance. The perspective claims that it sometimes is impossible to understand what is right and what is wrong. Some laws, rules, and regulations are so complex that compliance becomes random. Some rules are more complex to the extent that they have more connections to or functional dependencies upon other rules in the same system.

Legalistic and Formalistic Approaches The popular choice of strengthening the formalistic compliance function in organizations is no substantive action (Eberl et al., 2015: 1207): Internal rule adjustments have the potential to signal a voluntary willingness to change the moral standards of an organization, whereas simple compliance with external legal requirements may prove less effective.

Legalistic remedies do generally have little effect on integrity when they are inconsistent with individual and cultural values. Trust cannot be re-established by formal, legalistic measures. Instead, the value inconsistencies have to be addressed directly. However, in a short-term perspective, the approach of window dressing by a strengthened compliance function might temporarily contribute to trust repair. Window dressing is the act or the instance of making something appear better than it actually is. Formal control mechanisms are a window dressing approach that might reduce trust (Eberl et al., 2015: 1207):

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For some scholars formal control replaces or even diminishes trust. It is argued that extensive monitoring undermines trust. Formal control may create stress and therefore negatively affect trust. Others, who claim that trust and formal control complement each other, at least implicitly, emphasize the importance of formal organizational rules in ensuring consistent behavior. It is argued that organizational rules define normative expectations, thereby providing a feeling of certainty and guidance for interactions between organizational members. Following this thought, commonly accepted rules are fundamental for trustworthiness since they make behavior more predictable.

Actors in auditing and compliance functions in business and public enterprises seem to have a preference toward formal rules and guidelines in the form of window dressing rather than detection of potential offenders (Desai, 2016). Alon et al. (2019) argued that accounting and auditing functions have undergone a legitimacy crisis in recent years because of formal rather than substantial financial reviews. Compliance emerged as an important management topic following a stream of corporate scandals in the United States and many other nations. Companies and industries adopted internal policies and procedures for reporting and trying to prevent misconduct (Chen & Soltes, 2018: 119): Those efforts helped assuage legislators who had sought to more heavily regulate and penalize firms for dishonest practices. Self-policing appealed to business leaders as a way to avoid the cost and disruption of additional regulation. It also eased the investigative burden on regulators, and many people believed it would successfully deter wrongdoing.

But it did not. Compliance programs did not deter wrongdoing. Compliance programs served mainly as window dressing to indicate a clean and professional front-end of the organization with all its problems hidden inside. Chen and Soltes (2018) argued that the solution to this problem is to link compliance initiatives to business objectives. Antitrust is yet another approach to compliance. Antitrust refers to laws, regulations, guidelines, and other measures that encourage competition by limiting the power of any particular firm and by preventing

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deviant executives from pursuing the route of crime networks such as cartels with other businesses in the same industry. An example mentioned by Edelman (2021) is the airline industry in the United States where there is an oligopoly of four major airlines. Antitrust is not only a matter of compliance at the organizational level but also at the national and global level as “a global consensus has emerged recognizing the central role that competition law plays in promoting a nation’s prosperity” (Yoo et al., 2021: 843).

Compliance Audits and Risk Assessment Compliance audits gauge how well organizations ensure adherence to various applicable laws and other regulatory compliances (Thottoli, 2021: 137): It helps avoid risk of fines, penalties and closure of business. Compliance audit gives specific attention to assessing compliance by criteria derived from responsible authorities.

Compliance risk assessment is about introduction of a systematic approach to “the entity’s identification of relevant risks to achievement of its objectives, forming a basis for determining how risks should be managed” (Marchetti, 2012: 74). Risk assessment is a process that has to include potential deviant behaviors among board members and corporate executives to make more informed business decisions. As Koller (2005: 28) noted, “fostering a risk assessment process upon an organization will not only change how opportunities or liabilities are assessed but will significantly alter the way an organization makes critical decisions”. Some organizations are characterized by rotten apples, while others are characterized by rotten barrels (Boateng et al., 2021; Gottschalk, 2012). While it might be comforting to assume that there is only one bad apple when a corporate crisis occurs, compliance functions have to look for rotten barrels involving larger parts of the business. While occupational crime is associated with bad apples, corporate crime is

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associated with systems failure. Bad apples theory represents an individualistic approach in criminology, while systems failure theory represents a business approach in criminology (Heath, 2008: 601): If the individualistic approach were correct, then one would expect to find a fairly random distribution of white collar crime throughout various sectors of the economy, depending upon where individuals suffering from poor character or excess greed wound up working. Yet, what one finds instead are very high concentrations of criminal activity in particular sectors of the economy. Furthermore, these pockets of crime often persist quite stubbornly over time, despite a complete changeover in the personnel involved.

It is certainly an interesting issue whether to view white-collar misconduct and crime as acts of individuals perceived as “rotten apples” or as an indication of systems failure in the company, the industry, or the society as a whole. The perspective of occupational crime is favoring the individualistic model of deviance, which is a human failure model of misconduct and crime. This rotten apple view of white-collar crime is a comfortable perspective to adopt for business organizations as it allows them to look no further than suspect individuals. It is only when other forms of group and/or systemic corruption and other kinds of crime erupt upon a business enterprise that a more critical look is taken at white-collar criminality. Furthermore, when serious misconduct occurs and is repeated, there seems to be a tendency to consider crime as a result of bad practice, lack of resources, or mismanagement, rather than acts of criminals.

Fraud Examinations of Compliance Failures At Wells Fargo in the United States, corporate control functions were constrained by the decentralized organizational structure (Shearman Sterling, 2017; Shichor & Heeren, 2021). Fraud examiners excused

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corporate control functions since they suffered from harm by the decentralized organizational structure and a culture of substantial independence for business units. “That’s how they taught us to do it”. This is a phrase illustrating learned deviance and inadequate deterrence. Leasure and Zhang (2018) studied reports of Wells Fargo and Morgan Stanley being engaged in widespread fraudulent sales practices in the retail banking industry. They found that the underlying deviance had been taught by senior management, and that new employees were taught these fraudulent practices. Furthermore, they found that ethics and compliance practices and policies were largely ineffective in curtailing such conduct. Wells Fargo was fined $185 million for fraudulently opening accounts at its Community Bank. Community Bank opened as many as two million fake accounts in an effort to meet wildly unrealistic sales goals. The CEO at Community Bank resigned before the fraud examination report by Shearman Sterling (2017) was published. The Community Bank at Wells Fargo was held responsible based on two laws, the Sarbanes–Oxley Act and the Dodd-Frank Act (Shichor & Heeren, 2021: 105): Both laws have provisions for claw backs of compensation, which is a notable feature of the penalties imposed on Wells. In addition, both laws require corporations to be concerned about internal governance, including the operation of the Board, corporate risk and compliance, and improved shareholder input. Sarbanes-Oxley reinforces these concerns by criminally penalizing any interference by a corporation which obstructs a governmental investigation of the corporation. This kind of provision seems to have played an important role in the ongoing revelations about the misdeeds of Wells Fargo.

At Samherji in Iceland, it was detected by investigative journalists that the fishing company was involved in corruption in Africa to obtain fishing rights along the coast of Namibia (Kleinfeld, 2019, 2020). Samherji (2020) then published the following press release on July 29, 2020, using the company website (https://www.samherji.is/en/moya/ news/samherjis-namibia-investigation-finalized) to emphasize corporate commitment to compliance after a fraud examination by law firm Wikborg Rein:

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Long before Wikborg Rein’s conclusions emerged, Samherji put in place a number of measures to safeguard against further exposure to wrongdoing committed by individuals. All operations in Namibia were stopped already in 2019. On 17 January 2020 Samherji announced that it was in process of launching a modern state-of-the art compliance program which is being implemented throughout our global organization this year: https://www.samherji.is/en/moya/news/samherji-to-implementcorporate-governance-and-compliance-system. That work is already well underway. Samherji’s ambition is to be a pioneer in compliance, governance and internal control within the global fisheries industries. Samherji will also proactively keep reaching out to relevant authorities that show dedication to mutual cooperation, offering assistance and cooperation during ongoing investigations into the Namibia-related allegations. An agreement is now made for Wikborg Rein to meet with the Icelandic District Prosecutor in the fall. Several meetings have further been held with Namibian authorities in an effort to explore the basis for similar cooperation there.

At General Motors in the United States, sufficient resources for executives comprehensively to address safety and compliance issues were not ensured. The internal investigation report by Valukas (2014) was concerned with the safety defects in the Cobalt at GM. The fraud examiners found that departments, divisions, and groups did not have substantial responsibilities concerning the identification, investigation, or remediation of safety issues. No regular communication with employees about safety took place at GM. There was no awareness of safety issues. Employees were not encouraged to raise any concerns they had about safety or compliance. There was a culture of fear of retaliation when employees reported concerns regarding actual or potential safety-related defects or potential noncompliance with the federal standards. Owners of safety and compliance issues could not be identified at GM. Therefore, accountability could not be addressed. Internal roles did not define responsibilities and accountability for those involved in processes related to the evaluation and resolution of safety issues, including responsibilities for feeding items into the relevant work process. Roles of committees were not clarified. A person on each such committee was not designated

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as a safety liaison with responsibility for elevating safety issues. Appropriate identification, elevation, and resolution of safety and compliance issues were not included as a factor in employee performance evaluations. Employees were not required to certify that they had reported any safety issues, which they were aware of, and to identify, as part of that certification, any safety issues they were aware of that had not been resolved. Coordination between groups was never formalized, and no coordination occurred between engineering teams with accountability for safety and compliance issues. The CEO, who had hired Valukas (2014), was blamed in the fraud examination report. Others further down the GM hierarchy were attributed blame and had to leave the corporation as organizational scapegoats. At Wirecard in Germany, fraud examiners from KPMG (2020a, 2020b) did not provide a clean bill of health since they in their report criticize Wirecard’s internal controls and compliance functions. In their final report, examiners detailed shortcomings in Wirecard’s internal controls and compliance functions and outlined severe doubts about the company’s accounting practices. However, fraud examiners did neither confirm nor reject accounting manipulation and other kinds of financial wrongdoing. Therefore, Wirecard management quickly stated that “no evidence was found for the publicly raised allegations of balance sheet manipulation” (Storbeck, 2020). Nevertheless, the financial enterprise collapsed half a year later. While some ignored violations of laws in achieving goals, others wanted to watch compliance, which created an ethical climate conflict. The CEO was arrested in June 2020. The second-in-command who oversaw operations in Asia escaped arrest and was on the run. A key Wirecard business partner suddenly died. Consultants had helped Wirecard prepare a plan of Project Panther to take over Deutsche Bank. To do so, the value of Wirecard needed to exceed the value of Deutsche Bank. The scheme was detected by investigative journalists at Financial Times (Storbeck, 2020). At the Office of the Sheriff in Philadelphia in the United States, contracts did not find compliance with the terms of the home rule charter, but they were not readily accessible for public review, and were not internally circulated and made known within the Office of the Sheriff (Deloitte, 2011: 14):

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The deficiencies in the contracting process weakened the Sheriff ’s Office ability to determine the accuracy and legitimacy of vendor invoices, particularly those of the Office’s largest vendor.

The sheriff and his office did not exercise oversight of the invoices and did not minimize advertising costs and other expenses. Under the sheriff ’s tenure, there were few internal controls relating to vendor invoices, and their fees. The director of compliance in the office did not notice any deviance. At the International Biathlon Union in Austria, there were no restrictions on being the union president and how many periods he could be in such a central position without being replaced. The IBU president had been a central figure in shaping the business, culture, ethics, structure, and compliance of right and wrong at IBU as an organization. The suspected fraud was concerned with the president receiving favors and bribes from Russian biathlon union officials in terms of expensive adventure trips and access to Russian prostitutes. When the report by the Commission (2021) was published, the president resigned and became subject to criminal investigation. At British Petroleum in the United States, Freeh (2013) had a mandate of examining and evaluating the internal compliance program in their claims office. In the aftermath of the Deepwater Horizon oil spill on April 20, 2010, and in an effort to begin to fulfill its obligations under the Oil Pollution Act, British Petroleum established a facility to receive and to process claims. They paid compensation to individuals and businesses affected by the spill. The BP facility paid claims for losses resulting from lost earnings or lost profits, removal and cleanup costs, damage to real or personal property, loss of subsistence use of natural resources, and physical injury or death. The total compensation was $11 billion. Freeh (2013) concluded that attorneys in the claims office might have violated the federal criminal statutes regarding fraud, money laundering, conspiracy, or perjury. The investigator recommended that law enforcement should take over the case and conduct a criminal investigation in this matter. Attorneys had both been presenting claims on behalf of victims as well as approving claims on behalf of petroleum company BP. It was a profitable assignment for attorneys, and some attorneys made it

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allegedly even more profitable for themselves by kickbacks and by both applying for and approving compensations. At Oceanteam in the Netherlands, a consequence of the fraud examination by Sands (2019) was that both the chairman and the chief executive had to leave their positions at the corporation. Another consequence was the complete restructuring of compliance functions. However, the new management did not appreciate the investigation report by Sands (2019). They distanced themselves from the whole investigation affair, and they expressed dissatisfaction with the costs that the company had to carry for the examination that was initiated by a shareholder. At the social security agency in Norway, they were reluctant to comply with European EEA rules. The reluctance of an agency to comply with EEA rules becomes stronger when the rules are both complicated and in conflict with political priorities. Over the course of many years, the Norwegian Labor and Welfare Administration (NAV) has applied the requirement of stay in Norway under the Norwegian National Insurance Act for recipients of social security benefits such as sickness compensation, attendance allowance, and work assessment allowance in a manner contrary to and in conflict with European commitments. However, within Europe, Norwegians are allowed to move freely independent of their status. Employees at NAV as well as ministry officials, police investigators, state prosecutors, defense lawyers, judges at criminal courts, officers at correctional institutions, academic researchers, and law professors have all ignored or misunderstood European social security regulations. While not a member of the European Union, Norway has signed a number of treaties requiring the country to align with most EU regulations. Many innocent Norwegian welfare recipients have been incarcerated wrongfully because NAV claimed it was illegal for them to stay in other European countries while receiving the generous social benefits from their home country Norway (NOU, 2020).

Maturity Model for Corporate Compliance Stages-of-growth models for maturity levels help to assess and evaluate a variety of phenomena (e.g., Chen et al., 2021; Mondani & Rostami,

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2021; Röglinger et al., 2012; Solli-Sæther & Gottschalk, 2015). Stage models predict the development or evolution of investigative maturity from basic performance to superior results (Iannacci et al., 2019: 310): They also suggest that this development is progressive (i.e., each successive stage is better than the previous one), stepwise (i.e., each step is a necessary prerequisite for the following step in the sequence), and prescriptive (i.e., each step must occur in a prescribed order in accordance with a preexisting plan or vision), thus emphasizing the chain of successful events rather than the mechanisms by which subsequent stages come about.

Antonsen and Madsen (2021) suggested a maturity model for the compliance function of investment firms. Their assessment model for compliance maturity suggests a path of evolution wherein the compliance function matures from being reactive and inconsistent to becoming a proactive and integrated part of an investment firm’s business practice. They defined a number of key enablers of a compliance function in the areas of technology, coordination, policies and processes, resources, and business integrity. Technology is applied to increase effectiveness, efficiency, and transparency. Coordination is a matter of improved cooperation and communication. Policies and processes work better when they are clearly defined and implemented. Appropriate resources must be allocated to the compliance function. Business integrity is the quality of acting in accordance with the moral values, norms, and rules that are considered valid and relevant within the context in which the actor operates (Loyens et al., 2021). Integrity refers to taking responsibility for the representation of the self and one’s commitments (Gardiner et al., 2017). The maturity model suggested by Antonsen and Madsen (2021) has four levels: ● Level 1: Reactive and inconsistent. All processes are manual, no systems in place; no functional access and communication with other business lines; policies and processes not documented, ad hoc response to incidents; insufficient resources allocated; and compliancy viewed as a necessary evil.

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● Level 2: Organized but reactive. Some processes are automated while others are manual; defined lines of communication with other business lines and mutual functional access; defined and documented compliance function but not integrated into the workflow; appropriate resources necessary to achieve compliance; and business ethics and values are defined centrally. ● Level 3: Actively managed and understood. All processes are supported by automated systems; all business lines work toward shared goals and initiatives; compliance function understood by employees and integrated into the workflow; scalable risk-adjusted resource deployment assessment of resources done periodically; and time is spent consulting and involving employees in business ethics and values. ● Level 4: Proactive and implemented. All processes are supported by and integrated in one and the same automated system; alignment of strategy, processes, and technology to shared goals to improve effectiveness; compliance function integrated into the workflow, continuously measured and improved; resources continuously monitored and effectively adapted to changes in compliance requirements; a healthy compliance culture is fostered, and employees naturally promote it. Antonsen and Madsen (2021) tested their compliance model based on an interview with the head of compliance and risk at a Norwegian investment firm. The interviewee was concerned with an effective compliance function described as working among management and employees preventively by explaining why the regulations are formed as they are. The interviewee emphasized that compliance principles serve as a sales argument to the firm’s clients. In terms of the compliance model, the researchers found that the firm was at level 4 regarding business integrity since the board and management focused on building a compliance culture. When and where in doubt, control systems were in place to ensure that optimal priorities applied. Policies and processes as well as resources were also assessed at level 4. Coordination was assessed at level 3 since communication gaps could still be found. Technology was assessed at level 2 since some processes were automated while others were performed manually.

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3 The Theory of Convenience and Compliance

This chapter posits the theoretical approach used as a foundation for this book—the theory of convenience. If compliance professionals possess an awareness of the likely motivations of white-collar offenders, the areas of opportunity that white-collar offenders often develop and seize, and what characterizes individuals willing to commit white-collar crime, then they are more likely able to recognize, prevent, and detect elite wrongdoing—we argue that an understanding of the importance of convenience for potential offenders is central in this regard. Thus, the extent of convenience orientation is introduced in this book as a fundamental explanation for white-collar crime variance among CEOs and other privileged individuals in politics, public administration, and private businesses—making a case for a specific way of interpreting elite members’ deviant behavior (Berry et al., 2002; Collier & Kimes, 2012; Engdahl, 2015; Farquhar & Rowley, 2009; Gottschalk & Hamerton, 2022; Sundström & Radon, 2015). Recognizing financial motive in executive deviance is similarly a key to understanding as it is mainly the convenience of extra profit, rather than the convenience of illegal profit, that is important in the motive dimension of convenience theory. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_3

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However, under certain circumstances, there might be some extra benefits from illegal extra profit rather than extra profit in general, since illegal funds avoid the attention of external and internal control mechanisms, including compliance functions (Kawasaki, 2020; Wingerde & Lord, 2020). A situation often exacerbated is perceived or experienced strain (Linder et al., 2021; Thaxton & Agnew, 2018). The chapter also considers convenience in terms of organizational opportunities for deviance linked to status-related factors and established cultural structures (Gyõry, 2020; Pontell et al., 2014; Rodriguez et al., 2005), allied to personal willingness and capacity for deviant behavior (Bernat & Whyte, 2020; Obodaru, 2017; Pratt & Cullen, 2005). It concludes by reaffirming that the purpose of introducing convenience themes is to identify factors that can disturb convenience for white-collar offenders, which might in turn reduce the tendency to commit white-collar crime and increase the tendency to detect white-collar crime. This suggests that, while motive and willingness can be difficult to disturb, disturbing the convenience of organizational opportunity is more likely to succeed—a factor which highlights the importance of the compliance process.

Individual Convenience Orientations Convenience is a concept that was theoretically mainly associated with efficiency in time savings. Today, convenience is associated with a number of other characteristics, such as reduced effort and reduced pain (Engdahl, 2015). Convenience is linked to terms such as fast, easy, and safe. Convenience says something about attractiveness and accessibility. Convenience is an advantage in favor of a specific action to the detriment of alternative actions. Convenience addresses the time and effort exerted before, during, and after an action or avoidance of action (Collier & Kimes, 2012). Convenience is the state of being able to proceed with something with little effort or difficulty, avoiding pain and strain (Mai & Olsen, 2016). A convenient individual is not necessarily neither bad nor lazy. On the contrary, the person can be seen as smart and rational (Sundström & Radon, 2015).

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Convenience orientation is conceptualized as the value that individuals and organizations place on actions with inherent characteristics of saving time and effort as well as avoiding strain and pain. Convenience orientation can be considered a value-like construct that influences behavior and decision-making. Mai and Olsen (2016) measured convenience orientation in terms of a desire to spend as little time as possible on the task, in terms of an attitude that the less effort needed the better, as well as in terms of a consideration that it is a waste of time to spend long hours on the task. Convenience orientation toward illegal actions increases as negative attitudes toward legal actions increase. The basic elements in convenience orientation are the individual attitudes toward the saving of time, effort, and discomfort in the planning, action, and achievement of goals. Generally, convenience orientation is the degree to which an individual or a group of individuals are inclined to save time and effort to reach goals. Convenience orientation refers to a person’s or persons’ general preference for convenient maneuvers. A convenience-oriented person is one who seeks to accomplish a task in the shortest time with the least expenditure of human energy (Berry et al., 2002; Farquhar & Rowley, 2009). Convenience orientation is introduced in this book as an explanation for white-collar crime among CEOs and other privileged individuals in politics, public administration, and private businesses. This book thus makes a case for a specific way of explaining elite members’ deviant behavior. Elite members with a strong convenience orientation favor actions and behaviors with inherent characteristics of saving time and effort. They have a desire to spend as little time as possible on challenging issues and situations that may occur. They have an attitude that the less effort needed the better, and they think that it will be a waste of time to spend a long time on a problem. They prefer to avoid the problem rather than handle it. They want to avoid discomfort and pain. They want to survive and prosper in the upper echelon of society in the best possible way. Convenience motivates the choice of action and behavior. An important element is avoiding more problematic, stressful, and challenging situations.

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Financial Motive for Executive Deviance It is mainly the convenience of extra profit, rather than the convenience of illegal profit, that is important in the motive dimension of convenience theory. However, under certain circumstances, there might be some extra benefits from illegal extra profit rather than extra profit in general, since illegal funds avoid the attention of external and internal control mechanisms, including compliance functions (Kawasaki, 2020). The financial motive is either based on possibilities or threats for either individuals or organizations as illustrated in Fig. 3.1. Possibilities for the individual include climbing the hierarchy of needs for status and success (Maslow, 1943). A privileged member of the elite has already satisfied all basic needs in the hierarchy, such as food and clothes, as well as advanced needs such as power and influence. Yet the offender would like to climb higher in the pyramid, into characteristics such as self-realization, admiration by others, fame and improved reputation, recognition, and status. To the extent that the offender has a strong motive where financial resources can help climbing, while legitimate means are inconvenient, then white-collar crime might be a convenient option (Wingerde & Lord, 2020). High-status individuals strive for fulfillment, self-esteem, and esteem from others. As Agnew (2014: 2) formulated it: “crime is often the most expedient way to get what you want” and “fraud is often easier, simpler, faster, more exciting, and more certain than other means of securing one’s ends”. In the perspective of financial motive from threats for the individual, the strain perspective has become one of the leading theoretical explanations for crime (Langton & Piquero, 2007). Strain associated with potential collapse and personal bankruptcy can trigger tax evasion, corruption, embezzlement, and fraud. Kouchaki and Desai (2015) suggested that people experiencing anxiety, nervousness, and worry are likely to behave selfishly and engage in self-interested unethical acts in an effort to restore the threatened self. The strain perspective argues that a range of factors influence whether individuals cope with strains through crime (Thaxton & Agnew, 2018: 888):

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GREED POSSIBILITIES GOAL MOTIVE

STRAIN THREATS BANKRUPTCY STATUS

CONVENIENCE

COMMIT OPPORTUNITY

ACCESS DECAY

CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS INNOCENCE

JUSTIFICATION NEUTRALIZATION

Fig. 3.1 Structural model of convenience theory

Criminal coping is said to be most likely among those with poor coping skills and resources, little social support, low social control, beliefs favorable to crime, criminal associates, and opportunities for crime.

The strain perspective emphasizes strains and stressors that increase the likelihood of crime, the negative emotions (including anger) resulting from those strains that create pressure for corrective action, and the factors that influence or condition the likelihood of criminal coping (Thaxton & Agnew, 2018). Stress is a psychological state that arises from a mismatch between perceived demands and one’s ability to meet those demands given available resources (Linder et al., 2021).

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Possibilities for the corporation include achieving ambitious business objectives, where ends justify means (Campbell & Göritz, 2014). If ends in terms of ambitions are difficult to realize and achieve in legal ways, illegal means represent an alternative in many organizations (Jonnergård et al., 2010). Among most executives, it is an obvious necessity to achieve goals and objectives, while it is an obvious catastrophe failing to achieve goals and objectives (Dodge, 2020). Welsh and Ordonez (2014) found that high performance goals cause unethical behavior. Dodge (2009) argued that it is tough rivalry making executives in the organization commit crime to attain goals. Threats for the corporation include markets with crime forces. In many markets, there are cartels that regulate the supply side. A cartel is an implicit agreement between firms in the same industry to fix prices, to divide customers and markets among themselves, to fix industry outputs, to allocate territories, or to divide profits (Goncharov & Peter, 2019: 152): Cartel members seek to act collectively, as if they were a single monopolist, thereby maximizing the collective profit. By doing so, cartels violate competition policy and severely reduce consumer welfare through pricefixing activities that increase the price of goods far beyond the competitive level. Recent evidence shows that the average price overcharges by cartels prosecuted by U.S. and EU cartel authorities were 48.4 and 32.2 percent, respectively.

The threat of corporate collapse and bankruptcy might cause exploration and exploitation of illegal avenues to survive, where moral panic can occur (Chattopadhyay et al., 2001; Kang & Thosuwanchot, 2017). The survival of the corporation can become so important that no means come across as unacceptable in the current situation. Sometimes, fraud and corruption are considered temporary measures to recover from a crisis (Geest et al., 2017), where the measures will be terminated when the crisis is over. A crisis is a fundamental threat to the organization, which is often characterized by ambiguity of cause, effect, and means of resolution (König et al., 2020).

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Organizational Opportunity for Deviance Some members of the elite are simply too powerful to blame. Pontell et al. (2014) found that the financial crisis obviously had its cause in mismanagement in the financial sector, but all in the financial sector avoided serious blame. Status-related factors such as influential positions, upper-class family ties, and community roles often preclude perceptions of blameworthiness (Slyke & Bales, 2012). Blameworthiness is the extent to which it is clear that an individual engaged in a questionable act (Dewan & Jensen, 2020). A white-collar offender has typically legitimate access to resources to commit crime (Williams et al., 2019). A resource is an enabler applied and used to satisfy human and organizational needs. A resource has utility and limited availability. A white-collar offender has usually access to resources that are valuable (application of the resource provides desired outcome), unique (very few have access to the resource), not imitable (resource cannot be copied), not transferrable (resource cannot be released from context), combinable with other resources (results in better outcome), exploitable (possible to apply in criminal activities), and not substitutable (cannot be replaced by a different resource). According to Petrocelli et al. (2003), access to resources equates access to power. Others are losers in the competition for resources (Wheelock et al., 2011). In the conflict perspective suggested by Petrocelli et al. (2003), the upper class in society exercises its power and controls the resources. An institution is a system of interrelated formal and informal elements—rules, guidelines, norms, traditions, beliefs—governing relationships between institutional members within which members pursue their mutual interests (Gyõry, 2020). Institutional deterioration labeled decay in Fig. 3.1 can occur conveniently as a result of external legitimacy where deviance is the norm (Rodriguez et al., 2005). Executive deviance enacted at institutional deterioration is dependent on a number of factors. For example, in the case of government corruption for multinational enterprises in host countries, both pervasiveness and arbitrariness are important factors. Pervasiveness is the average firm’s likelihood of encountering bribery, while arbitrariness is the inherent degree of ambiguity associated with corrupt transactions in a given nation or state

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(Rodriguez et al., 2005). Pinto et al. (2008: 686) define the beneficiary of corruption as the actor deriving direct and primary benefit from the action: “For example, even if individuals can benefit financially from corruption on behalf of the organization (e.g., through bonuses or high prices for their stocks), the organization is still the primary and direct financial beneficiary”. Chaos in Fig. 3.1 indicates a lack of oversight and guardianship. Guardianship is supervision that may prevent crime by the presence of individuals who are capable and willing to detect and react to wrongdoing. However, as argued by Chan and Gibbs (2022), the presence of guardians does not necessarily equate to capability in crime prevention, especially when studied from a dynamic perspective. For example, potential offenders may over time learn how guardians operate and thus how to avoid the attention of guardianship functions. As evidenced by many internal investigation reports by fraud examiners after white-collar crime scandals, internal auditors, external auditors, compliance officers, and other internal and external control units do not function properly (Biegelman & Bartow, 2012; Graham, 2015; Lehman et al., 2020; Marchetti, 2012). Oversight and control functions tend to be formal units without any insights into the substance of business activities. They tend to review procedures rather than transactions within procedures. Therefore, ineffective control functions are often an important part of the opportunity structure for white-collar crime. The final opportunity topic in Fig. 3.1 is collapse from rule complexity preventing compliance (Lehman et al., 2020), participation in crime networks such as cartels (Nielsen, 2003), and financial crime as the usual way of business in markets with crime forces (Chang et al., 2005). Collapse represents a convenient situation for everybody ready to commit white-collar crime.

Personal Willingness for Deviant Behavior The choice perspective of personal willingness includes identity, rationality, and learning as illustrated in Fig. 3.1. The powerful and wealthy in the upper class of society define their own identity in terms of what is

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right and what is wrong for them, sometimes in a state-corporate alignment (Bernat & Whyte, 2020). If they themselves break their own laws, then there is a need to change the laws rather than punish law violators (Petrocelli et al., 2003). The identity perspective suggests that individuals develop professional identities where they commit to a chosen identity. It is a process of generating possible selves, selecting one, and discarding others (Obodaru, 2017). The choice perspective of rationality addresses offenders’ comparison of benefits from crime with costs of crime. The rational choice assumption about offending is based on a normative foundation where advantages and disadvantages are subjectively compared (Müller, 2018). Offenders consider it rational to commit crime if benefits exceed costs. Individual preferences thus determine whether crime is committed (Pratt & Cullen, 2005). The greater benefits of crime are, and the less costs of crime are, the more attractive it is to commit criminal acts. According to Berghoff and Spiekermann (2018: 293), potential white-collar offenders “act on cost–benefit calculations involving the expected utility, the likelihood of being caught, and punishment costs”. The assumption of rational choice is that every crime is chosen and committed for specific reasons. Individuals consciously and deliberately choose criminal behavior of their own free will. Financial crime is a rational decision where advantages exceed disadvantages (Hefendehl, 2010; Lyman & Potter, 2007). The choice perspective of learning results from differential association. The differential association perspective suggests that potential offenders make a rational choice where they associate with those who agree with them, and distance themselves from those who disagree. This perspective suggests that whether individuals engage in white-collar crime or not depends on their socialization within certain peer groups. In an elite setting, interactions with deviant others promote criminal activity. The essence of differential association is that criminal behavior is learned, and the main part of learning comes from within important personal groups (Sutherland, 1983). Exposure to the attitudes of members of the organization that either favor or reject legal codes influences the attitudes of the individual. The individual will go on to commit crime, if the person exposes himself or herself more to attitudes that favor law

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violation than to attitudes that favor abiding the law (Wood & Alleyne, 2010). Learning from others is an active process. Differential association can occur in the organizational setting, but does not as such increase the organizational opportunity to commit crime. Rather, differential association belongs to the behavioral dimension of convenience theory, as crime learning makes it more convenient to favor law violation. The innocence perspective in Fig. 3.1 is concerned with justification and neutralization. In a justification, the actor admits responsibility for the act in question but denies its pejorative and negative content (Schoen et al., 2021: 730): People use justification mechanisms to protect their sense of self. People who sincerely believe that they are a specific kind of person but routinely demonstrate behaviors that indicate otherwise may avoid cognitive dissonance and maintain their sense of self by using justification mechanisms that allow them to “explain away” their behavior.

Neutralization is a matter of applying a number of techniques to avoid a guilty mind. By application of neutralization techniques (Sykes & Matza, 1957), offenders deny responsibility, injury, and victim. They condemn the condemners. They claim appeal to higher loyalties and normality of action. They claim entitlement, and they argue the case of a legal mistake. They find their own mistakes acceptable. They argue a dilemma arose, whereby they made a reasonable tradeoff before committing the act (Jordanoska, 2018; Kaptein & Helvoort, 2019; Siponen & Vance, 2010). Such claims enable offenders to find crime convenient, since they do not consider it crime, and they do not feel guilty of wrongdoing (Cullen et al., 2021).

Disturbing Offender Crime Convenience The purpose of introducing convenience themes is to identify factors that can disturb the convenience for white-collar offenders, which might in turn reduce the tendency to commit white-collar crime and increase the tendency to detect white-collar crime. While motive and willingness

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can be difficult to disturb, disturbing the convenience of organizational opportunity is more likely to succeed: How can the status of elite members be reduced so that they are not too powerful to blame? How can access to resources by elite members be transparent and monitored? How can rules, guidelines, norms, and traditions be implemented at the top of the organization? How can oversight and guardianship be practiced among trusted executives? How can one reduce complexity in rules and regulations to create insights into what is wrong and what is right to do? Of course, one should not give up on motive and willingness. Influence factors on motive themes include: How can the desire for personal illegitimate gain become reduced? How can the desire for corporate illegitimate gain become reduced? In the latter case, less ambitious business goals might be an answer. In the former case, less focus on material wealth and the American dream of prosperity might be relevant answers. Influence factors on willingness themes include: How might elite entitlement become corrected? How can personal morals prevent choosing an illegal path when crime has more benefits than costs? How can differential association be compensated by forced association with critics? How can elite members be reminded of the guilty mind? In addition, factors that reduce the convenience of crime include new laws and regulations, ethics, environmental concerns, public condemnation, and the role of effective and efficient compliance (Biegelman & Bartow, 2012; Graham, 2015; Kawasaki, 2020; Lehman et al., 2020; Marchetti, 2012). The historical roots of the white-collar crime phenomenon are often traced back to the robber barons as exemplified by the Spreckels family (Spiekermann, 2018). Berghoff (2018: 425) suggested the term “organized irresponsibility” for individuals with high social status in privileged positions who have cooperated for centuries: The term implies that management had conspired to prevent efficient controls and therefore facilitated and promoted corruption.

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Berghoff and Spiekermann (2018) found that white-collar crime has been and is systemic and part of a culture. They argued that guardianships in the form of audit routines and compliance procedures have never worked where privileged individuals are determined to commit and conceal financial transactions.

Traditional Criminological Perspectives The convenience triangle of motive, opportunity, and willingness has similarities to the well-known fraud triangle (Cressey, 1972), which suggests three conditions for fraud by potential offenders: (1) incentives and pressures, (2) opportunities, and (3) attitudes and rationalization. However, there are three distinct differences. First, convenience is a relative concept, indicating that offenders have the option of alternative actions to reach their goals where their behavior does not involve illegitimate actions. While the fraud triangle suggests that increased opportunities will stimulate crime tendencies, the convenience triangle suggests that relative opportunities will stimulate such tendencies. In the convenience perspective, there is no reason to commit crime, even if there are ample and attractive opportunities, as long as alternative— and more convenient—decisions involving legitimate behavior may lead to the same result or even to a better result. The extent of relative convenience rather than the extent of absolute opportunity determines whether an offense seems attractive. Depending on the convenience orientation, that is the extent of emphasis on convenience, an extremely convenience-oriented elite member may resort quicker to illegal activities when legal activities are slightly more stressful. On the other hand, a less conveniently oriented decision-maker may try intensely to solve problems and explore opportunities without violating the law. Second, while the fraud triangle refers to opportunity in general, the convenience triangle refers to opportunity in an occupational setting of status and access. Offenders have privileged access to resources to commit and conceal wrongdoing. There is often too much trust and lack of control that cause convenient opportunities for elite members.

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Third, the extent of opportunity is not only a constant or a variable that is externally determined. Rather, a potential offender can create and expand the opportunity space over time. By reducing transparency, controlling information flows, threatening potential whistleblowers, collecting decision rights, controlling information flows, and by authoritarian leadership styles, a potential offender can develop an opportunity space that grows conveniently over time. Many criminologists might not be fully familiar with management and organizational studies. Convenience theory attempts to provide an umbrella rather than a replacement for traditional criminological perspectives such as self-control and neutralization as well as opportunity and seriousness. The well-known perspectives integrated in convenience theory link to the organizational issue of compliance in various ways as described in this book.

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4 Lack of Compliance from Convenience

This chapter examines situations where compliance can be recognized as lacking or weak, and convenience readily identified. According to PricewaterhouseCoopers (2016: 5), “multiple companies lack an overview of the commitments the organization should follow, and what the compliance function is supposed to control and monitor”. Therefore, the importance of compliance might, to a certain extent, be ignored or overlooked, which enhances an organization’s vulnerability to financial crime. Moreover, executives might ignore potential controls and guardianships to secure compliance, and instead succeed in delivery of goods and services to the market. This is a situation evidenced in many internal investigation reports by fraud examiners after white-collar crime scandals, with internal auditors, external auditors, compliance officers, and other internal and external functions bypassed or overridden (e.g., Bruun Hjejle, 2018; Clifford Chance, 2020; Deloitte, 2015, 2017; Mannheimer Swartling, 2016; Shearman Sterling, 2017). The principal purpose of this chapter is to identify and contextualize such convenience themes in international case studies of failing compliance—essentially, the application of theory to practice. Six cases are closely evaluated within this chapter: Astellas Pharma’s (Japan) cultural and compliance failings in © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_4

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the context of the United Kingdom (Mulinari et al., 2021); Danske Bank (Denmark) and money laundering in Estonia (Bruun Hjejle, 2018); Fuji Xerox (Japan/United States) and customer fraud in New Zealand (Deloitte, 2017); Nordea Bank (Denmark) and tax evasion in Luxembourg (Mannheimer Swartling, 2016); Swedbank (Sweden) and money laundering in Lithuania (Clifford Chance, 2020); and Telenor (Norway) in VimpelCom corruption in Uzbekistan (Beim et al., 2014; Deloitte, 2016).

Astellas Cultural and Compliance Failings Astellas was suspended by the Prescription Medicines Code of Practice Authority (PMCPA) in the United Kingdom. Like in so many other corporate wrongdoing cases, Astellas executives initially denied misconduct by justification of actions and neutralization of potential guilt perceptions. Later, they accepted investigation findings and punishment rulings (Mulinari et al., 2021: 71): The company’s official explanation for wrongdoings is one of “significant cultural and compliance failings created and caused by the actions and behaviors of some of its very senior managers” in Europe. It its report, The PMCPA attributed Astellas’s gross misconduct and dishonesty to “multiple organizational and cultural failings” within the company, and to a corporate culture that prioritized “the bottom line” over compliance obligations and ethical norms.

The priority of compliance suffered under the priority of the bottom line in terms of profits. When the bottom line is struggling and not meeting investor expectations, compliance is indeed potentially violated in many corporate settings. Furthermore, also Astellas applied the procedure of scapegoating (Mulinari et al., 2021: 75): According to Astellas Europe, “the email indicated that there was a conscious decision by one individual” (…), but that “as an organization” Astellas had been completely unaware of the email up until this

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point. Hence, the company submitted there “was no dishonesty or deliberate attempt to mislead” – except by this single rogue employee. Astellas Europe also stated that, “immediate action had been taken to address the conduct of this senior member of staff ”.

Mulinari et al. (2021) studied responsive regulation to offset pharmaceutical industry illicit behavior in areas such as drug marketing based on self-regulation backed up with threats of government sanctions. The researchers argued for a more probing, critical, and governmentled regulatory approach instead of the self-regulatory approach. They found extensive abusive business practices, corporate noncompliance, and impression management. They used Astellas’ wrongdoing regarding off-label promotion of a prostate cancer drug as an example (Mulinari et al., 2021: 71): While initially denying wrongdoings, Astellas has fully accepted the findings and rulings, and global company executives have referred to the situation as a “corporate crisis”.

The Japanese drug company Astellas faced frequent rulings by the PMCPA: In June 2016 for bribing UK health professionals for attendance, in May 2017 for lack of concern for patient safety, in June 2017 for producing promotional material without warnings against serious adverse reactions, and in December 2018 for bribing a hospital to use their medicine. The continued deviant behavior might be explained by corporate greed in the motive dimension of convenience theory, by organizational opportunity to commit wrongdoing based on failing compliance function, and the executive willingness might be explained by corporate culture and industry culture.

Danske Bank Money Laundering in Estonia At Danske Bank where money laundering could occur in their Estonian branch, corporate control functions did not work because the branch operated computer systems different from computer systems at

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the headquarters (Bruun Hjejle, 2018). The financial motive derived from non-residents providing most of the bank profits, and organizational opportunity existed because of a different IT platform in Estonia that prevented insights and controls from compliance and auditing functions in the bank. The disabled compliance function in the bank was thus an important part of the organizational opportunity structure for executive deviance in the Estonian branch. The same disability applied to internal auditors, external auditors, as well as other control functions in the bank. The inability for gaining insights was even worse by the fact that “many documents at the Estonian branch, including information about customers, were written in Estonian or Russian” rather than English or Danish (Bruun Hjejle, 2018: 2). Danske Bank had its own compliance incident management team that noticed nothing wrong in the Estonian bank. It was a local employee in Estonia who blew the whistle. In September 2018, a money laundering scandal at Danske Bank’s Estonian branch became public when the bank presented a report of investigation by fraud examiners at the law firm Bruun Hjejle (2018). When the report became public, the CEO had to resign from the position (Binham & Milne, 2018). The report found that it was clear that anti-money laundering procedures “at the Estonian branch had been manifestly insufficient and inadequate, including, inter alia, lack of identification of ‘controlling interests’ of customers, lack of screening of customers, and lack of independence and possible collusion in the Estonian branch” (Bruun Hjejle, 2018: 78). Officially, the abandonment of the migration plan of IT systems occurred because it could be too expensive and take up too much capacity. The lack of migration would cause problems for the compliance function that they were unable to tackle. A similar outcome occurred when the Estonian financial supervisory authority performed an inspection regarding money laundering control in the bank. This resulted in a final inspection report written in Estonian. Local executives provided only an English summary to Danske Bank. According to the summary, the Estonian authority noted that the attitude of branch employees concerning the objectives of and compliance with statutory requirements had “improved considerably” (Bruun Hjejle,

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2018: 42). The local authority also wrote that the branch had “changed or updated its internal procedures in line with the legal amendments” (Bruun Hjejle, 2018: 42). Danske Bank paid 210 million Danish kroner (about US$ 30 million) for the investigation by the law firm. The investigative knowledge strategy included mainly knowledge workers with legal training at Bruun Hjejle. In addition, forensic experts from PwC and Ernst & Young were assisting the law firm based on accounting and auditing knowledge, and the international data management software company Palantir Technologies deployed its software platform to integrate and enable analysis of the comprehensive magnitude of customer, transaction, and trading data available. CERTA Intelligence and Security was also assisting in these investigative tasks. The fraud examiners investigated thousands of customers and millions of transactions as well as trading activity. They examined the now terminated non-resident portfolio in the Estonian branch from the time of Danske Bank’s acquisition of Sampo Bank completed in 2007 until the termination of the non-resident portfolio in late 2015, with some accounts closing in early 2016. The main focus was on the customers in the non-resident portfolio and their payments and trading activities during this period. The employees and agents of the Estonian branch who handled the non-resident portfolio or could otherwise have been involved were also investigated to uncover potential internal collusion. Identified data included 87 million payments for all customers at the Estonian branch, which were transferred into Palantir’s software platform to store, structure, and enable data analysis. Relevant external data from other sources than the Estonian branch were also identified, collected, and ingested into the software platform. The fraud examiners conducted a large number of interviews with relevant persons. For preparation of interviews, they engaged consultants from Promontory. Interviews were conducted with employees, including members of the executive board in the bank as well as members of the board of directors. 49 individuals were interviewed, and a total of 74 interviews were conducted as part of the investigation. All interviews were conducted in accordance with rules on due process.

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The fraud examiners did let suspects and others comment on their findings (Bruun Hjejle, 2018: 20): Based on all collected information, the conducted interviews and observations, Bruun & Hjejle assessed the potential institutional and individual accountability. All individuals subject to individual assessment were given the opportunity to review a draft assessment together with relevant material. Also, other individuals with knowledge of the events relevant to the accountability investigation, but not subject to individual assessment, were given the opportunity to review relevant material. Comments and proposed amendments received were subsequently evaluated and reflected where deemed appropriate.

Danske Bank is the largest financial institution in Denmark with focus on the Nordic region and presence in sixteen countries. Danske Bank is listed on the Nasdaq OMX Copenhagen stock exchange. The bank offers financial services, life insurance and pension, mortgage credit, wealth management, real estate, and leasing services. The next compliance scandal at Danske Bank occurred two years later. The total number of potentially impacted customers was 106,000. Under Danish law, if a person or entity has paid an amount due to a mistake, misunderstanding, or as a result of an error, the consequence is that the victim is eligible of a restitution against the offender. Examiners addressed the issue of how the bank handled information on identified errors by providing very general answers. The report described a number of projects and activities, such as the data quality project, group risk management and compliance, and program Athens. It seems that rather than solving problems by correcting programming flaws, groups and projects were organized simply to discuss the issues. An example is the following sentence where a number of actors are mentioned, but there is no mention of actions (Plesner, 2020: 10): The bank engaged EY to assist with program Athens and to provide the bank with an analysis and verification of system flaws identified by Plesner.

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Examiners thus documented a bureaucratic approach to solving technical problems at the bank. The manual effort required to review computer code seemed ignored. The only manual effort described was concerned with actual transactions in terms of new manual controls regarding calculations for each customer. No new debt collection cases with effect from 2019 were to be initiated without manual calculation being done beforehand. If the manual calculation resulted in different figures compared to the systems figures, then figures in the system were corrected. The bank was thus incapable of solving the underlying systems error, instead system results were corrected. Hoemsnes (2021) suggested that there were still five mistakes at Danske Bank.

Fuji Xerox Customer Fraud in New Zealand At Fuji Xerox in New Zealand, the chief executive had gained control over reporting lines to manipulate accounting (Deloitte, 2017). The board of directors had no supervisory function on corporate business, and the various committees that should have compliance control over specific business lines did not function adequately. Internal reporting and control systems did not work. There were thus convenient organizational opportunities for misconduct and crime. Investigators from Deloitte found that there was insufficient functioning of committees and responsible departments. While various committees originally served as subordinate organizations to the board of directors, the compliance committee, the risk management committee, and others did not perform their governance functions. They prevented no inappropriate or illegal matters (Deloitte, 2017: 27): In addition, the CFO and other members of the accounting department who should have expert accounting knowledge were not able to ensure that proper accounting practices were followed and to exert a control function.

There was insufficient functioning of committees and responsible accounting departments partly because of CEO status and CEO access

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to resources to commit, and partly because of lacking oversight and guardianship to detect wrongdoing at Fuji Xerox New Zealand (FXNZ) according to Deloitte (2017: 29): In terms of the internal organizations at FXNZ, various committees were created as subordinate organizations of the board of directors, and this should have formed a governance structure under which matters of a certain importance are debated at the committee level, and any illegal or inappropriate matters are prevented by the committees.

A governance structure is dependent on motivated people to work, and it is dependent on access to relevant information. Examiners failed in establishing causality here, as they simply said that; “it is in fact possible that the Compliance Committee and the Risk Management Committee and others did not sufficiently exert, or were unable to exert, their governance functions”. “It is highly likely that the FX Group’s and FXNZ’s whistleblowing systems were essentially not functioning”. FX stands for Fuji Xerox headquarters in Japan. Later in the report, examiners mentioned that the FX group had established a compliance helpline to encourage whistleblowing. In fact, awareness of the inappropriate accounting scandal emerged from a whistleblower. The whistleblower was unidentified and named Tony Night. It is therefore strange when examiners blame a whistleblowing system, when the whole scandal emerged because someone blew the whistle. However, it is likely that the whistleblower at FXNZ blew the whistle outside the system. Many whistleblowing systems do not work because people are reluctant to blow the whistle, especially because of fear of retaliation. The threat or fear of retaliation can greatly reduce the likelihood that an observer of wrongdoing will intend to blow the whistle (Mesmer-Magnus & Viswesvaran, 2005). Global auditing firm Deloitte (2017) assisted an independent investigation committee to confirm the appropriateness of accounting practices in terms of accuracy and collectability at Fuji Xerox in New Zealand, which is an overseas subsidiary of Fuji Xerox in Japan. The investigation was concerned with receivables in relation to certain lease transactions in

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or before the fiscal year 2015 by Fuji Xerox New Zealand Limited as a subsidiary of Fuji Xerox Co. Ltd. The fraud examination was managed by the independent investigation committee with knowledge workers Taigi Ito, Kyoichi Sato, and Koji Nishimura. While Ito as chairman of the committee was a certified public accountant, Sato and Nishimura were attorneys-at-law. The team from Deloitte was headed by Shigeru Tsukishima, who was a certified public accountant. In addition, attorneys-at-law from law firms City-Yawa Partners and Matsuo & Kosugi assisted in the investigation. As part of the investigation, the fraud examiners collected reports provided by the internal investigation committee that were prepared prior to creation of the independent investigation committee. Fraud examiners also requested, obtained, and took over the preserved data (including data preserved, collected, and extracted by digital forensics) contained on the servers in New Zealand as well as servers at Fuji Xerox in Australia, Asia Pacific, and Japan. Preservation had already commenced at these locations. Some preserved data were extracted from personal computers used for work by executives and employees. After an initial analysis of all preserved data, fraud examiners interviewed over seventy people, including executives and other employees at Fuji Xerox in New Zealand, Australia, Taiwan, and Japan. In the process of the investigation, the fraud examiners also held multiple interviews with accounting auditors. The purpose of interviews was to ascertain the background, causes, and mechanisms related to the preserved data. The information sources strategy also included a survey, where questionnaires were sent to 1.299 people in the sales departments, and responses were received from 1.251people. Questionnaires were also sent to accounting departments in New Zealand, Australia, Taiwan, and Japan. Out of 2.141 accountants, 834 people responded to the questionnaire. The purpose of this survey was to ascertain whether or not any material cases similar to the examined matter might have occurred at other branch offices. The purpose was also to help understand and analyze the causes and circumstances leading to the examined matter. The fraud examiners state the following assumptions of their investigation (Deloitte, 2017: 6):

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The Report and the Committee’s findings are intended for use in confirming the facts within FH and the FH Group about the subject of investigation, and to the extent that problems are found, ascertaining the causes and formulating and evaluating a plan for preventing recurrence thereof. The Committee does not expect that the Report or the Committee’s findings will be used for any other purposes. The Committee believes that it has the cooperation of FH and FH Group companies in good faith with respect to the Committee’s investigation; however, the Committee has no power of compulsion, so the investigation is based on the voluntary cooperation of the executives and employees of FH and FH Group companies. The Report is prepared in Japanese. The Committee accepts no responsibility whatsoever for the contents of any translated English version that may be prepared.

FH is a holding company of Fuji with two major operating companies, Fuji Film and Fuji Xerox. Fuji Xerox was established in 1962 as a joint venture between FH and Rank Xerox Limited, a UK company.

Nordea Bank Tax Evasion in Luxembourg Scandinavian bank Nordea lacked compliance when helping clients in their wealth management, potentially to avoid taxes and to launder money in tax havens as revealed by the Panama Papers. In their internal investigation, Mannheimer Swartling (2016) detected that the bank had illegally backdated documents to benefit their rich clients. Specifically, Mannheimer Swartling (2016: 21) was asked to present the following elements in their findings: ● Information on how the Board in NBSA has identified, monitored, and ensured reports on the operations of Offshore Structures. The reporting within NBSA is to be reviewed, including risk reports, compliance reports, and reports of relevant business areas during the period end of 2009–beginning of 2016, as well as any relevant decisions made in this regard.

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● A conclusion on to what extent the Board and Executive Management of NBSA had knowledge of the operations of Offshore Structures and whether they had information on the risks the operations entailed. The Review shall contain an account of the content of relevant reports and any decisions by the Board or Executive Management of NBSA based on the reports. ● A conclusion on how identified risks correspond to the approved business strategy and risk appetite framework of NBSA paying specific attention to any changes over time in compliance and conduct risks. ● Information on reports filed by the Board and Executive Management of NBSA to Group Executive Management, Group Operational Risk, and Group Compliance in Nordea during the Relevant Period in relation to the above. The Review shall include a statement on the content of these reports, to which the reports have been filed and any measures taken on a Group level and the timing of such measures. ● A conclusion on to what extent the operation of Offshore Structures has been communicated to Nordea Group. Nordea’s (2016) own department for Group Compliance and Group Operational Risk had not noticed wrongdoing in tax havens. It was the result of the Panama Papers that the department finally became aware and conducted its own investigation into the matter. Nordea (2016) investigators had avoided criticism of themselves at Group Compliance and Group Operational Risk who normally are responsible for preventing misconduct and crime. Two parallel investigations were initiated at Nordea in April 2016. Both investigation reports were publicly available. One investigation was internally conducted by the group compliance and group operational risk functions in the bank. The other was conducted by law firm Mannheimer Swartling. Both wrote reports of investigation of 12 pages and 20 pages respectively. Both reports described misconduct, but no crime. Both reports suggested that the misconduct had stopped. Internal investigators from group compliance and group operational risk functions draw a conclusion of misconduct, but no crime. Similarly, Mannheimer Swartling (2016: 6) concluded that neither lack of

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tax evasion control nor money laundering was considered crime in Luxembourg: There are several laws and regulations in place in Luxembourg in relation to the fight against money laundering and terrorist financing. Luxembourg has transposed the relevant EU directives on anti-money laundering (AML) to date. It may be noted that Nordea has the same duties on AML and know-your-customers controls regardless of whether the client uses an offshore structure or not. It may also be noted that, also for the time being, Luxembourg banks do not have any legal obligation to make sure that their clients are tax compliant. The fourth EU directive on AML has not yet been transposed into Luxembourg law and tax evasion is therefore not yet treated as predicate money laundering crime under Luxembourg law. There are also bank secrecy rules in place that prevent banks from reporting on tax evasion to the public prosecutor or their holding company. Tax information sharing is only allowed for in certain limited circumstances and exclusively to the Luxembourg tax authorities or to the prosecutor, as part of investigation conducted by such authority.

Mannheimer Swartling (2016: 18) concluded as follows on misconduct: While operations associated with offshore structures as such are not illegal in Luxembourg, such structures could be used by clients as instruments for money laundering or tax evasion. In view of this, as well as the result of the investigation, it is therefore a fair conclusion that both the Nordea board and executive management should have identified a need for a particular risk awareness related to the operations associated with offshore structures, and that such risk awareness should have been incorporated in risk assessment processes and the risk appetite framework. If this had been the case, it would have facilitated for the risk and capital and/or the compliance functions to integrate related risks into their respective risk assessment and control processes, and internal audit would possibly have performed audits with this in focus.

Norwegian bank DNB was also scandalized in the Panama Papers. Corporate investigators from law firm Hjort (2016) pointed out that DNB’s group audit had the opportunity to gain knowledge of the service

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offering based on the information they received during the 2008–2009 period. “Over the past few days, the Board of Directors has considered Hjort’s report in two board meetings. In connection with the Panama Papers case, the Board of Directors approved extensive measures in May. In the opinion of the Board, the measures that are being implemented are well-suited to ensure compliance with the Group’s code of ethics and prevent the establishment of objectionable products and services in DNB”, said the chairperson of the board. Law firm Hjort was commissioned to review DNB management’s knowledge of tax havens. The assignment was given by the board of DNB after Hjort had contributed to a report in April 2016, with which the largest owner—the Government by the Minister of Trade and Industry—was not at all satisfied. The law firm received the assignment in April 2016, and the review was headed by the managing partner at Hjort. The report of investigation was promised one month later, in May 2016, but it was not ready until September 2016, and it was only 18 pages. The mandate for the examination “stipulated that the investigation should include employees and trust persons in the board of directors of DNB Luxembourg, responsible business areas in DNB bank, the compliance function, the group audit, the control committee, the group management, and the boards of DNB”. In addition, the chairperson wrote a cover letter to the minister, where compliance with the bank group’s ethical guidelines was highlighted. Ethical guidelines are voluntary commitments that govern the behavior of a company and its employees toward external stakeholders beyond what is regulated elsewhere (Eriksen, 2016). In May 2021, Norwegian bank DNB got harsh criticism from the financial supervisory authority of Norway. The bank had to pay a fine of NOK 400 million (about USD 45 million) that the chief executive officer accepted. The public authority found significant deficiencies in the bank’s compliance with the money laundering act (Norum, 2021).

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Swedbank Money Laundering in Lithuania Similar to Danske Bank in Denmark, Swedbank in Sweden’s compliance function failed. Fraud examiners interviewed 37 current and former employees of Swedbank, and 30 current and former employees of Baltic subsidiaries. Investigators interviewed certain individuals multiple times, resulting in nearly 100 interviews (Clifford Chance, 2020: 32): Such interviews, along with a significant number of scoping and background discussions with numerous bank employees across a variety of positions, assisted Clifford Chance in focusing on key document locations and document types.

Interviews of board members at Swedbank indicated that the board believed that bank management had anti-money laundering (AML) matters under control. Interviews of AML employees indicated that business units tended to have greater influence over the final decision whether to on-board a customer than the compliance function had at that time. During an interview conducted in Estonia, an employee recalled that the practice of storing customer documentation relating to beneficial ownership in a safe was a common practice. When another Estonian employee answered questions regarding email exchanges, the employee recalled that there were enhanced concerns regarding the confidentiality of Russian oligarchs, and that documents relating to these customers were stored separately. During an interview with the former Swedbank Estonia CEO, the CEO explained that they had operated under the relevant standards. The CEO argued that their operational procedures were consistent with what the CEO characterized as then-prevailing standards. Swedbank Estonia operated under the assumption that, so long as the bank knew or believed it knew the true beneficial owner of a customer, there was no need to ensure that there was supporting documentation in the relevant bank systems. A senior manager at Swedbank Lithuania recalled deciding to expand the non-resident market segment, although AML was difficult or even impossible, since the segment was so profitable. Another senior manager

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at Swedbank Lithuania claimed the opposite (Clifford Chance, 2020: 79): A senior manager in Baltic Banking’s Risk and Compliance function also told Clifford Chance during an interview that the senior manager and others objected to developing a non-resident business in Lithuania due to AML concerns and that, by June 2013, the proposal was abandoned.

Yet another interviewed manager in the Baltic region acknowledged that, in retrospect, AML compliance in the Baltic subsidiaries should have been more of a priority at the time, and it had simply not been a focal point until the latter-half of 2015. Several interviewees said that they perceived skeptical reviews and audits as implicit criticism of their customer knowledge. An employee recalled that they used Excel spreadsheet for sanctions screening, which the employee characterized as primitive, because it predominantly relied on manual input into the spreadsheet and would not automatically download from or update relevant data segments in bank systems. A senior executive recalled that setting risk tolerance limits was a result of risk appetite. In addition to interviews, fraud examiners from Clifford Chance (2020) analyzed external payment transactional activities of high-risk non-resident (HRNR) customers of the Baltic subsidiaries. HRNR customers were non-resident legal entities registered outside of the European Union and Norway, but also including customers registered in Malta, Cyprus, the United Kingdom, and Luxembourg. All entities considered to have high AML risk were part of the investigation. Before any interviews, document reviews, and digital searches, fraud examiners from the law firm conducted a scoping study. The purpose of the scoping exercise was to understand Swedbank’s information systems architecture and to identify repositories of structured and unstructured electronic data. The purpose was also to identify knowledgeable people and sources of hardcopy documents potentially relevant to the investigation, including archives and back-up repositories (Clifford Chance, 2020: 15):

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Critical to the exercise was a thorough understanding of the organizational structure of Swedbank and its branches, subsidiaries and affiliates in order to: (a) understand Swedbank’s senior management and reporting architecture, and (b) identify the functional areas within Swedbank where potentially relevant employees might work, including employees in compliance or customer relationship management.

Clifford Chance (2020) mapped the locations of information sources related to organizational structure, customers, customer identification information, transactions, current and former employees, policies and procedures, meeting minutes and materials, and prior reports. Rather than trying to find the underlying cause of rumors and accusations concerning misconduct and crime in the form of money laundering, examiners spent time telling how Swedbank’s current board and management intended to implement new approaches to compliance and anti-money laundering (Clifford Chance, 2020: 178): Swedbank has focused over the past year on transforming its approach to AML/CTF and sanctions compliance, creating new roles, appointing new personnel, increasing resources, revising and strengthening policies and procedures, and taking steps to de-risk its customer portfolio including in the Baltic subsidiaries.

It seems naive to believe that things will change simply because there are changes in top management and because those new executives in charge express ethical intentions. The fraud examiners chose to include a whole chapter on remediation and nice words about the current bank management, ignoring the danger of recidivism. Maybe the examiners did so to please the new top executives, who were paying more than one hundred million US dollars for the investigation by Clifford Chance (2020). The former chief executive at Swedbank resigned from the position while Clifford Chance was still conducting the internal investigation. Another executive resigned from the position of chief compliance officer when the bank publicized the report of investigation. Two years later, in 2022, the former chief executive at Swedbank, Birgitte Bonnesen, was

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charged with fraud and market manipulation by the Swedish prosecutor (Ismail, 2022: 7): The revelations at that time led to a number of people in senior positions having to leave. The bank also received a record fine of four billion Swedish kroner, according to Swedish public broadcasting. One of those who were fired was Swedbank’s top executive Birgitte Bonnesen. In January this year, the Swedish economic crime authority brought charges against Bonnesen for gross fraud and market manipulation.

In addition, the entire former management of Swedbank in Estonia was suspected of money laundering. The Estonian public prosecutor suspected that the management of Swedbank’s Estonian bank contributed to laundering of 100 million Euros in the years 2014–2016. Some of the suspected money laundering was linked to Mikhail Abyzov, a former minister in the Russian government (Ismail, 2022).

Telenor in Vimpelcom Uzbekistan Corruption Telenor executives ignored corruption rumors at VimpelCom since the chief compliance officer and chief legal officer did not know how to handle whistleblowing messages (Deloitte, 2016). While whistleblowing reduces the knowledge asymmetry between principal and agent (Beim et al., 2014), the chief compliance officer simply did not know what to do with information from the whistleblower and thus did nothing. The whistleblower had informed two executives at Telenor in 2011, labeled Executive D and Executive E, respectively, in the report of investigation by Deloitte (2016). Executives D and E lost the blame game. Executive D was head of legal and compliance at Telenor, while Executive E was chief financial officer. Both executives had to leave Telenor when the report of investigation by Deloitte was published. They got the blame for not having told the CEO about the corruption scandal at VimpelCom, which they learned about from the whistleblower Employee A in 2011 (Deloitte, 2016: 31):

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In our opinion, Executive D, as Head of Legal and Compliance at Telenor, has had a responsibility to escalate the concerns expressed by Employee A internally at Telenor. In our view, this responsibility is embedded in his role (…) (Executive E) should subsequent the 12 February 2013 board meeting have informed Baksaas that he was uncertain whether the VimpelCom 2011 transactions and the related concerns expressed by Employee A was disclosed.

Both executives D and E disagreed with investigator assessments (Deloitte, 2016: 32): (Executive E) disagrees with our assessment as laid out in the third paragraph above. Executive E has further stated that given his role which is clearly outside VimpelCom, the strict personal confidentiality undertakings, and other actions and reasonable assumptions Executive E has taken in this matter, his own consideration is that he also on this occasion acted correctly and according to good leadership.

Both executives D and E had to leave Telenor when the investigation report became public.

References Beim, D., Hirsch, A. V., & Kastellec, J. P. (2014). Whistleblowing and compliance in the judicial hierarchy. American Journal of Political Science, 58(4), 904–918. Binham, C., & Milne, R. (2018, September 19). Danske Bank fails to draw line under Euro200billion scandal. Financial Times. https://www.ft.com/con tent/38306c04-bc1c-11e8-94b2-17176fbf93f5 Bruun Hjejle. (2018). Report on the non-resident portfolio at Danske Bank’s Estonian branch. Law firm Bruun Hjejle, Copenhagen, Denmark, 87 pp. Clifford Chance. (2020). Report of investigation on Swedbank. Law firm Clifford Chance, Washington, DC, 218 pp. Deloitte. (2015). Investigation report, summary version, Independent Investigation Committee for Toshiba Corporation. Audit firm Deloitte, Tokyo, Japan, 90 pp.

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Deloitte. (2016). Review—Ownership Vimpelcom Telenor. Audit firm Deloitte, Oslo, Norway, 54 pp. Deloitte. (2017, June 10). Investigation report. Independent Investigation Committee, by global auditing firm Deloitte. T. Ito, K. Sato & K. Nishimura. https://www.fujifilmholdings.com/en/pdf/investors/finance/mat erials/ff_irdata_investigation_001e.pdf, downloaded September 8, 2018, 89 pp. Eriksen, B. (2016). Arbeidstakers rett til å varsle om «kritikkverdige forhold» etter arbeidsmiljøloven § 2–4 (1) (Employees right to blow the whistle about «critical condictions» according to the labor protection law). Avhandling for graden philosophiae doctor (Ph.D.), University of Bergen. Hjort. (2016). Rapport til styret I DNB ASA (Report to the board of directors at DNB ASA). Law firm Hjort, Oslo, 18 pp, downloaded at https://dnbfeed. no/wp-content/uploads/2016/09/Vedlegg-Hjort-rapporten.pdf Hoemsnes, A. (2021, October 20). Finn fem feil i Danske Bank (Find five mistakes at Danske Bank). Daily Norwegian business newspaper Dagens Næringsliv. www.dn.no Ismail, K. (2022, March 28). Swedbanks tidligere ledelse i Estland mistenkt for hvitvasking (Swedbank’s former management in Estland suspected of money laundering). Daily Norwegian business newspaper Dagens Næringsliv, p. 7. Mannheimer Swartling. (2016). Report on Investigation of Nordea Private Banking in Relation to Offshore Structures. Law firm Mannheimer Swartling, Stockholm, Sweden, 42 pp. Mesmer-Magnus, J. R., & Viswesvaran, C. (2005). Whistleblowing in an organization: An examination of correlates of whistleblowing intentions, actions, and retaliation. Journal of Business Ethics, 62(3), 266–297. Mulinari, S., Davis, C., & Ozieranski, P. (2021). Failure of responsive regulation? Pharmaceutical marketing, corporate impression management and off-label promotion of enzalutamide in Europe. Journal of White Collar and Corporate Crime, 2(2), 69–80. Nordea. (2016). Report on investigation of Nordea Private Banking in relation to offshore structures. Nordea Group Compliance and Group Operational Risk, Stockholm, Sweden, www.nordea.com, 12 pp. Norum, H. (2021, May 3). Får krass kritikk og gebyr på 400 millioner kroner (Gets harsh criticism and a fee of NOK 400 million), Norwegian public broadcasting NRK . www.nrk.no Plesner. (2020). Response to DFSA-letter: Anmodning om redegørelse om Danske Bank A/S’ gældsinddrivelsessystem (Response to DFSA letter: Request for

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account concerning Danske Bank Inc.’s debt collection system). Investigation report by Danske Bank, law firm Plesner, Copenhagen, Denmark, 120 pp. PwC. (2016). Financial crime in funds transfer systems: Actions to counter an emerging international threat. PricewaterhouseCoopers. www.pwchk.com Shearman Sterling. (2017). Independent directors of the Board of Wells Fargo & Company: Sales practices investigation report. Law firm Shearman Sterling, New York, NY, 113 pp.

5 Barriers to Corporate Compliance

As illustrated by the case studies used so far in this book, there are a number of barriers to compliance that make misconduct and crime convenient for white-collar offenders. This chapter presents some of these barriers in more detail, as these issues have to be specifically addressed by compliance functions during compliance audits. For instance, compliance audits might address issues such as rule complexity and institutional deterioration by identifying and interviewing people in the organization who are perceived as vulnerable to deviant behaviors. Moreover, the complexity of rules and regulations can be inherently problematic, in that the regulatory legal environment is supposed to clarify and define the boundaries of appropriate organizational conduct. However, legal complexity is often so extreme that even specialist compliance officers struggle to understand what to recommend to executives within their organizations, frequently conferring regulatory inspection that does not work for compliance (Braithwaite, 2020; Lehman et al., 2020)—a situation intensified by globalization and associated legal pluralism (Boghossian & Marques, 2019; Eberlein, 2019; Pontell et al., 2020). This chapter develops to consider deficiencies in compliance functions, the methodologies employed to address them (Mannucci, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_5

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2021; Shearman Sterling, 2017; Shichor & Heeren, 2021), and compliance deterioration by social disorganization in terms of corporate resistance, misinterpretation, non-observance, or simple lack of social control (Benson & Simpson, 2018; Desai, 2016; Dion, 2008; Pratt & Cullen, 2005). The chapter concludes with an examination of two challenging barrier areas: firstly, the “heroic” status of the chief executive—in terms of perceptions and projections of untouchability by those at the top of corporations (Fox et al., 2021; Kakkar et al., 2020), and secondly; inter-bank cooperation challenges—to include analysis of cooperative frameworks with regard to compliance clarity in anti-money laundering and counter-terrorist financing cases, such as Finterai, FATF, and the EBA (Jayasekara, 2021; Milne, 2020; Solgård, 2021).

The Complexity of Rules and Regulations Rule complexity can create a situation where nobody is able to tell whether an action represented a criminal offense. It is impossible to understand what is right and what is wrong. Some laws, rules, and regulations are so complex that compliance becomes random, where compliance is the action of complying with laws, rules, and regulations. The regulatory legal environment is supposed to define the boundaries of appropriate organizational conduct. However, legal complexity is often so extreme that even specialist compliance officers struggle to understand what to recommend to business executives in their organizations (Lehman et al., 2020). Then regulatory inspection does not work for compliance (Braithwaite, 2020). Business executives can thus find the large gray zone in legal matters a convenient space for wrongdoing. This is especially so when operating internationally and globally where states do not agree on what should be legal and illegal activities (Boghossian & Marques, 2019; Pontell et al., 2020). Eberlein (2019) argued that globalization opens markets for corporations but outstrips the capacity of states to regulate and enforce laws on cross-border business conduct for the public good. Organizational collapse indications in convenience theory are rule complexity preventing compliance (Huisman, 2020; Lehman et al.,

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2020), participation in crime networks such as cartels (Nielsen, 2003), and the usual way of doing business in markets with crime forces (Chang et al., 2005; Shadnam & Lawrence, 2011). Lehman et al. (2020: 1442) defined rule complexity in terms of components and connections: First, a rule is more complex to the extent that it comprises more components that together describe the actions and outcomes necessary for compliance. A rule with a high number of components contains more detail and requires more actions to constitute compliance. Second, a rule is more complex to the extent that it has more connections to or functional dependencies upon other rules in the same system. A rule with a high number of connections refers to actions or outcomes that may be affected by activities pertaining to another rule or set of rules.

When rule complexity is linked to anomie in the sense of low commitment to mainstream rules in the organization (Schoepfer & Piquero, 2006); then the organizational opportunity for financial crime is further enhanced. The organization is reluctant to follow mainstream rules that are too complicated. The reluctance becomes stronger when mainstream rules will harm business performance. Trying to follow the law may result in inefficient business practices that depress organizational results and hurt careers of organizational members. Noncompliance might allow the corporation to be more profitable than competitors who follow the rules.

Deficiencies in Compliance Functions Rather than executing plans and following procedures, people in compliance functions need to improvise. As argued by Mannucci (2021: 1), improvisation has become a key capability for contemporary organizations: Defined as the spontaneous process by which planning, and execution happen at the same time, improvisation can make the difference between death and survival, both metaphorically and literally

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As mentioned previously, oversight and control functions tend to be formal units without any insights into the substance of business activities. They tend to review procedures rather than transactions within procedures. Therefore, ineffective control functions are often an important part of the opportunity structure for white-collar crime. For example, at Toshiba Corporation, lack of controls was an important element of the opportunity structure (Deloitte, 2015). Fraud examiners emphasized lack of internal controls by accounting and auditing functions, as well as lack of finance control in each corporate division. At Wells Fargo, corporate control functions were constrained by the decentralized organizational structure (Shearman Sterling, 2017; Shichor & Heeren, 2021). Fraud examiners excused corporate control functions since they suffered from harm by the decentralized organizational structure and a culture of substantial independence for business units. At Fuji Xerox, the CEO had gained control over reporting lines to manipulate accounting (Deloitte, 2017). At Danske Bank where money laundering was enabled in their Estonian branch, corporate control functions did not work because the branch operated computer systems different from computer systems at the headquarters (Bruun Hjejle, 2018). Telenor executives ignored corruption rumors at VimpelCom since the chief compliance officer and chief legal officer did not know how to handle whistleblowing (Deloitte, 2016). Lack of oversight and guardianship becomes even worse when auditors slide over on the wrong side of the law. Mohliver (2019: 310) found that some auditors prioritize their clients’ interests over their legal obligation by recommending client malfeasance, for example in terms of illegal stock option backdating: The findings suggest that professional experts’ involvement in the diffusion of liminal practices is highly responsive to the institutional environment.

Similarly, Chan and Gibbs (2022: 2) found that guardians can become offenders where a convergence occurs of motivated offenders, suitable targets, and absent guardianship:

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In the landmark case of Enron, for example, top managers directly charged with implementing guardianship procedures and protocols were able to leverage their positions/roles to circumvent controls as they acquire motivation to offend. Questions remain about the pervasiveness of this overlap between corporate guardians and offenders and how guardianship structures have failed in less prominent cases.

The convergence of guardian to offender triggers two crime-conducive outcomes. First, it provides motivated offenders access to the target of interest. Second, it reduces offenders’ perceived likelihood of being detected. Generally, “a guardian’s willingness to intervene is shaped by the guardian’s perception of their own responsibility, potential risk of harm, prior emergency training, and social ties” (Chan & Gibbs, 2022: 5). Auditors are supposed to serve as gatekeepers to protect shareholders and report directly to shareholder representatives on the board of directors, but auditors become surprisingly often hired by corporate management to whom they are loyal (Hurley et al., 2019). Reporting fraud to public authorities will also harm auditors (Mohliver, 2019: 316): As organizations, audit firms are often severely penalized for client malfeasance. Yet the individual auditors working for these firms are susceptible to “motivated blindness” stemming from conflicts of interest that bias their moral judgment toward choices that help their clients.

Mohliver (2019) found that auditor bias toward accepting deviant financial reports increased when there is ambiguity about the appropriateness of a course of action. Financial misreporting that is viewed favorably by the client organization can be recommended by external auditors on the grounds that such reporting is already adopted among companies served by the same auditing firm. A deficiency in many compliance functions is their actual position in the organization. While their formal position might be a direct reporting line to the chairperson on the board, their actual position might be below the chief financial officer or someone else in the management. The actual position is important as the executive above the compliance officer determines, among others, officer salary and officer career possibilities. An

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example is the Norwegian fertilizer company Yara, where the compliance officer reported to the former and the current chief legal officer. The former chief legal officer was convicted to several years in prison for corruption in Libya (Ånestad, 2016; NTB, 2020).

Deterioration by Social Disorganization Desai (2016) studied regulatory mandates as external pressures on organizations. Because of the non-popular perception of regulatory mandates, organizations vary in compliance. Some organizations comply while others resist enforcement of mandates. Some mandates can be misinterpreted, translated, or misconstrued by managers or employees. Some organizations have a culture where they only selectively comply with regulatory mandates. They buffer against and resist external forces. They ignore regulatory enforcement and other external pressures, and they select response strategies such as symbolic forms of action, window dressing, or outright ignorance. Desai (2016) found that one reason for ignorance is that new regulatory mandates create uncertainty regarding how, when, and in what ways the organization should respond to these external pressures. An organization’s prior history of compliance influences its ability and motivation to satisfy future compliance requirements. Some new laws are broad enough to allow organizations significant discretion in the nature or timing of their compliance responses. Some regulatory mandates can be misinterpreted, translated, or misconstrued by executives. Information asymmetries between regulators and regulated organizations and the lack of knowledge sharing between these distinct parties discourage organizational compliance efforts (Desai, 2016). A culture where compliance is not important will make it more convenient for delinquency and white-collar crime. Crime may occur, for example, when the organization is dysfunctional in its collaborative relationships (Dion, 2008), where individuals’ needs, and feelings are completely ignored. In many organizations, people are completely left to themselves, and as a consequence, they take what they think they deserve, and they do what they think is appropriate doing.

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In a matrix organization, the vertical activities may operate legally, while the horizontal activities may operate illegally. In a network organization, the core, peripherals, or parts of the network may be open to financial crime. Social disorganization increase offenders’ opportunities to commit financial crime without being detected. Offenders have unrestricted and legitimate access to the location in which the crime is committed without any kind of controls. Offenders’ actions have a superficial appearance of legitimacy also internally, since both legal and illegal actions in the organization are characterized by disorganization (Benson & Simpson, 2018). The social disorganization perspective argues that crime is a function of people dynamics in the organization and between organizations, and not necessarily a function of each individual within such organizations. Business enterprises experiencing rapid changes in their social and economic structures that are in a zone of transition will experience higher crime rates. Management mobility is another structural factor or antecedent that can be held to produce organizations that are socially disorganized. Conventional mechanisms of social control are weak and unable to regulate the behavior within organizations (Pratt & Cullen, 2005). Especially in knowledge organizations where the hierarchical structure tends to be weak, social controls among colleagues are of importance to prevent financial crime. An unstable and disorganized unit will suffer from a lack of knowledge exchange and collaboration to prevent and detect white-collar crime (Swart & Kinnie, 2003). Structural antecedents include not only management instability and rapid organizational changes, but also external factors such as family disruptions and no intelligence about life outside work. Social disorganization can be found at the very top of organizations, where chief executives have created large business spaces for themselves without transparency and access from others. There are no ties allowing others to act collectively to fight problems (Pratt & Cullen, 2005). Social control is an opposite of social disorganization. The social control perspective argues that individuals will restrain from white-collar

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crime if society and the organization have processes that prevent them to do so (Abadinsky, 2007: 22): Social control refers to those processes by which the community influences its members toward conformance with established norms of behavior. Social control theorists argue that the relevant question is not, why do persons become involved in crime, organized or otherwise? But, rather, why do most persons conform to societal norms? If, as control theorists generally assume, most persons are sufficiently motivated by the potential rewards to commit criminal acts, why do only a few make crime a career? According to control theorists, delinquent acts result when an individual’s bond to society is weak or broken. The strength of this bond is determined by internal and external restraints. In other words, internal and external restraints determine whether we move in the direction of crime or of law-abiding behavior.

The social control perspective is also concerned with relationships between individuals controlled and those that perform controls such as the relationship between a compliance officer and a deviant executive (Tiwana & Keil, 2009: 13): We define attempted control as the extent to which a controller attempts to utilize a given control mechanism to influence controlee behavior. Attempted control therefore refers to the control mechanisms that the controller implements in a given project, independent of whether or how they are exercised. We define realized control as the extent to which the controller is able to successfully exercise a given control mechanism during the systems development process. An attempted control mechanism must be effectively exercised, or realized, for it to enhance systems development performance.

Corporate disorganization weakens the ability of social bonds to circumscribe delinquent behavior. In enterprises characterized by instability and heterogeneity, the likelihood of effective socialization and supervision is reduced. The impact of social bonds varies by type of organization and disorganized units negatively affect the ability of social bonds to reduce delinquent behavior (Hoffmann, 2002).

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The social disorganization can be a result of one or more deviant cultures in the organization. Larger multinational business organizations typically have several subcultures that a compliance function needs to understand. The deviant culture perspective argues that joining a criminal subculture in the upper class will increase the likelihood of white-collar crime (Lyman & Potter, 2007: 70): The subculture shares a lifestyle that is often accompanied by an alternative language and culture. The lower-class lifestyle is typically characterized by being tough, taking care of one’s own affairs, and rejecting any kind of governmental authority.

The cultural deviance perspective is based on the assumption that, for example, slum dwellers violate the law because they belong to a unique subculture that exists in lower-class areas. The subculture’s values and norms conflict with those of the upper class on which criminal law is based (Lyman & Potter, 2007). Social networks may play an important role in the incidence of white-collar crime. An example of social networks is people sharing a common religion, religious language, and history composed of stories of events, a homeland, and oppression (Mitchell, 2021). They may have ancestors who emigrated from the same regions in the world, and they may have settled in certain population clusters (Corcoran et al., 2012). As discussed by Desmond et al. (2022), people within religious organizations are not subject to much surveillance or accountability mechanisms: The organizational component is particularly influential for crimes within religious organizations; religious staff is often considered by others to have specialized knowledge and to be the epitome of trustworthy and, therefore, these individuals are not subject to much surveillance or accountability mechanisms.

Social disorganization leads to the breakdown of conventional social norms. The gradual erosion of conventional relationships weakens the organization and makes it unable to satisfy the needs of its members. The organization gradually loses the ability to control the behavior of

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its members. There is no functional authority over potential white-collar criminals in the organization (Wood & Alleyne, 2010). As a consequence of social disorganization, organizational opportunity to commit whitecollar crime increases. Lack of social control attenuates bonding mechanisms by making supervision and interpersonal attachments more tenuous. Social disorganization weakens the ability of social bonds to circumscribe delinquent behavior. Instability, heterogeneity, and broken relationships reduce the likelihood of supervision. Social disorganization negatively affects the ability to reduce delinquent behavior (Hoffmann, 2002). Decisions are made in the organization by people with decisionmaking powers. A decision may be defined as a choice between two or more alternative courses of action. In convenience theory, there are two options: the legal option and the illegal option. Decision-makers often choose the option that is most convenient. In a socially disorganized enterprise, the regular decision-making structure has disappeared, and everyone tries to make decisions at their own discretion. Teleworking reduces the ability to track what others are doing in the organization. While physical meetings have a role of establishing who is in charge, the lack of meetings leads to personal initiatives and freedom that conveniently can be exploited. The Covid-19 pandemic reduced peoples’ power and influenced perceptions of each other. Teleworking is characterized by tasks performed using information and communication technologies at other places and often at other times than colleagues perform their tasks. Modern technology enables work to be completed whenever the worker would like to. Independence in time and space makes work more individualized and less subject to control. This includes tasks performed by trusted and privileged people at the top of the enterprise. Social bonds disappear and create a vacuum that can be perceived as social disorganization. The organizational opportunity for financial crime can be particularly evident when an executive handles a business problem all by himself. For example, a CFO of a publishing house was to liquidate the publisher’s involvement in a chain of bookstores. Upon liquidation of the involvement and the receipt of the settlement, it can be very tempting to channel some of the proceeds to him. The CFO was detected when he mistyped

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his own bank account number. He then admitted to financial fraud for several years as executive vice president of economics and finance (Hammerstrøm & Ravn, 2014; Silvova et al., 2014). Another example may be the president and priest in a religious foundation that was to establish retirement homes and nursing homes in Spain for old Norwegians. The president and priest had sole rights to transfer money and manage money in an account in a Spanish bank. It was tempting for him to abuse some of the money. In fact, he lived a double life in the economical dimension of convenience theory. While being a proper family man and priest in Norway, he organized wild parties with prostitutes in Spain. Two colleagues blew the whistle on the CEO, but the chairperson of the board did not believe them initially. Fundación Betanien was opened in the autumn of 2001 in Alfaz del Pi in Spain. The institution in Spain was to become part of Betanien’s rehabilitation and nursing home. Betanien Foundation in Bergen owned and operated the home. The CEO initiated and successfully established Fundación Betanien. He told accountants in Bergen whenever they had to transfer money from Norway to Spain. The CEO experienced complete trust from all involved. He had authority both as a business leader and as a religious leader. When he made a mistake, nobody noticed. He was managing large sums of money all by himself. The auditor in Norway believed that Spanish auditors would audit accounts in Spain, while accountants in Spain believed the audit took place in Norway (Johansen, 2015; Nakling, 2015). In Spain, the CEO developed a drinking problem. While always sober in Norway, he became a heavy drinker in Spain. He enjoyed drinking, and he could afford it at the expense of the foundation. Soon he expanded his local lifestyle in Spain to include parties with prostitutes that he paid with money from the foundation. His embezzlement of funds from the foundation enabled him to live a double life, where he was modest at home, while living like a playboy in Spain. He abused the money that he controlled on behalf of the foundation to enjoy a lifestyle in Spain that he could never do at home as a priest and as a family man. After much pressure and threats from two whistleblowers, the chairman at the foundation hired BDO (2014a, 2014b) to conduct

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an internal investigation, where fraud examiners detected large sums of money embezzled by the CEO over a period of several years. When Harriette Walters was charged with theft of over $ 48 million, fraud examiners concluded that a culture of compliance was lacking in the organization (WilmerHale & PwC, 2008). Walters worked at the tax and revenue office in Washington D.C. Yet another example is Madoff Investment Securities that was governed by a small, closely knit board of directors. Madoff was the founding chairman and retained that position until his arrest in 2008. Brother Peter Madoff was the managing director. Peter’s daughter, Shana Madoff, served as the compliance attorney for the investment firm. In addition, Madoff ’s two sons, Mark and Andrew, served as the lead officers in the market maker division of the firm. The chief financial officer, Frank DiPascali, was a long-term associate of Madoff. In short, the management of Madoff Investment Securities was dominated by family members and friends (Ragothaman, 2014). When whistleblower Ben-Artzi (2016) told his story how executives at Deutsche Bank in New York inflated the value of the bank’s massive portfolio of credit derivatives, Deutsche’s top lawyer for compliance and regulatory affairs claimed that the whistleblowing was subject to attorney–client privilege and could not be disclosed. Ben-Artzi did not agree and was fired. His Wall Street career was ruined. Socially disorganized enterprises culturally transmit criminal traditions that are transmissible as any other cultural elements. When executives and other privileged individuals are exposed to delinquent traditions, some of them succumb to delinquent behavior. In such a cultural climate, white-collar crime becomes a satisfying alternative to unsatisfactory legitimate conventions. If the organization fails to adequately provide for its members, they will absorb alternative cultural traditions. The cultural formation and the criminality that emanates from it are passed from experienced executives to newcomers via socialization, motivating young people to deviate from conventional norms (Wood & Alleyne, 2010). As a consequence of cultural deterioration, organizational opportunity to commit white-collar crime increases.

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Heroic Status of the Chief Executive Both the chief executive at Wirecard in Germany and the chief executive at Betanien foundation were untouchable heroes. While the CEO at Wirecard had access to the German chancellor and other top officials in the country, the CEO at Betanien enjoyed an impressive network of contacts both nationally and internationally. They were untouchable had it not been for investigative journalists and courageous whistleblowers. Similarly, many of the other chief executives who eventually fell from grace had heroic status. The challenge for a compliance officer is preferably to prevent executive wrongdoing. Heroic conduct refers to fulfilling a high purpose or attaining a noble end (Fox et al., 2021). Status is an individual’s social rank within a formal or informal hierarchy, or the person’s relative standing along a valued social dimension. Status is the extent to which an individual is respected and admired by others, and status is the outcome of a subjective assessment process (McClean et al., 2018). High-status individuals enjoy greater respect and deference from, as well as power and influence over, those who are positioned lower in the social hierarchy (Kakkar et al., 2020: 532): Status is a property that rests in the eyes of others and is conferred to individuals who are deemed to have a higher rank or social standing in a pecking order based on a mutually valued set of social attributes. Higher social status or rank grants its holder a host of tangible benefits in both professional and personal domains. For instance, high-status actors are sought by groups for advice, are paid higher, receive unsolicited help, and are credited disproportionately in joint tasks. In innumerable ways, our social ecosystem consistently rewards those with high status.

Harvin and Killey (2021: 509) studied whether a firm’s CEO who has an extraordinary personal reputation or superstar status can have an adverse impact on the independence of an auditor who is engaged in the audit of the firm’s financial statement: As indicated in the experiment that was conducted in the study, the superstar status of a CEO of a firm being audited appears to have the potential to have a negative impact of the strategic risk assessment of an auditor’s

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overall risk assessment of an audit during the planning stage of an audit. It would be very troublesome if an auditor unwittingly or consciously lowered the strategic risk assessment as a result of the CEO’s superstar status. The strategic risk assessment of an audit determines the level of substantive audit tests that are performed as well as the amount of audit time that is devoted to the completion of the audit.

Especially individuals with high status based on prestige rather than dominance tend to be excused for whatever wrongdoing they commit. Individuals who attain and maintain high rank by behaving in ways that are assertive, controlling, and intimidating are characterized as dominant. Individuals who attain and maintain high rank by their set of skills, knowledge, expertise, and their willingness to share these with others are characterized as prestigious (Kakkar et al., 2020). Linked to the heroic status of the chief executive is the challenge to prosecute executives for corporate misconduct. According to Henning (2017), attempts to emphasize individual culpability have not caused any upsurge of prosecutions of corporate executives who oversee companies that engage in misconduct. The explicit intent requirement combined with blurred lines of authority makes it difficult to identify individuals responsible for certain business decisions. The chief executive often appears to be removed from daily operations and thus not part of a particular crime scheme. Henning (2017: 515) argued that prosecuting a chief executive for corporate wrongdoing in front of a jury is almost impossible: The courts have thrown obstacles in the way of pursuing fraud cases, and then there is the question of whether a jury will convict corporate executives for business practices that tread close to the line, but may not clearly cross over it. A jury in Boston acquitted the former chief executive and the vice president of sales for a medical device company on conspiracy and wire fraud charges related to promotion of a product for an unapproved use. The government’s fraud theory was that they tried to increase sales through off-label marketing of a device to deliver steroid medications to sinuses to make the company a more attractive takeover candidate, but the jury rejected those counts.

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Henning (2017: 517) argued that prosecuting chief executives is getting harder: There is now plenty of room for crafty, well-advised executives to push hard for profits and the personal gain that comes from corporate success, while crafting a plausible argument that they may have come close – but never actually crossed – the line into fraud or corruption. The courts of late have effectively diminished the possibility of proving a violation by an individual within an organization. Courts have done so by allowing at least a measure of lies, “tawdry tales”, and complaints about broadly worded statutes to take conduct outside criminal prohibitions.

Henning (2017) found that chief executives are hidden in complex organizations where it is almost impossible to blame people at the top. People well down the ladder from the senior levels of company management are more conveniently assigned individual liability for corporate misconduct. The chief executive can hide behind extensive compliance programs in response to pressure from the government to show their adherence to the law and willingness to prevent violations. The formal compliance programs often serve the purpose of window dressing that refers to the act or the instance of making something appear better than it actually is (Desai, 2016; Eberl et al., 2015).

Inter-Bank Cooperation Challenges While individual banks attempt to implement anti-money laundering procedures and systems, offenders know how to move illegitimate proceeds between banks across foreign borders. Efforts are made to unite banks against financial crime. One of the initiatives is the fin-crime inter-bank AI platform (Finterai) for financial crime investigation and reporting. The Financial Action Task Force emphasized the potential of new technologies to make anti-money laundering (AML) and counterterrorist financing (CTF) measures more effective. They mentioned important technology issues such as digital identity and transaction monitoring and reporting. They listed new technologies such as artificial

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intelligence, natural language and soft computing techniques, distributed ledger technology, digital solutions for customer due diligence, and application programming interfaces (FATF, 2021). The European Commission emphasized legislation against AML and CTF. The new legislative package included a proposal for the creation of a new EU authority to fight money laundering. It was part of the commitment to protect EU citizens and the financial system from money laundering and terrorist financing (EU, 2021). The European Banking Authority launched a public consultation on new guidelines for the role, tasks, and responsibilities of AML and CFT compliance officers. The guidelines also included provisions on the wider governance structure. The guidelines were designed to be applied as a directive in a proportionate manner, taking into account the diversity of financial sector operators that are within the scope of the directive (EBA, 2021). A number of compliance violations are observed in the European banking sector in recent years. Both Danske Bank in Denmark (Bruun Hjejle, 2018) and Swedbank in Sweden (Clifford Chance, 2020) had compliance violations in their branch offices in Eastern Europe. At the Estonian branch of Danske Bank, non-residents were able to transfer potentially criminal proceeds without appropriate anti-money laundering measures in place. One of the reasons why corporate control functions did not work was because the branch operated computer systems different from computer systems at the headquarters. It was a legacy system from the former owner of the branch office. Not only was the IT platform different, but local bank executives also operated in the local language that executives from the headquarters in Denmark did not understand. The challenge for future real-time anti-money laundering technology is thus a platform that can handle various systems in various languages. The blame for the Danske Bank scandal was attributed to the chief executive officer, and the CEO had to resign from the position and later faced both criminal and civil charges in Denmark (Klevstrand, 2021; Milne, 2019a; Milne & Binham, 2018). The body of the Estonian chief at Danske Bank was found in the fall of 2019 (Milne, 2019b). The chief executive at Swedbank faced the same outcome as the CEO at Danske Bank when she had to leave her position because of the absence

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of relevant anti-money laundering procedures (Milne, 2020). The next CEO at Danske Bank also resigned quickly from the position (Solgård, 2021). Wingerde and Merz (2021) summarized a number of other European banks—in addition to Danske Bank and Swedbank—that have money laundering issues recently: UBS in France, ING in the Netherlands, HSBC in France, HSBC in Belgium, Credit Suisse in Italy, Deutsche bank in the United Kingdom, Standard Chartered Bank in the United Kingdom, Barclays in the United Kingdom, BNP Paribas in France, Nordea Bank in Sweden, ING in Italy, UBS in Italy, ABN Amro in the Netherlands, Société Générale in France, Banque Havilland in Luxembourg, Handelsbanken in Sweden, Sonali Bank in the United Kingdom, ABLV in Latvia, Raiffeisen Bank in Austria, PrivatBank in Cyprus, FBME Bank in Cyprus, Hellenic Bank in Cyprus, Rabobank in the Netherlands, Santander in Norway, Canara Bank in the United Kingdom, RCB Bank in Cyprus, Cyprus Development Bank in Cyprus, Volksbank in the Netherlands, Hypo Vorarlberg Bank in Austria, ING Bank in Belgium, BNP Paribas in France, Central Cooperative Bank in Cyprus, DNB Bank in Norway, ABLV in Latvia, Versobank in Estonia, Pilatus Bank in Malta, Jyske Bank in Denmark, Credit Suisse in Switzerland, Triodos in the Netherlands, Deutsche Bank in Germany, and Gazprombank in Switzerland. In the Journal of Money Laundering Control, Al-Suwaidi and Nobanee (2021: 396) argued that “there is a significant focus today on the deficiencies of the financial system as the sector continues to boom while facing the growing pains of financial scandals, money laundering and the financing of terrorism around the world”. Their review of the literature on AML was concerned with legal issues rather than technology issues, where they emphasized the ineffectiveness of national laws and international regulations. Similarly, Jayasekara (2021) argued that the global standards in AML and counter-terrorist financing (CTF) are not effective. The study emphasized lack of implementation based on a review of issues from the Financial Action Task Force. Crime signal detection is a matter of separating real signals from noise signals (Karim & Siegel, 1998). Evidence of system deficiency occurs

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when the system notices a signal when it is noise (called a false alarm), and when the system notices noise when it is a crime signal (called a miss). Evidence of system efficiency occurs when the system notices a crime signal (called a hit), and when the system notices noise when it is a noise signal (called a correction). The extent of system deficiency is the relative fraction of false alarms and misses compared to hits and corrections. Often, it is a matter of detecting a given crime signal against a background of noise that represents a situation of uncertainty (Manning & Kowalska, 2021). False positives (called a false alarm) in risk analysis result in the misallocation of resources that is human investigation of low-risk or no-risk activity or transactions. Singh and Lin (2021: 476) argued that when “calibration tools are added this only exaggerates the false-positive problem”. Other deficiencies mentioned by the researchers are inconsistencies in processes, standards, and applications violating regulatory compliance, absence or malfunction of know-your-customer and customer due diligence, and fragmentation of systems that do not interact. A crime signal or noise signal results from a compliance trail that is material and textual consisting of documents, records, and traces that are the created evidentiary residues of a transaction. A failing compliance trail lacks transparency and thus traceability (Power, 2021). In the Journal of Money Laundering Control, Amjad et al. (2021: 2) addressed the lack of inter-bank cooperation across foreign borders where money laundering may help terrorist financing, bribery, corruption, and sanction violations: Banking institutions are mostly used when it comes to money laundering. They provide several services such as depositing, lending money, cashing checks and money or asset transfer from one institution to another without considering the geographical limitation. As globalization is at full force and the world economy is becoming more integrated than before, transferring money across foreign borders is becoming easier. Foreign countries have very tough secrecy laws, allowing sharing of fund without anyone finding out their origin and they also form tax havens to attract the flows. This makes it easier for criminals to transfer funds into a foreign institution without anyone finding out where the funds originated.

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The lack of inter-bank cooperation across foreign borders might be exemplified by the Norfund scandal in Norway involving DNB bank and the Moldova scandal involving Latvian bank. The method of business email compromise was applied to the enterprise Norfund in Norway making DNB bank transfer NOK 12 million not to the designated bank in Cambodia but instead to a bank in Mexico for money laundering. Lack of inter-bank cooperation made it impossible to trace the money beyond the Mexican bank, and the money was lost forever (Teiss, 2020). In Moldova, USD 1 billion disappeared out of several banks, a sum equivalent to 15% of the gross national product in the country. Banca de Economii and other banks transferred the money to Latvian banks where it disappeared forever (Iordachescu & Rodina, 2019). A successful case of inter-bank cooperation against money laundering can be found in a press release from the Norwegian national authority for investigation and prosecution of economic and environmental crime (Økokrim) on October 15, 2021 (www.okorim.no) under the heading “Three men charged with money laundering of NOK 17 million” (about USD 2 million): Økokrim has charged three men with money laundering of outcomes from a fraud committed in Belgium. In 2019, a bank in Belgium was enticed to transfer the money to a recipient in Norway. From here, the money was tried to be sent on to other countries. Good anti-money laundering work in a Norwegian bank meant that the transfers were stopped, however. Økokrim has collaborated with police in several countries on the investigation of what is believed to be a larger money laundering network. Two of the accused men operated from the UK. One of them, a British citizen, was recently extradited from the United Kingdom to Norway. The three defendants have had different roles in the organization and assistance to the money laundering operation. The man who managed the Norwegian account the money came into has already been sentenced to 3 years and 4 months in prison for his role in the money laundering.

Most of the literature on AML and CTF apply an offense-based perspective, listing various types of offenses. The theory of convenience applies the offender-based perspective of criminal actors rather than the

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offense-based perspective of criminal acts. The offender-based perspective emphasizes characteristics of actors such as social and occupational status, power and influence, and access to resources to commit and conceal financial crime (Benson et al., 2021). Convenience theory is concerned with financial motive, professional opportunity, and personal willingness for deviant behavior (Stadler & Gottschalk, 2021). The convenience of committing money laundering and terrorist financing is explained in the theory in terms of the status of the offender and the offender’s access to resources. The convenience of concealing money laundering and terrorist financing is explained in the theory by decay (institutional deterioration and inability to control), chaos (lack of oversight and guardianship), and collapse (rule complexity and criminal market forces). Convenience themes for the offender in the Norfund case are illustrated in Fig. 5.1 and explained below in terms of more than one million US dollars disappearing by inter-bank transactions. The lack of inter-bank cooperation contributed mainly to the convenience of concealment in terms of money laundering. In the opportunity dimension of convenience theory, most criminals have no status in society (Pontell et al., 2014), but they have access to tools and vehicles to compromise email accounts and register fake domains and impersonate employees involved in financial transactions (Benson & Simpson, 2018; Ramoglou & Tsang, 2016). Concealing crime in the digital financial world is also a matter of access to resources to quickly move money away from the Mexican account while deleting all traces (Adler & Kwon, 2002). An important opportunity theme is also the lack of digital knowledge in the victim organization Norfund and in police forces in Norway and globally that is indicated by chaos in the figure, where participation in crime networks (Nielsen, 2003) and markets with crime forces (Chang et al., 2005) represent convenient business practice for the criminal organization. The threat actor managed to change the bank account details in the disbursement notice and convinced Norfund that a Mexican bank was used to avoid using several bank intermediaries in the transaction. The threat actor used Covid-19 as a factor to convince legitimate Cambodian recipients that the bank transfer was delayed. At the same time, the threat

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GREED POSSIBILITIES GOAL MOTIVE

STRAIN THREATS BANKRUPTCY STATUS

CONVENIENCE

COMMIT OPPORTUNITY

ACCESS DECAY

CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS INNOCENCE

JUSTIFICATION NEUTRALIZATION

Fig. 5.1 Convenience themes in the Norfund case with lack of inter-bank cooperation

actor sent emails to Norfund confirming that the funds were received in Cambodia, to prevent further investigation on the part of Norfund. There is a discrepancy between expectations to digital AML and CTF systems (EBA, 2021; EU, 2021; FATF, 2021) and deficiencies of current systems (Al-Suwaidi & Nobanee, 2021; Jayasekara, 2021; Manning & Kowalska, 2021; Power, 2021; Singh & Lin, 2021), causing frequent scandals in the banking sector (Bruun Hjejle, 2018; Clifford Chance, 2020; Klevstrand, 2021; Milne, 2019a, 2019b, 2020; Milne & Binham, 2018; Solgård, 2021).

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The idea of an inter-bank platform of artificial intelligence applications for financial crime investigation and reporting addresses deficiencies in current systems as well as convenience themes for offenders. The ability of offenders to manipulate transactions between banks will be drastically reduced by initiatives such as sharing know-your-customer information, real-time communication, and collaboration on investigations. As a result, the frequency of scandals in terms of government fines and executive dismissals is expected to drop. However, to succeed, compliance officers need to study criminology and digitalization. Knowledge of the law is certainly not enough.

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Nakling, A. (2015, March 20). Lærdomen frå Betanien (Lessons learned from Betanien), daily Norwegian newspaper Bergens Tidende. www.bt.no Nielsen, R. P. (2003). Corruption networks and implications for ethical corruption reform. Journal of Business Ethics, 42(2), 125–149. NTB. (2020, May 4). Tidligere Yara-sjef Thorleif Enger krevde 16 millioner i erstatning—fikk ikke medhold i tingretten (Former Yara boss Thorleif Enger demanded 16 million in compensation—was not upheld in the district court), Norwegian daily newspaper Aftenposten. www.aftenposten.no Pontell, H. N., Black, W. K., & Geis, G. (2014). Too big to fail, too powerful to jail? On the absence of criminal prosecutions after the 2008 financial meltdown. Crime, Law and Social Change, 61(1), 1–13. Pontell, H. N., Ghazi-Tehrani, A. K., & Burton, B. (2020). White-collar and corporate crime in China. In M. L. Rorie (Ed.), The handbook of white-collar crime (ch. 22, pp. 347–362). Wiley. Power, M. (2021). Modelling the micro-foundations of the audit society: Organizations and the logic of the audit trail. Academy of Management Review, 46 (1), 6–32. Pratt, T. C., & Cullen, F. T. (2005). Assessing macro-level predictors and theories of crime: A meta-analysis. Crime and Justice, 32, 373–450. Ragothaman, S. C. (2014). The Madoff debacle: What are the lessons? Issues in Accounting Education, 29 (1), 271–285. Ramoglou, S., & Tsang, E. W. K. (2016). A realist perspective of entrepreneurship: Opportunities as propensities. Academy of Management Review, 41, 410–434. Schoepfer, A., & Piquero, N. L. (2006). Exploring white-collar crime and the American dream: A partial test of institutional anomie theory. Journal of Criminal Justice, 34 (3), 227–235. Shadnam, M., & Lawrence, T. B. (2011). Understanding widespread misconduct in organizations: An institutional theory of moral collapse. Business Ethics Quarterly, 21(3), 379–407. Shearman Sterling. (2017). Independent directors of the Board of Wells Fargo & Company: Sales practices investigation report, law firm Shearman Sterling, NewYork, NY, 113 pp. Shichor, D., & Heeren, J. W. (2021). Reflecting on corporate crime and control: The Wells Fargo banking saga. Journal of White Collar and Corporate Crime, 2(2), 97–108. Silvova, N. M., Jonassen, T. H., & Grønneberg, A. (2014, December 3). Aschehougs finansdirektør dømt for underslag (Aschehoug’s finance director

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sentenced for embezzlement), daily Norwegian newspaper Dagbladet. www. dagbladet.no Singh, C., & Lin, W. (2021). Can artificial intelligence, RegTech and CharityTech provide effective solutions for anti-money laundering and counterterror financing initiatives in charitable fundraising. Journal of Money Laundering Control, 24 (3), 464–482. Solgård, J. (2021, April 19). Danske Banks toppsjef Chris Vogelzang går på dagen (Danske Bank’s top executive Chris Vogelzang leaves on the day), daily Norwegian business newspaper Dagens Næringsliv. www.dn.no Stadler, W. A., & Gottschalk, P. (2021). Testing convenience theory for whitecollar crime: Perceptions of potential offenders and non-offenders. Deviant Behavior, Published Online. https://doi.org/10.1080/01639625.2021.191 9037 Swart, J., & Kinnie, N. (2003). Sharing knowledge in knowledge-intensive firms. Human Resource Management Journal, 13(2), 60–75. Teiss. (2020, May 20). Hackers conned Norwegian investment fund out of $10m through email scam. The Cambodia Daily. www.cambodiadaily.com Tiwana, A., & Keil, M. (2009). Control in internal and outsourced software projects. Journal of Management Information Systems, 26 (3), 9–44. WilmerHale & PwC. (2008). Report of Investigation submitted by the Council of the District of Columbia, Wilmer Cutler Pickering Hale and Dorr LLP (Councel) and PricewaterhouseCoopers LLP (Forensic Accounting Advisors). http://www.dcwatch.com/govern/otr081215.pdf, downloaded February 8, 2015, 126 pp. Wingerde, K., & Merz, A. (2021). Responding to money laundering across Europe: What we know and what we risk. In N. Lord, E. Inzelt, W. Huisman, & R. Faria (Eds.), European white-collar crime—Exploring the nature of European realities (ch. 7, pp. 103–124). Bristol University Press. Wood, J., & Alleyne, E. (2010). Street gang theory and research: Where are we now and where do we go from here? Aggression and Violent Behavior, 15, 100–111.

6 Roles of Compliance Officers

This chapter considers the key role of compliance officers as a specialist bulwark against corporate deviance and crime and the exposed nature of their distinctive status. Just like internal and internal auditors must act in compliance with accounting standards that require them to uncover irregularities should they be present (Olsen, 2007), compliance officers are similarly obliged to uncover and react to irregularities to legal and business standards should they be present. Roberts (2008: 233) found that many organizations have accepted the challenge of encouraging staff to disclose perceived wrongdoing and have committed themselves to protecting staff from reprisals: But some have not, and most are finding at least some parts of the challenge to be substantial. From the outset, it is worth noting the three broad (and overlapping) themes, encountered by the researchers to date, which appear to drive organizational approaches to the management of whistleblowing. These themes demonstrate that the same challenges can be viewed differently by different managers and can help explain differences in agency approaches.

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The first theme is compliance: many senior managers are aware that they are required to establish procedures and implement policies for the purpose of complying with applicable legislation (…) The second theme is utilitarian: many senior managers in organizations recognize that good governance requires that wrongdoing be identified and dealt with (…) Finally, senior managers in organizations often also take an ethical stance, viewing reporting of wrongdoing as a fundamental part of maintaining the integrity of the organization.

In Spain, compliance officers are required to have a specific profile. Some of them are internal auditors who unfold the risks inherent in the company’s activities (Robina-Ramirez et al., 2021). This chapter includes close analysis of public corporate statements made by compliance violators with linkage to foregoing case studies to evaluate reputational symbolic and substance messaging, before considering the recent large-scale survey of compliance officers in the United States by BarkerGilmore (2021). The Yara corruption scandal in Libya is then presented as an example of the undue pressure exerted on compliance professionals during episodes of corporate wrongdoing. Here, we demonstrate that in the aftermath of white-collar scandals, many companies attempt window dressing by introducing new rules for their employees. However, the new rules do not necessarily apply to most criminogenic levels within these organizations. When senior executives at the Norwegian company Yara were charged with corruption, and one of them ended up in prison, the company publicly introduced new anticorruption rules that obviously did not apply to the top executives. Consequently, the new chief compliance officer at Yara continued to report to an executive whose predecessor in the position was serving a prison sentence as censure for compliance failure.

Statements by Compliance Violators A number of examples of compliance violations have been presented so far in this book. It is interesting to review current corporate statements about compliance functions based on presentations on the respective

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home pages for each of these corporations. The following descriptions of compliance functions were downloaded on October 17, 2021: ● Astellas Pharma in Japan. “The Astellas Group Cs a global code for everyone who works for Astellas in any location around the world and in any capacity whatsoever as a director, officer, employee, temporary worker, or otherwise, whether full-time or part-time, establishing that they are expected to perform their duties ethically and in compliance with laws and regulations.” ● British Petroleum in the UK . “Our ethics and compliance teams support businesses, functions, leaders and individuals across bp to meet their ethical and legal obligations, and manage compliance risks.” ● Danske Bank in Denmark. Danske Bank has an independent compliance function—Group Compliance—that is responsible for monitoring whether the Group complies with applicable laws, market standards and internal rules and for providing advice on mitigating key compliance risks. ● Deutsche Bank in Germany. “Whether in the area of money laundering, corruption, or financial crime – the compliance management system of Deutsche Bank is geared to strict conformity with the law.” ● DNB Bank in Norway. “Compliance is responsible for ensuring that operations are conducted in accordance with current legislation and other framework conditions, and it includes responsibility for identifying, assessing, controlling, reporting and advising on the risk of breach of key framework conditions.” ● Fuji Xerox Technology in New Zealand . “The Fujifilm Group defines compliance as not only to pursue the law but to behave correctly within the framework of common sense and ethics.” ● General Motors (GM) in the United States. “The Global Ethics and Compliance Center prevents, detects and helps correct violations of law and corporate policies or ethical business culture.” ● International Biathlon Union (IBU) in Austria.” In respect of all of their activities in the sport of Biathlon, Participants must comply with all applicable laws, rules and regulations; act in accordance with the highest standards of honesty and integrity; conduct themselves in a professional and courteous manner.”

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● Kongsberg Industries in Norway. “We experience a constantly changing world, with an increased focus on compliance with laws, rules and sanctions.” ● Nordea Bank in Sweden. “Nordea acknowledges on behalf of itself and its subsidiaries that it has a responsibility towards its customers, shareholders and regulators to ensure that Nordea, its employees, and third parties do not commit acts of bribery or corruption and that applicable ABC laws and regulations are complied with.” ● Oceanteam Offshore Services in the Netherlands. “Whether you need a reliable offshore service provider or a local partner to ensure your assets and services continue to grow, Oceanteam is there for you.” ● Samherji Fishing in Iceland . “Samherji has taken steps to implement a corporate governance and compliance system.” ● Swedbank in Sweden. “Swedbank maintains a special group compliance function, which is responsible for coordination and reporting on matters of regulatory compliance.” ● Telenor Telecom in Norway. “Telenor has established a Hotline to compliance throughout the Group.” ● Telia Telecom in Sweden. “It is the opinion of the Board that Telia Company in all respects complied with the Swedish Corporate Governance Code during 2020.” ● Toshiba Technology in Japan. “Toshiba promotes rigorous compliance with business-related laws and regulations by providing education, effectively utilizing databases that contain relevant information, and performing periodic self-audits.” ● Vimpelcom Telecom (now Veon) in the Netherlands. “Amsterdam-based telecoms company Veon, previously known as VimpelCom, recently completed its three-year monitorship following a landmark foreign bribery settlement in 2016.” ● Wells Fargo Bank in the United States. “Wells Fargo Compliance is the company’s Compliance independent risk management function, providing company-wide leadership, standards, support, and independent oversight to ensure that all business groups abide by applicable laws, rules, regulations and regulatory guidance (regulatory requirements), meet compliance responsibilities, and manage compliance risks.”

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● Wirecard Bank in Germany. Went bankrupt in 2020. Toebe (2020) suggested that “compliance alone won’t prevent Wirecard-like scandals”: Wirecard’s gross financial misconduct and resulting scandal and crisis have been dubbed the Enron of Germany by some analysts. No matter how many times this type of compliance and governance failure is repeated, leading to massive damage to stakeholders, ruin of reputation and careers, there always will be new actors eager to travel the same dangerous path.

Most compliance statements above seem more characterized by symbolic messages rather than substance messages. A symbol is an object or a phrase that represents an idea, a belief, or an action. Symbols take the form of words, sounds, gestures, or visual images. Symbolic presentation is the application of symbols that can benefit the corporation in terms of reputation. Symbols are presented artifacts in a communication to portrait the organization in a desired light. The above statements by compliance violators are mainly symbolic and serve the purpose of window dressing, which symbolic actions are taken to improve the appearance of each corporations. Typically, a gap then exists between the window appearance and the real situation inside the corporation. Substance, on the other hand, is evidence of real handling of deviant episodes. In substance statements, corporations review negative incidents and draw conclusions that have altered executive behavior.

Survey of Officers in the United States A survey in the United States found that compliance professionals who possess a law degree receive, on average, a significantly higher salary than others in the same profession (Flynn, 2021): The survey, conducted by legal recruiting firm BarkerGilmore between February to March 2021 from a random sample of U.S. compliance professionals, also found that the average annual salary increase for all positions across industries was 3.46 percent. The industries with the

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highest salary increases were in the energy sector at 5 percent and the healthcare and life sciences industries at 3.9 percent.

BarkerGilmore is a recruiting firm delivering compliance officer candidates to clients emphasizing candidates that (www.bargilmore.com): ● Quickly earns trust, confidence, and buy-in from the entire company ● Has the industry experience to understand your business objectives and challenges ● Builds, maintains, and optimizes compliance programs by monitoring relevant regulations and assessing risks ● Interacts confidently with regulators and promptly addresses their request ● Navigates swiftly through audits and inquiries ● Inspires, collaborates with and holds colleagues accountable ● Develops and maintains a data privacy plan and policies. BarkerGilmore (2021) defined a chief compliance officer as the enterprise-wide head of compliance in an organization. Most of their respondents had been compliance officers for one to ten years. Chief compliance officers in small organizations had an average compensation of $228,000, while chief compliance officers in large organizations had a compensation of $485,000.

The Yara Corruption Scandal in Libya In court, the former chief compliance officer said that for the current CEO it was all about blaming previous executives and protecting current executives (Ånestad, 2016: 10). The purpose was to hit and blame the old management team. The current management team was to be protected. We wanted an internal investigation that blamed the previous management team.

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After the conviction of the CEO at Yara in Oslo district court in Norway, the former chief compliance officer at Yara wrote a note under the heading “One day of happiness?” (Tingstad, 2015): Should I be happy or sad on a day when four men, current and former Yara executives, are convicted of gross corruption in the Oslo district court? As it stands today, two to three years imprisonment awaits the four, having been found guilty of corruption in connection with investments in Libya and India. I was Chief Compliance Officer of Yara between 2009 and 2013, and lived and worked in the “corruption tsunami” that marred the company in the same period. My job was to protect the integrity of the company, while rendering Norwegian authorities the assistance they required during the investigation. A balancing act, to say the least, I never had an agenda to “get” anyone, but I was the compliance officer for a reason. On a personal level, today’s convictions, sure to be appealed, call for no celebrations. Two of the men, Enger and Wallace, have been my superiors - and friends. I have travelled with Enger and his wife, and stayed in Wallace’s house when in Florida. They have both been excellent colleagues, and helped advanced my career. Within Yara, Enger was, and still is, widely considered the “man who created Yara”, while what was to follow him never made the same impact. As a former colleague, I wish Enger had a more graceful exit from office. I also feel sad for Yara today: A company that was the historical, if not always financial, backbone of the proud industry locomotive, Norsk Hydro. Yara was the company that rose from the verge of virtual bankruptcy in the late 90’s, to become an industry leader, “The Industry Shaper”, just a few years later. Today that success fades somewhat in the shadow of the alleged business methods of its now convicted executives. I do, however, feel very encouraged by the determination and ability of the Norwegian authorities, namely ØKOKRIM, as well as the Norwegian courts, to invest substantially in pursuing international corruption well beyond the borders of Norway. We can all have opinions on their approach and ability to strike the right targets, but the contribution to the collective fight against corruption is unquestionable. Hopefully, more countries will follow suit.

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One of the convicted executives said in court in September 2016: “I am a good soldier but not the commander”. Then the obvious question follows: Who is the commander? The likely answer must be: The CEO. After a white-collar scandal, many companies attempt window dressing by introducing new rules for their employees. However, the new rules do not necessarily apply to those levels in the organization where you find the criminals. For example, when top executives at the Norwegian company Yara were charged with corruption, and one of them ended up in prison, the company introduced new anti-corruption rules that obviously did not apply to the top executives. They continued to enjoy the freedom of choice in their business decisions. The new chief compliance officer at Yara continued to report to an executive whose predecessor in the position, chief legal officer Wallace, ended up in prison.

References Ånestad, M. (2016, November 7). “Formålet var å ramme gammel ledelse (The purpose was to harm the previous management), daily Norwegian newspaper Dagens Næringsliv, p. 10. BarkerGilmore. (2021). Compliance compensation report. BarkerGilmore. www. barkergilmore.com, United States. Flynn, D. (2021, August 5). Survey: Compliance officers with J.D. receive higher compensation. Compliance Chief . www.compliancechief360.com Olsen, A. B. (2007). Økonomisk kriminalitet: Avdekking, gransking og forebygging (Financial crime: Detection, investigation and prevention). Universitetsforlaget. Roberts, P. (2008). Evaluating agency responses: The comprehensiveness and impact of whistleblowing procedures. In A. J. Brown (Ed.), Whistleblowing in the Australian Public Sector (pp. 233–260). Enhancing the theory and practice of internal witness management in public sector organisations, ANU Press, Australian National University. Robina-Ramirez, R., Sanchez-Hernandez, M. I., & Diaz-Caro, C. (2021). Hotel manager perceptions about corporate compliance in the tourism

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industry: An empirical regional case study in Spain. Journal of Management and Governance, 25, 627–654. Tingstad, T. (2015, July 7). A day of happiness? Linkedin. https://www.lin kedin.com/pulse/day-happiness-tormod-tingstad?articleId=602427719813 8077184#comments-6024277198138077184&trk=prof-post Toebe, M. (2020, July 10). Compliance alone won’t prevent Wirecard-like scandals. Corporate Compliance Insights. www.corporatecomplianceinsights. com

7 Restoration of Compliance and Control

Restoring corporate compliance is an effort often caused by a scandal. A corporate scandal is “an unexpected, publicly known, and harmful event that has high levels of initial uncertainty, interferes with the normal operation of an organization, and generates widespread, intuitive, and negative perceptions” externally (Bundy & Pfarrer, 2015: 350). In a typical scandal, “the press (or a whistleblower) raises the alarm, expressing outrage which manifests itself as a moral panic” (Smith et al., 2022: 4). The event is regarded as legally, morally, or socially wrong and causes general public outrage. Scandals are negative surprises that are shocking and can cause moral panic. Scandals are publicized transgressions that run counter to established norms, typically resulting in condemnation and discredit including bad press, disengagement of key constituencies, the severance of network ties and decrease in delivering to key performance indicators (Piazza & Jourdan, 2018). Scandals cause public calls for examinations (Smith et al., 2022: 3): Scandals are a key mechanism used by media, pressure groups and social movements to demand inquiries and investigations into alleged corruption, incompetence and immorality. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_7

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As a scandal evolves, the corporation has to make statements to explain unanticipated negative conduct in the form of accounts of incidents (Gottschalk & Benson, 2020). A typical element of scandal accounts is the emphasis on corporate compliance. The scandalized enterprise might experience various forms of compliance pressure, conformity pressure, and obedience pressure. Obedience pressure is considered a form of social influence pressure, alongside the two other types of social influence pressure: compliance pressure and conformity pressure (Baird & Zelin, 2009: 2): Compliance pressure is similar to obedience pressure, except that compliance pressure can come from one’s peers as well as from superiors, while obedience pressure must come from an authority figure. Conformity pressure refers to pressure to conform to perceived or societal norms.

Authority can be defined as compliance with commands (Bourgoin et al., 2020). Authority can also be defined as domination, where the probability is high that a certain specific command will be obeyed by a given group of persons. Authority assumes voluntary compliance or an interest in obedience. Obedience is an obligation that is formal, and one follows it without regard to one’s own attitude or lack of value of its content. It is often essential that the authority is believed to be legitimate, and there needs to be an immediate relation between command and obedience (Aguilera & Vadera, 2008). For a scandalized enterprise, it will be a rational choice to restore compliance. The enterprise wants to achieve regulatory compliance through an internal system of checks and balances, which can be relied upon by the regulators and stakeholders. As part of the effort to restore compliance, corporations tend to hire external consultants. Private sector investigative consultants conduct inquiries for their clients in cases of suspected corporate crime. Recent developments internationally when it comes to corporate criminal liability have led many business and also government organizations to recruit consultants to develop internal compliance systems because the function of such systems is increasingly taken into account by prosecution authorities.

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Internal investigations in private and public organizations serve important functions in society. They allow entities to discover misbehavior within management, make corrections, and define future conduct to assure compliance with laws, regulations, policies, and guidelines. Private investigations offer organizational solutions to organizational problems, while providing an incentive to corporations and public authorities to unmask misconduct. Internal investigations also allow corporations as well as other organizations to quietly examine allegations that may later prove to be wrong, without fear that disclosure will hurt the organization’s or an individual’s reputation (Green & Podgor, 2014).

The Trust Repair at Siemens in Germany The German company Siemens faced a series of bribery and money laundering allegations in more than a dozen countries in 2004. In 2006, German police investigators raided Siemens headquarters in Munich and homes of leading executives. Police investigations revealed that Siemens had been bribing governmental officials to secure contracts and to gain favorable conditions for more than three decades. Eberl et al. (2015: 1209) argued that most of the executives involved “were clearly aware that they were violating the law, but they acted out of a sense of loyalty to and for the benefit of their company”. Lack of oversight and guardianship was obvious in the Siemens corruption scandal, as phrased by the judge in German court (Berghoff, 2018: 430): He compared the Siemens compliance department with ‘fire fighters, who were equipped with a toothbrush mug to extinguish major fires’.

The severe violation of integrity at the organizational level at Siemens led to a substantial crisis of the organization’s legitimacy and had strong negative effects on stakeholders’ trust in the organization. In order to repair and restore trust in the organization, Siemens established a compliance program to detect corrupt practices, and they implemented

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corporate governance structures as well as accepted monitoring from external authorities. Trust is the acceptance of vulnerability to another’s actions (Baer et al., 2021). Trust implies that vulnerability is accepted based upon positive expectations of the motives and actions of another. Trust is a dynamic phenomenon in a relationship between the entity that is trusted and the other that trusts the entity. Trust is a matter of expectation causing willingness and intention to be vulnerable if necessary. Kim et al. (2009: 401) defined trust as “a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behavior of another”. The positive expectations can relate to what another does, how it is done, and when it is done. The positive expectations can relate to the reaction of another, where it is expected that the reaction will be understandable, acceptable, and favorable. Vulnerability means that trust can easily be violated without detection or correction of deviant behavior. As argued by Dearden (2016: 89), vulnerability implies a state in which someone may be hurt or otherwise taken advantage of: Trust is a critical component of social exchange. The reliance of individuals on an exchange or transaction that provides them with some resource also creates vulnerability. As trust increases, risk taking increases due to more resources being allocated to a trustee, as well as expectations from the trustee. Therefore, trust and social exchange increase together.

Expectations create a norm or way in which the trusted individual is supposed to act. Trust is thus associated with dependence and risk (Chan et al., 2020: 3): The trustor depends on something or someone (the trustee or object of trust), and there is a possibility that expectations or hopes will not be satisfied, and that things will go wrong. Trust is not absolute, but conditional and contextual.

The term trustor refers to the actor whose trust has been strengthened, unchanged, or violated since the actor is in the position of evaluating the trusted or mistrusted party and assessing the trusted or mistrusted party’s behavior. The term trustee refers to the trusted or mistrusted party

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since the entity is the target of the trustor’s trusting beliefs, intentions, willingness, expectations, and behaviors (Kim et al., 2009). Eberl et al. (2015) studied how Siemens tried to repair and restore trust. Their findings suggested that tightening organizational rules was an appropriate signal of trustworthiness for external stakeholders to demonstrate that the organization seriously intends to prevent scandals and integrity violations in the future. Their findings also suggested that such rule adjustments were the source of dissatisfaction among employees since the new rules were difficult to implement in practice. Eberl et al. (2015) argued that these different impacts of organizational rules resulted from their paradoxical nature. To address this problem, they suggested managing an effective interplay between formal and informal rules. According to Eberl et al. (2015), Siemens implemented a variety of different measures to regain integrity and to rebuild trust in the organization after the global corruption scandal. Trust is a vulnerable relational asset for organizations, and an important precondition for their legitimacy and long-term viability (Fuoli et al., 2017). Restoring trust is important, since victims and others are likely to attribute blame to the organization (Yenkey, 2018). Seven distinct types of measures were implemented: rule adjustments, rule clarification, restructuring, monitoring, sanctioning, personnel changes, and cultural interventions. These measures are more in line with recommendations from fraud examiners. Monitoring is in line with control, where Siemens installed an ombudsman, arranged for independent investigation of the internal control system, established a compliance committee of the supervisory board for the investigation of criminal action, introduced forensic accounting check of suspicious payments, established a hotline for whistleblowers, developed a scorecard system for the evaluation of deals with business partners, and installed an independent external compliance monitor. Eberl et al. (2015) emphasized organizational rule adjustments such as strengthening of internal guidelines in order to close potential gaps, extension and specification of compliance rules for all employees and suppliers, general interdiction of consultancy contracts in sales and

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distribution, and guidelines on presents and invitations. In conjunction with formal rule adjustments to rebuild trust, Siemens management attempted to initiate change of Siemens culture. In their document Corporate Social Responsibility Policy of Siemens and other documents, Siemens emphasized the fight against corruption. Siemens supported the International Anti-Corruption Academy, which is dedicated to overcoming current shortcomings in knowledge and practice in the field of compliance and anti-corruption. “Repairing trust in an organization after integrity violations: The ambivalence of organizational rule adjustment” was the title of the research article by Eberl et al. (2015) concerning trust repair at Siemens in Germany. When the Siemens corruption scandal emerged in the public, top management first attempted to blame lower-level managers (Berghoff, 2018: 423): At first the company defended itself with set phrases like ‘mishaps of individuals’ and isolated offenses committed by a ‘gang’ of criminals, or ‘This is not Siemens’.

Siemens executives abroad routinely bribed foreign officials as part of an overall pattern of corporate conduct in marketing. The climate encouraged corruption and fraudulent behavior as normal and acceptable (Murphy & Dacin, 2011). Cartels and corruption networks are important to many global business enterprises (Goncharov & Peter, 2019). A cartel is an association of independent firms in the same industry that strive to reduce competition by agreeing on areas such as market sharing, pricing levels, and production quotas. A cartel is collective misconduct of firms (Bertrand & Lumineau, 2016: 983): Instead of competing with one another, cartel members rely on each other’s agreed course of action. Consequently, these underhanded agreements reduce the member firms’ incentives to provide new or better products and services at competitive prices. Their clients (other businesses or final consumers) ultimately pay more for lower quality. Final consumers observe a reduction in their welfare, and businesses suffer from more expensive inputs. By artificially decreasing the natural level

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of competition in the market, cartels decrease the overall competitiveness not only of the cartelized industry but also of other industries. The damage to customers and other businesses can thus be significant, particularly when cartels are able to last for years.

When the corruption case at Siemens was detected, Murphy and Dacin (2011) found that the business climate encouraged corruption and fraudulent behavior as normal and acceptable. To cope with the scandal, Siemens replaced its management board (Berghoff, 2018: 423): Siemens is one of the world’s leading electrical engineering corporations. In 2006, a massive corruption scandal erupted, concluded in 2008 with a record fine. For Siemens the largest risk was being barred from government contracts. As a consequence, it replaced virtually its entire managing board, an unprecedented procedure in the history of the company.

However, the criminal market structures did not change. Siemens “thrived in the cozy world of national monopolies and cartels, which guaranteed high margins and no worries about rivals” (Berghoff, 2018: 425). While the new management at Siemens attempted trust repair among stakeholders by introducing updated rules and guidelines, Eberl et al. (2015: 1205) found that the new rules were paradoxical in nature and thus difficult to implement in practice: Our findings suggest that tightening organizational rules is an appropriate signal of trustworthiness for external stakeholders to demonstrate that the organization seriously intends to prevent integrity violations in the future. However, such rule adjustments were the source of dissatisfaction among employees since the new rules were difficult to implement in practice. We argue that these different impacts of organizational rules result from their inherent paradoxical nature.

The case study here is concerned with measures that implicitly are described in the article by Eberl et al. (2015) and presented later in this book regarding corporate culture, compliance risk assessment, new tone at the top, policies, and procedures.

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Financial Crime Specialists in Compliance The Association of Certified Financial Crime Specialists (ACFCS) was created to respond to a growing need for documented, verifiable, and certifiable knowledge and skill in the financial crime field and to meet the career development needs of the diverse and growing number of specialists in the private and public sectors who work in this field (CFCS, 2014). ACFCS is a member organization that provides training, news, analysis, and networking to a worldwide membership of professionals in financial crime field. ACFCS awards the Certified Financial Crime Specialist (CFCS) certification to persons who meet certain qualifications and pass a rigorous examination offered at 700 authorized testing centers worldwide. It is a credential that tests competence and skill across the financial crime spectrum, including money laundering, corruption, tax evasion, compliance, investigations, and other fields. A private investigation is conducted by a variety of private sector financial crime specialists who can be investigators, forensic accountants, or lawyers, all of whom may be supported by investigative analysts, who the government usually calls intelligence analysts. ACFCS stresses the importance of the following topics for financial crime specialists: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

The challenge of financial crime Financial crime overview, commonalities, and convergence Money laundering Understanding and preventing fraud Global anti-corruption compliance and enforcement Tax evasion and enforcement Asset recovery Financial crime investigations Interpreting financial documents Money and commodities flow Compliance programs and controls

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12. Data security and privacy 13. Ethical responsibility and best practices 14. International agreements and standards In the UK, it is expected that companies contribute to detection of law violations in terms of self-reports. For a self-report to be taken into account as a public interest factor tending against prosecution it must form part of a genuinely proactive approach adopted by the corporate management team. Prosecutors will consider whether it has provided sufficient information, including making witnesses available and disclosing the details of any internal investigation, about the operation of the corporate body in its entirety. This is in accordance with the UK serious fraud office guidance on corporate prosecutions. According to the UK serious fraud office guidance on corporate prosecutions: 1. Initial contact, and all subsequent communication, must be made through the SFO’s Intelligence Unit. The Intelligence Unit is the only business area within the SFO authorized to handle self-reports. 2. Hard copy reports setting out the nature and scope of any internal investigation must be provided to the SFO’s Intelligence Unit as part of the self-reporting process. 3. All supporting evidence including, but not limited to emails, banking evidence, and witness accounts, must be provided to the SFO’s Intelligence Unit as part of the self-reporting process. 4. Further supporting evidence may be provided during the course of any ongoing internal investigation. ACFCS—www.acfcs.org—offers the CFCS certification exam from its headquarters in Miami, Florida. This is the CFCS examination outline: ● Understanding financial crime: Financial crime commonalities, money laundering controls and investigation, ethical responsibility and best practices.

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● Investigating financial crime: Financial crime investigation, fraud detection and investigation, money and commodities flow. ● Enforcement actions and mechanisms: Tax evasion and enforcement, asset recovery. ● Compliance: Programs and controls, global anti-corruption compliance and enforcement, international regulations and standards, data security and privacy. The University of New Haven and the Association of Certified Financial Crime Specialists (ACFCS.org) announced in 2013 that the Department of Criminal Justice at the University of New Haven was the first to offer a course leading to ACFCS certification. Students enrolled in the course on Investigating Financial Crimes were to learn the legal, ethical, and practical aptitudes necessary to become financial crime specialists. The course was to use the 340-page CFCS Certification Exam Study Manual and online, on-demand preparation course from ACFCS as its educational materials (www.newhaven.edu). A similar organization to the ACFCS is the Association of Certified Fraud Examiners (ACFE) in New York. ACFE (2020) estimated that business organizations lose approximately $3.6 billion yearly due to fraud. There is a growing business for global auditing firms and local law firms to conduct internal investigations at client organizations when there is suspicion of white-collar misconduct and crime (Button & Gee, 2013; Gottschalk & Tcherni-Buzzeo, 2017; Schneider, 2006; Williams, 2014). The purpose of a later chapter is to present a basis to reflect on the work by private fraud examiners such as Bruun Hjejle (2018), Deloitte (2017), Mannheimer Swartling (2016), PwC (2015), Shearman Sterling (2017), and others. The purpose is also to review research literature on the role of financial crime specialists (King, 2021; Meerts, 2020).

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References Aguilera, R. V., & Vadera, A. K. (2008). The dark side of authority: Antecedents, mechanisms, and outcomes of organizational corruption. Journal of Business Ethics, 77 , 431–449. Baer, M. D., Frank, E. L., Matta, F. K., Luciano, M. M., & Wellman, N. (2021). Untrusted, overtrusted, or just right? The fairness of (in)congruence between trust wanted and trust received. Academy of Management Journal, 64 (1), 180–206. Baird, J. E., & Zelin, R. C. (2009, Winter). An examination of the impact of obedience pressure on perceptions of fraudulent acts and the likelihood of committing occupational fraud. Journal of Forensic Studies in Accounting and Business, 1–14. Berghoff, H. (2018). “Organised irresponsibility?” The Siemens corruption scandal of the 1990s and 2000s. Business History, 60 (3), 423–445. Bertrand, O., & Lumineau, F. (2016). Partners in crime: The effects of diversity on the longevity of cartels. Academy of Management Journal, 59 (3), 983– 1008. Bourgoin, A., Bencherki, N., & Faraj, S. (2020). “And who are you?”: A performance perspective on authority in organizations. Academy of Management Journal, 63(4), 1134–1165. Bruun Hjejle. (2018). Report on the Non-Resident Portfolio at Danske Bank’s Estonian branch, law firm Bruun Hjejle, Copenhagen, Denmark, 87 pages. Bundy, J., & Pfarrer, M. D. (2015). A burden of responsibility: The role of social approval at the onset of a crisis. Academy of Management Review, 40 (3), 345–369. Button, M., & Gee, J. (2013). Countering fraud for competitive advantage— The professional approach to reducing the last great hidden cost. John Wiley & Sons. Chan, J., Logan, S., & Moses, L. B. (2020). Rules in information sharing for security. Criminology & Criminal Justice, 1–19. https://doi.org/10.1177/174 8895820960199 Dearden, T. E. (2016). Trust: The unwritten cost of white-collar crime. Journal of Financial Crime, 23(1), 87–101. Deloitte. (2017). Investigation Report. Independent Investigation Committee, by global auditing firm Deloitte, published June 10, Ito, T., Sato, K. and

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Nishimura, K., https://www.fujifilmholdings.com/en/pdf/investors/finance/ materials/ff_irdata_investigation_001e.pdf, downloaded September 8, 2018, 89 pages. Eberl, P., Geiger, D., & Assländer, M. S. (2015). Repairing trust in an organization after integrity violations. The ambivalence of organizational rule adjustments. Organization Studies, 36 (9), 1205–1235. Fuoli, M., Weijer, J., & Paradis, C. (2017). Denial outperforms apology in repairing organizational trust despite strong evidence of guilt. Public Relations Review, 43, 645–660. Goncharov, I., & Peter, C. D. (2019). Does reporting transparency affect industry coordination? Evidence from the Duration of International Cartels, the Accounting Review, 94 (3), 149–175. Gottschalk, P., & Benson, M. L. (2020). The evolution of corporate accounts of scandals from exposure to investigation. British Journal of Criminology, 60, 949–969. Gottschalk, P., & Tcherni-Buzzeo, M. (2017). Reasons for gaps in crime reporting: The case of white-collar criminals investigated by private fraud examiners in Norway. Deviant Behavior, 38(3), 267–281. Green, B. A., & Podgor, E. (2014). Unregulated internal investigations: Achieving fairness for corporate constituents. Boston College Law Review, 54 (1), 73–126. Kim, P. H., Dirks, K. T., & Cooper, C. D. (2009). The repair of trust: A dynamic bilateral perspective and multilevel conceptualization. Academy of Management Review, 34 (3), 401–422. King, M. (2021). Profiting from a tainted trade: Private investigators’ views on the popular culture glamorization of their trade. Journal of Criminological Research Policy and Practice. https://doi.org/10.1108/JCRPP-07-2020-0050 Meerts, C. (2020). Corporate investigations: Beyond notions of public-private relations. Journal of Contemporary Criminal Justice, 36 (1), 86–100. Murphy, P. R., & Dacin, M. T. (2011). Psychological pathways to fraud: Understanding and preventing fraud in organizations. Journal of Business Ethics, 101, 601–618. Piazza, A., & Jourdan, J. (2018). When the dust settles: The consequences of scandals for organizational competition. Academy of Management Journal, 61(1), 165–190. Schneider, S. (2006). Privatizing economic crime enforcement: Exploring the role of private sector investigative agencies in combating money laundering. Policing & Society, 16 (3), 285–312.

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Smith, R., Manning, L., & McElwee, G. (2022). The anatomy of ‘so-called food-fraud scandals’ in the UK 1970–2018: Developing a contextualized understanding. Crime, Law and Social Change. https://doi.org/10.1007/s10 611-021-10000-3 Shearman Sterling. (2017). Independent directors of the Board of Wells Fargo & Company: Sales practices investigation report, law firm Shearman Sterling, 113 pages. Mannheimer Swartling. (2016). Report on Investigation of Nordea Private Banking in Relation to Offshore Structures, law firm Mannheimer Swartling, 42 pages. Williams, J. W. (2014). The private eyes of corporate culture: The forensic accounting and corporate investigation industry and the production of corporate financial security. In K. Walby & R. K. Lippert (Eds.), Corporate security in the 21st century—Theory and practice in international perspective (pp. 56–77). Palgrave Macmillan. Yenkey, C. B. (2018). Fraud and market participation: Social relations as a moderator of organizational misconduct. Administrative Science Quarterly, 63(1), 43–84.

8 Crime Signal Detection Perspectives

White-collar crime is financial crime committed in a professional setting by a privileged individual in the elite, who abuses his or her legitimate access to resources to commit and conceal the offense (Onna & Denkers, 2019; Sutherland, 1939, 1983). Crime can benefit the offender as occupational crime and/or the offender’s organization as corporate crime. Corporate white-collar crime aims to enrich the offender’s organization in a private or public business (Craig & Piquero, 2017; Cullen et al., 2006). Detection of white-collar crime is dependent on a number of factors as discussed in this chapter. Detection is not a digital phenomenon in the sense that crime has occurred or not occurred, and the criminal act is detected or not detected. Rather, detection is concerned with the extent of accuracy in noticing fake or genuine deviant acts. It is a matter of social psychology as suggested by Groth et al. (2009: 960), where accuracy of detection is influenced by interactions between the observer and the observed as well as the ability to recognition:

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It is well documented that people’s ability to understand the nonverbal behavior of others and detect deception predicts a range of important work outcomes, including job performance (…) One difficulty in accurately detecting emotions is that no universally applicable cues can differentiate deception from truth telling. Research shows some success with the use of facial action coding system, which systematically attempts to categorize the physical expression of emotions. Although using this coding scheme improves detection accuracy of truth telling and deception, the system relies on an extremely time consuming, frame-by-frame video analysis performed by trained experts and is thus not applicable to real-time interactions in social life.

Examining the accuracy in detecting misconduct and crime is difficult to separate from the willingness or unwillingness of the observer to report his or her observations. An increased willingness to report probably causes an increase in the likelihood of more active and accurate observations. The level of perceived detection accuracy influences in turn the willingness to report observations. In Ukraine, Slinko et al. (2021) identified a number of indicators of financial crime including the use of false documents, international payment systems, other people’s accounts, conducting frequent and complex small-scale financial transactions, unusual financial transaction for the client by amount or counterparty, unusual purpose of payment, incomplete information on the purpose of payment, strange recipient or initiator of payment, confusing nature of financial transaction, and lack of economic content of financial transaction. To detect is to observe, discern, reflect as well as expose white-collar misconduct and crime. An example of managerial misconduct is when management intentionally misleads investors or when shareholders are injured as a result of management’s disclosure decisions (Jennings, 2019). The longer a white-collar offender commits acts of financial crime, the more financial damage the crime tends to make (ACFE, 2014).

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White-Collar Crime Characteristics Corporate crime, sometimes called organizational offending, is resulting from offenses by aggregates of discrete individuals (Reed & Yeager, 1996). If a corporate official violates the law in acting for the corporation, it is defined as corporate crime or organizational offending (Holtfreter, 2005). Organizational officials commit corporate crime in the larger interests of an organization, such as bribing potential customers, avoiding taxes by evasion, and misrepresenting accounting to get unjustified government subsidies. By corporate crime, individuals such as board members and chief executives serve the benefit of the organization. Of course, individuals may benefit personally as a side effect of the corporate financial crime since the interests of the organization may coincide with the interests of individual members. While a corporation cannot feel, does not have a mind, and does not think, the corporation nevertheless acts and is the actor when executives and others attempt to improve organizational performance in illegal ways (Bundy & Pfarrer, 2015; Scott & Lyman, 1968). Money laundering in wealth management, illegal financial instruments, deviant accounting practices, abuse of state subsidies, manipulation of financial figures for tax evasion, deviant sales practices, securities fraud, antitrust violations, bribery to obtain contracts, false loan applications to obtain credit in banks, tax evasion in tax havens, and health care fraud are typical examples of corporate white-collar crime. Health care fraud by public hospitals represents unjustified government subsidies. The organizational anchoring of crime is evident in corporate offenses as crime takes place within the business and to the benefit of business (Bradshaw, 2015). A tax haven is defined as a country or place with very low or no rates of taxation for foreign investors, where foreigners enjoy complete secrecy about their investments. Money laundering of proceeds from criminal activity is an attractive opportunity in tax havens. On the legitimate side, the use of tax havens enables transfer pricing strategies to lower overall tax burdens for multinational corporations. Subsidiaries located in tax havens are often used by multinationals to avoid taxes by shifting income from high-tax countries to low-tax countries. Firms also use tax havens

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in strategies that involve inter-company debt or leasing arrangements to shift income across jurisdictions. This kind of tax evasion is challenged by tax authorities (Dyreng et al., 2019; Guenther et al., 2019). While the individual is hiding occupational crime from everyone else to enrich him or her by abusing corporate resources (Hansen, 2009; Shepherd & Button, 2019), groups of individuals typically hide corporate crime in organizational routines to improve business conditions. In both cases, crime is committed by virtue of position and trust in the organization, which prevents monitoring, control, accountability, and sanctions. Corporate white-collar offending represents violations of integrity as well as failure to comply with moral and ethical standards, as in the example of corruption managed by top executives at Siemens in Germany (Eberl et al., 2015). Corporate crime is committed for business advantage. By corporate crime, individuals such as board members and chief executives serve the benefit of the organization (Dion, 2008, 2009, 2020; Nelken, 2012; Steffensmeier et al., 2013; Williams, 2008). Corruption is typically both corporate crime and occupational crime. The briber is usually a company wanting to obtain licenses or contracts, where the bribe can influence a decision-maker to make a decision in favor of the company. The bribed is usually a person in a privileged position where decisions are at the discretion of that person. The bribed person enriches him or her through corruption. While the company commits corporate crime as the provider of a bribe, the individual commits occupational crime as the receiver of a bribe. Our empirical studies show that corporate offenders are older, commit crime for a larger amount of money, and are associated with larger organizations than occupational offenders. The average age of a corporate convict in Norway is 53 years. The studies support the assumption that corporate white-collar offenders at the top of the ladder commit financial crime for far larger amounts and with significantly more serious consequences than white-collar offenders further down the hierarchical ladder. This finding applies both to occupational and corporate crime. The organizational context enables white-collar crime where offenses can be carried out and concealed among legal activities. Concealment is an important aspect of white-collar crime. In traditional street crime,

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criminals go hiding. In white-collar crime, offenders do not go hiding. Rather, they hide their offenses. A single, standalone white-collar criminal can be described as a rotten apple, but when several are involved in crime, and corporate culture virtually stimulates offenses, then it is more appropriate to describe the phenomenon as a basket of rotten apples or as a rotten apple orchard, like Punch (2003: 172) defined it: The metaphor of ‘rotten orchards’ indicates that it is sometimes not the apple, or even the barrel that is rotten but the system. (or significant parts of the system)

An example of a corporate white-collar crime scandal is the case of health care fraud in Norway. While all hospitals in Norway are public entities, government funding for each hospital is dependent on their reporting of diagnoses for patients. If a hospital reports more medical testing and more serious patient treatment, then the hospital will receive more government funding. Fraud examiners from auditing firm PwC (2018) described in their investigation report how Vestre Viken hospital implemented a fraudulent scheme for reimbursement. For example, hospital executives entered misleading codes into the computer system Sympathy for handling of information causing excessive reimbursement for laboratory tests and medical treatment.

Organizational Crime Detection Functions Many private and public organizations have implemented various measures to detect misconduct and crime in the upper echelon of the business. They have introduced transparent oversight and strong guardianship. Even individuals with high social status and privileged positions cannot avoid detection and blame (Slyke & Bales, 2012). They can be detected and reported (Schnatterly et al., 2018), especially when rules are simple to interpret for compliance officers, control executives, and auditors (Lehman et al., 2020).

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External auditors serve as gatekeepers to protect shareholders (Mohliver, 2019: 315): Auditors are required to have current and detailed knowledge of rules and regulations related to financial reporting, and they are also responsible for ensuring the accuracy of a firm’s financial statements, a duty that gives them access to a firm’s internal practices that relate to reporting.

The role of auditing in the detection of white-collar crime is an interesting topic, as it is not obvious that auditors are able to detect crime. This might have to do with the responsibilities of auditing functions as well as procedures and practices followed by auditors in their work. For example, Beasley (2003) is concerned with the fact that auditors seem to struggle with reducing occurrences of material misstatements due to fraud, even in the light of new standards for auditing. The focus of new standards remains on fraudulent activities that lead to intentional material misstatements due to fraud, and it expands the guidance and procedures to be performed in every audit. The expanded guidance might hopefully lead to improvements of auditor detection of material misstatements due to fraud by strengthening the auditor’s responses to identified high fraud risk. Moyes and Baker (2003) asked external, internal, and governmental auditors to evaluate the effectiveness of various standard audit procedures in detecting fraud. Although external and internal auditors differed in the types of audit procedures they recommended, the authors conclude that “the audit procedures judged more effective in detecting fraud were those which provided evidence about the existence of internal controls and those which evaluated the strength of internal controls”, and that “strategic use of standard audit procedures may help auditors fulfill their responsibilities under SAS No. 99” (Moyes & Baker, 2003: 199). Furthermore, “the results of this study indicate that fraud detection might be improved through the strategic use of standard audit procedures earlier in the audit examination. … If these audit procedures were applied during the preliminary stages of the audit, they would be more likely to indicate the potential existence of fraud, in which case the

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auditor would have more time to revise the audit plan and conduct other necessary investigations” (Moyes & Baker, 2003: 216). Similarly, Albrecht et al. (2001) reviewed fraud detection aspects of current auditing standards and the empirical and other research that has been conducted on fraud detection. They concluded that “even though the red flag approach to detecting fraud has been endorsed by policy makers and written about widely by researchers, there is little empirical evidence that shows the red flag approach is an effective way to detect fraud, especially for fraud that has yet to be discovered” (Albrecht et al., 2001: 4). Their research review on the subject reveals that one of the major conclusions drawn from previous studies included the fact that only 18–20% of frauds appear to be detected by internal and external auditors, and further that only about half of the perpetrators of frauds detected are duly prosecuted. The article also calls for further fraud detection research. These detection rates are loosely corroborated by Silverstone and Sheetz (2003), who estimated that approximately 12 percent of initial fraud detection is through external audit, and approximately 19 percent arises from internal audit. Both of these estimations apply to the American context. An article dealing with the responsibilities for prevention and detection of white-collar crime refers to a study undertaken to map how members of the accounting profession viewed the changing role of the external auditor following the introduction of SAS No. 82 (Farrell & Healy, 2000: 25): Most of those answering the questionnaire disagreed that they should be responsible for searching for fraud. … Clearly, this notion concerning the auditor’s responsibility is not widely held by the public at large. … The general public and Congress certainly sided against the CPAs and was the reason for this legislation.

As to the question of whether the certified public accountants (CPAs) should act as police or detectives when performing the audit, the response was a resounding no (Farrell & Healy, 2000: 25):

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This may also indicate that changes brought about with the implementation of the SAS No. 82 requiring a policing component clearly require added responsibility and may necessitate additional training and changes to job description requirements. Again, although the general public may believe policing is within the auditors’ duties, even SAS No. 82 does not require this.

Similarly, an investigation into fraud prevention and detection in the United States uncovered that the majority of CPAs that responded to the study believed the external auditor’s responsibility for fraud detection extends only to assessing the probability of fraud and planning the audit accordingly. They ranked internal auditors as the group most effective in detecting fraud, followed by fraud examiners and client management (Johnson & Rudesill, 2001). Jones (2004: 12–13) presented a slightly more balanced view on auditor role in crime detection: A persistent debate has dogged relationships between auditors and managers. This debate revolves around the precise roles and duties of each party in relation to fraud and corruption, and particularly who should take responsibility for investigation. Current legal and professional precedents leave little doubt that management bears the main responsibility for ensuring that reasonable measures are taken to prevent fraud and corruption. In any event it is common practice for managers to request assistance and advice from auditors upon suspicion or discovery of fraud. The final responsibility must lie with managers unless the auditor has given specific assurance regarding particular controls or the absence of error or fraud.

In a study in Norway, 11 percent of the cases of white-collar crime were detected by auditing functions. This is higher than the 4 percent in another Norwegian sample, but significantly lower than the results presented by Albrecht et al. (2001), Moyes and Baker (2003), and Silverstone and Sheetz (2003). The figures of 4 percent and 11 percent in Norway indicate that Norwegian auditing has an even less pronounced role in detection of white-collar crime than the measurements performed in the US, for example.

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Iver and Samociuk (2006) argued that fraud risks need to be recorded, monitored, and reported. Such recording includes the nature of each risk, likelihood and consequences, current and suggested controls, and the owner of the risk for follow-up action. Hurley et al. (2019: 233) found that audit quality generally is dependent on who hires the auditor: Our design shifts auditors’ accountability from managers, who have directional goal preferences, to investors, who prefer judgment accuracy. We find that removing auditors’ economic accountability to managers and replacing it with psychological accountability to investors significantly increases audit quality.

Within the extant accounting and auditing research, a great deal of attention is devoted to how the external auditor is a primary figure in detecting irregularities and corruption, and government and standard setters also stress the importance of the responsibilities of the auditing community in this respect. However, there seems to be limited faith and responsibility in the auditing function among some for this specific purpose: Only in very few cases does auditing in some form seem to be responsible for the detection, unraveling, and exposure of the offence. This opinion is backed up by the work of Drage and Olstad (2008), who analyzed the role of the auditing function in relation to both preventing and detecting white-collar crime. Although their study included a look at the perceived preventative power of the auditing function as well as actual detection of criminal offences, their findings were consistent with the abovementioned hypothesis: Many of their interviewees were skeptical regarding the auditing function having a central role in the detection of white-collar crime. Olsen (2007) reminds us that the auditing standards that external auditors should act in compliance with also require them to uncover irregularities should they be present. However, the primary concern of the external auditor is to reduce the auditing risk (i.e., the risk that the financial statements may still contain material misstatements even after the auditor has given a positive auditor report), and not the risk of irregularities. In spite of external auditors rarely being credited for the detection

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of financial crime, Olsen (2007) still believes that the auditing function contributes significantly to the prevention of such crime by reducing temptations and opportunities, thus corroborating the findings of Drage and Olstad (2008) on prevention. Rendal and Westerby (2010) examined Norwegian auditors’ expectations regarding their own abilities in detecting and preventing irregularities and compared these with the expectations other users of financial information have on this same issue. Their findings indicate certain gaps in terms of how the auditor is expected to perform. Auditors themselves answer that they sometimes do not act in accordance with laws and regulations, and both auditors and users of financial information feel that the auditing function should include more than what is required today through standards and regulations, for example pertaining to companies’ internal guidelines. They also uncover unrealistic expectations regarding the extent to which the auditing function is capable of uncovering irregularities. They conclude that, to a certain extent, auditors are too reserved and aloof when it comes to their responsibilities in the prevention and detection of irregularities, and call for improvements.

Crime Detection by Whistleblowing Whistleblowers are recognized as an important source of information to reveal white-collar crime in public and private organizations. Whistleblowing is the disclosure by an individual in an organization or in society of deviant practices to someone who can do something about it (Bjørkelo et al., 2011). Whistleblowing is an action by employees who believe that their business or colleague(s) are involved in activities of misconduct or crime, cause unnecessary harm, violate human rights, or contribute to otherwise immoral offenses (Mpho, 2017). Whistleblowing is the disclosure by an organizational member of deviant practices to someone who can do something about it. Whistleblowers stand out as a group of reporters who have made observations and who are willing to disclose what they have observed.

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There is a strong interaction between crime signal detection and whistleblowing intentions among potential whistleblowers. A low uncertainty that there is a crime signal will relate positively to whistleblowing intentions. If the signal is strong and not confused by noise, whistleblowing intentions are likely to increase as the potential whistleblower considers little risk for him or her (Brown et al., 2016). Potential whistleblowers often decide to report ethical wrongdoing when there is no likelihood of retaliation (Shawyer & Clements, 2019). Wrongdoing is characterized by being negative and undesirable at the organizational as well as at the community level. Many well-known white-collar crime cases were disclosed by whistleblowers. In 2001, Sherron Watkins, an employee in the U.S. energy company Enron, notified her chief executive officer Kenneth Lay about a perceived accounting scandal. Watkins did so, hoping Lay would act. He did not, and he was later arrested due to his involvement in the wrongdoing as a result of her whistleblowing. Unfortunately, whistleblowers are often ignored, at least initially. For example, two whistleblowers in Spain sent notice to the chairperson at Betanien in Norway, but the chairperson would not believe that a priest could commit embezzlement from the foundation as its chief executive officer. When the whistleblowers threatened to tell Norwegian media about the case, then the chairperson confronted the CEO with the allegations, and Are Blomhoff confessed to embezzlement. We return to the case of Betanien Foundation later in this chapter. When an accounting manager at publishing house Aschehoug in Norway blew the whistle on the chief financial officer, the intention of the chief executive officer was to dismiss the CFO from his post without reporting the case to the police. However, information was leaked from the publishing house to an investigative journalist. Marius Schatvet, the CFO, had been alone in handling the task of terminating the publishing house’s involvement in a chain of bookstores. He was able to transfer some of the money to his own bank account with nobody noticing. He did so for several years. Surprisingly, he finally typed in his own bank account number with a wrong digit, thereby creating attention. The accounting manager noticed the transaction and blew the whistle

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on CFO Schatvet. Schatvet was sentenced to 3 years in prison (Silvolva et al., 2014). “John Doe” was an anonymous whistleblower who leaked the so-called Panama Papers to German newspaper Süddeutsche Zeitung. Among the 11.5 million leaked documents about companies in tax havens, there are documents about Swedish bank Nordea and Norwegian bank DNB. According to one document, Nordea bank asked law firm Mossack Fonseca in Panama to change the contents of statements retrospectively and to change dates on signed contracts (Ekeberg, 2016a). Harry Markopolos blew the whistle on Bernard Madoff. In 2010, Markopolos’ book on uncovering the Madoff fraud was published with the title “No One Would Listen: A True Financial Thriller”. The book tells the story of how Markopolos uncovered Madoff ’s scam years before it made the headlines, and how he tried to warn the government, the industry, and the financial press. The book became a New York Times bestseller. Cynthia Cooper blew the whistle on the $9 billion dollar corporate financial scandal involving WorldCom, which eventually led to the imprisonment of the company’s five executives, including CEO Bernard Ebbers. Cooper had never intended to go public, but a member of Congress had released her internal audit memos to the press. She was named as a Time’s person of the year 2002, along with Coleen Rowley, the FBI whistleblower from Minneapolis, and Sherron Watkins, the Enron whistleblower (www.whistleblowerdirectory.com). One of the more successful whistleblowers is Michael Lissack. He worked as a banker at the Smith Barney brokerage. In 1995, he blew the whistle on a fraudulent scheme, known in municipal financing as “yield burning”. Lissack filed a whistleblower lawsuit against more than a dozen of Wall Street firms under the False Claims Act. In April 2000, 17 investment banks agreed to pay approximately $140 million dollars to settle charges that they defrauded the federal government by overpricing securities sold in connection with certain municipal bond transactions. The U.S. government has recovered more than $250 million because of Lissack’s whistleblowing. His allegations have brought on more than a dozen of civil and criminal investigations by the SEC, IRS and the U.S.

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Department of Justice. Lissack himself received 15 percent of the $250 million (Donnovan, 2002). Frøstrup (2017) argued that whistleblowing saves society substantial amounts of money. She is referring to Oslo Economics, who estimated that whistleblowing annually in Norway causes savings of one billion U.S. dollars. Cost savings occur because thousands of employees in Norwegian public and private organizations every year detect and report negative incidents, actions, and behaviors in their workplace. Oslo Economics found that whistleblowing contributes to a better working environment, improved health and well-being, security and safety, as well as predictability and less uncertainty. Whistleblowing contributes to disclose destructive leadership, harassment, harm to life and health, corruption and other forms of financial crime. Oslo Economics suggests that whistleblowing can make substantial contributions to organizations and society when whistleblowers find a way of reporting safely and constructively, and when receivers of reports act professionally on crime signals from whistleblowers. In their research, Brown and Wheeler (2008) found that whistleblowing in the public sector in Australia is far from being rare. Disclosures are relatively common and a routine activity in some public sector agencies. Furthermore, they found that it is far from inevitable that whistleblowers need to suffer from reprisals and other negative consequences in their experience or that, when employees make disclosures, nothing will be done. While the organizational and social importance of whistleblowing is well recognized in ethical guidelines, the practice is often quite different. Retaliation occurs frequently. Brown and Wheeler (2008) argued that the current picture of whistleblowing provides responsible people in organizations with good reason to invest in strategies for encouraging staff to blow the whistle on perceived wrongdoing within their organizations, in ways that will enable them to be better managed and will help lead to more positive outcomes. Detection by observers turning whistleblowers is further enhanced when whistleblowing procedures open up for a number of alternative recipients of messages, such as internal as well as external recipients. Internal versus external recipients of whistleblowing alerts should not be an issue of loyalty versus disloyalty (Andrade, 2015). By having a choice

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among recipients, the observer can contact whoever is perceived as most comfortable, competent, and trustworthy. Hassink et al. (2007) found that a growing number of companies have implemented whistleblowing policies that contribute positively to increased misconduct attention at the upper echelon of organizations. The increased attention might in turn lead to a change in whistleblowing behavior, such as more frequent alerts, more voicing, better quality of information, as well as a fairer treatment of both the whistleblower and the potentially accused person(s). Miceli et al. (2009) found that successful whistleblowing depends on the climate before concerns are expressed as well as the climate once concerns are expressed. Uncertainty about observations characterizes the situation before concerns are expressed, while uncertainty about reactions characterizes the situation once concerns were expressed. The former relates to discovery, while the latter relates to disclosure. Kölbel and Herold (2019) found that whistleblowers who report observed wrongdoing externally were part of an escalating conflict. The progression of conflicts creates a personal experience of strain that culminates in loud and clear messages to public authorities and the media. Tsahuridu and Vandekerckhove (2008) emphasized the importance of situational factors in the organization that allow employees to behave in accordance with their moral conscience. Whistleblowing policies should enable employees to be moral agents and let them behave in accordance with their moral standards. Employees should feel responsible for reporting whatever kinds of wrongdoing that they believe to have observed. Guidelines should be flexible, but not unambiguous, so that observers perceive guidance without control, where it is transparent how the organization will handle alerts (Vandekerckhove & Lewis, 2012). In a government report in Norway, it is argued that whistleblowing is not only beneficiary to the organization, but also to society (NOU, 2018). Therefore, support for whistleblowers is also needed at the national level. The report refers to substantial financial benefits for the nation as estimated by Oslo Economics (2017). In the compliance approach of whistleblowing to address suspicions of white-collar crime, it is important for whistleblowers and their allies

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to avoid conspiracy theories. Sometimes executives, board members, and shareholders might seem to enter into a conspiracy without doing so. The thought of conspiracy can emerge as whistleblowers receive no feedback regarding their notices, and when whistleblowers experience reluctance to talk to them about perceived wrongdoing. Whistleblowers can then easily fall into the trap of considering management and others involved in a conspiracy to conceal wrongdoing and make whistleblowers subject to retaliation, reprisal, and refuting. Conspiracist beliefs and theories are defined as essentially false narratives where multiple agents are believed to be working together toward malevolent ends. The theories are essentially attempts to explain the ultimate causes of significant social and political events by claims of secret plots concerning two or more powerful actors. Conspiracy theories help make sense of events that are confusing, difficult to comprehend, or poorly explained by mainstream sources of information (Furnham & Grover, 2021). Conspiracy theories are lay theories that attribute the cause or concealment of an event to secret, unlawful, and malevolent processes controlled by multiple actors working together (Furnham, 2021). When conspiracy theories dominate the thinking of bottom-up controllers, then the thinking resembles tunnel vision that is defined not as seeing the light in the end of the tunnel, but rather as seeing nothing else but the light in the end of the tunnel. It has been suggested that conspiracy theories are held by people with four particular characteristics: patternicity (the tendency to find meaningful patterns in random noise), agenticity (the belief that the world is controlled by invisible, intentional agents), confirmation bias (the strong preference to seek and find conformational evidence for what they believe), and hindsight bias (tailoring after-the-fact explanations to what they already know happened). Furthermore, people who are convinced that everything in the world is unjust and unfair are more likely to endorse conspiracy theories (Furnham, 2021). Furnham and Grover (2021) studied potential links between personality disorders and belief in conspiracy theories. They found that people who tend to be paranoid seem more likely to endorse conspiracy theories. Paranoia is a tendency on the part of an individual or group toward excessive or irrational suspiciousness and distrustfulness of normal others.

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Furthermore, believers in conspiracy theories tend to see the world as being out of line rather than seeing themselves being out of sync with the world around them. Also, less educated people tend in general to be less skeptical, more religious, and more attracted to popularist theories.

Empirical Crime Signal Detections In Norway, 405 white-collar offenders were convicted to prison from 2009 to 2016. Table 8.1 lists how these criminals were detected. We find journalists occupy the top position, followed by crime victims, bankruptcy lawyers, internal auditors, tax authority clerks, bank employees, external auditors, and police officers. Many of these detections were based on whistleblowing to external journalists, internal auditors, and others. In Table 8.1, whistleblowers are not registered as a source of detection. Journalists are at the top of the detection list. It is very likely that many, probably most, of the media work was initially based on tips from insiders. Whistleblowers as the main source of initial information were probably the case also for internal auditors and police investigators. Thus, it might be argued that more than half of all detected white-collar criminals in Norway were revealed by whistleblowers. If we add up journalists (25%), internal auditors (11%), police investigators (2%), and others Table 8.1 Detection of white-collar crime #

Crime Detection Source

Sum

%

1 2 3 4 5 6 7 8 9 10

Journalists investigating tips from readers Crime victims suffering financial loss Bankruptcy lawyers identifying misconduct Internal auditors controlling transactions Tax authority clerks carrying out controls Bank employees controlling accounts External auditors controlling clients Police officers investigating financial crime Stock exchange clerks controlling Other knowledge workers as detection sources TOTAL

101 52 45 45 25 18 18 9 4 88 405

25% 13% 11% 11% 6% 4% 4% 2% 1% 23% 100%

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(22%), and assume their main source to be whistleblowers then they can be attributed to 60% of all detections of white-collar crime. A comparison of the white-collar crime cases detected by journalists, alongside those detected by others, is presented in Table 8.2. Some interesting differences are statistically significant. First, the sum of money involved in crime is significantly larger in cases detected by journalists. The average amount for journalist-detected criminals is 110 million Norwegian kroner (approximately 18 million US dollars). The statistical analysis in Table 8.2 and following tables were implemented when the sample size was 369 convicted white-collar criminals. Strangely enough, criminals detected by journalists are registered with lower income, less tax, and fewer assets than white-collar criminals detected by others. Not so strange, however, is that the number of persons involved in criminal activity is larger in cases detected by journalists. Probably is it easier for external detection when more criminals are involved in the offense. Some of the characteristics are not different. For example, criminals detected by journalists have the same age as criminals detected by others. Table 8.2 Comparison of journalist and non-journalist-detected criminals Total 369 white-collar criminals Age convicted Age at crime Years in prison Crime amount Personal income Personal tax Personal wealth Involved persons Business revenue Business staff

97 detected by journalists

272 detected by others

t-statistic diff

t-statistic sign

48 years 43 years 2.5 years 110 mill 260 000

48 years 44 years 2.2 years 26 mill 429 000

−0.512 −0.893 1.659 4.783 −2.058

0.609 0.372 0.098 0.000 0.040

113 000 1.6 mill

201 000 3.2 mill

−2.185 −1.050

0.030 0.294

5.0 persons

2.8 persons

8.186

0.000

234 mill

214 mill

0.381

0.704

136 persons

132 persons

0.094

0.925

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Table 8.3 Financial crime categories by detection sources

Crime category

Total detected in each crime category

Journalist detection in each category

Journalist detection fraction

Fraud Theft Manipulation Corruption Total

160 17 127 65 369

52 2 28 13 97

33% 12% 22% 20% 26%

Criminals detected by journalists are associated with organizations of about the same size as criminals detected by others. When we compare financial crime categories committed by whitecollar criminals, in terms of detection, results indicate that journalists tend to detect fraud to a great extent, but less of the other categories, as shown in Table 8.3. Since a substantial fraction of white-collar criminals are detected by journalists, and very few are detected by traditional law enforcement agencies, there might be lessons to be learned from media working procedures. Journalists review information and information sources in established and developing networks of individuals located in key areas of the economy. Journalists study accounting reports and other information, and receive documents from their network of sources. They interview lawyers, competitors, the police, and authorities. They set a case aside for weeks and months until new information emerges. In the meantime, they keep the information top secret, until publication for the first time. Investigative journalists tend to develop hypotheses about phenomena and causality. They are very different from reporting journalists who only relate what they have heard or seen. Investigative journalists develop an idea via a study of potential offenders and their victims. They apply systematic analysis and treat their sources with care and professional concern. In most criminal areas, it is expected that a combination of victim and police are the main sources of criminal detection. After crime victims suffer an injury or a loss, they tend to report the incident to the police

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who investigate and hopefully find the offender(s). In cases of financial crime by white-collar criminals, it is often quite different. A victim is frequently not aware of the injury or loss. For example, accounting fraud resulting in tax evasion is not a harm or damage perceived by tax authorities. A number of angles can be explored in the process of white-collar crime detection within news media. On the one hand we have the news media (newspapers and online media) that have specialized and focused on financial information of all sorts, and report on this regularly. For them, the sources of information can be traditional through tips, company reports, stock-exchange information, and press conferences as well as other sources. For regular news media spread out over the country, the situation can be quite different. The detection of white-collar crime can come as a tip-off from a whistleblower or as official information if the police or an economic crime prosecutor performs a search locally. Whistleblowers in many cases alert journalists to serious crime and are sometimes the true detectors, not the journalists or media. Additionally, the way the news is treated in the news media is dependent on many variables that occur at the same time: Do they have the right journalists in place at the time? Do they have an interest in the matter? Do they know anything, or anyone related to this? There will also be a resource balance that takes place. The resource perspective in leading media houses is concerned with knowledge management. Not many news media outside of the larger ones will have the possibility of setting aside journalists to work on an investigative white-collar crime for months. In the cases where they have done this, some experience among editors seems to be that there is an uncertainty as to whether this was worthwhile relative to the size and the complexity of the case. For a common, non-specialist news media, there will always be the balance of resources against the newsworthiness of the matter at hand. If a major white-collar crime story had emerged in Norway in the weeks after the July 22 terrorist attacks in 2011, reasonable doubt can be raised if the matter would have caught much attention in the general public press. General news media have a constant incoming flow of news on hand, and there is a constant daily priority of what is important and what

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should be published. For all news items there are some general rules of journalism that come into play: Is it important for many people? Is it really news? Is it possible to get reliable information on this? Is it possible to approach the right people with the right questions? Can both parties in a conflict be approached? And in addition to these questions, there will be a question as to whether the news organization at this point in time has the resources to deal with it. If the journalist knowledgeable of economic matters is on holiday, doubt can be raised if the news media organization will come back to the same matter later. That will depend on the development and the newsworthiness of the case at the second point in time. If the news organization is the first to report on the crime and it is regarded as “hot” it will probably do whatever possible to handle the matter at hand, knowing that other media, and especially online media can report on the same matter and as such “steal” the story. There is always an internal pride in a news organization when it can report on a matter of significant interest, and be cited by other news organizations. The organizational culture also has an influence on white-collar crime detection among journalists. If you have journalists that are driven by their own interest to win investigative journalist prizes (SKUP in Norway), there is a higher possibility for such stories to emerge in publication. But that will differ greatly among the news organizations. Øvrebø (2004) showed in a study of the Norwegian newspaper “Dagsavisen” after a change of editor-in-chief in 2001, that the news profile and priorities of the newspaper changed according to the principles laid down by the new editor when she took up her position. It can be argued that personal preferences of an editor can have influence on the priorities of news in the newspaper, and that this will relate to all types of editorial material, whether it is general news, sports, culture, or financial news. For a general news organization, white-collar crime is not a big story in itself unless it has repercussions on well-known persons locally or if something happens to the organization where the crime has taken place. Nationally it can be a big story if the person is a well-known profile, or if the crime in itself is of an unusual nature. If a main employer locally has to file for bankruptcy because of a white-collar crime, then the story is more than just another white-collar crime case since it has wider consequences that turn the world upside down for ordinary people in this

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local area. Then the white-collar crime will take the form of another typical important news story and be followed and treated as such, and the white-collar crime element will be mixed with other elements and consequential stories, building on the starting point as a white-collar crime. Campbell (1997) studied the journalistic process of environmental news in Scotland, and addressed the information sources, which are used in the news process. The study showed the preference for human sources as opposed to library-based information and discussed the influence of pragmatic constraints like time and space on the production of news. It can be argued that this process is likewise in the newsgathering process for white-collar crime. The argument of white-collar crime detection among journalists seems to be related to the story’s importance in itself and, as such, it will be treated as just another crime or news story and have the same internal process. For smaller news organizations without journalistic specialization in financial matters, the white-collar crime story will be treated according to the news prioritizing structure of that particular organization. For larger news organizations that typically have separate sections for financial and economic news the story will be treated within the prioritizing of that particular section. And if the story is big enough in total, it will be moved from the particular section for finance into the general news of the organization. The higher the profile of persons involved, the more likely it is that it will have a more centralized coverage, i.e., moved into what is often the first section of the newspaper or the prioritized areas of a website’s front page. Four of the ten detector categories made up 62% of the total crime detecting sources and out of these the first two—journalists investigating tips from readers and crime victims suffering loss—made up 39%. It can be argued that these two categories are more susceptible to journalistic interest than the others, simply because it is easier to construct news stories based on these journalistic angles. Themes like manipulation and corruption are much more difficult to make into a story that is interesting for the readers simply because it is more complex and difficult to describe these matters in layman terms. A tip from readers that is given to a news medium is most of the time accompanied by a subjective story from the person giving the tip that in turn gives the journalist clues to

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work on and discuss internally to assign the right news priority and angle. This is also supported by the breakdown in a table showing that fraud is the category having the highest percentage of journalistic detection. White-collar crime detection and follow-up seems to be related to a number of simultaneous journalistic procedures and cultural elements. For specialized publications in the financial information area, the whitecollar crime news arena is closer at hand and the organization will typically be able to go deeper into the matter. If white-collar crime is detected by general or local news organizations, the procedure involved will more often take the form of a general news story with the resource balance that follows from that. It can also be shown that white-collar crime is more often detected by journalists if it is based on a tip from readers or if it is reported as fraud. Underlying all this are the internal news preferences and editorial guidance that is part of the policies of the news medium. Finally, the most obvious reason for the high detection fraction by journalists is the fact that one of the criteria for our sample is newspaper coverage of the case. Naturally, this will lead to a bias toward journalist detection.

Characteristics of Crime Signal Detection Signal detection theory is a model for how humans detect signals in a background of interference or noise. The theory assumes that the human observer behaves like a rational economic decision-maker, and attempts to balance costs and benefits to arrive at an optimal solution. There are four possibilities in the decision matrix of the observer of potential misconduct and crime (Karim & Siegel, 1998: 368): ● The observer notices a noise when it is a signal (called a miss) ● The observer notices a signal when it is a signal (called a hit) ● The observer notices a noise when it is a noise (called a correct identification) ● The observer notices a signal when it is a noise (called a false alarm)

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The observer needs to make a decision concerning the event and classify it either as a signal or a noise. In an organizational context, where powerful individuals may be suspected by less powerful individuals, the less powerful will conveniently prefer to think of the event as a noise rather than as a signal. Signal detection theory may shed some light into why some actors discover and disclose more white-collar crime than others. Signal detection theory holds that the detection of a stimulus depends on both the intensity of the stimulus and the physical and psychological state of the individual. A detector’s ability or likelihood to detect some stimulus is affected by the intensity of the stimulus (e.g., how loud a whistleblowing is) and the detector’s physical and psychological state (e.g., how alert the person is). Perceptual sensitivity depends upon the perceptual ability of the observer to detect a signal or target or to discriminate signal from non-signal events (Szalma & Hancock, 2013). Furthermore, detecting persons may have varying ability to discern between information-bearing recognition (called pattern) and random patterns that distract from information (called noise). Under signal detection theory, some researchers found that people more frequently and incorrectly identify negative task-related words as having been presented originally than positive words, even when they were not present. Research has found that people have lax decision criteria for negative words. In a different study, Huff and Bodner (2013) applied the signal detection approach to determine if changes in correct and false recognition following item-specific versus relational encoding were driven by a decrease in the encoding of memory information or by an increase in monitoring at test. According to the theory, there are a number of determinants of how a person will detect a signal. In addition to signal intensity, signal alertness, and pattern recognition, there are other factors such as personal competence (including knowledge, skills, and attitude), experience, and expectations. These factors determine the threshold level. Low signal intensity, low signal alertness, and limited pattern recognition, combined with low competence, lack of experience and lack of expectations will lead to a high threshold level, meaning that the individual will not detect white-collar crime.

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Signal alertness is not a stable set of mind over time. Rather, the extent of signal alertness by an observer varies with other concerns that the person may have (Qiu & Slezak, 2019). Signal detection theory implies that persons make decisions under conditions of uncertainty. The theory assumes that the decision-maker is not a passive receiver of information, but an active decision-maker who makes difficult perceptual judgments under conditions of uncertainty. Whether a stimulus is present or absent, whether a stimulus is perceived or not perceived, whether a perceived stimulus is ignored or not, will influence the decision in terms of detecting or not detecting white-collar crime. Gomulya and Mishina (2017: 557) introduced the term signal susceptibility due to the fact that signals may be differently susceptible to potential errors and manipulation: This could be due to a variety of possible reasons, including whether the signal is self- or other-reported, whether it is verifiable, or whether it is a “stock” or a “flow” signal. Self-reported signals should on average be more susceptible to manipulations by the focal signaler (i.e., the one who can benefit from a positive signal) compared to signals reported by third parties.

Given this definition, signal susceptibility can be included as an aspect of signal intensity, where signal intensity deteriorates at suspicion of errors and manipulation increases. Similarly, noise in general will reduce signal intensity. Gomulya and Mishina (2017: 555) distinguish between two sources of noise during signaling—noise from the signal itself and noise from the behavior of the signaler. Another term introduced by Gomulya and Mishina (2017: 55) is signal reliance, where reliance on different types of signals is based on the credibility of the signaler, and “thus a similar signal is likely to have different effects for credible versus less credible” signalers. Given this perspective, signal reliance can be included as an aspect of signal alertness, where less credible signalers cause lower alertness to the signal. Gomulya and Mishina (2017) discussed pattern recognition in terms of screening theory where the receiver prioritizes among possible types of

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signals. The focus is on how receivers place differential value on signals that may come from different senders such as documents, accounts, and individuals. Screening theory posits that receivers screen by focusing on signals that they believe are highly correlated with unobservable characteristics of interest. Signal detection theory characterizes the activity of an individual’s discrimination as well as psychological factors that bias his or her judgment. The theory is concerned with the individual’s discriminative capacity, or sensitivity that is independent of the judgmental bias or decision criterion the individual may have had when the discrimination was made. In Table 4.1, an attempt is made to describe signal detection features of observers who have noticed and discovered white-collar crime. Signal intensity, signal alertness, pattern recognition, and personal experience are derived from signal detection theory as characteristics of detection ability. Pattern recognition is a matter of sense making and contextualization. Contextualization captures the ongoing process of understanding and explaining relationships between information elements. We argue that signal intensity for tips to journalists normally is high, as whistleblowers tend to be upset and want to get attention. Furthermore, we suggest that signal alertness is high among journalists, as they are dependent on tips in their daily work to cover news stories. The issue of pattern recognition is not obvious for journalists, since they often present fragments on a publishing basis, rather than a complete and consistent story of events. Personal experience will vary among journalists who may or may not have been writing about white-collar crime before, depending on the extent of specialization among journalists in the newspaper. The idea of Table 8.4 is to apply four characteristics of signal detection theory to detection of white-collar crime. At this stage, the items and values represent exploratory research that needs further study to be trustworthy. The assessments in the table are simply the author’s impressions based on two decades of white-collar crime research. Selection of characteristics as well as judgment along these characteristics for each crime

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detection source requires multiple raters to enable inter-rater reliability to be computed. One reason for the high signal alertness among journalists is their complete dependence on external tips to produce news stories. Journalists always need sources to which they have no access unless the sources cooperate with the media. By being polite and receptive, journalists increase the likelihood that whistleblowers and others will contact the media when they learn of potential misconduct and crime. There seems to be a lot to learn from investigative media and their journalists. Rather than formal procedures often applied on a routine basis by auditors and internal controllers, information sources in terms of persons in networks seem to be a more fruitful approach to detection of white-collar crime. Szalma and Hancock (2013: 1741) argued that signal detection theory has provided perhaps the most useful analytical tool for evaluating human performance in detection domains:

Table 8.4 Characteristics of stimulus in detection of white-collar crime # 1 2 3 4 5 6 7 8 9 10

Crime Detection

Signal Intensity

Signal Alertness

Pattern Recognition

Personal Knowledge

Score

Media journalists Crime victims Bankrupt-cy lawyers Internal auditors Tax clerks authority Bank employees External auditors Police officers Stock clerks Other sources

High

High

Low

Medium

9

High

Low

Medium

Low

7

Low

Low

Medium

Medium

6

Low

Medium

Medium

Medium

7

Low

Medium

Low

Medium

6

Low

Medium

Low

Low

5

Low

Medium

Medium

Low

6

Low

Medium

High

Low

7

Low –

Low –

Medium –

Low –

5 –

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The theory permits the independent evaluation of perceptual sensitivity and response bias. Perceptual sensitivity depends upon the perceptual ability of the observer to detect a signal or target or to discriminate signal from no signal events. Response bias represents the operator’s decision criterion as to their propensity to say yes or no given the evidence to be evaluated.

If there is a signal and a response, then the observer makes a hit. If there is no signal, but nevertheless a response, then the observer creates a false alarm. If there is a signal, but there is no response, then the observer makes a miss. If there is no signal and no response, then the observer creates a correct rejection. However, this absolute division may not always represent an accurate depiction of the true state of the world (Szalma & Hancock, 2013: 1741): In many instances, events are sufficiently complex and/or perceptually ambiguous that they possess ongoing properties of both signal and no signal to varying degrees. It is important to note that this complexity does not result from low versus high signal strength (i.e., changes in the magnitude of the evidence variable) but rather a change in the nature of the evidence variable itself. That is, until absolute categorical identification has occurred (often after the fact), the signal itself may retain various no signal properties and vice versa. Indeed, it is such categorical (and often multidimensional) blending that induces at least some of the inherent stimulus-based uncertainty in decision-making in the first place. This circumstance is especially true of real-world operational settings.

In our context of crime detection, there can be a signal of crime or no signal of crime from an event or a stimulus. However, an event or a stimulus can send both a signal of crime and at the same time a signal of no crime. The signal of crime can be stronger or weaker than the no signal. A possible range for an event or a stimulus dimension might be from zero (100% membership in the no signal category) to one (100% membership in the signal category). These endpoints correspond to the dichotomous signal detection theory. Values between zero and one reflect different degrees of membership in the two categories (Szalma & Hancock, 2013: 1742):

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A signal value of .5 represents maximal uncertainty in the category membership status of the stimulus itself because a stimulus with a signal value of .5 has properties of both a non-signal and a signal to an equal degree. Implicit in this model is the assumption that signal uncertainty exists not only within the observer but also in the state-of-the-world itself.

Szalma and Hancock (2013) suggested a fuzzy signal detection theory where stimuli do not fall into discrete, mutually exclusive categories. The fuzzy theory allows events simultaneously to be in more than one state category, e.g., both signal and no signal. In our context of crime detection, stimuli may be perceived in terms of signal probability, where a stimulus can be perceived as probably a signal or probably not a signal. Crime signal detection is not only an individual issue. Team cognition may influence individual signal detection. Team cognition, defined as the cognitive activity that occurs within a team is one of the key factors enhancing team performance (Wildman et al., 2014). When team members hold convergent perspectives and knowledge, developing team cognition can be a success. On the other hand, breakdown of team cognition concerning the situation can lead to failures in coordination and cause lack of signal detection. Crime signal detection ability and skill link to general investigative professionalism that includes the ability to collect and evaluate information, the ability to make analysis, the ability to have specific knowledge of the field, the skill of being careful and meticulous, the skill to look at different angels, the ability to be intelligent and use intelligence, and the ability to perform a professional inquiry. Bond (2008) studied signal detection at deception. They carried out experiments where experts should discriminate between offenders and not offenders. They specifically investigated law enforcement practitioners’ expertise in detecting deception from paroled felons. In signal detection analysis, experts showed high discrimination and did not evidence biased responding. The experts exploited nonverbal cues to make fast, accurate decisions.

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From Crime Convenience to Detection Even when organizational crime detection or individual crime detection has occurred, white-collar crime convenience might prevent the matter from moving into the stage of investigation. Many of the mechanisms in the opportunity structure for white-collar crime also work to prevent disclosure even when someone has noticed and reported wrongdoing. For example, an accused person can simply be too powerful to be blamed (Pontell et al., 2014). To enter the stage of investigation, a white-collar offense has to be noticed and acknowledged by someone who can initiate a fraud examination. This is a matter of knowledge transfer from the detector of wrongdoing to the decision-maker who can initiate an investigation. Knowledge is defined as information combined with interpretation, reflection, and context. There are distinctions between data, information, knowledge, and wisdom. Data are numbers, texts, and pictures without any meaning. When data are put into a context that makes sense, and can be understood, then data are transformed into information (McIver et al., 2013). When information is combined with interpretation and reflection, then information is transformed into knowledge. When knowledge is accumulated over time as learning, then knowledge is transformed into wisdom (Chadwick, 2017; Garrick & Chan, 2017). Knowledge transfer to a decision-maker as the receiver is dependent on signal detection similar to signal detection by a whistleblower. Knowledge creation occurs when signals are understood, interpreted, accepted, and put into context. Knowledge becomes then a fluid mix of framed experience, values, contextual information, reflection, and insight that provides a framework for action (McIver et al., 2013; Parke & Seo, 2017). Whistleblowers, auditors, and other sources do not always report what they have observed in a factual and objective manner, and some may be obsessed with conspiracy theories where innocent people are blamed. As a result, receivers of whistleblowing alerts can be misled. Even when alert sources provide information in a factual and objective manner, signals are not always easy to understand. Whistleblowers and others can often only supply fragments of a wrongdoing picture,

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and they are sometimes unable to document or verify their accusations and allegations. Furthermore, the decision-maker can find it difficult to relate to the whistleblower, as the whistleblower might be obsessed with his or her observations. Sometimes the whistleblower is more than willing to contribute further information, and tries to interfere in the organizational processing of own alerts. The receiver makes decisions under conditions of uncertainty when handling crime signals from whistleblowers and others. As a decisionmaker, the receiver is not a passive end stop for information, but an active decision-maker who carries out difficult perceptual judgments under conditions of uncertainty. Whether a stimulus is present or absent, whether a stimulus is perceived or not perceived, whether a perceived stimulus is ignored or not, will influence the decision in terms of detecting or not detecting the contents of an alert (Gomulya and Mishina, 2017). The receiver prioritizes among possible types of signals. The focus is on how receivers place differential value on signals that may come from different senders such as documents, accounts, and individuals. The screening perspective posits that receivers screen by focusing on signals that they believe are highly correlated with unobservable characteristics of interest (Gomulya & Mishina, 2017). In terms of signal knowledge, where one measures the extent to which receivers are put in a position to understand signals from whistleblowers, signals from whistleblowers are not always easy to understand. Signals are usually not well documented to receivers of alerts. Receivers do not comfortably relate to whistleblowers as sources of information. Furthermore, whistleblowers might interfere in the processing of their alerts, and they believe whistleblowers are willing to contribute to further information. The complicated path of knowledge creation at the receiver end can be modeled as illustrated in Fig. 8.1. A signal is detected by an observer, who registers the observation. If the observer interprets the signal as a crime signal rather than noise signal, and if the observer decides to report the incident, then the observer changes role to a whistleblower. The whistleblower reports the incident to someone responsible who can do

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IMPORTANCE OF WHISTLEBLOWING SIGNAL DETECTION BY OBSERVER

SIGNAL REGISTRATION BY OBERSVER

SIGNAL INTERPRETATION BY WHISTLEBLOWER

SIGNAL RECEPTION BY RESPONSIBLE

WHISTLEBLOWER RELIABILITY AS SOURCE

SIGNAL KNOWLEDGE BY RESPONSIBLE

SIGNAL RELIABILITY AS INFORMATION

Fig. 8.1 Receiver knowledge after whistleblowing

something about it. The responsible person as a receiver develops knowledge of the signal based on interpretation, reflection, and context. The extent of receptivity is influenced by the recipient’s view on the importance of whistleblowing as well as the recipient’s judgment concerning source reliability and information reliability. In terms of crime knowledge—the extent to which the receiver as decision-maker is put in a position to understand and potentially act on signals—the decision-maker may have to get involved in a preinvestigation phase of collecting more information to solve the puzzle in his or her own mind. However, even when a person who is in a position to do something about alerts—such as initiate an investigation—the decision-maker can be reluctant to act for a number of reasons. Internal politics, power challenges, blame games, work overload, considering the accused of being a victim, judging the episode as minor in importance, and personal reluctance to get involved are just some of the reasons for potential negligence by the decision-maker.

Case Study of Betanien Foundation Are Blomhoff was an educated priest who had taken on the position of chief executive officer (CEO) at the Betanien Foundation in Norway. The foundation is operating nursing homes, kindergartens, and health

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care services, and is owned by the Methodist church. Christian Hysing Dahl was chairperson on the board of the foundation. This is a case study of occupational rather than corporate white-collar crime. It nevertheless illustrates the sequence of events from detection via investigation to conviction. Later in this book, there will be a number of cases of corporate white-collar crime scandals. Blomhoff lived a modest lifestyle while successfully expanding foundation business. He did very well in financial negotiations with the Municipality of Bergen, Hordaland County, and the Norwegian government, and he had a genuine interest in achieving the best possible deals for Betanien (Johnsen, 2013). On several occasions, people honored and admired him for having brought Betanien to successful expansion and profitability. Soon Betanien ran several more hospitals, nursing homes, and kindergartens. The district court of Drammen is located west of the capital Oslo in Norway. On February 2, 2015, the former CEO was sentenced to prison for three years because of embezzlement in the Methodist foundation Betanien (Drammen tingrett, 2015). He admitted to embezzlement of 16 million Norwegian kroner (about 2 million US dollars) that he later agreed to pay back based on future income and heritage. Fundación Betanien was opened in the autumn of 2001 in Alfaz del Pi in Spain. The institution in Spain is part of Betanien’s rehabilitation and nursing home. Betanien Foundation in Bergen owned and operated the home. CEO Blomhoff initiated and successfully established Fundación Betanien. He told accountants in Bergen whenever they had to transfer money from Norway to Spain (Riis & Øverland, 2018). The CEO experienced complete trust from all involved. He had authority both as a business leader and as a religious leader. When he made a mistake, nobody noticed or reported it. He was managing large sums of foundation money all by himself. The auditor in Norway believed that Spanish auditors would audit accounts in Spain, while accountants in Spain believed the audit took place in Norway. As mentioned earlier in this chapter, whistleblowers are often ignored, at least initially. For example, two whistleblowers in Spain sent notice to the chairperson at Betanien in Norway, but the chairperson Hysing Dahl would not believe that a priest could commit embezzlement from

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the foundation as its chief executive officer. When the whistleblowers threatened to tell Norwegian media about the case, then the chairperson confronted the CEO with the allegations, and Are Blomhoff confessed to embezzlement (Johansen, 2015; Riis & Øverland, 2018). In Spain, CEO Blomhoff developed a drinking problem. While always sober in Norway, he became a heavy drinker in Spain. He enjoyed drinking, and he could afford it at the expense of the foundation. Soon he expanded his local lifestyle in Spain to include parties with prostitutes that he paid with money from the foundation (Buanes, 2015). His embezzlement of funds from the foundation enabled him to live a double life, where he was modest at home, while living like a playboy in Spain. He abused the money that he controlled on behalf of the foundation to enjoy a lifestyle in Spain that he could never do at home as a priest and as a family man. He bought his own playboy apartment in Spain for foundation money (Drammen tingrett, 2015). After much pressure and threats from two whistleblowers, chairperson Hysing Dahl at the foundation hired fraud examiners from BDO (2014) to conduct an internal investigation, where fraud examiners detected large sums of money embezzled by CEO Blomhoff over a period of several years. CEO Blomhoff had problems with substance abuse, which was noticed by the whistleblowers. Union representatives in the foundation found it afterward strange that chairperson Hysing Dahl and others on the board did not know about the drinking problem. They said to the media that they simply do not believe that board members did not know. Fraud examiners from accounting firm BDO (2014) were hired by the chairperson to find out if there was more money embezzled by the CEO than he already had confessed. The private investigators found evidence of much more embezzlement. Fraud examiners criticize the Betanien board for not reacting timely to whistleblowing and to other information (BDO, 2014: 10): Information has come to our attention about a safe that was removed from the former CEO’s house in Spain, in addition to another safe that was allegedly stolen during a burglary. This happened in the days after the former CEO was confronted with the embezzlement claims. It is our

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opinion that the case could possibly have been far better documented if the board had chosen to contact the police before the former CEO was confronted with the issue.

Chairperson Hysing Dahl was frustrated by the behavior of the whistleblowers. He told later that the whistleblowers did not report what they had observed in a factual and objective manner. The whistleblowers seemed obsessed with a conspiracy theory that all executives in the foundation were participating in the fraud scheme, and that the executives protected each other. Hysing Dahl felt confused and misled. He did not understand what the whistleblowers were telling him, since both verbal and written messages were just fragments that the reporters blew completely out of proportion. The whistleblowers were unable to provide documentation or evidence, while they were obsessed with their observations. Hysing Dahl found it extremely difficult to relate to them, as they were screaming and threatening in the meetings that they had about the accusations against the CEO. When the scandal became a fact, and examiners from BDO (2014) had documented embezzlement transactions, then both whistleblowers continued to contact the chairperson as well as all other members of the board. They were eager to follow-up consequences of the scandal, and they made suggestions regarding people who should be fired from the foundation, how controls and sanctions should be implemented, and how the board should work in the future. Hysing Dahl told them that their interference in board work was none of their business, but they continued anyway. On several occasions, people had honored and admired Blomhoff for having brought Betanien to successful expansion and profitability. Among Blomhoff ’s many merits and achievements, people mentioned Gustav Viktoria hospital in Israel, a diaconal project in Lithuania, a mission project in Estonia, an MRI machine, a new building for the headquarters of the Betanien Foundation, and last but not least, Fundación Betanien (Ellingsen, 2015). CEO Blomhoff was honored by the King of Norway for his services with a medal. With this background, it was not at all easy for chairperson Hysing Dahl to confront Blomhoff with the accusations and allegations. He felt he needed to be quite certain before raising issues based on information from the whistleblowers.

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The website News in English with views and news from Norway reported on January 27. 2015: A disgraced pastor for the Methodist foundation Betanien in Bergen has admitted that he used funds he embezzled from the foundation to pay for parties and sex with prostitutes in Spain. Former colleagues of Are Blomhoff, the once-trusted chief executive of Betanien who was decorated by King Harald just three years ago, were already shocked by the embezzlement he admitted to last year. “That was completely unacceptable on its own”, Christian Hysing Dahl, chairman of Stiftelsen Betanien, told state broadcaster NRK. “When we see what the money was used for, it just gets even worse.” Blomhoff, who testified in his embezzlement trial on Tuesday, had access to the Spanish operation’s bank account and admitted to regularly siphoning off funds to the tune of NOK 15.8 million from his employer. Blomhoff also testified to spending most of the money on parties, drinks and sex with prostitutes. “This is just so terribly unfortunate”, Hysing Dahl told NRK. Betanien, which has more than 500 people on its payroll, fears that Blomhoff ’s actual embezzlement amounts to more than NOK 20 million and that the money can’t be recovered.

CEO Blomhoff was sentenced to three years in prison by a district court (Drammen tingrett, 2015), and he accepted the verdict without appeal. Two months later, Hysing Dahl resigned from the chair of the board together with most of the other board members (Johansen, 2015). When the new board members were appointed, Betanien medical doctor Arne Nakling criticized the new chairperson Filip Rygg for his public statements about the resigned board members: -Filip Rygg states that the old board has done a good cleaning job. It feels like a slap in the face and a new betrayal to me, to the whistleblowers and to the learning process, Nakling tells VG. On Tuesday, it was announced that longtime chairperson Christian Hysing Dahl and four other board members are retiring after former Betanien chief executive and pastor Are Blomhoff (62) was convicted last winter of stealing nearly 16 million kroner of the foundation’s money.

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-Rygg cannot possibly have read my chronicle, says Nakling, who is elected union representative for all doctors at Betanien and has mobilized to get Hysing Dahl and other board members removed after the Blomhoff scandal was detected.

In his chronicle, Nakling (2015) states: The bond between the management and the board has been so dense that the entire board should have sent themselves out of the meeting room at the time when cases of criticism emerged on the agenda. Are Blomhoff should have been reported to the police on the day the documentation of embezzlement was on the table. In most companies, a case of multi-million kroner embezzlement would not be tolerated. The executive would have to leave the same day and in addition be reported to the police. That was not the case at Betanien.

At the detection stage, Hysing Dahl as chairperson in the foundation had all kinds of reasons for not moving the embezzlement case into examination: (i) Blomhoff was extremely trustworthy and successful in his creation of growth and prosperity for the foundation; (ii) Blomhoff was the key for Hysing Dahl into religious networks with influential individuals and large funds; (iii) Blomhoff was clever in concealing his crime; (iv) other board members were skeptical against moving the case forward as Hysing Dahl could not act alone; (v) a chair position is not supposed to be a full-time job; (vi) Hysing Dahl felt sorry for Blomhoff because of Blomhoff ’s drinking problem, and (vii) the whistleblowers behaved bad and communicated allegations and accusations that were hard to believe. In this book’s perspective of stages in terms of detection, investigation, and reconstruction, the Betanien case illustrates all kinds of obstacles on the way from white-collar crime to change management. At the detection stage, chairperson Hysing Dahl did not believe the whistleblowers’ allegations against CEO Blomhoff. At the investigation stage, the board hired fraud examiners for a private internal investigation without reporting the case to the police for public prosecution. At the reconstruction stage, the new board continued their work in the same manner as the retired board in the Betanien foundation.

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9 Change Management for Corporate Recovery

Both public and private organizations tend to pay lip service to the importance of managing the risks associated with financial crime through compliance, anti-fraud, anti-money laundering, and other programs. However, occupational corporate financial crime is still on the rise. Few organizations seem to implement real change management, that is, “a structured approach to shifting/transitioning individuals, teams, and organizations, from a current state to a desired future state” (Tamilarasu, 2012: 26). According to Touhill and Touhill (2014: 199), a change in business can, “bring new capabilities, better efficiencies, and create new ways of doing things … change erases poor processes rife and with wasteful steps, eliminates toxic leadership, and retires substandard products”. In addition, there is a need for compliance reviews in top management teams as a change management initiative. This and the following chapter address the issue of recovering by change management after a white-collar scandal. Specifically, we study recommendations from fraud examiners after internal investigations in client organizations. Change management recommendations are derived from reports of investigations. Global law firms and local law firms are in the business of fraud examinations hired by client organizations who © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_9

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ask for help in reconstructing negative events and sequences of events to learn and to prevent future occurrences of white-collar crime. The sample in this chapter is seventy-six available investigation reports in Scandinavia (mainly Norway), and the sample is expanded to one hundred and thirty in the next chapter. Each chapter lists recommended approaches to change management. CEO misconduct and crime stand out, where the top position is in need of compliance and control (Biegelman & Bartow, 2012; Graham, 2015; Lehman et al., 2020; Marchetti, 2012). Furthermore, training in handling whistleblowing situations is an important change management issue.

Organizational Reconstruction Approaches Change management by restructuring is a relevant recipe when a corporation suffers from a crisis. After a corporate white-collar scandal, organizations are trying to regain trust among their stakeholders such as customers, vendors, investors, and employees. Crises often drive organizational change, making change management important for stakeholders in a way that they “must believe that the organization is going to change and that a similar crisis is not likely to happen in the future” (Heath & O’Hair, 2010: 318). Change management is “a structured approach to shifting/transitioning individuals, teams, and organizations, from a current state to a desired future state” (Tamilarasu, 2012: 26). Armenakis and Lang (2014) argued that unethical and criminal behavior of some executives in various organizations can be attributed to organizational culture. Their research was concerned with a chief financial officer (CFO) who told that the organization had been fraudulently reporting earnings for many years in the United States. Culture change was one of the top priorities of the new management. Organizational culture is an organization’s personality that determines how its employees carry out their activities. Eberl et al. (2015) argued that organizational rule adjustments serve to repair trust in organizations after unethical and criminal behavior of some executives. Their research was concerned with corruption at Siemens that faced the greatest bribery scandal in the history of German

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business. Repairing trust was one of the top priorities of the new Siemens management. Siemens implemented a variety of different rules and regulations to regain integrity and to rebuild trust in the organization. Both organizational culture and organizational rules and regulations represent relevant measures in change management to recover after financial crime scandals. Change management is here concerned with reduction and elimination of financial motives, organizational opportunities, and personal willingness to commit and conceal crime. The combination of financial motives, organizational opportunities, and personal willingness makes financial crime an attractive alternative for white-collar offenders. Often when suspicion of financial crime occurs in an organization based on whistleblowing and other sources of information, external fraud examiners enter into the organization. The task of fraud examiners is to reconstruct past events and sequences of events related to suspicions and accusations, as described in previous chapters. The result of their work is often reports of investigations handed over to client organizations. Reports of investigations from fraud examiners tend to comprise recommendations regarding approaches to change management to prevent future financial crime. Little seems known about what change measures are implemented within organizations after a crisis of financial crime by white-collar offenders. Research to look into how change management is implemented within organizations is needed. It is interesting to study whether or not organizations implement and focus on proposed measures suggested in investigation reports. However, there is a challenge to identify and understand significant measures to focus on after elite organizational members were involved in misconduct and crime.

Recommendations by Fraud Examiners In this section, we address the following research question: What management changes do fraud examiners recommend after white-collar crime scandals? A scandal is publicized transgressions that run counter to established norms, typically resulting in condemnation and discredit

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(Piazza & Jourdan, 2018). A previous chapter had supplementing definitions of a scandal. The focus here is on change management approaches that can reduce organizational opportunities as described in the theory of convenience. Since 2012, we have struggled to identify and get access to reports of investigations by fraud examiners. Most reports remain secret as the confidential property of client organizations. Even when detected, client organizations are reluctant to hand reports out for the purpose of research (Gottschalk & Tcherni-Buzzeo, 2017). Over a period of five years, from 2012 to 2017, we were able to identify and retrieve 76 reports of investigations by fraud examiners in Scandinavia, mainly in Norway. Table A.2 lists these reports in the Annex of this book located before the References. The sample in Table A.2 is a non-probability sample in the sense that this was simply what we were able to detect and obtain from client organizations. Given the growing business of fraud examinations by global auditing firms and local law firms, we assume that our sample is just a small fraction of all reports of investigations written in the five-year period until 2017. The client organization is in the first column, starting with a nursing home, a hospital, and a municipality where white-collar crime suspicions occurred. The next column lists fraud examiners that were either a local Norwegian law firm such as Wiersholm and Lynx, or a global auditing firm such as PwC, BDO, and Deloitte. The final column lists change management recommendations derived from each report of investigation. For example, in the first report in Table A.1 in the Annex, Adecco is a nursing home for older people. The nursing home is run by the private health care corporation Adecco, and its services are paid for by the Norwegian social security service. The government pays for all services in the private nursing home based on standard calculations of costs. The persons staying in the homes do not need any health insurance to cover costs as health care is a public issue for the authorities in Norway. One way a private corporation like Adecco can improve its financial performance illegally is to exploit employed health care workers, especially workers from other countries such as Poland. Foreign workers do not

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know the rights they have in Norway, and they are typically not organized in a workers’ union. The foreign workers had to work too long hours, often more than twelve hours, and they had to spend the night in nursing home basements without appropriate facilities. Several of the reports of investigations listed in Table A.1 are concerned with chief executive officers (CEOs) involved in corruption and embezzlement. Four out of ten most serious white-collar criminals in Norway are CEOs. An example of CEO criminal behavior is involvement in transnational corporate bribery (Lord, 2016). CEOs sometimes find themselves in situations where they are to establish subsidiaries, get public licenses, or close deals in corrupt countries. CEO is the only executive at level 1 in the hierarchy of an organization. All other executives are at lower levels. Above the CEO, a number of board members who have major positions elsewhere, show up from time to time. CEOs typically enjoy substantial individual freedom in their professions with little or no control (Khanna et al., 2004). Fraud examiners recommend more control of CEOs. It starts already with travel expenses by CEOs that typically find approval by a subordinate— the chief financial officer (CFO). Control of the CEO is less likely to succeed by a group of people—the board. Rather, the chairperson of the board should control and approve all financial activities of the CEO. Furthermore, the CEO should never be able to act alone in major business activities. The chief compliance officer in the organization should have a special assignment monitoring CEO activities and reporting to the chairperson. Cowen et al. (2016: 152) suggest that employment contracts for CEOs should have a clause related to misconduct and crime: For example, a claw back could be triggered by a financial restatement that happens after an executive’s dismissal or by new evidence that surfaces indicating he or she engaged in misconduct while serving as CEO. Claw backs can also force terminated executives to repay benefits if there is evidence their actions have violated restrictive covenants.

As suggested in agency theory, CEOs have a tendency to become opportunistic agents (Shen, 2003). Based on their charisma, external

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stakeholders and board members lose control over CEO activities (Fanelli & Misangyi, 2006). Therefore, Cowen et al.’s (2016) proposal of employment contracts with repayment option may cause a decline in white-collar crime by CEOs. Several of the reports of investigations listed in Table A.1 emphasize whistleblowing routines. While whistleblowers often represent an important source of information based on suspicion of misconduct and crime, their crime signals are frequently misunderstood and ignored. Whistleblowing is the disclosure by an organizational member of deviant practices to someone who can do something about it. A low uncertainty that there is a crime signal relates positively to whistleblowing intentions. If the signal is weak and confused by noise, whistleblowing intentions are likely to deteriorate as the potential whistleblower considers risk for him or her (Brown et al., 2016). It is convenient for an offender to know that even though others in the organization may develop suspicions, they will not notify others about what they have observed. They are not sure if something wrong has occurred, they are not sure who to notify, and they are not sure if any whistleblowing may have consequences for themselves in the form of reprisals. That is why many people are reluctant to report suspicion of misconduct and crime, even when they feel quite certain that something wrong has happened. Many who have cast light on critical conditions have experienced unwillingness, and they have been isolated and considered less attractive in the labor market afterward. Reprisal and retaliation against a whistleblower represent an outcome of a conflict between an organization and its employee, in which members of the organization attempt to control the employee by threatening to take, or actually taking, an action that is detrimental to the well-being of the employee (Rehg et al., 2009). In a change management perspective, it is not sufficient to introduce whistleblowing routines. Punishment for retaliation and reprisals has to be part of a future solution, as well as benefits for whistleblowers. Active retrieval of more information must follow when someone blows the whistle. Signal detection has to include signal alertness, pattern recognition, and personal experience from training in whistleblowing situations. Management training can focus on a decision matrix with four possibilities (Karim & Siegel, 1998: 368):

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● The observer notices a noise when it is a signal (called a miss). ● The observer notices a signal when it is a signal (called a hit). ● The observer notices a noise when it is a noise (called a correct identification). ● The observer notices a signal when it is a noise (called a false alarm). The observer needs to make a decision concerning the event and classify it as a signal or a noise. In an organizational context, where less powerful individuals may suspect powerful individuals, the less powerful will conveniently prefer to think of the event as a noise rather than as a signal. The goal for management training is to improve the hit rate by observing a signal when it is a signal. Table A.1 indicates a number of other change management issues in addition to CEO control mechanisms and whistleblowing performance training. Procurement functions are associated with high corruption risks because a bribe can help get a contract from another business or help get a permit from public authorities. Corruption is the illegal taking or giving of benefits by abuse of entrusted power (CuervoCazurra, 2016). Ethical training in corruption situations should be part of change management, where complete avoidance of potential corruption is not the issue, as zero tolerance against corruption does not make sense. Rather, preventing and handling potential corruption situations professionally is a change management issue. Some reports of investigations emphasize transparency, where transparency is of critical importance when something is wrong, and someone wants to keep damaging information confidential. A family business can suffer from family members who abuse their privileges in the business (Patel & Cooper, 2014), and non-family executives may feel a need to compensate illegally for their second citizen status in the organization (Vardaman et al., 2018). Therefore, structural power equality has to be part of change management in family firms. Institutional theory suggests that in organizations with low morale, the propensity for unethical behavior will be greater. The code of silence combined with solidarity with those who commit white-collar crime represents institutional deterioration where incivility and deviant behavior becomes the norm rather than the exception (Itzkovich &

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Heibrunn, 2016). Low self-control predicts offending among those with low morals (Craig, 2019). In a change management perspective, the code of silence and secrecy has to disappear and find replacement by openness and transparency. Typical examples in Table A.1 include BDO (2017). Opportunity theory suggests that white-collar offenders have legitimate access to the location in which crime is committed, are spatially separate from the victim, and their actions have a superficial appearance of legitimacy (Benson & Simpson, 2018). In a change management perspective, reduced opportunities occur by limited access and controls of privileged individuals in the elite. Detection should be the rule and not the exception. Transparency can make concealment of crime more difficult. Typical examples in Table A.1 include Vierdal (2012). Agency theory suggests that problems occur because of different risk willingness and conflicting preferences, in addition to knowledge asymmetry (Eisenhardt, 1985). Crime occurs by the principal and/or the agent because of a strong desire to reach personal goals. Just as if a CEO may follow a different path than desired by the board, a procurement manager may follow a different path than desired by the CEO. Only a culture of marching in the same direction can reduce opportunistic behavior. Typical examples in Table A.1 include Deloitte (2016), PwC (2013), and Wiersholm (2012). Routine activity theory suggests that the existence of a likely and capable guardian represents an inhibitor for crime (Cohen & Felsen, 1979; Williams et al., 2019). The premise of routine activity theory is that crime is to a minor extent affected by social causes such as poverty, inequality, and unemployment. Change management focuses on protective rules and regulations, audits and controls, as well as mental models in the minds of potential offenders that increase self-control to be distracted from criminal acts. Typical examples in Table A.2 include BDO (2016), Ernst and Young (2013), and Mannheimer Swartling (2016). While both Armenakis and Lang (2014) and Eberl et al. (2015) argue that corporate culture is the main problem and needs fixing, our findings from investigation reports suggest a more control-oriented approach. According to Eberl et al. (2015), Siemens implemented a variety of different measures to regain integrity and to rebuild trust in the organization after the global corruption scandal. Trust is a vulnerable relational

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asset for organizations, and an important precondition for their legitimacy and long-term viability (Fuoli et al., 2017). Restoring trust is important, since victims and others are likely to attribute blame to the organization (Yenkey, 2018). Siemens implemented seven distinct types of measures: rule adjustments, rule clarification, restructuring, monitoring, sanctioning, personnel changes, and cultural interventions. These measures are more in line with recommendations from fraud examiners. Monitoring is in line with control, where Siemens installed an ombudsman, arranged for independent investigation of the internal control system, and established a compliance committee of the Supervisory Board for the investigation of criminal action. Furthermore, Siemens introduced forensic accounting check of suspicious payments, established a hotline for whistleblowers, developed a scorecard system for the evaluation of deals with business partners, and installed an independent external compliance monitor. Compliance can be defined as “the internal programs that organizations adopt in order to educate employees, improve ethical norms, and detect and prevent violations of law” (Baer, 2009: 949). According to PwC (2016: 5), “multiple companies lack an overview of the commitments the organization should follow, and what the compliance function is supposed to control and monitor”. Therefore, the importance of compliance might, to a certain extent, be ignored or overlooked, which enhances an organization’s vulnerability to financial crime. Eberl et al. (2015) emphasize organizational rule adjustments such as strengthening of internal guidelines in order to close potential gaps, extension, and specification of compliance rules for all employees and suppliers, general interdiction of consultancy contracts in sales and distribution, and guidelines on presents and invitations. In conjunction with formal rule adjustments to rebuild trust, Siemens management attempted to initiate change of Siemens culture. Eberl et al. (2015) found that organizational rules implemented with the intention to pre-empt future corruption practices met resistance in implementation because of difficulties and challenges at Siemens. Employees had severe problems following the tightened rules in appropriate ways. Only two out of seventy-six fraud examinations recommend

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rules to be the solution, new disposal rules (PwC, 2015) and new subsidy rules (BDO, 2013), respectively. In conclusion, this exploratory research has attempted to derive some recommendations regarding approaches to change management after white-collar crime scandals in organizations based on reports of investigations by fraud examiners. Rather than general statements about culture or control, fraud examination reports indicate vulnerability in certain positions and in certain situations. For example, CEOs are vulnerable to corruption and embezzlement because of their independent positions. There is a need for compliance reviews in top management teams as a change management initiative. Another example is practical handling of whistleblowing situations, which is completely unfamiliar to most managers. There is a need for training in whistleblowing situations as another change management initiative. Based on this exploratory study, future research can enter into some of the client organizations to conduct case studies of what they actually did or did not after receipt of fraud examination reports. Only one examiner suggests corporate social responsibility in response to a situation where executives from the company were on the board of a corrupt company. Corporate social responsibility includes activities such as community engagement, diversity in operations, employee relations, environmental concerns, and product safety (Davidson et al., 2019).

Preventive Measures in the Literature Corporations need preventive measures to protect their reputation and interests. The question that arises is how those in positions of power and influence can create an environment of integrity, where they themselves also are subject to influence and controls. This section reviews various measures proposed by scholars to strengthen prevention of white-collar crime. The research literature suggests measures such as to strengthen corporate governance, to adjust corporate culture, to improve compliance risk assessment, to set a new tone at the top, to revise recruitment processes, to update policies and procedures, to advance communication

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and training, to revolutionize corporate transparency, and to implement individual sanctioning. Corporate governance is about promoting fairness, honesty, integrity, accountability, and transparency. Biegelman and Bartow (2012: 48) define corporate governance as a “system of checks and balances between management and all other connected parties with the aim of producing an effective, efficient, and law-abiding corporation”. A strong corporate governance structure is believed to help deter corruption and other financial crime activities. Scholars have linked corporate governance failure to financial crime. When organizations institute rigorous internal controls, create transparent procedures, distribute decision rights explicitly, and introduce accountability for executives, the ability of hiding fraudulent activities is challenged (Hall et al., 2004). Corporate culture is about promoting transparency rather than secrecy, direct talk rather than indirect talk, relational orientation rather than task orientation, speaking rather than silence, cooperation rather than competition, and mastery rather than fumbling. Corporate culture is defined as “the deeply seated (often subconscious) values and beliefs shared by personnel in an organization” (Martins & Terblanche, 2003: 65). A strong corporate culture characterized by honesty, responsibility, and transparency is more likely to prevent financial crime. Furthermore, incorporating guidelines for ethical behavior into organizational practice can improve prevention. As stated by Biegelman and Bartow (2012: 106), “it is the organization’s responsibility to create a culture of honesty and high ethics and to communicate clearly acceptable behavior and expectations of each employee”. Ethical guidelines situate employees to represent organizational principles in dealing with each other and with stakeholders. Albert and Whetten (1985), Arnett (1992), and Primeaux (1992) suggest that by incorporating the mission, vision, narrative, and different codes of the organization within the ethical guidelines, an organization might guide the daily actions and decision-making of its agents. In addition, ethical guidelines need to be communicated and find acceptance within the organizational culture to have an impact (Allen & Davis, 1993). Compliance risk assessment is about introduction of a systematic approach to “the entity’s identification of relevant risks to achievement

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of its objectives, forming a basis for determining how risks should be managed” (Marchetti, 2012: 74). Risk assessment is a process that has to include potential deviant behaviors among board members and corporate executives to make more informed business decisions. As Koller (2005: 28) noted, “fostering a risk assessment process upon an organization will not only change how opportunities or liabilities are assessed but will significantly alter the way an organization makes critical decisions”. New tone at the top is about correcting deficiencies in the previous tone that might have triggered misconduct and crime (Rockness & Rockness, 2005). Tone at the top refers to a standard set by the new corporate leadership to enforce an ethical climate on themselves and the rest of the organization (Schwartz et al., 2005). The new tone has to be learned by associating with individuals who have no deviant or unlawful mores, values, or norms (Trevino et al., 2003, 2008). As such, “if the top demonstrates high standards, it goes a long way in creating the right control environment” (Pickett & Pickett, 2002: 71). In the act of acknowledging the importance of managing risks associated with repeated financial crime, change management has to focus on consequences of the new tone, such as compliance, governance, anti-fraud, and other new programs (Andreisova, 2016). Ethical conduct is implemented through important role models who walk the talk, i.e., the role model individuals are consistent in their ethical communications and actions. In order to curb financial crime, argue that ethics has to start at the top. Social learning theory suggests that setting the tone from the top will inspire individuals within the organization to emulate the behavior of attractive role models like ethical leaders (Bandura, 1977, 1986). Recruitment processes is about criteria applied when selecting among candidates for a top job in the company. The recruitment process involves the “practices and activities carried out by the organization with the primary purpose of identifying and attracting potential employees” (Barber, 1998: 5). Recruitment is a challenging and expensive process that has the intent of identifying potential hiring subjects than can fit well with the current organizational culture (Ahmad & Schroeder, 2002). The recruitment and selection process is not only about evaluating education and work experience. In a change management perspective, individuals found to share the new core values and ethical understanding,

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as well as being willing to adapt behavior in a way suited for the new control regimes, are individuals that will benefit organizational performance (Gaines-Ross, 2008). Policies and procedures include core value statements, mission statements, code of conduct, and segregation of duties. Girling (2013) defines policy as a document that establishes minimum requirements and controls to address business strategy, compliance with laws, rules, regulation, as well as mitigation of other identified risks, where policy must be actionable and enforceable. Updating policies and procedures means to change aspects that may have contributed to the scandal and may have failed to contribute to scandal prevention. Kaptein and Schwartz (2008: 113) define a code of conduct as a “distinct and formal document containing a set of prescriptions developed by and for a company to guide present and future behavior on multiple issues of at least its managers and employees toward one another, the company, external stakeholders and/or society in general”. Codes of conduct are commonly used to “govern employee behavior and establish a socially responsible organizational culture” (Erwin, 2011: 535). Segregation of duties is a security principle of organizational structure attempting to spread the responsibility and authority for a complex sequence of actions or tasks over different executive roles to prevent errors, misconduct, and crime. When policies and procedures are well designed, approved, and monitored throughout the organization, it creates a basis and evidence of an organization’s current operational status and its commitment to compliance (Amadei, 2016). According to Chen and Soltes (2018: 125), “successful compliance engineering requires some creativity, some testing, and careful model design to appropriately measure outcomes”. Communication and training has to be advanced beyond ethics. While ethics training is found to be significant in creating awareness of proper conduct within organizations (Sekerka, 2009), such training will not necessarily transform personal values or cure scandals (McKendall et al., 2002). Ethics training is only a mechanism for discussing ethical issues and dilemmas in order to identify optimal decisions (Stansbury & Barry, 2007). What is needed in advancing communication and training is to

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develop relevant substance, as “formal processes that can help individuals handle tough, no-win decisions seems to be the key component” (Thompson, 1990: 84). Corporate transparency has been emphasized already several times in this book. Examples include transparency in managerial roles, independence and transparency, openness and transparency, transparency barriers to concealment of crime, corporate governance, and corporate culture. Corporate transparency is defined as “the deliberate attempt to make available all legally releasable information – whether positive or negative in nature – in a manner that is accurate, timely, balanced, and unequivocal, for the purpose of enhancing the reasoning ability of publics and holding organizations accountable for their actions, policies and practices” (Rawlins, 2008: 5). Transparency is the opposite of secrecy as noted by Florini (2000: 50), who states that “secrecy means deliberately hiding your actions; transparency means deliberately revealing them”. For example, Balakrishnan et al. (2019) found that increased corporate transparency is associated with reduced corporate tax aggressiveness. Individual sanctioning has to be implemented so that potential offenders can notice consequences of deviant actions that will work as a deterrent against misconduct and crime. As argued by Eberl et al., (2015: 1208), formal rules “either deliver the standards for sanctioning and monitoring … or are seen as a necessary means to avoid ambiguity”. Thus, formal rules that threaten individual sanctioning will work as deterrence and preventive measure. Sanctioning is a provision of a rule enacting a penalty for disobedience. One central aspect of sanctions is the importance or organizational communication of sanctioning “that will potentially ensue if individuals fail to conform to prescribed behavior” (Apel, 2013: 71). With this, scholars suggest that perceived certitude of penalties remains more critical for behavioral choices than the expected and actual brutality of the penalty (Apel & Nagin, 2011; Paternoster, 2010. At Siemens after the global corruption scandal, a catalogue of sanctions was included in the formal rules and published to all employees globally (Eberl et al., 2015).

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Detective Measures in the Literature Corporations need detective measures to disclose and examine suspicions of white-collar crime. The question that arises is how those in positions of power and influence can create an environment of disclosure and investigation, where they themselves also can become subject to reviews and examinations. This section reviews various measures proposed by scholars to strengthen detection of white-collar crime. The research literature suggests measures such as to make whistleblowing routines more effective, to strengthen the monitoring system, to improve the performance of audit functions, and to implement fraud examination capabilities (Nchangnwi, 2021). Whistleblowing routines are descriptions of how an observer can report suspicions of misconduct and crime. The observer turns into a whistleblower when (i) noticing deviance, (ii) reporting it in an acceptable manner, (iii) to someone who can do something about, (iv) is not harmed by it personally, and (v) is associated with the organization. Near and Miceli (1995: 680) defined whistleblowing as “disclosure by organizational members (former or current) of illegal, immoral or illegitimate practices under control of their employers, to persons or organizations that may be able to effect action”. Whistleblowing routines have to guarantee confidentiality and define sanctions against those who leak confidential information. Furthermore, the routines have to make responsible receivers accountable if they are reluctant to take corrective actions (Verschoor, 2002). Reprisals and retaliation including harassment, underrated performance evaluation, demotions, and punitive transfers have to be explicitly described in the routines to cause dismissals of those responsible for retaliation and reprisals (Dellaportas et al., 2005). Monitoring systems are a critical component for detecting compliance violations. Monitoring is a process that intends to assess and ensure the quality of internal performance over time. Graham (2015: 173) argues that monitoring “involves assessing the design and operation of controls on a timely and periodic basis and taking necessary corrective actions”. While monitoring is a detective measure, the organization will through the strengthened monitoring system send a preventive message

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to everyone that any attempt of conducting white-collar crime will be rapidly detected and remediated. Strengthening the monitoring system will reinforce a control function’s ability to track down behavior that is not tolerated. Audit functions have the task of identifying misstatements due to fraud (Beasley, 2003). Responsibilities of auditing functions as well as procedures and practices followed by auditors in their work have to focus on deviant behavior manifested in accounting. The focus of strengthened auditing functions should be on fraudulent activities that lead to intentional material misstatements due to fraud, and this focus expands the guidance and procedures to be performed in every audit. Moyes and Baker (2003) asked external, internal, and governmental auditors to evaluate the effectiveness of various standard audit procedures in detecting fraud. Although external and internal auditors differed in the types of audit procedures they recommend, the authors conclude that the audit procedures judged more effective in detecting fraud are those which focused on evidence. Fraud examination is a matter of reconstructing past events and sequence of events when there is suspicion of misconduct and crime (Button & Gee, 2013). A scandalized corporation needs to establish a competent fraud investigation function, where forensic accountants and organizational psychologists collect and analyze information from various sources to establish facts. Qualified fraud examiners need to be able to interview people, who are often the most important source of information to create insights into deviant individual and organizational behavior (Brandon et al., 2018; Collins & Carthy, 2018). Transparency is not only a preventive measure. It can also be a detective measure. For example, Goncharev and Peter (2019) studied cartels and found that transparent reporting leads to earlier detection of deviating behavior and accounting among members of the cartel. A cartel is an implicit agreement between firms in the same industry to fix prices, divide customers and markets among themselves, or divide profits.

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Corporate Case Study of Siemens Trust repair at Siemens in Germany was introduced in a previous chapter. The previous and current presentation of Siemens is mainly based on the article by Eberl et al. (2015) entitled “Repairing trust in an organization after integrity violations: The ambivalence of organizational rule adjustment”. The case study here is concerned with measures that implicitly are described in the article. The following preventive measures could be identified in the article about Siemens: ● Corporate culture: “The corporate culture of Siemens is what made employees believe that bribes were not only acceptable but also implicitly encouraged” (Eberl et al., 2015: 1218). “The cultural change in the Siemens Group towards more openness and transparency is tremendous” (Eberl et al., 2015: 129). The cultural interventions included communication of a new compliance vision and appeal to all employees urgently to stick to anti-corruption rules. ● Compliance risk assessment : Siemens hired an anti-corruption consultant. ● New tone at the top: Siemens top management was held responsible for the scandal, as a bank representative stated, that “a lot of confidence gets destroyed when the management acts this way” (Eberl et al., 2015: 1212). The new top management had to demonstrate integrity and accountability to gain the trust of stakeholders. ● Policies and procedures: This was not successful as “the rule adjustments undertaken by the management could not be appropriately backed up by the new cultural norms” (Eberl et al., 2015: 1220). “It is a big flaw when a corporation like Siemens presents guiding principles, ethic rules and moral codes and at the same time soils itself ” (Eberl et al., 2015: 1213). The following detective measures could be identified in the article about Siemens: ● Monitoring system: Siemens installed an ombudsman as well as a forensic accounting function to check suspicious payments. An

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ombudsman is an official of the company, who is appointed to receive and investigate complaints, as well as report and help settle complaints. Allegations of misconduct and crime can be handled through the ombudsman. Forensic accounting is concerned with monitoring suspicious payments and a scorecard system for evaluation of deals with business partners. ● Amnesty offer: Siemens installed an offer of amnesty to remorseful and truly informed employees, thus not everyone involved in previous bribery allegations was sanctioned. Siemens installed a set of behavioral standards for employees by incorporating compliance with rules as a component of the performance appraisal. The next chapter continues into preventive measures in the context of change management measures.

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Fraud examiners from local law firms and global auditing firms are in the business of conducting internal investigations when there is suspicion of financial crime by white-collar offenders. Examiners reconstruct past events and sequences of events, and they make recommendations for change management to avoid white-collar crime incidents in the future. Based on a review of the research literature, this chapter presents four themes for change management after white-collar crime scandals: transformation of organizational culture, development of preventive measures, advancement of detective skills, and clarification of response actions. These four themes are then applied to a sample of 130 reports of investigations by fraud examiners in Norway. We find that most recommendations by fraud examiners focus on the development of preventive measures concerned with routines, requirements, documentation, guidelines, governance, roles, access rights, approval rights, transparency, training, competence, compliance, and control mechanisms. What should change management emphasize after white-collar crime scandals? To answer the question, this chapter studies recommendations by fraud examiners after they have conducted internal investigations in client organizations. Fraud examiners from local law firms and global © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_10

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auditing firms are in the business of conducting internal investigations when there is suspicion of financial crime by white-collar offenders (Button & Gee, 2013; Schneider, 2006). Examiners reconstruct past events and sequences of events, and they make recommendations for change management to avoid white-collar crime incidents in the future (Fitzgibbon & Lea, 2018). The business of internal investigations by fraud examiners is growing and surrounded by secrecy (Gottschalk & Tcherni-Buzzeo, 2017) while having an increasing impact on law enforcement and change management in both public and private organizations (Williams, 2014). Recommendations by fraud examiners are thus relevant to study, both to identify, and to evaluate their messages. Examples globally include Bruun Hjejle (2018) at Danske Bank in Denmark, Mannheimer Swartling (2016) at Nordea Bank in Sweden, Deloitte (2016) at Telenor VimpelCom in Norway, Deloitte (2017) at Fujifilm in New Zealand, PwC (2015) at Nigeria National Petroleum Company in Nigeria, Deloitte (2015) at Toshiba Corporation and Deloitte (2011) at Olympus Cooperation in Japan, at Lehman Brothers, Jenner Block (2014) at General Motors, and Shearman Sterling (2017) at Wells Fargo in the United States. White-collar crime is a financial crime committed by a person of respectability and high social status in the course of the offender’s occupation (Sutherland, 1939). White-collar crime is committed during the course of legitimate professional activity (Craig & Piquero, 2017). The offender has access to resources to commit and conceal crime (Friedrichs et al., 2018). Based on a review of the research literature, this article presents four themes for change management after white-collar crime scandals: transformation of organizational culture, development of preventive measures, advancement of detective skills, and clarification of response actions (Biegelman & Bartow, 2012; Eberl et al., 2015; Grabosky, 2018; Tamilarasu, 2012). These four themes are then applied to a sample of 130 reports of investigations by fraud examiners in Norway. An emerging theory to explain the white-collar crime phenomenon is the theory of convenience, where convenience is present in the financial motive, the organizational opportunity, and the personal willingness. This chapter compares recommendations from fraud examiners with the

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objective to reduce white-collar crime convenience and identifies gaps where there is a need for more recommendations of measures.

Recommendations in the Literature Four themes emerged from the literature review in this research regarding measures in change management that seem relevant after white-collar crime scandals: transformation of organizational culture, development of preventive measures, advancement of detective skills, and clarification of response actions. Armenakis and Lang (2014) argue that the unethical and criminal behavior of some executives in various organizations can be attributed to organizational culture. Their research was concerned with a chief financial officer (CFO) who told that the organization had been fraudulently reporting earnings for many years in the United States. Culture change was one of the top priorities of the new management. Organizational culture is an organization’s personality that determines how its employees carry out their activities. Corporate culture is about promoting transparency rather than secrecy, direct talk rather than indirect talk, relational orientation rather than task orientation, speaking rather than silence, cooperation rather than competition, and mastery rather than fumbling. Corporate culture is defined as “the deeply seated (often subconscious) values and beliefs shared by personnel in an organization” (Martins & Terblanche, 2003: 65). A strong corporate culture characterized by honesty, responsibility, and transparency is more likely to prevent financial crime. Furthermore, incorporating guidelines for ethical behavior into organizational practice can improve prevention. As stated by Biegelman and Bartow (2012: 106), “it is the organization’s responsibility to create a culture of honesty and high ethics and to communicate clearly acceptable behavior and expectations of each employee”. One of the preventive measures often suggested is corporate governance (Ball, 2001; Daugherty & Neely, 2012; Khanna et al., 2004; Mabillard & Zumofen, 2017). Corporate governance is about promoting fairness, honesty, integrity, accountability, and transparency (Ferrell &

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Ferrell, 2011). Biegelman and Bartow (2012: 48) define corporate governance as a “system of checks and balances between management and all other connected parties with the aim of producing an effective, efficient, and law-abiding corporation”. A strong corporate governance structure is believed to help deter corruption and other financial crime activities. Scholars have linked corporate governance failure to financial crime (Huisman & Erp, 2013). As argued by Schnatterly et al. (2018), when organizations institute rigorous internal controls, create transparent procedures, introduce accountability for executives, and review operational procedures, the ability of hiding fraudulent activities is challenged. For example, Gao and Zhang (2019) found that improved internal control reduces the extent of accounting manipulation. Rawlins (2008a: 5) defines corporate transparency as: the deliberate attempt to make available all legally releasable information – whether positive or negative in nature – in a manner that is accurate, timely, balanced, and unequivocal, for the purpose of enhancing the reasoning ability of public and holding organizations accountable for their actions, policies and practices.

Introduction of openness and transparency can remove the sometimes attractive executive option of secrecy and work in the dark rooms (Ulman, 2013). Cotterrell (1999: 419) argues that “transparency as a process involves not just availability of information, but active participation in acquiring, distributing and creating knowledge”. New top management needs to (Heard & Miller, 2006: 2): create a corporate culture where dialog and feedback are regular practice – and this should extend to every level of employees throughout the organization. Such a culture can build the foundation of an open problem-solving environment, [and] demonstrate to employees that it is safe to raise concerns.

Another preventive measure suggested is compliance risk assessment, which is a systematic approach to “the entity’s identification of relevant risks to achievement of its objectives, forming a basis for determining how risks should be managed” (Marchetti, 2012: 74). Risk assessment

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is a process that has to include potential deviant behaviors among board members and corporate executives to make more informed business decisions. As Koller (2005: 28) noted, “fostering a risk assessment process upon an organization will not only change how opportunities or liabilities are assessed but will significantly alter the way an organization makes critical decisions”. Risk assessments usually decrease the opportunity for unethical behavior as it raises red flags and alerts concerning irregular situations (Michel, 2008). New tone from the top (Rockness & Rockness, 2005), revised recruitment processes (Barber, 1998; Byham, 2004), strengthened policies and procedures (Kaptein & Schwartz, 2008), communication and training (Stansbury & Barry, 2007), and again transparency (Ball, 2001; Kaptein, 2008; Khanna et al., 2004; Mabillard & Zumofen, 2017; Rawlins, 2008a) are some other preventive measures suggested. New leaders can reinforce a culture of zero tolerance of misconduct and crime by focusing on any deviance occurring and facilitate ethical behavior (Ashforth & Anand, 2003; Lamberton et al., 2005). At the same time, new leaders have to be controlled adequately to ensure ethical leadership in practice (Cendrowski et al., 2007). For example, executive access to resources needs monitoring (Füss & Hecker, 2008; Pratt and Cullen, 2005). There might be a need for job rotation among executives to ensure auditing, reconciliation, exception reports, transaction logs, and supervisor review, and thus to avoid one individual handling several responsibilities related to authorization and custody of assets for a long period of time. Change management may not only require new leaders in top management, but also new directors on the board. Ghannam et al., (2019: 205) studied whether qualified and experienced directors are willing to join companies following the revelation of financial fraud: We find that, notwithstanding the tamished reputation of fraudulent firms and a higher workload, qualified and experienced directors join the boards of such firms. Subsequent to joining fraudulent firms, directors are rewarded with additional future board seats and benefit from higher compensation.

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Top executive positions can no longer be based on trust, as trust causes costs of white-collar crime (Dearden, 2016). Similarly, directors on the board need to know their legal obligations in preventing white-collar crime among themselves as well as in the entire elite of the organization (Fairfax, 2002; Goldschmidt, 2004; Walsh, 2001). Top executive positions have to follow the principle of segregation of duties (SoD) to spread activities. SoD is defined as “a security principle to spread the responsibility and authority for a complex action or task over different users and roles, to prevent fraud and errors” (Liu et al., 2004: 375). Scholars argue that SoD can successfully reduce the number of white-collar crime occurrences (Giles, 2013). Ethical training is found to be significant in creating awareness of proper conduct within organizations (Sekerka, 2009; White & Lam, 2000), and in managing ethics (LeClair & Ferrell, 2000; Matten, 2003; Warren et al., 2014) without harming performance (Majluf & Navarrete, 2011). Training can help cope with legal issues (Peterson, 2013) and compliance (Palmer & Zakhem, 2001). Training has to be relevant without formalism (Weaver et al., 2005) and stimulate creativity rather than determinism (Stansbury & Barry, 2007). Compliance training should focus on moral judgment rather than legal interpretation (McKendall et al., 2002). Most organizations have some code of conduct that typically serves as window dressing to improve and enhance the organizations’ public image (McKinney et al., 2010; Schwartz, M.S.). Change management implies that a new code of conduct set is not top-down, but rather bottom-up, where employees can observe executive ethics (Erwin, 2011; Remisova et al., 2019). Ethical training has to operationalize and enforce the code of conduct (Pickett & Pickett, 2002; Schwepker, 2001). Training should not focus on dilemmas, but rather on court sentences from white-collar crime cases as well as sentencing guidelines (Palmer & Zakhem, 2001). Recommendations in the research literature repeatedly return to the issue of cultural change in organizations. Scholars argue that change in organizational culture offers a plausible explanation for the disappearance and absence of white-collar crime and provides the means to improve ethical behaviors among elite members within the organization (Armenakis & Lang, 2014; Eberl et al., 2015; Sinclair, 1993).

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Organizational culture can be defined as “the deeply seated (often subconscious) values and beliefs shared by personnel in an organization” (Martins & Terblanche, 2003: 65). Values are typically defined on scales such as competition versus cooperation among executives, short-term versus long-term perspectives in management, silence versus openness, and indirect versus direct communication. An influential organizational culture, characterized by honesty, responsibility, and transparency, is implied to prevent financial crime (Biegelman & Bartow, 2012; Hansen, 2009; Pickett & Pickett, 2002). Incorporating a system for ethical behavior into the organizational culture is likely to increase the chances of turning ethical values actionable, thus preventing the occurrence of white-collar crime (Hals & Sandvik, 2019). As stated by Biegelman and Bartow (2012: 113), “it is the organization’s responsibility to create a culture of honesty and high ethics and to communicate clearly acceptable behavior and expectations for each employee”. However, there is not a one-size-fits-all solution for organizations (Trevino & Nelson, 2016). Rather, change management implies that external consultants and lawyers who often contribute generic advice on culture and compliance are more or less of no use as the new management is to install changes that make a real difference from the past when financial crime occurred. Only insiders can understand what initiatives might remove destructive culture and build on constructive culture (Clinard & Yeager, 2011). Reinforcing organizational culture elements that can bring the business into the future is probably the least painful path to change management (Brass et al., 1998; Trevino, 1986). As Fisse and Braithwaite (1988: 235) note, “the most important changes are qualitative and intangible”. Corporations need detective measures to disclose and examine suspicions of white-collar crime. The question that arises is how those in positions of power and influence can create an environment of disclosure and investigation, where they themselves also can become subject to reviews and examinations. Various measures are proposed by scholars to strengthen the detection of white-collar crime. The research literature suggests measures such as to make whistleblowing routines more effective, to strengthen the monitoring system, to improve the performance of audit functions, and to implement fraud examination capabilities.

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Whistleblowing routines are descriptions of how an observer can report suspicions of misconduct and crime. The observer turns into a whistleblower when (i) noticing deviance, (ii) reporting it in an acceptable manner, (iii) to someone who can do something about, (iv) is not harmed by it personally, and (v) is associated with the organization. Near and Miceli (1995: 680) defined whistleblowing as “disclosure by organizational members (former or current) of illegal, immoral or illegitimate practices under control of their employers, to persons or organizations that may be able to effect action”. Whistleblowing routines have to guarantee confidentiality and define sanctions against those who leak confidential information. There have to be several alternative channels for whistleblowing so that an observer can choose an alternative that he or she trusts (Nawawi & Salin, 2019; Nurhidayat & Kusumasari, 2018). Gao et al. (2015) argue that lower-level employees are more likely to report anonymously fraudulent behavior when an external hotline is available, as there is then a reduced risk of retaliation (Near & Miceli, 1995; Sweeny, 2008). Anonymity is an important protection when the whistle is blown on the powerful (Heard & Miller, 2006; Kaplan et al., 2009; King, 2000; Nayir & Herzig, 2012). Furthermore, the routines have to make responsible receivers accountable if they are reluctant to take corrective actions (Verschoor, 2002). “Transparent organizations are accountable for their actions, words, and decisions, because these are available for others to see and evaluate” (Rawlins, 2008b: 7). Reprisals and retaliation including harassment, underrated performance evaluation, demotions, and punitive transfers have to be explicitly described in the routines to cause dismissals of those responsible for retaliation and reprisals (Dellaportas et al., 2005). In conclusion, a new structure that promotes awareness, involvement, credibility, accountability, empowerment, courage, and choice will influence individuals to blow the whistle (Berry, 2004). The new structure will imply organizational changes. A large and complex organizational structure has to be replaced by a simple and transparent structure. Change management in organizational structure can imply selling specific segments of business operations, stopping business activities in high-risk locations, and reorganize business processes (Biegelman & Bartow, 2012).

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Monitoring systems are a critical component for detecting compliance violations (Biegelman & Bartow, 2012; Lehman et al., 2020; Marchetti, 2012). Monitoring is a process that intends to assess and ensure the quality of internal performance over time. Graham (2015: 173) argues that monitoring “involves assessing the design and operation of controls on a timely and periodic basis and taking necessary corrective actions”. While monitoring is a detective measure, the organization will through the strengthened monitoring system send a preventive message to everyone that any attempt of conducting white-collar crime will be rapidly detected and remediated. Strengthening the monitoring system will reinforce a control function’s ability to track down behavior that is not tolerated. New control mechanism can reduce opportunities for white-collar crime (Cendrowski et al., 2007). Control enables organizations to pursue business goals while offsetting threats (Moeller, 2013). Additionally, control encourages accountability when managing resources (Asare, 2009), minimizes shock from unexpected events (Hajiha & Bazaz, 2016), and prevents risk-taking behavior beyond what is considered rational in the business (Jin et al., 2013; Länsiluoto et al., 2016). Audit functions have the task of identifying misstatements due to fraud (Beasley, 2003). Responsibilities of auditing functions as well as procedures and practices followed by auditors in their work have to focus on deviant behavior manifested in accounting. Moyes and Baker (2003) asked external, internal, and governmental auditors to evaluate the effectiveness of various standard audit procedures in detecting fraud. Although external and internal auditors differed in the types of audit procedures they recommend, the authors conclude that the audit procedures judged more effective in detecting fraud are those, which focused on evidence. Fraud examination is a matter of reconstructing past events and sequence of events when there is suspicion of misconduct and crime (Button & Gee, 2013). A scandalized corporation needs to establish a competent fraud investigation function, where forensic accountants and organizational psychologists collect and analyze information from various sources to establish facts. Qualified fraud examiners need to be able to interview people, who are often the most important source of

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information to create insights into deviant individual and organizational behavior (Brandon et al., 2018; Collins & Carthy, 2018). Clarification of response actions is the fourth and final theme identified in this literature review. Individual sanctioning has to be implemented so that potential offenders can notice the consequences of deviant actions that will work as a deterrent against misconduct and crime (Yusuf & Babalola, 2009). As argued by Eberl et al. (2015: 1208), formal rules “either deliver the standards for sanctioning and monitoring … or are seen as a necessary means to avoid ambiguity”. Thus, formal rules that threaten individual sanctioning will work as deterrence and preventive measure. Sanctioning is a provision of a rule enacting a penalty for disobedience (Ball & Friedman, 1965). At Siemens after the global corruption scandal, a catalogue of sanctions was included in the formal rules and published to all employees globally. White-collar crime is frequently committed by an executive in the organization. Therefore, a relevant recommendation of sanction is the dismissal of the executive by the termination of the employment. Fredrickson et al. (1988: 255) defined dismissal as “a situation in which the CEO’s departure is ad hoc (e.g., not part of a mandatory retirement policy) and against his or her will”. They found that in cases of scandals, CEO dismissal can depend on organizational performance, the CEO’s power within the organization, coalitions formed, and relations with others, in addition to the personal deviance and the blame assigned to him or her. Executive deviance is in turn a force that affects and receives effect by interpersonal relations, coalitions, and power (Gangloff et al., 2016). Sanctioning an executive by dismissal is a punishment that depends on stakeholders, where “stakeholders’ attention is directed in certain ways that bounds where they look, limit what they notice, bias their assessment, and constrain their willingness to act” (Barnett, 2014: 694). Nestor (2004) argues that an organization must narrow the liability to the actual perpetrators of financial crime in order to strengthen corporate governance by improving the accountability of corporate agents. Therefore, when executives engage in certain forms of harmful deviance confirmed by fraud examiners, dismissal decision-makers may decide to direct their attention elsewhere or limit their reactions to instances of

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deviance, or decision-makers may consider the use and effectiveness of top executive dismissal (Hilger et al., 2013).

Investigations by Fraud Examiners There is a growing business for global auditing firms and local law firms to conduct internal investigations at client organizations when there is suspicion of white-collar misconduct and crime (Button & Gee, 2013; Gottschalk & Tcherni-Buzzeo, 2017; Schneider, 2006; Williams, 2014). This research is concerned with change management recommendations by fraud examiners. What should be next after white-collar crime scandals in terms of change management measures? The legitimacy of private policing of financial crime is a topic of enduring importance (Button & Gee, 2013; Button et al., 2007a, 2007b; Schneider, 2006; Tunley et al., 2014; Williams, 2005a, 2005b, 2014). Fraud examiners do often not only investigate; they sometimes also indict, prosecute, and sometimes even pass a verdict in their reports of investigations on suspected individuals. There is a threat of privatization of law enforcement. This contradicts the practice of criminal justice in democratic societies, where clear distinctions are made between investigation, indictment, prosecution, and sentencing in court (Hamerton & Hobbs, 2022). Making it even worse in terms of lack of legitimacy, fraud examiners sometimes apply methods and procedures that are not only unethical, but also illegal. Therefore, it is important to study publicly available reports of investigations written by fraud examiners. The business of internal investigations by external fraud examiners has been growing rapidly in Norway in the last decade. While Norway is a small country of six million inhabitants with little detected white-collar crime, Gottschalk and Gunnesdal (2018) have estimated that less than one out of ten offenders face criminal justice. Very often when suspicions occur, public and private organizations hire fraud examiners where clients keep the resulting report of investigation secret, even toward the police (Gottschalk & Tcherni-Buzzeo, 2017).

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For many years, this research has collected any publicly available investigation report by fraud examiners. The number of reports is currently one hundred and thirty as listed in Table A.2 in the Annex of this book. Almost all reports are concerned with misconduct and crime in Norway. A few have also impact in other countries. Table A.1 lists the investigated organization as well as the investigating firm. The following column in the table lists the kind of suspicion of white-collar crime. The final column lists the number of pages in the report of investigation from each fraud examination firm. There is no way of telling what extent the sample of investigation reports is biased. For sure, there is an over-representation of examinations from the public sector and municipalities in particular because their obligation to be publicly transparent is more common. All 130 reports were studied in terms of content analysis regarding content that concerned recommendations. Typically, both in long and short reports, recommendations are presented in the summary as well as at the end of each report. Content analysis is any methodology or procedure that works to identify characteristics within texts attempting to make valid inferences (Duriau et al., 2007; Krippendorff, 1980; McKenny et al., 2013; Patrucco et al., 2017). Content analysis assumes that language reflects both how people understand their surroundings and their cognitive processes. Therefore, content analysis makes it possible to identify and determine relevant text in a context (McClelland et al., 2010). Gibbs (2007) recommends a variety of approaches including (1) open coding, (2) analysis of words, phrases, or sentences, (3) systematic comparison, and 4) far-out comparisons. This research applied open coding, where coding applied to four themes of organizational culture transformation, preventive measure development, detective skills advancement, and response actions clarification. While this research studied 130 reports of investigations by content analysis, Hals and Sandvik (2019) studied change management recommendations in the research literature by content analysis. They used thematic analysis as a systematic method to identify, analyze, synthesize, and interpret themes that emerged from their literature review (Braun & Clarke, 2012). This was done with the “aim to explore the understanding of an issue or the signification of an idea, rather than to

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reconcile conflicting definitions of a problem” (Attride-Stirling, 2001: 387). Argues that a thematic analysis allows a researcher to communicate findings and interpretations of meaning more easily to others who use different methods. Successful thematic analysis allows for flexibility in the analysis of data as multiple raters explicitly can communicate about their potential disagreements. The structure for the organization of themes, as well as the themes themselves and their interpretation might all become subject to insights from independent raters. According to Braun and Clarke (2012: 58), the purpose of thematic analysis is to “answer a particular research question, and this is why thematic analysis is so accessible and flexible – it is a method of data analysis, rather than being a strict approach to conducting qualitative research”. A qualitative approach is an appropriate strategy when trying to achieve an in-depth understanding of a problem or an issue (Bradshaw et al., 2017; Bryman & Bell, 2015). There are several choices researchers have to make when it comes to conducting a thematic analysis. Hals and Sandvik (2019) applied an inductive approach to develop bottomup themes. An inductive approach refers to themes strongly linked to the data in the form of words (Patton, 2002). Hals and Sandvik (2019) went step by step in their thematic analysis process as recommended by Braun and Clarke (2012): (1) familiarizing oneself with the data; (2) creating initial codes; (3) looking for themes; (4) reviewing potential themes, (5) defining and naming themes; and (6) concluding with findings. A code refers to “the most basic segment, or element, of the raw data or information that can be assessed in a meaningful way regarding the phenomenon” (Boyatzis, 1998: 63). As Willis et al. (2007: 202) note, thematic analysis is a “nonlinear, recursive (iterative) process in which data collection, data analysis, and interpretation occur and influence each other”. Researchers working with verbal data will benefit from transcription early on, as the transcription process is “a key phase of data analysis within interpretative qualitative methodology” (Bird, 2005: 227). Transcription is an attractive process where meaning can be created (Lapadat & Lindsay, 1999).

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Four Change Management Themes Research findings for recommendations from fraud examiners after internal investigations in client organizations are listed in Table A.3 in the Annex of this book. The open coding distinguished between four kinds of organizational measures recommended by fraud examiners after white-collar crime scandals: A. Transform organizational culture: Make individuals rather than groups accountable, focus on rules and routines rather than goals that justified means, encourage whistleblowing by boasting and favoring whistleblowers rather than retaliation and reprisals, and encourage fast and professional response in cases of whistleblowing. B. Develop preventive measures: Certify new employees after compulsory training programs, introduce employment contracts and regulation of behavior, implement guidelines for ethical behavior, limit access rights, separate authority to make decisions from authority to implement decisions, remove the possibility that a single executive can make financial transactions, and develop governance structure with decision rights. C. Advance detective intelligence: Introduce whistleblowing routines that protect whistleblowers from retaliation and reprisals, secure storage of all emails and other documents for a longer period, qualify auditors for detection of white-collar crime, implement monitoring in computer systems, and log negative events so that the sequence of events can result from it. D. Clarify response actions: Identify relevant sanctions when misconduct and crime occur, develop routines for recovering assets after executive fraud, implement procedures for termination of employment, and dispute the transfer of ownership after bankruptcy. Change in organizational culture manifests itself on value scales. Here recommendations are concerned with moving from one side of the scale to the other side, such as groups versus individuals, goals versus rules, retaliating versus favoring, and slow versus fast response.

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Change in preventive measures is not about doing more of the same. Rather, change management focuses on preventive measures that have been ignored or reluctantly been applied in the past. For example, most organizations have descriptions of all kinds of routines, regulations, and guidelines that tend to be stored on the shelf to collect dust. Implementation is often the key in such situations. Clarify, require, deny, centralize, prepare, and ensure are some of the words indicating implementation of preventive measures. Change in detective skills is concerned with the ability to detect misconduct and crime. The detection of a crime signal is dependent on signal intensity and signal alertness. Signal intensity represents the loudness, distinctiveness, and clearness of the signal from the sender. For example, a whistleblowing message can be loud and clear, but it can also be silent and confusing. According to Brown et al. (2016), whistleblowing intentions are likely to increase if a crime signal is strong and not confused by noise. The signal alertness is the readiness to detect a signal by the receiver that depends on the detector’s mindset, interests, and focus when the signal occurs from the sender. Perceptual sensitivity is a key to signal alertness. As argued by Szalma and Hancock (2013), perceptual sensitivity is concerned with the ability of an observer to detect a signal and to discriminate signal from non-signal events. Observers have varying capability to distinguish between information-bearing recognition (called pattern) and random confusion that distracts from information (called noise). Change in response measures focuses on sanctions against individuals. A response to an incident of financial crime should follow training well in advance in order to take immediate corrective action when integrity breakdowns arise. Organizations have to make sure that appropriate and detailed response processes are in place so that in the event of an incident discovered, the organization is able to act quickly. When there is a crime scandal among board members or executive officers, a transfer of power to not involved and competent individuals should occur immediately. Hals and Sandvik (2019) identified a large number of recommendations in the research literature. They organized their findings as

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illustrated in Fig. 10.1. The four main themes are the same. Prevention is broken down into policies and procedures, personnel, and control. Detection is broken down into reporting and monitoring in Fig. 10.1, while responding is broken down into sanctions and root-cause analysis. All items on the right-hand side cannot be read, since there are more than one hundred recommended actions, but the figure illustrates how many there are that can be found in the research literature. The open coding in this research distinguished between four themes in change management recommendations by fraud examiners labeled A, CULTURE

POLICIES RECRUITMENT PERSONNEL

TRAINING LEADERSHIP RISK ASSESSMENT CONTROL ACTIVITIES

CONTROL

RESTRUCTURING COMPLIANCE

CHANGE MANAGEMENT ACTIONS

PREVENT

REPORTING DETECT

MONITORING

SANCTIONS RESPONSE

ROOT CAUSE

Fig. 10.1 Illustration of the categorization process conducted by Hals and Sandvik (2019)

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B, C, and D in Table A.3. The main recommendation in each report of investigation determined the label. Out of 130 recommendations, there are 20 labeled A, 64 labeled B, 28 labeled C, and 18 labeled D in Table A.3. While the literature review emphasized general changes in organizational culture, fraud examiners recommend specific changes. Examples include encouraging fast and professional responses in cases of whistleblowing, separating roles as public officials and as private citizens, avoiding personal relationships between municipal officials and taxi owners, and focusing on rules and routines where goals do not at all justify means. While some of these recommendations also belong in the theme of preventive measures, fraud examiners have experienced that rules, regulations, and guidelines do not necessarily change human behavior. While the literature review emphasized corporate governance as an important preventive measure, fraud examiners recommend specific changes. In terms of governance and compliance with governance structure, fraud examiners have experienced that positions such as chief compliance officer do not necessarily prevent deviant behaviors (e.g., Bruun Hjejle, 2018; Deloitte, 2015, 2017; Shearman Sterling, 2017). For example, in the case of corruption in Libya by the Norwegian fertilizer producer Hydro, the chief compliance officer still reports to an executive position where the predecessor was convicted to prison for the corruption incident. Both the literature reviewed, and fraud examiners emphasize whistleblowing as a detective measure. The problematic issue is avoidance of retaliation and reprisals on the one side and promotions and rewards on the other. Whistleblowers in Norway are not entitled to any payment or fraction of recovered assets as practiced in the United States. Whistleblowers’ legal protection is substantial, and retaliation has a jail sentence as consequence, but nobody responsible for retaliation has experienced incarceration so far in Norway. The literature reviewed presents individual sanctioning as a measure in response actions. Fraud examiners have similar recommendations in addition to more active asset recovery, as offenders should quickly lose all benefits from the crime. Fraud examiners emphasize measures that

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address deviant behaviors at the top, including board members and executive officers.

Reduction in Crime Convenience As mentioned in the introduction, the theory of convenience is an emerging explanation for the white-collar crime phenomenon, where convenience is present in the financial motive, the organizational opportunity, and the personal willingness. It is a crime-as-choice theory where offenders have the option to choose legitimate rather than illegitimate paths to solve problems and gain from possibilities. This article will now discuss recommendations from fraud examiners in terms of the objective to reduce white-collar crime convenience and identify gaps where there is a need for more recommendations of measures. Specifically, we look at the extent to which suggested change management measures within culture, prevention, detection, and response can reduce convenience within motive, opportunity, and willingness. The motive for white-collar crime might be a fear of falling from position (Piquero, 2012), the American dream of prosperity and success (Schoepfer & Piquero, 2006), hierarchical needs (Maslow, 1943), and greed (Goldstraw-White, 2012). Recommended measures do not and cannot address such motives. Other motives, however, can be addressed, such as goal orientation (Jonnergård et al., 2010; Kuvaas & Buch, 2018; Kuvaas et al., 2016; Welsh & Ordonez, 2014), where reduced goal orientation, especially at the individual level, might weaken the motive for financial crime. If bonus and promotion relate less to the achievement of goals for individuals, then the motive becomes weaker (Nichol, 2019). None of the fraud examiners recommends such a measure. Another measure ignored by fraud examiners is improvement in perceived equity (Leigh et al., 2010), where the perception of fair pay relative to others in the organization might weaken the motive for financial crime. The opportunity for white-collar crime in the organizational setting finds comprehensive reflection in all four themes. Changes in culture, prevention, detection as well as response do all have the potential of

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reducing the convenience of committing and concealing the financial crime. For example, effective whistleblowing (Keil et al., 2010), institutional strength (Rodriguez et al., 2005), control in the principal– agent relationship (Eisenhardt, 1985), and monitored access to resources (Adler & Kwon, 2002) can all result from change management. Personal willingness for deviant behavior is the third and final dimension in convenience theory. Deterrence effects of sanctions might reduce the willingness for white-collar crime by deviant behavior (Comey, 2009). A rising fear of job loss followed by possible imprisonment is likely to reduce the willingness to commit a white-collar crime (Logan et al., 2017; Mears & Cochran, 2018). Neutralization techniques such as denial of victim and denial of damage (Sykes & Matza, 1957) often applied by white-collar offenders might become less effective for offenders when preventive and detective measures are in place. Similarly, slippery slope (Arjoon, 2008; Welsh et al., 2014) and lack of self-control (Gottfredson & Hirschi, 1990) might become less effective as foundation for willingness in a corporate culture dominated by transparency. In sum, we find that recommendations from fraud examiners have varying impacts on white-collar convenience as illustrated in Fig. 10.2. Suggested recommendations have little or no influence on motive as illustrated by the lack of arrows, thus suggesting that there is a gap in the recommendations. Suggested recommendations have substantial influence on opportunity and limited influence on willingness.

ECONOMIC MOTIVE THEORY OF CONVENIENCE

ORGANIZATIONAL OPPORTUNITY PERSONAL WILLINGNESS

Fig. 10.2

ORGANIZATIONAL CULTURE PREVENTION MEASURES DETECTION COMPETENCE

RECOMMENDED CHANGES

RESPONSE PUNISHMENT

Recommended change management effects on convenience

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There are several avenues for future research based on this chapter. First, there is an avenue to approach change management measures from a theoretical view in addition to a normative perspective, as illustrated in Fig. 10.2. Next, future research might want to revise and improve themes suggested in this article. Finally, the varying effects of different measures deserve discussion. In conclusion, this chapter has addressed change management recommendations by fraud examiners after white-collar crime scandals. Four themes resulted from the research literature concerned with culture, prevention, detection, and reaction. Most recommendations concerned prevention in a sample of 130 reports of investigations by fraud examiners in Norway. When convenience theory connected to the recommendations, some gaps in recommendations emerged. Gaps that need new change management measures are concerned with convenience in motives and convenience in willingness. In conclusion, most internal reports written by external fraud examiners for their clients are kept secret by client organizations (Gottschalk & Tcherni-Buzzeo, 2017). In the last decade, it was possible to identify and retrieve a total of 130 investigation reports in Norway as listed in Table A.2 in the Annex of this book. These reports represent probably only the tip of the iceberg of fraud examination reports, as there are more than three hundred full-time, private fraud examiners in law firms and auditing firms in Norway who each produces an estimated average of more than one report every year. Table A.2 lists investigated organizations, which are both in the private and public sector. The investigating firm is typically either a law firm or an auditing firm. The number of report pages after each fraud examination varies substantially. Fraud examiners typically include recommendations to their clients in reports of investigations. Table A.3 in the Annex of this book lists recommendations derived from 130 fraud examination reports in Norway. Out of 130 recommendations, there are 20 labeled A, 64 labeled B, 28 labeled C, and 18 labeled D.

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After detection, it is time for investigation. The purpose of an investigation is to inquire into allegations and accusations by examining past events and sequences of events (Williams, 2014). An investigation is a goal-oriented process to find answers to questions such as what happened or not happened, when did it happen, how did it happen, who did what to make it happen or not happen, and why did it happen or not happen. Based on investigative skills and knowledge of deviant behaviors, detectives collect and analyze information that they are able to obtain (Button et al., 2007a, 2007b; Tunley et al., 2014). Corporate white-collar crime can be investigated by public authorities, private firms, or own employees. If a crime is reported to the police, then it is at the discretion of the criminal justice system to decide whether or not the case will be investigated and prosecuted by public authorities. If crime is investigated by internal employees such as a legal department or an internal audit function, then it is at the discretion of management what is examined and how the examination is conducted. If crime is investigated by an external private firm, such as a global auditing firm or a local law firm, then it is at the discretion of management what is examined, and it is at the discretion of the investigator how the examination is © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_11

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conducted (Button & Gee, 2013; Button et al., 2018; Schneider, 2006; Williams, 2005a, 2005b, 2014). The starting point of an investigation is detection, where available information varies from case to case. In some cases, there is ample information in the form of substantial evidence. In other cases, there are only rumors, allegations, and accusations. Therefore, the initiation of an investigation is dependent on information already available to examiner. The initiation of an investigation is also dependent on the detection source. Table 8.1 listed the main sources of white-collar crime detection in Norway. Investigative journalists in the media are on the list, followed by crime victims suffering financial loss and bankruptcy lawyers identifying fraud. These detection sources have varying availability for investigators in corporate white-collar crime investigations. This chapter focuses on investigations by fraud examiners from global auditing firms and local law firms. Corporations often hire examiners from such firms when corporate white-collar crime scandals emerge. Fraud examiners conclude their investigations by a report that is handed over to the client organization. Often, reports of investigation are kept secret, both by the public and the police (Gottschalk & Tcherni-Buzzeo, 2017). Sometimes, investigation reports are made public. In a later chapter in this book, a number of publicly available reports are described, where corporate white-collar scandals had emerged.

Investigative Fraud Examination There is a growing business for global auditing firms and local law firms to conduct internal investigations at client organizations when there is suspicion of white-collar misconduct and crime (Button & Gee, 2013; Gottschalk & Tcherni-Buzzeo, 2017; Schneider, 2006; Williams, 2014). The purpose of this chapter is to present a basis to reflect on the work by private fraud examiners such as Bruun Hjejle (2018), Deloitte (2017), Mannheimer Swartling (2016), Shearman Sterling (2017), and others. Fraud examiners are involved in private policing by investigating suspicions of misconduct and crime related to financial crime in general and white-collar crime in particular. They are to reconstruct the past

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and document their findings in reports of investigations. Client organizations hire fraud examiners to investigate suspicions internally or in other organizations. When suspicions of misconduct and crime emerge in business and public organizations, private investigators have the task of carrying out inquiries. Private investigators are typically financial crime specialists from major accounting firms, law firms, and consulting firms. Examiners’ job is to conduct goal-oriented procedures of creating accounts of what happened, how it happened, why it happened, and who did what to make it happen or let it happen. When investigators move into the latter question of who did what to make it happen or let it happen, then the examination resembles a criminal investigation normally conducted by law enforcement in the police at local and national levels (Osterburg & Ward, 2014). Private policing in terms of fraud examinations represents a privatization of law enforcement. Client organizations often do not communicate results from reports of private investigations to public police, even when fraud examiners have collected solid evidence of law violations. There are many reasons for secrecy. Especially in cases where top executives, investors, and others from the elite become subject to investigation for potential white-collar crime, then organizations tend to avoid public attention. As a result, reports of investigations are difficult to find to evaluate the quality of private policing in cases of financial crime suspicions in general and white-collar crime suspicions in particular. There is a small but growing body of research on private whitecollar crime investigations. Brooks and Button (2011) and Button and Gee (2013) discuss police prosecutors’ potential dependence on private examinations of financial crime suspicion. They also discuss punishment and innocent victims of private investigations. In a survey by Brooks et al. (2009), 17 out of 32 companies in the United Kingdom responded that they employ dedicated counter fraud staff (which in total accounted for 160 employees) while 13 had no specialist staff, and two did not answer the question. Button et al. (2007a, 2007b) and Tunley et al. (2014) discuss the lack of competence among fraud examiners. As argued, private policing is directly accountable to the paying customers rather than democratically elected bodies and tight legalistic procedures

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and constraints. Meerts (2014) found that corporations and organizations generally value the possibility of secrecy, discretion, and control that private investigations bring to corporate security. Openness could lead to problems such as reputational loss, which can have economic repercussions. In the same book edited by Walby and Lippert, Williams (2014) discusses the private eyes of corporate culture in terms of forensic accounting and corporate investigation industry, and the production of corporate financial security. Button et al. (2009) found that 68 percent of fraud victims report strong feelings of anger, which represents a motivation for private investigations. Fraud examiners typically write their reports of investigations at the final stage of private inquiries. Reports are the property of client organizations that pay for the work. Disclosure of reports is rare, so that the public never learn about them. Some fraud examiners claim protection by the attorney–client privilege, when investigating firms are law firms or the legal branch of accounting firms. Therefore, it is quite a challenge to identify and obtain a sample of investigation reports to evaluate empirically executive deviance. The investigative fraud examination at Betanien foundation by BDO (2014: 1) presents itself in the introduction to the report of investigation as follows: BDO has in the period from February to June 2014 conducted an investigation based on an assignment from the board at the foundation. The foundation’s chairperson received in the second half of 2012 an alert message concerning unacceptable behavior as well as possible misconduct by the chief executive officer. The chief executive was by the chairperson and the deputy chairperson confronted with suspicions that were the foundation for the alert message on January 10, 2013. The chief executive admitted that he had unacceptable behavior and committed misconduct. The chief executive accepted to leave his position and all tasks in the foundation immediately. External inquiries were initiated in parallel with inquiries by the foundation administration. At several board meetings, handling of the fraud case was discussed, including asset recovery and a potential report to the police.

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The former chief executive was reported to the police on November 1, 2013, for embezzlement of NOK 14 608 952 in the period from 2005 to 2012. He has acknowledged both to the chairperson as well as to the police that he abused foundation funds for personal consumption without being able to determine the exact magnitude. The Norwegian foundation supervision authority was informed about the embezzlement on November 21, 2013. In February 2014, the board at the foundation hired BDO to conduct an external investigation. BDO was given the following mandate:

● Examine and evaluate detected financial misconduct committed by the chief executive, including timing and magnitude of misconduct. ● Examine and evaluate if there is more financial crime committed by the chief executive. ● Examine and evaluate whether others in the foundation are involved in, or have contributed to the misconduct. While being like any other investigation concerned with the past, investigating white-collar crime has its specific aspects and challenges. For example, while street criminals typically hide themselves, white-collar criminals hide their crimes. Burglars leave traces of the crime and disappear from the scene. White-collar criminals do not disappear from the scene. Instead, they conceal illegal actions in seemingly legal activities. Bribed individuals stay in their jobs, bribing individuals stay in their jobs, embezzling individuals stay in their jobs, and those who commit bank fraud stay in their jobs. They hide their criminal acts among legitimate acts, and they delete tracks. They create an atmosphere at work where nobody questions their deviant behavior. Another challenge in white-collar crime investigations is the lack of obvious victims. At instances of burglary, murder, or rape, there are obvious and visible victims. In the case of tax evasion, nobody notices any harm or damage. In the case of subsidy fraud, where a ferry company reports lower passenger numbers, the local government does not notice that it has been deceived. Victims of white-collar crime are typically banks, the revenue service, customers, and suppliers. The most frequent

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victim is the employer, who does not notice embezzlement or theft by employees. The third challenge in white-collar crime investigations is the resources available to suspects. While a street criminal tends to be happy—at least satisfied—with a mediocre defense lawyer, white-collar criminals hire famous attorneys to help them in their cases. While a street-crime lawyer only does work on the case when it ends up in court, white-collar lawyers involve themselves to prevent the case from ever ending up in court. A white-collar lawyer tries to disturb the investigation by supplying material in favor of the client, while preventing investigators insight into material that is unfavorable for the client. This is information control that aims at preventing investigators from getting the complete picture or aims at helping investigators to get a distorted picture of past events. In addition, white-collar lawyers engage in symbolic defense, where they use the media and other channels to present the client as a victim rather than as a potential offender.

Investigation Knowledge Strategy Fraud examiners from global auditing firms and local law firms are knowledge workers who conduct investigations of white-collar offenses in client organizations. Knowledge workers are professionals with discipline-based knowledge whose major work task involve the creation of new knowledge and the application of existing knowledge in new ways. Knowledge workers typically have high levels of education and specialized skills combined with the ability to apply these skills in practice to identify and solve problems (Newell et al., 2009). Often, several fraud examiners work on the same investigation task and then knowledge collaboration is required. Knowledge collaboration is defined as the sharing, transfer, recombination, and reuse of knowledge among participants. Collaboration is a process that allows parties to leverage their differences in interests, concerns, and knowledge (Jarvenpaa & Majchrzak, 2008). Furthermore, external fraud examiners need to cooperate with people in the client organization in terms of knowledge integration. Knowledge

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integration processes involve social interaction among individuals using communication channels for knowledge transfer and knowledge development to arrive at a common perspective for problem-solving. Where organizational units hold specialized knowledge, external linkages enable recombination of existing knowledge (Mitchell, 2006; Roberts et al., 2012). For both knowledge cooperation and knowledge integration, there is a need for knowledge overlap that represents absorptive capacity. Absorptive capacity is viewed as a dynamic capability of processing knowledge among participants (Joshi et al., 2010), where knowledge from others is identified, assimilated, transformed, and applied. Absorptive capacity depends on prior related knowledge (Roberts et al., 2012). Previously in this book, knowledge has been defined as a combination of information, reflection, interpretation, and context (Chadwick, 2017; Garrick & Chan, 2017). Knowledge overlap is thus not only a matter of knowledge of facts, but also an overlap in understanding and insights about those facts. The purpose is to arrive at a common perspective for problem-solving (Mitchell, 2006). Fraud examiners can be specialists or generalists. Simply phrased, a specialist is a knowledge worker who knows a lot about a little in terms of knowledge depth, while a generalist is a knowledge worker who knows a little about a lot in terms of knowledge breadth (Mannucci & Yong, 2018). When there are specialists working on the fraud examination, knowledge cooperation and integration is more difficult to achieve. Tell (2011) finds it not surprising that many definitions characterize knowledge cooperation and integration as an activity and a process whereby specialized knowledge is combined—rather than shared and transferred. To be successful, a minimum of common knowledge has to be present to enable combination of completely specialized knowledge. McIver et al. (2013) suggest that rather than focusing on knowledge or knowledge workers, the focus should be on activity and practice, meaning the type of work and the desired performance outcome. In fraud examinations, there is certainly a need to adopt knowledge management activities that match the tacit and explicit forms of knowledge as well as thinking styles applied to the investigation. Tacit knowledge is a form of knowing that is inseparable from action because it

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is constituted through doing. Knowledge management is here defined as the investigation team’s approach to knowledge creation, sharing, cooperation, integration, and combination. A style is a preferred way of thinking. The relevance of thinking styles in relation to the investigative process is that, for example, a particular fraud examiner may prefer a method style, a challenge style, a skill style, or a risk style. The method style is characterized by procedural steps of collecting, checking, considering, connecting, and constructing. The challenge style is characterized by personal interest, justice for victims, investigative tasks, and offender profiling. The skill style is characterized by the ability to communicate and relate to a diversity of people as investigator. The risk style is characterized by risk-taking behavior to increase the chances of getting a good result in an investigation by means of discovery and creativity (Dean & Gottschalk, 2007). Creativity consists of the generation of ideas that are judged to be novel and useful in an investigation. While idea generation can take place in a team of investigators and is influenced by social and contextual elements, the very first origin of every creative idea originates from the individual’s mind (Mannucci & Yong, 2018). Based on the perspectives presented above, knowledge strategy for the investigation of white-collar offenses is concerned with the selection of knowledge workers as well as their knowledge management practice in terms of knowledge cooperation, integration, and combination. Each potential fraud examiner has certain knowledge domains that are more or less relevant for a specific investigation. Typical knowledge domains are accounting, auditing, law, psychology, sociology, criminology, culture, structure, and politics. Knowledge depth is the degree to which an individual is knowledgeable about a specific domain, while knowledge breadth is the degree to which an individual’s knowledge covers multiple domains (Mannucci & Yong, 2018). The knowledge strategy focuses on personnel resources, and the knowledge of each examiner as well as the combined knowledge of the investigation team. Strategy is the direction chosen to reach an objective, where the objective of an investigation is to reconstruct past events and sequences of events to answer what-, how-, when-, who-, and why-questions.

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Know-what is knowledge about what happened and what was going on whereby an examiner perceives that something was going on that might need his or her attention. The examiner’s insight is limited to the perception of something that happened. The examiner at this stage neither understands how nor why it was happening. Know-how is knowledge about how financial crime develops, how a criminal behaves, or how a criminal activity is organized. The insight of the investigator is not limited to a perception that something has happened; he or she also understands how it was happening or how the situation was. Know-why is the knowledge representing the deepest form of understanding and insight into a phenomenon. The investigator not only knows what was occurring and how it occurred, he or she also develops an understanding of why it occurred or why it was at it was. Developing hypotheses about cause-and-effect relationships and empirically validating causality are important characteristics of know-why knowledge. Relevant knowledge domains depend on the investigation case. The main categories of corporate white-collar crime are fraud, manipulation, and corruption, where knowledge requirements vary. For example, fraud may require organizational knowledge and legal knowledge; manipulation may require administrative knowledge and process knowledge, while corruption may require management knowledge and analytical knowledge.

Information Sources Strategy People are often the most important sources of information in an investigation. They might be observers, informants, whistleblowers, witnesses, suspects, or other roles where they are in possession of relevant information that can be communicated to fraud examiners. The most common way of information communication from a source to a receiver is by an interview. Davies and Francis (2018: 104) argue that “as means of collecting data, interviews can be an invaluable source of information and opinion that generate valid, representative and reliable data”.

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An interview is best conducted in person for a certain minimum duration in time to establish a personal relationship with the interviewee. The extent to which an interviewee is willing and able to tell and communicate relevant information to the interviewer is dependent on a number of factors. Trust is a basic element where interviewer and interviewee believe in each other’s goodwill to solve the case. The interviewer has to come prepared for the interview in terms of content knowledge and procedural knowledge, where content knowledge is about the case, while procedural knowledge is about the management of the interview. An interview should be held where the interviewer feels comfortable, relaxed, and safe, be it in an office, a home, or a restaurant (Kvale & Brinkmann, 2009). The atmosphere created by the interviewer serves the purpose of evoking relevant work–life memories in the interviewee (Kristensen, 2004), which should also encourage more storytelling. In order not to lose any valuable insights, an interview should be audio recorded as long as the interviewee agrees to it. An informal approach is recommended where questions vary depending on the interviewee’s reactions and the type of information sought. To allow the interviewee’s interpretations of events and actions, questions have to be open-ended. Open questions ensure that the interviewee is not required to select a response from a predetermined list. The interviewer opens up for a smooth flow in the discussion and encourages the interviewee to recollect episodes and situations where something relevant was noticed. This approach to questioning allows for an avenue to explore exciting insights, curious topics, and extract rich information (Bryman & Bell, 2015; Cooper & Schindler, 2014). New clues to episodes can emerge, for example by “the creation of categories based on recurrent themes” (Davies & Francis, 2018: 67). Similar to interrogation by the police, an interview of witnesses, suspects, reference persons, whistleblowers, victims, union leaders, shareholders, and financial experts can lead to information on misconduct, crime, offenders, times and places, departments, projects, activities, roles, and documents. Also similar to the police, informants who were part of the misconduct may come forward to tell their stories to fraud examiners. While people in interviews are the main information strategy in most fraud examinations, there are other important information sources as

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well, such as documents, social media, and observations. Studying documents handed over from the client organization may provide information on ownership, transactions, accounts, and actors. Documents might be contracts, minutes of meetings, project descriptions, and various reports. Budgets and financial statements are documents that might be studied by means of forensic accounting, which is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past financial data or other accounting activities for settling current or prospective legal disputes or using such past financial data to project future financial data in order to serve as evidence (Curtis, 2008). When the suspicion of a corporate white-collar crime scandal arises, responsible persons who were not involved in the misconduct have to take immediate action to secure documents. Suspects have a tendency to remove and delete documents that are in their disfavor. To avoid removal and deletion of possible evidence, responsible persons have to make sure that all documents relevant to the matter are preserved in a way that make them accessible for fraud examination. When documents are stored in digital form on computers, such as email, then backup of all relevant email accounts has to be saved for future inquiry. Similarly, when suspected personnel have data stored on their personal computers—such as laptops, i-pads, and smartphones—then such equipment has to be mirrored to retrieve all information. Freezing all digital data for many years, sometimes for decades, is a requirement to enable examiners to get to the bottom of their cases. When fraud examiners enter the client organization, they first have to make sure that all paper documents and digital documents are frozen and stored in safe places for their analysis. Given such safeguarding of documents as an important information source, examiners can start interviews. It is important to start interviews as quickly as possible since people forget and change elements in their memory. Even when substantial time has elapsed since the misconduct occurred, and even when substantial time also has elapsed since detection, it is nevertheless critical to start interviews immediately to secure as many reliable witness statements and other statements as possible. Taking time to conduct many thorough interviews do not harm the other information sources strategy

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of documents, as long as documents have been frozen and stored in a format accessible to the next step of fraud examination. Of course, the sequence of interviews first and documents next is not always optimal. For example, investigators may need to study documents to familiarize themselves with relevant issues and to identify topics that are important to question in interviews. Going into an interview without any preparation can lead to failure, while a well-prepared interviewer knows what to ask and what not to ask, what to listen to and what not to listen to. An interview with a suspect has to be particularly well prepared, as the interviewer will let the interviewee talk and tell freely in the beginning of the interview, while the interviewer will confront the suspect with documents such as emails and accounting representations later on in the interview. Social media and other media are a third information source. Investigative journalists, as discussed earlier in this book, may have caused detection, and they have potentially reported from locations and events that were not known to responsible persons in the organization. Key personnel in the organization can have posted messages on social media that are relevant to the investigation. Simple Google searches by using names as search words can often lead fraud examiners into more sources of information linked to the corporate white-collar crime scandal. Observations can be open or closed. An open observation of a potential crime scene is not like a murder scene observation. Nevertheless, a visit to the premises of the client organization, including offices and meeting rooms, might give an impression of corporate structure and corporate culture in the scandalized organization. How people behave and how they relate to each other is a useful context to understand pieces of information from documents and interviews. Closed observation by anonymous personal presence enables avoidance of influence from the observer on individuals and activities. Suspects can be observed not only in work contexts, but also in public spaces to find out how persons behave, who they relate to, and how they relate to each other. Both in the physical and in the virtual world, observation can be an important information source in corporate whitecollar crime investigations. An example is a digital forensics, in which successful cybercrime intelligence requires computer skills and modern

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systems in the inquiry. Digital forensics can be of particular importance where hiding and concealing illegal transactions took place in cyberspace. Digital forensics is the art and science of applying computer software to aid the search. It amounts to more than the technological, systematic inspection of electronic systems and their contents for evidence or supportive evidence of criminal acts; digital forensics requires special expertise and tolls when applied to intelligence in important areas, such as online bank transactions into tax havens. As will become evident in the following chapter presenting case studies of thirteen corporate white-collar crime scandals, fraud examiners were not particularly skilled in computer systems generally and digital forensics in particular. Very often, attorneys from law firms were fraud examiners who focused on formal perspectives of documents compared to legal status, rather than focused on finding out more about incidents. In some of the cases, attorneys as investigators recognized their own knowledge shortcomings and hired experts from software firms to help conduct digital forensics. One of the obvious shortcomings in the practice of fraud examiners is the lack of interviewing skills and ability to link pieces of information from interviews to other pieces of information: It seems that lawyers and forensic accountants, who were the ones mainly conducting investigations, carried out interviews with a number of relevant persons without any clear objective of what they wanted to gain from the interviews. Information from interviews did not result in new insights for the investigators. They were probably unable to carry out interviews in a way that resulted in valuable information, and they were probably unable to derive relevant perspectives from interviews.

This quote is a reflection on both investigative knowledge strategy and information sources strategy. Interviewing is a knowledge domain with elements of psychology, criminology, and sociology, where competence includes skills, abilities, and attitudes to be successful in knowledge work. A skilled interviewer can extract relevant information, and a skilled analyst can combine extracted information with information from other sources. The purpose of investigative interviewing is to gain new insights,

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but the interviewed person is not always motivated to contribute, especially if the person perceives being subject to suspicion or blame for misconduct. The objective is for the examination interviewer and the information source to have a productive relationship that builds on cooperation and respect (Brandon et al., 2018). Information sources strategy—like investigative knowledge strategy— has to be contingent on the kind of corporate white-collar crime scandal in need of investigation by fraud examiners. In some scandals, information from whistleblowers might be of utmost importance when neither bribed nor briber is accessible in a corruption case. In other scandals, forensic accountants are of utmost importance to document misrepresentations in accounting schemes (Qiu & Slezak, 2019). In yet other scandals, deviant sales practices might be documented by victims of such offenses.

Value Shop Configuration Strategy An investigation of a corporate scandal where there is suspicion of whitecollar crime is carried out in certain steps. The steps represent a value configuration, where the value configuration of value chain is different from the value configuration of value shop. While the value chain is a predetermined process of sequential steps, the value shop is an iterative process where investigators may return to earlier steps until the case is solved. A value configuration generally consists of steps or activities that intend to create value for the client. A value configuration is thus very different from a business model that intends to make money for the fraud examiner. A fraud examination firm makes money by completing the investigation within time and budget, while the firm creates value for the client organization by finding out what happened according to the mandate for the investigation. Investigation of white-collar crime has the value configuration of a value shop. As can be seen in Fig. 11.1, the five activities of a value shop are interlocking, and although they follow a logical sequence (much like

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the management of a project), the difference from a knowledge management perspective arises in terms of the manner in which knowledge is used as a resource to create value in terms of results for the client organization. Hence, the logic of the five interlocking value shop activities pertains to an investigation unit and the manner in which it carries out its core business of conducting a fraud examination. The sequence of activities commences with problem understanding; moves into alternative investigation approaches, investigation decision, and investigation implementation; and ends up with criminal investigation evaluation. This sequence of activities is illustrated from the core in Fig. 11.1 and moving outward, from problem definition to performance evaluation. However, these five sequential activities tend to overlap and link back to earlier activities, especially in relation to activity 5 (control and evaluation) in white-collar crime investigations, when investigators have failed to find convincing answers to what-, how-, when-, who-, and why-questions. Hence, the diagram is meant to illustrate the reiterative and cyclical nature of these five primary activities when it comes PERFORMANCE EVALUTATION INVESTIGATION IMPLEMENTATION APPROACH DECISION INVESTIGATION APPROACHES PROBLEM DEFINITION

Generate insights into the case

Develop alternative strategies Prioritize and plan investigation actions for examiners Carry out the investigation by examining documents, interviews etc. Evaluate investigation process and results to change direction or complete case investigation

Fig. 11.1

Knowledge organization of investigation in the value shop

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to managing the knowledge collected during and applied to a specific investigation in a value shop manner. The metaphor of a value shop might be compared to a car shop when it is uncertain what has caused failure to a car. The car is taken to a garage where instruments are applied to understand what might be wrong. Some physical or software parts are replaced, and the car is taken for a test drive. Maybe the problem is not solved, and a mechanic in the garage needs to conduct more measurements. New physical or software parts are replaced or added, and the car is again taken for a test drive. Figure 11.1 illustrates the expanding domains of knowledge work performed in financial crime investigations, starting in the center with problem understanding and ending at the periphery with evaluation of all parts of the investigation process and outcome. Returning to the center means that fraud examiners may initially have misunderstood the problem or the context of the investigation. The five primary activities depicted above of the value shop in relation to a corporate white-collar crime investigation can be outlined as follows: 1. Problem definition. The mandate for the investigation provides some guidance for examiners. However, the mandate often lacks clarity and direction, as well as description of tasks and outcomes. There is a need to work with parties to determine the exact nature of the crime and hence how it is to be defined. For example, depending on how the client organization perceives and/or chooses to define it, the investigation is either directed in an offense-based perspective or an offender-based perspective. The concept of making crime, a term denoting how detectives choose to make incidents into a crime or not, is highly relevant here and accounts for why this first activity has been changed from the original problem-finding terms used in the business management realm to a problem definition process here in relation to private policing work. Moreover, this first investigative activity involves deciding on the overall investigative approach for the case not only in terms of information acquisition but also in terms of undertaking the key task, usually by a partner in the auditing firm or the law firm, of forming an appropriate investigative team to handle the case.

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2. Investigation approaches. This second activity of identifying problemsolving approaches involves the actual generation of ideas and action plans for the investigation. As such, it is a key process as it establishes the direction and tone of the investigation and is very much influenced by the composition of the members of the investigation team as well as the case at hand. For example, the experience level of investigators and their preferred investigative thinking style might be a critical success factor in this second primary activity of the value shop. In this activity, the investigation has not yet started. Instead, the investigation leader of the team identifies and reviews alternative approaches to the investigation. There is never only one feasible approach to an investigation, and the approach chosen in a previous investigation is not necessarily the best approach for this investigation. The outcome of this second activity should be several alternative approaches. 3. Approach selection. This solution choice activity represents the decision of choosing between alternatives generated in the second activity. Despite being the least important primary activity of the value shop in terms of time and effort, it might be the most important in terms of value. It is all about trying to ensure as far as possible that what is decided upon is the best option to follow to achieve an effective investigative result. A successful solution choice is dependent on two requirements. First, the alternative investigation approaches were identified in the problem-solving approaches activity. It is important to think in terms of alternatives; otherwise, no choices can be made. Second, the criteria for decision-making have to be known and applied to the specific investigation. For example, the target group of potential interviewees depends on the size, the availability, and the relevance, where the selection of interviewees has to reflect a number of decision criteria. Generally, a decision is the result of considering several alternatives with their varying costs and benefits. The outcome of this third activity should be an investigation approach where alternative approaches have been put on hold. 4. Investigation implementation. As the name of this fourth activity implies, approach execution entails communicating, organizing, preparing, and carrying out the chosen investigation approach. This is by far the most time-consuming and resource-draining activity in the

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value shop. It is a process or phase in an investigation that involves sorting through the mass of information coming into the digital examination room concerning the case and directing the lines of inquiry as well as establishing the criteria used to eliminate a possible hypothesis from further scrutiny in the investigation. A miscalculation here can stall or even ruin the whole investigation. Most of the resources expended on an investigation are used here in the fourth activity of the value shop to conduct interviews, search the media, review documents, and combine different pieces of information into a larger picture of negative incidents. 5. Performance evaluation. Control and evaluation involve monitoring activities and the measurement of how well the solution and the answers solved the original problem and questions, or met the original need and satisfied the mandate. This is where the command and control chain of authority for the investigation unit and where the determination of the quality and quantity of the evidence is made in terms of whether or not to conclude the investigation or to return to previous activities in the value shop in a new iteration of examinations. Fraud examiners should be careful in drawing conclusions for which there is little evidence. On the other hand, clients expect conclusions and recommendations from fraud examiners. Fraud examiners may have a diffuse and incomplete picture of incidents and behaviors that makes them reluctant to draw conclusions regarding answers to what-, how-, who-, when-, and why-questions. Returning to the first activity of problem definition might cause them to detect a possible misunderstanding in their perception of the case. Returning to the second activity of investigation approaches might cause them to come up with a more attractive avenue for the investigation. Returning to the third activity of approach selection might cause them to prioritize differently among approach alternatives. Returning to the fourth activity of investigation implementation might cause them to review selected documents one more time and to conduct more interviews with a few key informants. An investigation of a white-collar crime scandal should not be a formalized process dominated by legal perspectives. An investigation has

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to be more interested in substance than in formalism, while it has to adhere to certain crime investigation principles as suggested later in this chapter. The investigation team can be considered a temporal learning organization where experimentation, continuous improvement, teamwork, and participating decision-making provide empowerment over hierarchy among examiners (Alegre & Chiva, 2008; Örtenblad, 2011).

Computer Systems Strategy When fraud examiners claim that they have reviewed thousands or even millions of documents, it certainly seems impressive from a manual perspective. However, reviewing a large number of documents is simply not feasible without computers. Rather than reading documents, fraud examiners apply keywords or other search methods to identify potential texts or numbers relevant to the investigation. For example, the occurrence of person names and the occurrence of person names in combination might be of interest. This kind of digital review of documents such as minutes of meetings, email correspondence, and letters is possible at stage 3 of the stages-of-growth model for knowledge management systems in fraud investigations in Fig. 11.2. Digital forensics was already mentioned, where fraud examiners may identify paths in digital documents leading to relevant evidence. For example, a path of a name along the time axis might reveal what that person knew about the misconduct at certain points in time. For example, when Panama Papers revealed that Scandinavian banks had illegally backdated clients’ wealth management agreements in tax havens through their branch offices in Luxembourg (see for example Mannheimer Swartling, 2016), it might be relevant for digital forensics to explore links between codes such as bank executives, rich bank clients, points in time, bank accounts, and various locations. This kind of digital forensics is possible at stage 4 of the stages-of-growth model for knowledge management systems in fraud investigations, which is presented below. Similarly, forensic accounting is concerned with monitoring suspicious payments and a scorecard system for evaluation of deals with business

Fig. 11.2

DEVELOPMENT OVER TIME FOR IT-SUPPORTED FRAUD EXAMINATIONS

Stage 1 Investigator-To-Technology End-User Systems

Stage 2 Investigator-To-Investigator Who-Knows-What Systems

Stage 3 Investigator-To-Information What-They-Know Systems

Stage 4 Investigator-To-Application How-They-Think Systems

Stages of knowledge management systems in white-collar crime investigations

LEVEL OF IT-SUPPORTED KNOWLEDGE MANAGEMENT IN FRAUD EXAMINATION

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partners. Budgets and financial statements are documents that might be studied by means of forensic accounting, which is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past financial data or other accounting activities. Forensic accounting also belongs to stage 4. The stages-of-growth model for knowledge management systems in fraud examinations is illustrated in Fig. 11.2. The model starts at stage 1 with simple tools available to everybody in terms of texts, numbers, and presentations—typically Word, Excel, and Powerpoint today. Such computer systems are mainly used to make the user more efficient on the individual side of work. At stage 2, fraud examiners as knowledge workers are able to communicate and cooperate with others. Communication can be directly by means of email, and it can be indirectly by searching what other people have said or written that might be relevant in the case. Searchers at this stage might include a two-step procedure where technology is first used to identify relevant persons, and then contact those persons on a digital platform. While stage 2 mainly serves the purpose of contacting other knowledge workers, stage 3 serves the purpose of accessing information stored in computer systems. Management accounting systems, document retrieval systems, email systems, and production management systems are searched at this stage for relevant information in the case. The most advanced or sophisticated systems are found in stage 4, where computers are programmed to do more than just retrievals or calculations. For example, neural networks are statistically oriented tools that excel at the application of data to classify incidents in the past into categories. As illustrated in Fig. 11.2, the first stage is labeled investigator-totechnology with end-user systems. IT tools provide personal efficiency in word processing, spreadsheet, presentations, and storage of personal documents. The second stage is labeled investigator-to-investigator where who-knows-what systems provide access to knowledgeable persons. The third stage is labeled investigator-to-information with what-theyknow systems. IT tools provide access to databases, contracts, articles,

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photographs, reports, and other stored documents. While email communication occurs at stage 2, searches in email accounts occur at stage 3. Stage 4 is labeled investigator-to-application with how-they-think systems where elements of human intelligence are programmed into software applications. IT tools provide access to systems designed to solve knowledge problems in the form of expert systems, case-based reasoning, and other algorithms. For example, case-based reasoning might be relevant to compare a new fraud examination case with a previously conducted fraud examination. While computer systems at stages 1 and 2 can be in-house systems in firms where fraud examiners are employed, computer systems at stages 3 and 4 need access to information in client organizations. Access to clients’ computer systems might be indirect by client personnel conducting actual computer operations, or access might be direct where fraud examiners operate client systems based on passwords and authorization for relevant systems.

Crime Investigation Principles The business of fraud examiners in private internal investigations has become a profitable market for global auditing firms and local law firms. It is a business lacking regulation even though the business is part of private policing in terms of privatization of law enforcement. Some guidelines and principles are needed to make the business more professional. Below are a number of suggested principles regarding investigation initiation and preparation, process and work, outcome and results, and consequences and value.

Initiation Guidelines A client and an examiner sign a contract after a bidding or negotiation process. The client is a public or private organization represented by the board or some governance body, while the examiner is typically a global

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auditing firm or local law firm represented by financial crime specialists. The contract determines the obligations of both parties, where the examiner takes on the obligation of conducting an investigation within a certain timeframe, while the client takes on the obligation of providing access to information sources and paying for the completed work.

Principle 1: Required Competence When there is suspicion of white-collar misconduct and crime in a public or private organization, a specification of competence requirements for internal investigations determines the selection of relevant fraud examiners. We define competence as the combination of knowledge, skills, and attitudes. While finance lawyers and public accountants traditionally have conducted investigations, their competence is only sufficient in the future if they understand how organizations work, and if they have psychological and sociological insights into executive behaviors. Similarly, former police detectives and special agents have only sufficient competence if they understand the broader context of deviance rather than only the violation of laws. Given a more general description of competence requirements combined with a description of specific requirements for each case, a wider spectrum of backgrounds are indeed relevant, in particular white-collar criminology and business management.

Principle 2: Certified Competence As documented in this book, internal investigators in fraud examinations have in practice private policing powers. They collect and analyze information, and they draw conclusions regarding individuals’ misconduct. To equip somebody with such powers requires both an education and a formal competence testing. A public agency or a professional organization for financial crime specialists can organize the test. A certificate should indicate that the person has studied relevant perspectives from psychology, sociology, criminology, law, business, and management. Studies should not only include normative statements regarding

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how to conduct an investigation. Studies should also include theories and explanations for the occurrence of occupational and corporate crime in business and private organizations. A certificate should indicate knowledge, skills, and attitudes sufficient to handle an investigation successfully.

Principle 3: Relevant Mandate The investigation mandate describes the examination in terms of tasks and objectives. The mandate should avoid bias in terms of directing examiners in one direction at the expense of another potentially relevant direction. The mandate should not be too comprehensive, but rather have a specific focus. The mandate should not be too limited with a danger of avoiding important avenues. The mandate should focus more on results than on activities, so that the client afterward can determine to what extent examiners have completed their tasks successfully. Outcomes include clear answers to questions such as. What happened? How did it happen? When did it happen? Who did what to make it happen or not happen? The mandate should describe the expected reconstruction of past events and sequence of events; it should not simply say investigate that and that. The mandate describes the expected performance of analysis and judgments, but it should avoid criminal indications or charges in terms of specific law violations. The mandate should always include attention to those who order and eventually pay for the investigation in case they had a role that they attempt to disguise by redirecting examiners’ focus.

Process Guidelines Examiners interview people, they review documents, and they search externally and internally for more information. As is the case in police investigations, it is not only a matter of solving the case. It is just as much a matter of how examiners solve the case. Examiners are external intruders backed by powerful people who put the spotlight on certain

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activities and individuals within the organization. Examiners are individuals who are strangers to the organization, and organizational people are strangers to examiners. Examiners enter and leave the organization, and they never stay long. They leave a report of investigation behind that can have catastrophic consequences for individuals and the business.

Principle 1: Investigation Transparency A private internal investigation by fraud examiners requires transparency for all involved individuals. Suspects, witnesses. And other stakeholders are entitled to access to information regarding examination procedures and findings. While privacy, confidentiality, and general secrecy are important concerns, transparency should be the overarching principle for private investigators. Being open by providing insights whenever requested creates much-needed confidence in the investigation. Examiners have to explain their methods in substantial terms, so that individuals they involve get an understanding of what is going on. They should tell stories about previous investigations that they have conducted, so that involved individuals get an understanding of what kind of people are examiners. Examiners should tell about themselves and about mistakes that they have committed in previous investigations. They should have an open-door policy for everyone with a justified interest in the investigation process.

Principle 2: Verified Information The raw material in any investigation is information. There are usually a number of information sources, which can provide relevant insights into events. Examiners should not simply be at the receiving end of information. They should actively explore and exploit all possible sources of information. If examiners are passive, then they tend to study only material handed to them by the client. If examiners are active, they go to original sources such as management information systems where they apply granted access codes to retrieve and combine electronically stored data. Furthermore, information from only one source regarding

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an event is seldom sufficient. Information needs verification from alternative sources. Examiners need to consider both the reliability of sources as well as the reliability of information. Some people lie, some people do not remember correctly, and some people do not want to tell. Some pieces of information are wrong, some pieces are misleading, and some pieces are missing.

Principle 3: Open Contradiction If examiners end up criticizing somebody for something in their draft report, then the criticized individual has the right to familiarize him or her with the allegations. Examiners should approach anyone negatively portrayed in the draft report with an open invitation to review what is written about him or her. The negatively described individual should have access to all text relevant to understand the description and to discuss the description with personal advisors. Examiners have to leave it with the accused, without any precondition of confidentiality. The accused has the right to show it to whomever. If the accused wants to respond to the criticism and presents a written response, then examiners are obliged to include the complete response in their final report. Examiners cannot comment on the response in their report, as long as the accused does not get an opportunity for a second round of response.

Principle 4: Integrity and Accountability Integrity is the quality of being honest and morally upright. Integrity implies an absence of misconduct. Misconduct is an attempt to deceive others by making false statements or omitting important information concerning the work performed, in the results obtained by, or the sources of the ideas or words used in a work process. Lack of integrity occurs, for example, when investigators lie to witnesses and suspects in interviews. Integrity is the normative inclination to resist temptations to abuse the rights and privileges of an occupation in an assignment. Integrity is a firm adherence to a code of moral values. Accountability is the acknowledgment and assumption of responsibility for actions, products,

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decisions, and policies, including the administration, governance, and implementation within the scope of the role or investigation position. Accountability encompasses the obligation to report, explain, and be answerable for resulting consequences. In the evidence collection, examiners are required to emphasize the search for evidence of innocence at least as much as the search for evidence of guilt for investigated individuals.

Principle 5: Investigation not Conviction Examiners should never take on a law enforcement role in terms of prosecuting or sentencing someone for something. Investigators are neither police detectives nor special agents from any public authority. They are to reconstruct past events and sequences of events. They are to analyze both actions and actors. Deviant actions in terms of inappropriate accounting or inappropriate sales practices, for example, need thorough evidence. Similar deviant actors in terms of decision-making and transactions need evidence from multiple information sources to find reliable verification. Accusations based on anonymous whistleblowers or interviews are not sufficient to assign blame and responsibility. It is extremely important that examiners understand their roles as different from the police.

Principle 6: Job Completion Examiners have a responsibility independent of the mandate and the resources made available to them, to solve the case completely. In the event that there is not sufficient funding, and the client is unwilling to provide more funding, examiners have to work for free to explore avenues that they have detected as relevant and important when there is suspicion of white-collar misconduct and crime. If the mandate represents a barrier to find important answers, and the client denies expansion of the mandate, examiners should nevertheless have the integrity to expand their focus, as they themselves believe necessary. When examiners need resources to expand or continue their investigation in this way, they should be on the verge of discovering significant malfeasance, then, but

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their mandate or funding for further needed investigation is cut off. If examiners themselves have insufficient funding or resources to continue, an alternative might be to notify public authorities.

Principle 7: Police Support Private fraud examiners are required to support police detectives whenever they are investigating the same case. The police always have priority over private investigators. If fraud examiners harm evidence for police detectives, they are liable to law enforcement agencies.

Principle 8: Three-Stage Process In the public criminal justice system, there are three stages. First, the police investigate the matter in terms of reconstructing past events and sequences of events. Next, the prosecution decides whether or not to bring the case to court. Finally, the judge passes a sentence. Similarly, there should be a three-stage process in fraud examinations with different individuals involved at each stage. First, one or more fraud examiners investigate the matter in terms of reconstructing past events and sequences of events. Next, one or more fraud examiners evaluate the evidence presented to them. Finally, one or more fraud examiners draw conclusions to the extent they find evidence sufficient to draw such conclusions.

Principle 9: Investigation not Conclusion An investigator should never conclude the case. This is consistent with the three-stage process. Just like a police detective investigates a case, the public prosecutor concludes the case.

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Principle 10: Conclusion not Investigation A concluder should never have investigated the case. This is consistent with the three-stage process. Just like a public prosecutor should never investigate a case, a police detective should never conclude the case.

Outcome Guidelines While the investigation was going on, most rumors and discussions ceased in an expectation that the report would provide final answers so that issues could find their solutions.

Principle 1: Readable Report A report of investigation by fraud examiners should be easy and attractive to read. All information in the report should be correct, and information should support conclusions. The report should be complete with no information missing. Information should be concise, and one should avoid unnecessary details. The scope of the report should align with the mandate. Clarity and logical order are further requirements for a report. Among reviewed reports in this book, some are much too long, while others are much too short. It seems that a report of 50 to 100 pages is optimal to keep the attention of a normal person.

Principle 2: Convincing Conclusions A report should neither go too short nor too far in its conclusions. The strengths and certainties in conclusions should emerge as obvious from evidence presented in the report. It is normally not sufficient to draw a conclusion that renders an individual based on a most-likely attitude, which might imply only 51 percent certainty. When serious allegations are included in the report, then those allegations should be beyond any reasonable doubt.

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Principle 3: No Attorney–Client Privilege There is no attorney–client privilege in fraud examinations since the investigation is no legal work. Lawyers investigating suspicions of whitecollar crime are doing regular consulting work similar to forensic accountants and other external consultants.

Principle 4: Beyond Any Reasonable Doubt Some fraud examiners draw conclusions where they choose the mostlikely event that might have happened, where the most-likely past event has a probability of more than 50%. Other alternative events have thus less than 50%. However, conclusions that may harm individuals and organizations cannot simply be based on the most-likely past events. Conclusions should only be drawn by fraud examiners to the extent that they are beyond any reasonable doubt. The only criminal standard of evidence, namely, evidence of wrongdoing beyond a reasonable doubt, should be used. The less stringent civil standard of evidence showing the probability of more than 50 percent should be avoided. However, inevitably some investigations will suggest probable wrongdoing, but with less conclusive evidence than what is beyond a reasonable doubt. In such cases, examiners come to less certain or indubitable, but still more likely conclusions, that need to be stressed as preliminary answers to questions in the mandate. Merely probable malfeasance described by examiners is a sign of investigation failure since examiners demonstrate an inability to find relevant and sufficient facts.

Consequence Guidelines Fraud examiners leave behind a report of investigation when they exit the organization. Not all are happy with the result. Not all find it acceptable that examiners seem to have no responsibility for the consequences of their work.

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Principle 1: Police Reporting Whenever fraud examiners detect evidence that strongly and convincingly suggests crime, fraud examiners are obliged to report it to the public criminal justice system. It should not be at the discretion of the client who paid the investigation, to make a decision whether or not a white-collar suspect in the organization should enter the public criminal justice system. While fraud examiners should never document in the report accusations of potential crime, since the report serves an investigative rather than a prosecution purpose, examiners might have collected enough evidence to turn it over to the police. Examiners have a social responsibility in society, like everyone else, to report wrongdoing that might represent law breaking to relevant public authorities. Examiners can neither hide behind the attorney–client privilege nor suggest that the report is the property of the client and thus at the discretion of the client what to do with the content of the report regarding potential white-collar crime. Examiners should report a potential crime, not a potential violation of the law. Crime is defined as wrongdoing that needs to be punished, while the law is statutory principles that may or may not cover the specific wrongdoing. Reporting to the police thus leaves it to the discretion of public prosecutors whether or not a violation of the law has occurred.

Principle 2: Victim Compensation If someone who became the subject of an investigation by fraud examiners ended up as a victim of an unfair investigation process and/or an unfounded conclusion, then examiners are responsible for compensating the victim. Compensation includes both a public account of responsibility and excuse, as well as a monetary amount. Victim compensation is also required if the client organization deliberately initiated an investigation against the victim to hurt the victim, rather than to establish facts and knowing that the person had done nothing wrong. In this latter case, the client organization where the victim is employed has to compensate the employee for the damage that the employer has caused. If someone

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ends up as a victim of unfair investigation caused by examiner and/or employer, the monetary amount in compensation needs some limit. When the examiner is to compensate, the compensation may perhaps not exceed the total payments examiners received from the client. When the employer is to compensate, the compensation may perhaps not exceed the employee salary for a few months. However, if the loss suffered by the victim is far beyond such limits, then the victim should be compensated accordingly.

Investigation Maturity Levels Some fraud examinations are a success, others are a failure. Some examinations are difficult, others are easy. Some examinations make a substantial contribution, while others’ contribution is marginal. Depending on the criteria applied to evaluate an investigation, it can be determined as success or failure, as difficult or easy, and as substantial or marginal. Nevertheless, this section presents a general maturity model applicable to judge internal investigations of corporate white-collar crime scandals. A maturity model represents theorizing about how the investigation could be improved through a management-controlled or random development. A model has the same function as a theory because the model provides a simplified picture of reality. The steps, stages, or levels of the model are: (1) sequential in nature; (2) growing in a hierarchical progression that is difficult or impossible to reverse; and (3) involving a wide range of organizational activities and structures. Figure 11.3 illustrates a potential maturity model for private investigations consisting of four stages, steps, or levels. Level 1 Activity Investigation is focused on activities that may have been performed in a reprehensible way. Examiners are looking for activities in past events and prepare a reconstruction of sequences of events. Thereafter, examiners form an opinion about the activities in terms of whether or not they are reprehensible. At level 1, there are often auditors and others with accounting and financial transaction knowledge that examine and assess activities in terms of management of assets. An investigation at level 1 is usually passive, fruitless, and characterized by unnecessary use

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LEVEL OF MATURITY IN FRAUD EXAMINATIONS

Stage 4 Value Investigation How to prevent it?

Stage 3 Evidence Investigation Why did it happen?

Stage 2 Problem Investigation How did it happen?

Stage 1 Activity Investigation What happened?

DEVELOPMENT OVER TIME FOR MATURITY IN FRAUD EXAMINATIONS

Fig. 11.3

Maturity model for internal investigations by fraud examiners

of resources, for example because examiners tend to dig into too many details. At this lowest level, investigators attempt to find answers to the question: What happened? Level 2 Problem Investigation is focused on problems and issues that must be solved and clarified. Examiners are looking for answers. When answers are found, the investigation is terminated. It is important to minimize the use of resources in an investigation, which should take the shortest possible time for involved persons. The appraisal and management are essential for success. The client was faced with an unresolved problem, and the client defines premises for problem-solving. At level 2, there is no room for investigators to pursue other tracks than those that

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target the predefined problem. At this level, there are lawyers and others with knowledge of rules and regulations that will identify the facts. Investigations at level 2 are usually passive with trifling results within an agreed cost boundary. At this second level, investigators attempt to find answers to the question: How did it happen? Level 3 Evidence Investigation is focused on revealing something that is kept hidden. Examiners will choose their tactics for success in disclosure of possible misconduct and white-collar crime. They are going for the unknown. Investigation steps are adapted to the terrain, where different information sources and methods are used to get the most facts on the table. At level 3, there are detectives, psychologists, and other knowledge workers to uncover possible crimes. While levels 1 and 2 are focused on predefined suspicions of financial crime, level 3 is focused on suspicions of financial criminals. The focus has shifted from offense to offender. There are always criminals who commit crimes. Level 3 has a personnel focus, while levels 1 and 2 have an activity and legal focus. Level 3 is characterized by the pursuit of responsible individuals, typically executives, who may have abused their positions for personal or organizational illegal gain. This is a more intensive investigation because suspicions and suspects should be handled in a responsible manner with respect to the rule of law and human rights. Investigations at level 3 are active with significant breakthroughs in the investigations. New knowledge emerges that was not present in advance of the investigation. The investigation project is conducted in a professional and efficient manner. At this third level, investigators attempt to find answers to the question: Why did it happen? Level 4 Value Investigation is focused on the value for the client being created through the investigation. The purpose of the investigation is to create something that is of value for the client. It may be valuable new knowledge, valuable settling of disagreements about past events, valuable external opinions, and valuable input to change management processes. The investigation’s ambition is that the result will be valuable for the client. The value may lie in the cleanup, modification, simplification, innovation, and other measures for the future. The investigation takes into account that it should be prudent. A number of explicit considerations are identified and practiced throughout the examination. The

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examination is based on explicit choices regarding information strategy (sources), knowledge strategy (categories), configuration strategy (value shop), and system strategy (technology). Explicit strategic choices make the investigation transparent and understandable to all involved and interested parties. Here it is often investigators in interdisciplinary environments who create value for the client. Investigations at level 4 are characterized by active use of strategies, with substantial and decisive breakthroughs in the examination. The investigation lays the foundation for learning and value creation in the client’s organization. Detection of deviations and termination of such deviations create value for the client organization. At level 4, detection, disclosure, clarification, analysis, and resolution are seen in context. There will be less to uncover in the future if current prevention is strengthened. It will be better in the future if matters are resolved completely. Investigators will create value through proper scrutiny. The investigation creates value before, during, and after the examination. Before the investigation, an understanding of risks and priorities develops. During the investigation, an understanding of methods and procedures develops. After the investigation, barriers are constructed, holes are sealed, workflows are developed, and continuous evaluations are established. At this fourth and final level, investigators attempt to find answers to the question: How to prevent it from happening again?

Case Study of Gartnerhallen Law firm Wiersholm in Oslo, Norway was hired to investigate the misappropriation of funds at Gartnerhallen. An employee of Norway’s largest cooperative producer of fruit and vegetables, Gartnerhallen, had admitted to gross misappropriation of funds and testified that he transferred nearly NOK 50 million (about US$6 million) to a farmer in Hedmark outside Oslo. The farmer was a member of the cooperative organization. The farmer claimed he received the money as loans from the employee who was the chief accountant, and that the alleged loans amounted to NOK 18 million, not NOK 50 million.

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This is again a case study of occupational rather than a corporate white-collar crime. It nevertheless illustrates the sequence of events from detection via investigation to conviction. Later in this book, there will be a number of cases of corporate white-collar crime scandals. The Gartnerhallen case was detected when an outside person alerted the auditor at Gartnerhallen, who then conducted his own inquiries into the matter. The auditor confronted the chief accountant with his preliminary findings, which lead the chief accountant to inform and admit to the misconduct in a message to top management. Gartnerhallen officials reported the case of misappropriation to Norway\s white-collar crime police unit Økokrim in June 2017. The Gartnerhallen chief accountant confessed to the money transfers in late May, after the co-op’s auditor and accountants had started raising questions about suspicious transactions. Both the Gartnerhallen employee and the 44-year-old farmer, who reportedly had no family or other relationship with one another, were jailed while Økokrim continued its police investigation. The farmer testified at his custody hearing that because of economic difficulty, he had been unable to obtain ordinary bank loans. The farmer’s defense attorney acknowledged the loans in court, but claimed his client was unaware the Gartnerhallen employee was exceeding his authority in making the loans. The farmer claimed the loans were used to finance farm operations, while Økokrim investigators claim some of the money was spent on expensive cars, an apartment in Sweden, and remodeling of the farmer’s home. Økokrim decided in October 2017 to prosecute both the employee and the farmer in court. Law firm Wiersholm (2018) was hired at about the same time by Gartnerhallen management to conduct an investigation. The investigative knowledge strategy emphasized detective skills, law, auditing, and accounting, as illustrated by the seven knowledge workers who participated in the fraud examination: ● ● ● ●

Jan Fougner: Investigation and employment law Georg A Engebretsen: Investigation and compliance Nicolai Skjold: Investigation and compliance Kristian Foss Aalmo: Employment law

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● Petter Røed: Auditing and consulting ● Trond Bjerge: Auditing and controlling ● Anne-Cathrine Hov: Accounting and computer systems The information sources strategy applied by fraud examiners from Wiersholm (2018) included: ● Examination of physical document material such as notes, presentations, routines, management documents, and accounting results ● Examination of electronically stored information such as emails and other documents ● Analysis of accounting figures for several years ● Interviews with 16 key personnel at Gartnerhallen who could contribute insights into the circumstances relevant to the case. The investigation report by law firm Wiersholm was presented to the client Gartnerhallen in March 2018. Later that year, chief accountant Alf Roar Brovoll was sentenced to 4 years in prison, while farmer Ola Smørbøl was sentenced to 5 years and 10 months in prison. Their defense lawyers were Berit Reiss-Andersen and Rasmus Dannevig Woxholt, respectively. The prosecutor from Økokrim was Geir Kavlie. The chief accountant was less severely punished because the court believed that he had been under a terrible pressure from the farmer (Christensen, 2018). Earlier in this book, change management approaches and measures after white-collar crime scandals were described. Wiersholm (2018) recommended three change management actions after the Gartnerhallen scandal: ● Assess risks focusing on Gartnerhallen’s business model and role in handling a large number of financial transactions for members. ● Develop and implement an internal control system that should be documented in writing, communicated, and made the core of future training sessions.

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● Automatize and digitize producer payment systems with the aim of having computer software with fewer manual tasks at the discretion of employees. The following year, Hals and Sandvik (2019) described a number of change management initiatives at Gartnerhallen after the white-collar crime scandal: ● Establish a culture that relies on open dialogue and information sharing ● Introduce discussions by organizational leaders to involve others in business processes to increase transparency within the organization ● Combine control with trust in executives and other employees ● Define policies and procedures as instructions ● Change instructions for the board and the chief executive ● Change instructions on how to handle financial transactions ● Recruit persons with integrity and professional depth ● Develop governance in terms of an authorization matrix Hals and Sandvik (2019) found that ethical guidelines were given less focus in change management initiatives at Gartnerhallen. The assumption was that ethical guidelines might increase awareness but not prevent willing offenders who have a motive.

References Alegre, J., & Chiva, R. (2008). Assessing the impact of organizational learning capability on product innovation performance: An empirical test. Technovation, 28, 315–326. BDO. (2014a). Anonymisert og revidert sammendrag av gransking i Stiftelsen Betanien (Anonymized and revised summary of investigation at Foundation Betanien), audit firm BDO, Oslo, Norway, 10 pp. BDO. (2014b). Stiftelsen Betanien. Sammendrag (Betanien Foundation Summary), auditing firm BDO, Oslo, Norway.

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Brandon, S. E., Wells, S., & Seale, C. (2018). Science-based interviewing: Information elicitation. Journal of Investigative Psychology and Offender Profiling, 15, 133–148. Bruun Hjejle. (2018). Report on the Non-Resident Portfolio at Danske Bank’s Estonian branch, law firm Bruun Hjejle, Copenhagen, Denmark, 87 pp. Bryman, A., & Bell, E. (2015). Business research methods. Oxford University Press. Button, M., & Gee, J. (2013). Countering fraud for competitive advantage— The professional approach to reducing the last great hidden cost. John Wiley & Sons. Button, M., Frimpong, K., Smith, G., & Johnston, L. (2007a). Professionalizing counter fraud specialists in the UK: Assessing progress and recommendations for reform. Crime Prevention and Community Safety, 9, 92–101. Button, M., Johnston, L., Frimpong, K., & Smith, G. (2007b). New directions in policing fraud: The emergence of the counter fraud specialists in the United Kingdom. International Journal of the Sociology of Law, 35, 192–208. Button, M., Shepherd, D., & Blackbourn, D. (2018). ‘The iceberg beneath the sea’, fraudsters and their punishment through non-criminal justice in the ‘fraud justice network’ in England and Wales. International Journal of Law, Crime and Justice, 53, 56–66. Chadwick, C. (2017). Toward a more comprehensive model of firms’ human capital rents. Academy of Management Review, 42(3), 499–519. Christensen, J. (2018, August 30). Nektet anke i Gartnerhallen-saken (Denied appeal in the Gartnerhallen case), daily Norwegian business newspaper Dagens Næringsliv. www.dn.no Cooper, D. R., & Schindler, P. S. (2014). Business research methods. McGrawHill. Curtis, G. E. (2008). Legal and regulatory environments and ethics: Essential components of a fraud and forensic accounting curriculum. Issues in Accounting Education, 23(4), 535–543. Davies, P., & Francis, P. (2018). Doing criminological research. Sage Publications. Dean, G., & Gottschalk, P. (2007). Knowledge management in policing and law enforcement: Foundations. Oxford University Press. Deloitte. (2017, June 10). Investigation report. Independent investigation committee, by global auditing firm Deloitte, T. Ito, K. Sato & K.

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Nishimura, 89 pp. https://www.fujifilmholdings.com/en/pdf/investors/fin ance/materials/ff_irdata_investigation_001e.pdf, downloaded September 8, 2018. Garrick, J., & Chan, A. (2017). Knowledge management and professional experience: The uneasy dynamics between tacit knowledge and performativity in organizations. Journal of Knowledge Management, 21(4), 872–884. Gottschalk, P., & Hamerton, C. (2022). White-collar crime online: Deviance, organizational behavior and risk. Palgrave Macmillan, Springer Nature. Gottschalk, P., & Tcherni-Buzzeo, M. (2017). Reasons for gaps in crime reporting: The case of white-collar criminals investigated by private fraud examiners in Norway. Deviant Behavior, 38(3), 267–281. Hals, A., & Sandvik, R. K. (2019). Change management after financial crime. Master of Science Thesis, BI Norwegian Business School. Jarvenpaa, S. L., & Majchrzak, A. (2008). Knowledge collaboration among professionals protecting national security: Role of transactive memories in ego-centered knowledge networks. Organization Science, 19 (2), 260–276. Joshi, K. D., Chi, L., Datta, A., & Han, S. (2010). Changing the competitive landscape: Continuous innovation through IT-enabled knowledge capabilities. Information Systems Research, 21(3), 472–495. Kristensen, T. (2004). The physical context of creativity. Creativity and Innovation Management, 13(2), 89–96. Kvale, S., & Brinkmann, S. (2009). Interviews: Learning the craft of qualitative research interviewing. Sage. Mannheimer Swartling. (2016). Report on investigation of Nordea private banking in relation to offshore structures, law firm Mannheimer Swartling, Stockholm, Sweden, 42 pp. Mannucci, P. V., & Yong, K. (2018). The differential impact of knowledge depth and knowledge breadth on creativity over individual careers. Academy of Management Journal, 61(5), 1741–1763. McIver, D., Lengnick-Hall, C. A., Lengnick-Hall, M. L., & Ramachandran, I. (2013). Understanding work and knowledge management from a knowledge-in-practice perspective. Academy of Management Review, 38(4), 597–620. Meerts, C. (2014). Empirical case studies of corporate security in international perspective. In K. Walby & R. K. Lippert (Eds.), Corporate security in the 21st century—Theory and practice in international perspective (pp. 97–115). Palgrave Macmillan. Mitchell, V. L. (2006). Knowledge integration and information technology project performance. MIS Quarterly, 30 (4), 919–939.

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Newell, S., Robertson, M., Scarbrough, H., & Swan, J. (2009). Managing knowledge work and innovation (2nd ed.). Palgrave Macmillan. Örtenblad, A. (2011). Making sense of the learning organization: What it is and who needs it? Yayasan Ilmuwan. Osterburg, J. W., & Ward, R. H. (2014). Criminal investigation—A method for reconstructing the past (7th ed.). Anderson Publishing. Qiu, B., & Slezak, S. L. (2019). The equilibrium relationships between performance-based pay, performance, and the commission and detection of fraudulent misreporting. The Accounting Review, 94 (2), 325–356. Roberts, N., Galluch, P. S., Dinger, M., & Grover, V. (2012). Absorptive capacity and information systems research: Review, synthesis, and directions for future research. MIS Quarterly, 36 (2), 625–648. Schneider, S. (2006). Privatizing economic crime enforcement: Exploring the role of private sector investigative agencies in combating money laundering. Policing & Society, 16 (3), 285–312. Shearman Sterling. (2017). Independent directors of the Board of Wells Fargo & Company: Sales practices investigation report, law firm Shearman Sterling, NewYork, NY, 113 pp. Tell, F. (2011). Knowledge integration and innovation: A survey of the field. In A. Berggren, L. Bergek, M. Bengtsson, M. Hobday, & J. Söderlund (Eds.), Knowledge integration & innovation: Critical challenges facing international technology-based firms (pp. 96–121). Oxford University Press. Tunley, M., Whittaker, A., Gee, J., & Button, M. (2014). The accredited counter fraud specialist handbook. Wiley. Wiersholm (2018). Rapport til landsstyret i Gartnerhallen (Report to the national board of the farmers’ hall), law firm Wiersholm, Oslo, Norway, March 11, 32 pages. Williams, J. W. (2005a). Reflections on the private versus public policing of economic crime. British Journal of Criminology, 45, 316–339. Williams, J. W. (2005b). Governability matters: The private policing of economic crime and the challenge of democratic governance. Policing & Society, 15 (2), 187–211. Williams, J. W. (2014). The private eyes of corporate culture: The forensic accounting and corporate investigation industry and the production of corporate financial security. In K. Walby & R. K. Lippert (Eds.), Corporate security in the 21st century—Theory and practice in international perspective (pp. 56–77). Palgrave Macmillan.

12 Profiling of Potential Offenders

Offender profiling can be an important part of corporate compliance work as profiles of potential offenders that direct preventive work against wrongdoing. The theory of convenience emphasizes that white-collar criminals have financial motives either from possibilities or threats, they have professional opportunity both to commit and to conceal crime, and their willingness for deviant action might derive from personal choice or perceived innocence. A total of fourteen convenience themes are suggested in the structural convenience model, where only a few typically apply to a specific offender at an identified incident. By including some themes while disregarding others, an offender profile will emerge. Profiles thus vary among offenders. Some have an opportunity structure mainly of committing crime, while others have an opportunity structure of concealing crime. Some made crime a rational choice, while others deny wrongdoing. The structural model might be a useful tool in fraud investigations, defense strategies, as well as prosecution approaches. As emphasized by Hoekstra and Verhoeven (2021), high-status fraud suspects tend to have certain characteristics such as a tendency of narcissistic traits. The suspects that they studied were white-collar criminals who Sutherland (1983) described as persons of considerable © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0_12

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respectability and social status belonging to the elite in society and committing financial crime during their regular work in their privileged professional positions. White-collar offenders are interesting to study since they abuse trust and their open access to resources to commit and conceal wrongdoing in their occupations. A theoretical perspective to study the profiling of white-collar offenders is the convenience triangle (Asting & Gottschalk, 2022; Braaten & Vaughn, 2019; Dearden & Gottschalk, 2020; Stadler & Gottschalk, 2021). The convenience triangle suggests that a financial motivation, an organizational situation, and a personal willingness for deviant behavior can make financial crime attractive for white-collar offenders. Convenience is both an absolute and a relative concept. In this research, we apply the relative concept by comparing the convenience of legitimate versus illegitimate means to achieve objectives. The relative concept refers to the efficiency in time and effort as well as the reduction in pain and strain in legal versus illegal acts (Engdahl, 2015). Generally, a convenient individual is not necessarily neither bad nor lazy. On the contrary, the person can be seen as smart and rational since the person spends as little time and effort as possible on achieving objectives (Sundstöm & Radon, 2015). In this line of thinking, Agnew (2014: 2) suggested that “crime is often the most expedient way to get what you want”, and “fraud is often easier, simpler, faster, more exciting, and more certain than other means of securing one’s ends”.

Structural Model of Convenience A combination of motive, opportunity, and willingness determine the extent of white-collar crime convenience as repeated in the structural model in Fig. 12.1 and as described by Gottschalk (2021: 14): In the financial motive dimension, profit might be a goal in itself or an enabler to exploit possibilities and to avoid threats. Possibilities and threats exist both for individual members of the organization as well as for the organization as a whole. It is convenient to exploit possibilities and to avoid threats by financial means.

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In the organizational opportunity dimension, convenience can exist both to commit white-collar crime and to conceal white-collar crime. Offenders have high social status in privileged positions, and they have legitimate access to crime resources. Disorganized institutional deterioration causes decay, lack of oversight and guardianship cause chaos, while criminal market structures cause collapse. The personal willingness for deviant behavior focuses on offender choice and perceived innocence. The choice of crime can be caused by deviant identity, rational consideration, or learning from others. Justification and neutralization cause the perceived innocence at crime. Identity, rationality, learning, justification, and neutralization all contribute to making white-collar crime action a convenient behavior for offenders.

As illustrated in the figure, there are fourteen potential themes that might contribute to a profile of the white-collar offender. These themes are presented in the following.

Profiling Offender Motive At the individual level of possibilities, greed is the most frequently mentioned motive for financial crime by white-collar offenders. Goldstraw-White (2012) defined greed as socially constructed needs and desires that can never be completely covered or contended. Sajko et al. (2021: 961) studied CEO greed where they defined greed as self-interest by excessive materialistic desire and lack of concern for the well-being of others: Greed, which is most commonly defined as an excessive materialistic desire to acquire personal wealth, can be seen as the “dark” end of the selfinterest continuum – that is, hyper-self-interest (...) While self-interest is morally neutral, greed carries a moral charge (…) Greed by definition implies a lack of concern for the well-being of others.

The pyramid of needs is another well-known motive for financial crime by white-collar offenders along the motive–possibilities–individual

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GREED POSSIBILITIES GOAL MOTIVE

STRAIN THREATS BANKRUPTCY STATUS

CONVENIENCE

COMMIT OPPORTUNITY

ACCESS DECAY

CONCEAL

CHAOS COLLAPSE IDENTITY

CHOICE

RATIONALITY LEARNING

WILLINGNESS INNOCENCE

JUSTIFICATION NEUTRALIZATION

Fig. 12.1

Structural model of convenience themes

axis in the structural model in the figure. Higher up in the pyramid, privileged individuals strive for status, recognition, and admiration (Maslow, 1943). High up in the pyramid, combined with greed, we find the American dream of prosperity and success as the ultimate goal of life. It is an extremely one-sided emphasis on accumulated wealth and big spending. Other values, such as family well-being and personal health are less important in many cultures. Along the motive–threats–individual axis in the structural model, the strain perspective has become one of the leading theoretical explanations for crime. The strain perspective argues that a range of factors influence

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whether individuals cope with strains through crime (Thaxton & Agnew, 2018: 888): Criminal coping is said to be most likely among those with poor coping skills and resources, little social support, low social control, beliefs favorable to crime, criminal associates, and opportunities for crime.

Escalation of commitment to ambitious business goals might cause an increase in the likelihood of wrongdoing (Sleesman et al., 2018) along the motive–possibilities–corporate axis in the structural model. For example, Welsh and Ordonez (2014) found that high performance goals cause unethical behavior. Escalation of commitment is defined as “decision-making in the face of negative feedback about prior resource allocations, uncertainty surrounding the likelihood of goal attainment, and choice about whether to continue” (Keil et al., 2000: 632). When executives perceive high performance goals as critical and invariable, individual desperation for achievement of the goals might be the result (Kuvaas et al., 2016: 401): Perceiving goals as invariable refers to the extent to which employees believe that the goals in a performance management system represent absolute standards that they must meet without exception, even if they think other factors are more important.

In many organizations, ends in terms of objectives justify means in terms of deviant actions. Welsh et al. (2020) argued that high performance goals are important not only because of rewards associated with goal attainment, but also because of changing morale reasoning processes related to the goals (Gottschalk, 2021: 19): As such, high goal commitment facilitates unethical behavior by increasing not only the motivation to achieve the goal but also the motivation to justify doing so by any means necessary Locatelli et al., 2017). This is known as state morale disagreement, a process through which individuals justify unethical behavior (Moore, 2015). It is part of the dark side of ambitious goals.

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The final convenience theme in the motive category is painful corporate economic threats (Gottschalk, 2022: 36): The threat of corporate collapse and bankruptcy might cause exploration and exploitation of illegal avenues to survive, where moral panic can occur (Kang & Thosuwanchot, 2017). The survival of the corporation can become so important that no means come across as unacceptable in the current situation. Sometimes, fraud and corruption are considered temporary measures to recover from a crisis (Geest et al., 2017), where the measures will be terminated when the crisis is over. A crisis is a fundamental threat to the organization, which is often characterized by ambiguity of cause, effect, and means of resolution (König et al., 2020).

Markets with crime forces can represent painful corporate economic threats for corporations that prefer to stay on the right side of the law. In many markets, there are cartels that regulate the supply side (Goncharov & Peter, 2019: 152): Cartel members seek to act collectively, as if they were a single monopolist, thereby maximizing the collective profit. By doing so, cartels violate competition policy and severely reduce consumer welfare through pricefixing activities that increase the price of goods far beyond the competitive level.

Chattopadhyay et al. (2001) studied organizational actions in response to threats and found that threats are associated with urgency, difficulty, and high stakes. Threats are often noticed very late, both by individuals and by organizations. Handling threats thus becomes a matter of urgency. Individuals and firms “fail to detect threats and prevent calamities not because of an absence of signals or insufficient knowledge (or faulty awareness), but because attention bandwidth and informationprocessing fidelity are inherently limited” (Downing et al., 2019: 1890).

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Profiling Offender Opportunity In the perspective of crime as a choice, the status of the offender can make illegitimate actions relatively more convenient compared to legitimate actions (Kakkar et al., 2020: 532): Status is a property that rests in the eyes of others and is conferred to individuals who are deemed to have a higher rank or social standing in a pecking order based on a mutually valued set of social attributes. Higher social status or rank grants its holder a host of tangible benefits in both professional and personal domains. For instance, high-status actors are sought by groups for advice, are paid higher, receive unsolicited help, and are credited disproportionately in joint tasks. In innumerable ways, our social ecosystem consistently rewards those with high status.

In their criminological profile of white-collar crime, Eaton and Korach (2016) emphasized authority that is a result of status. Offenders have an appreciation of and confidence in their own authority. Authority is the power or right to give orders, make decisions, and enforce obedience. The opportunity–commit–access line in the structural model suggests that white-collar offenders typically have legitimate access to resources to commit financial crime. A resource is an enabler applied and used to complete a task. According to Petrocelli et al. (2003), access to resources equates access to power. White-collar offenders have legitimate access to premises (Benson & Simpson, 2018; Williams et al., 2019), and they have specialized access to routine activities (Cohen & Felson, 1979). In the role of an entrepreneur, the trusted offender might have even easier access to crime resources for illegal entrepreneurship (Peixoto et al., 2021). Scheaf and Wood (2021: 2) found that entrepreneurial fraud has stimulated a wide array of research related to white-collar crime, where they provided the following definition of entrepreneurial fraud: Enterprising individuals (alone or in groups) deceiving stakeholders by sharing statements about their identity, individual capabilities, elements of new market offerings, and/or new venture activities that they know to be false in order to obtain something of value.

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Opportunity is any “potential course of action, made possible by a particular set of social conditions, which has been symbolically incorporated into an actor’s repertoire of behavioral possibilities” (Coleman, 1987: 409). A criminal opportunity is “the presence of a favorable combination of circumstances that renders a possible course of action relevant” (Aguilera & Vadera, 2008: 434). As suggested by Berghoff and Spiekermann (2018: 290), sophisticated concealment is an important factor in white-collar crime: The privileged position of white-collar criminals is the result of several factors. Their offences are especially difficult to prosecute because the perpetrators use sophisticated means to conceal them. They can also often afford the best lawyers and have the political clout to influence the legislative process to their advantage and, if need be, to bribe prosecutors and judges. Additionally, the class bias of the courts works to their benefit. The law is often seen as not binding, at least not for and by economic elites.

Crime concealment becomes more convenient when there is organizational decay in the form of institutional deterioration and moral collapse (Shadnam & Lawrence, 2011: 379): Our theory of moral collapse has two main elements. First, we argue that morality in organizations is embedded in nested systems of individuals, organizations and moral communities in which ideology and regulation flow “down” from moral communities through organizations to individuals, and moral ideas and influence flow “upward” from individuals through organizations to moral communities. Second, we argue that moral collapse is associated with breakdowns in these flows and explore conditions under which such breakdowns are likely to occur.

Lack of oversight and guardianship can create a chaos that improves the convenient opportunity to conceal financial crime in the organizational setting for a white-collar offender. Managers can withhold bad news by accounting misrepresentation, since financial statements are a substantive component of a firm’s communications with its stakeholders (Gupta et al., 2020). Lack of oversight and guardianship becomes even

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worse when auditors slide over on the wrong side of the law. Mohliver (2019: 310) found that some auditors prioritize their clients’ interests over their legal obligation by recommending client malfeasance, for example in terms of illegal stock option backdating: The findings suggest that professional experts’ involvement in the diffusion of liminal practices is highly responsive to the institutional environment.

Auditors are supposed to serve as gatekeepers to protect shareholders and report directly to shareholder representatives on the board of directors, but auditors become surprisingly often hired by corporate management to whom they are loyal. Reporting fraud to public authorities will also harm auditors (Mohliver, 2019: 316): As organizations, audit firms are often severely penalized for client malfeasance. Yet the individual auditors working for these firms are susceptible to “motivated blindness” stemming from conflicts of interest that bias their moral judgment toward choices that help their clients.

While disorganized institutional deterioration causes decay, and lack of oversight and guardianship causes chaos, criminal market structures cause external collapse. Collapse of legitimacy is the final convenience theme in the opportunity category. Collapse might be caused by rule complexity preventing compliance (Lehman et al., 2020), participation in crime networks such as cartels to survive in the industry (Nielsen, 2003), and financial crime as the usual way of doing business in markets with crime forces such as cartels (Chang et al., 2005). Rule complexity can create a situation where nobody is able to tell whether an action represents a criminal offense (Lehman et al., 2020). Furthermore, Eberlein (2019) argued that globalization opens markets for corporations but outstrip the capacity of states to regulate and enforce laws on cross-border business conduct for the public good. Similarly, Schneider and Scherer (2019: 1147) argued that “the extent to which state authorities can regulate the externalities and the behavior of multinational corporations is limited”, and that “gaps in governance abound in

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today’s globalized world”. Maher et al. (2019) found that governments not just in global business, but also in local business are reluctant to intervene. A cartel is a typical criminal network involving chief executives from competing firms who have chosen to have their businesses cooperate illegally on the market. A cartel is collective misconduct of firms (Bertrand & Lumineau, 2016: 983): “Instead of competing with one another, cartel members rely on each other’s agreed course of action”.

Profiling Personal Willingness A corporation can initially be blamed for a scandal, yet corporate accounts and the secrecy of offenders can make corporate crime seem less serious (Schoultz & Flyghed, 2021). Dewan and Jensen (2020: 1657) studied high social status individuals in times of scandals that can change the role of status from being an asset to being a liability: Because scandal diminishes the effectiveness of factors that make status an asset, status offers less protection during a scandal. At the same time that scandal decreases the protective benefits of status, the factors that make status a liability remain or are augmented.

As illustrated in the figure, the willingness for deviant behavior derives from choice and innocence. White-collar crime can be the result of a choice based on identity, rationality, and learning, and white-collar crime can be the result of innocence based on justification and neutralization. Typically, there is a lack of self-control where self-control reflects an individual’s ability to override desires and urges (Liang et al., 2016): Effective human functioning requires the capacity to transcend primal desires and habitual behaviors in order to behave in a socially appropriate manner. When self-control fails, individuals disregard the long-term implications of their behaviors and succumb to their desires, such as eating fatty foods, cheating on a partner, or engaging in unethical behaviors. Ultimately, self-control failure contributes to poor physical and mental health, crime, and low-quality interpersonal relationships.

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Identity is the first convenience theme in the willingness category. Crime as a choice can be based on an identity that makes it acceptable for elite members to break the law (Petrocelli et al., 2003), a professional deviant identity (Obodaru, 2017), an identity of a narcissist expecting preferential treatment (Zvi & Elad, 2018), deviant identity labeling, reputation adaption to individual labels (Bernburg et al., 2006), and narcissistic identification with the organization (Galvin et al., 2015). Identification with the organization is the process through which an individual’s identity becomes entangled with, and imprinted by, the corporation. The person’s unique sense of self comes to be understood in reference to that organization, where the organization defines individual self. The economic model of rational self-interest is all about weighing up the pros and cons of alternative courses of action (Gottschalk, 2020: 66): When the desire increases, then the benefits in the rational benefit-cost comparison increase that in turn influences willingness. The rational choice perspective simply states that when benefits exceed costs, we would all do it. The perspective is explicitly a result of the self-regarding preference assumption, where rationality is restricted to self-interested materialism (Paternoster et al., 2018).

Learning from others by differential association was introduced by Sutherland (1983), who coined the term white-collar crime several decades earlier. The differential association perspective suggests that offenders associate with those who agree with them, while they distance themselves from those who disagree with them. The choice of crime is thus caused by social learning from others with whom offenders associate. In elite setting, interactions with deviant others promote criminal activity (Gottschalk, 2020: 67): The essence of differential association is that criminal behavior is learned, and the main part of learning comes from within important personal groups. Exposure to the attitudes of members of the organization that either favor or reject legal codes influences the attitudes of the individual. The individual will go on to commit crime, if the person exposes himself

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or herself more to attitudes that favor law violation than to attitudes that favor abiding the law (Wood & Alleyne, 2010). Learning from others is an active process. Differential association can occur in the organizational setting, but does not as such increase the organizational opportunity to commit crime. Rather, differential association belongs to the behavioral willingness category of convenience, as crime learning makes it more convenient to favor law violation. Differential association by individuals can occur outside the organizational setting, such as exposure to lawviolation attitudes early in life, exposure to law-violation attitudes over a prolonged period in different situations, and exposure to law-violation attitudes from people they like and respect. Once the appropriate attitudes have developed, young people learn the skills of criminality in much the same way as they would learn any other skill, which is by example and training (Wood & Alleyne, 2010). Individuals embedded within structural units by differential association become vulnerable to attitudes in favor of or opposed to delinquent and criminal behavior. Differential reinforcement of crime convenience develops over time as individuals become vulnerable to various associations and definitions conducive to delinquency (Hoffmann, 2002).

In their criminological profile of white-collar crime, Eaton and Korach (2016) emphasized cultural hedonism, narcissistic personality disorder, and low self-control as determinants of deviant behavior by white-collar offenders. Hedonism refers to a strong attention to pleasure, narcissism refers to excessive admiration of oneself, and self-control refers to the ability to regulate one’s behavior. Justification of crime might refer to an offender claiming that the deviant act was no wrongdoing or resulting from upper echelon biased information selection. Offenders may justify by negative life events that have occurred, by peer pressure, or by disappointing work context that causes entitlement (Schoen et al., 2021: 730): People use justification mechanisms to protect their sense of self. People who sincerely believe that they are a specific kind of person but routinely demonstrate behaviors that indicate otherwise may avoid cognitive dissonance and maintain their sense of self by using justification mechanisms that allow them to “explain away” their behavior.

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By application of neutralization techniques (Sykes & Matza, 1957), offenders deny responsibility, deny injury, and deny victim. Offenders condemn those who take on the role of condemners. Offenders claim higher loyalties and normality of action. They claim entitlement to actions, and they argue the case of legal mistake since the action is quite normal. They find their own mistakes quite acceptable. They argue a dilemma arose, and they may gather support where nobody thinks it is wrong. In conclusion, the idea presented here in this chapter suggests that a visual representation and a verbal explanation of offender profiles might enhance the understanding of white-collar offenders. By selecting the main theme(s) for motive, the main theme(s) for opportunity, and the main theme(s) for willingness, a profile of the offender will emerge. The profile serves to create a narrative of the offense and the offender, where pieces of information in each actual case are assigned to specified convenience themes in the structural model.

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Conclusion

Rather than standard recommendations regarding corporate compliance based on formal regulations and cultural norms, this book has chosen a perspective of corporate compliance based on prevention of potential offenders and detection of actual offenders. Potential offenses derive from offender convenience in terms of financial motives, organizational opportunities, and personal willingness for deviant behavior. This book’s perspective has thus been to reduce the convenience for potential offenders. As famous criminologist Agnew (2014: 2) formulated it: “crime is often the most expedient way to get what you want” and “fraud is often easier, simpler, faster, more exciting, and more certain than other means of securing one’s ends”. This perspective was exemplified by a number of case studies where privileged organizational members were detected in their wrongdoing. All the case studies should provide the reader with many ideas how to conduct corporate compliance work that matters. Compliance work is focused on disturbing the perceived convenience by increasing the subjective detection risk for potential offenders. Furthermore, compliance officers might communicate the terrible experience of falling from © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0

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grace as exemplified by all the executives described in this book and also found in the autobiography by Stanland (2021). The contingent approach to corporate compliance requires compliance work to be relevant to the threats of violations that can be anticipated in an organizational setting. While standard and formal approaches to compliance work are discouraged in the perspective of this book, internal reviews with critical mandates are encouraged whenever there is a need for investigations by fraud examiners. Ethical guidelines for corporate compliance seem to cover window dressing, but these policies do probably have little or no impact on criminal behavior. There is a need for an increase in the subjective detection probability, which is the likelihood of detection perceived by a potential criminal. Employment of detectives in private and public enterprises may represent a starting point where potential white-collar offenders can feel uneasy about future deviant behavior. As illustrated by all the case studies, we know now that compliance is mainly window dressing and seldom implemented effectively. It seems that ethical guidelines are expected to be followed by others, but not necessarily by self. Organizational opportunity and deviant behavior are issues that should be of concern to all officers responsible for compliance and corporate social responsibility. Unfortunately, many organizations think of corporate social responsibility (CSR) as a way of doing good deeds for society without changing business practices. Corporations need to introduce efficient prevention mechanisms rather than window dressing routines such as compliance guidelines. Internal compliance officers have in their work to be independent of their superiors. Internal compliance officers should blame themselves for not preventing negative events. Often, the convenience of white-collar crime is dependent on the cooperation with external professionals who may turn a blind eye to potential law violations by and together with their clients. Instead of turning a blind eye, they might indeed help their clients with compliance to avoid misconduct and crime. A mechanism for outside-in effects on executive compliance is the threat for both accountants and auditors to be fined and potentially sent to prison. A financial scandal in Norway in a company named Finance Credit caused prison sentences not only

Conclusion

289

for two executives at Finance Credit but also for two auditors from audit firm KPMG. In the perspective of combatting white-collar crime through outsidein measures, a bank that discovers attempt at bank fraud should not only consider reporting it to the police but also to the supervisory committee and the compliance officer in the company where someone made the fraudulent attempt. Since police agencies sometimes lack both competence and capacity to investigate, a more preventive measure would be to let the offender organization know of the attempt. In the outside-in perspective, OECD (2021: 27) argued that tax authorities can encounter professional enablers across a number of different functions, from those business areas involved in promoting voluntary compliance to those undertaking audits or investigations, through those leading on enforcement activity such as civil penalties and criminal prosecution: Lawyers, tax advisors, notaries and accountants are valued gatekeepers to a sound legal and financial system. Their unique sets of skills, together with the professional privileges awarded to them by statutes, put them in a special place within societies. They are experts who are in a position of trust and enjoy certain rights that are not shared by other professions. Jurisdictions should ensure that advisors perform their tasks in accordance with the law, and penalize those few who use their skills, expertise and privileges to design structures with the purpose of breaking the law. This requires that countries have in place a legal framework to support criminal investigators and the justice system in addressing and punishing professional enablers that engage in and facilitate the commission of such crimes.

The report by the OECD (2021) emphasized that the majority of professionals are law-abiding and play an important role in supporting compliance and a well-functioning financial system, but nevertheless stated that criminal activities of a limited segment of professionals undermine public confidence in the profession and the legal and economic system. Handling the threat from these professional actors is expected

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to reduce tax crime by recognizing criminal actors’ shift to digitalization after the Covid-19 pandemic. Examples of the most common crime enabling services include (OECD, 2021; Skatteetaten, 2021): ● Establishing companies, foundations, and other business structures— to hide the identity of owners, hide assets, or hide the criminal origin of funds. ● Set up offshore structures to hide ownership and income. ● Provide false documentation. ● Assist in insolvency, bankruptcy, and liquidation by reducing available funds for the creditors of the bankrupt company. ● Use of cum-ex schemes to recover unpaid taxes. ● Commit financial crime through crypto assets, thereby facilitating money laundering of the proceeds of crime. The OECD (2021) recommended that tax authorities should establish work processes for identifying and collecting information on facilitators, including definition, measurement of threats, use of indicators, and use of data sources for identification (Skatteetaten, 2021). Furthermore, law firms, auditing firms, and securities firms should support their clients’ compliance officers rather than their clients’ deviant executives. Bibliography Agnew, R. (2014). Social concern and crime: Moving beyond the assumption of simple self-interest. Criminology, 52(1), 1–32. OECD. (2021). Ending the shell game: Checking down on the professionals who enable tax and white collar crimes. OECD Publishing, Organization for Economic Co-operation and Development, Paris, 57 pp. Skatteetaten. (2021, September). Trusselvurdering Covid-19: Hvilke alvorlige kriminalitetstrusler vil Skatteetaten stå overfor ved en normalisering? (Threat assessment Covid-19: What serious crime threats will the tax administration face at normalization?), report issued by the Norwegian tax administration. www.skatteetaten.no Stanland, C. (2021). Blank Canvas—How I reinvented my life after prison. Lioncrest Publishing.

Appendices

See Tables A.1, A.2 and A.3. Here are complete references to fraud investigations listed in Table A.1: Table A.1 Sample of reports of investigations by fraud examiners (Investigation reports listed separately in the reference section at the end of this chapter) Client organization

Fraud examiner

Change management

1

Adecco sykehjem

Wiersholm (2011)

2

Ahus kart

PwC (2013a)

3

Andebu kommune

BDO (2014a)

4

Arendal trafikk

5

Askøy kommune

Internrevisjon (2017) BDO (2018)

6

Bergen kommune

Compliance with work legislation Procurement control mechanisms Transparency in managerial roles Implement ethical guidelines Private services not allowed Approval before action

7

Betanien utland

Internkontroll (2018) BDO (2014b)

CEO privileges removed (continued)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0

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292

Appendices

Table A.1 (continued) Client organization

Fraud examiner

Change management

8 9

Briskeby idrettsanlegg Bærum kommune

Lynx (2011) G-partner (2007)

10

Demokratene parti

11

DNB Panama

Partirevisjon (2016) Hjort (2016)

Avoid role conflicts Avoid family members in business Control member lists

12

Drammen kommune

Deloitte (2017a)

13

Eckbo stiftelse

14 15 16 17 18 19 20 21 22 23 24 25 26

Fadderbarna stiftelse Fjell kommune Forsvaret kontrakter Forsvaret logistikk Forsvaret rutiner Fretex frelsesarmeen Furuheim stiftelse Gartnerhallen Gassnova internkontroll Grimstad kommune 1 Grimstad kommune 2 Hadeland bredbånd Hadeland energi

Thommessen (2009) BDO (2011) Deloitte (2017c) Dalseide (2006) PwC (2014c) PwC (2015) Grette (2017) Hald (2006) Wiersholm (2018) BDO (2013a)

27

Halden ishall

KPMG (2012)

28

Halden kommune

Hjort (2013)

29 30

Hordaland politi Kraft & Kultur

31

Kragerø båtselskap

Wiersholm (2015) Ernst & Young (2012) Deloitte (2012)

32

Kvam Auto

Wikborg (2015)

33

Langemyhr byggmester

PwC (2008a)

34 35

Leksvik kommune Lenvik kommune

Midt-Norge (2017) KomRev (2018)

BDO (2016) Hjort (2018) PwC (2014a) PwC (2014b)

Strengthen compliance function Independence and transparency Management job rotation NGO business practice Whistleblowing routines No more sponsor roles Sale control of weapons New disposal rules Whistleblowing routines Role conflict avoidance Vendor distance Four eyes in procurement Avoid family members Storage of documents Role conflict avoidance Transparent accounting function Private–public role avoidance No private in public service Whistleblowing routines Change of auditing firm Change of board positions Family member privileges removed Construction contracts documented CEO privileges removed Avoid family members in business (continued)

Appendices

293

Table A.1 (continued) Client organization

Fraud examiner

Change management

36

Lunde konkurs

Vierdal (2012)

37

Moskvaskolen

38

NAV tilgang

Ernst & Young (2013a) Wiersholm (2016)

Simplify corporate structure Time sheet for lecturers

39

NFF spilleroverganger

Lynx (2012)

40

NIF spillerovergang

BDO (2014c)

41

Nordea Panama

42 43

Norsk Tipping Næringsdepartementet

Mannheimer (2016) Deloitte (2010) PwC (2016)

44

Oslo boligbygg

BDO (2017a)

45

Oslo Lindeberg

46

Oslo omsorgsbygg

Kommunerevisjon (2013) PwC (2009)

47 48 49

Oslo renovasjon Oslo samferdsel Oslo skole 1

50

Oslo skole 2

51

Oslo Unibuss

52

Oslo Vei konkurs

53

KPMG (2016)

54

Politiets utlendingsenhet Rana kommune

55

Region Syddanmark

56

Romanifolket

57

Romerike Vannverk

58 59

Sandefjord kommune Skjervøy kommune

Kromann Reumert (2015) Stiftelsestilsynet (2017) Distriktsrevisjon (2007) Tenden (2017) KomRev (2015)

Deloitte (2017b) PwC (2007) Kommunerevisjon (2006a) Kommunerevisjon (2006b) Wiersholm (2012b) Kvale (2013)

PwC (2008b)

Access control registration Database of player transfers Player manager certification Strengthen compliance function CEO privileges removed Guidelines from majority shareholder No more consultants in procurement Whistleblowing routines Politicians versus administration Cheapest not always best License for taxi routines Procurement practices change No more consultants in procurement No dialogue with vendors early Avoid privatization in public office No private vehicles in public service No investments in hedge funds No speech writing for politicians More frequent reporting CEO privileges removed Avoid role conflicts Church and municipality separation (continued)

294

Appendices

Table A.1

(continued)

Client organization

Fraud examiner

Change management

60

Stangeskovene eiere

Free trade of shares

61

Stavanger kommune

Ernst & Young (2013b) PwC (2013b)

62 63

Sykehuset Innlandet Telenor VimpelCom

Haavind (2011) Deloitte (2016a)

64

Tjøme kommune

BDO (2017b)

65

Holmen (2014)

66

Tomter handelsforening Troms Kraft

67

Utenriksdepartement1

68

Utenriksdepartement2

69

Utenriksdepartement3

70

Utlendingsdirektoratet

71

Verdibanken

72

Vestre Viken

Wiersholm (2012a) PwC (2018)

73 74

Videoforhandlere Vitalegruppen

BDO (2013b) BDO (2017c)

75

World Ventures

76

Zachariasbryggen

Stiftelsestilsynet (2014) Advokatpartner (2017)

Norscan (2013) Duane Morris (2016) Kontrollenhet (2016) Kontrollenhet (2017) Deloitte (2016b)

No funding of illegal child rescue CEO privileges removed Corporate social responsibility No job rotation private–public No lease from acting politicians Board member responsibilities Embassy staff responsibilities NGO public offering Quarantine for previous executives Review programs more frequently CEO privileges removed Hospital accounting system revised Subsidy rules changed New public procurement procedures Denial of pyramid game structures Bankruptcy lawyer behavior

1. Wiersholm (2011, September 23). Granskingsrapport. Oppsummering. Adecco Norge AS (Investigation report. Summary. Adecco Norway Inc.), law firm Wiersholm, Oslo, Norway, 23 pp. 2. PwC (2013a, May 22). Utvidet revisjon av Akershus universitetssykehus HF (Extended audit at Akershus university hospital), auditing firm PwC, Oslo, Norway, 15 pp. 3. BDO (2014a, September 24). Undersøkelse av påstander om inhabilitetsforhold i Andebu commune (Investigation into allegations of biased

Appendices

4.

5.

6.

7. 8. 9.

10.

11. 12.

13.

295

decision-making in Andebu municipality), auditing firm BDO, Oslo, Norway, 23 pp. Internrevisjon (2017, August 29). Faktaundersøkelse: Mislighetene ved Arendal trafikkstasjon—forebygge lignende hendelser og håndtering av påståtte varsler (Examination of facts: Misconduct at Arendal vehicle control station—prevent similar incidents and handling of claimed warnings), Internrevisjon i Statens vegvesen (Internal audit at public road agency), Oslo, Norway, 32 pp. BDO (2018, March 19). Rapport om undersøkelser: Levering av tjenester til teknisk avdeling i Askøy kommune i perioden 2009–2017 (Report on investigation: Delivery of services to technical department in Askøy municipality in the period 2009–2017), auditing firm BDO, Bergen, Norway, 42 pp. Internkontroll (2018, January 25). Rapport: Kjøpesenter Haukås (Report: Shopping mall Haukås), Internkontroll Bergen kommune (Internal controls Bergen municipality), Bergen, Norway, 26 pp. BDO (2014b, June 21). Stiftelsen Betanien. Sammendrag (Betanien foundation. Summary), auditing firm BDO, Oslo, Norway, 10 pp. Lynx (2011, August 17). Briskebyrapporten (The Briskeby report), law firm Lynx, Oslo, Norway, 267 pp. G-partner (2007). Gransking av eiendomsforvaltningen i Bærum kommune (Examination of property management in Bærum municipality), G-partner, attorney Grimstad, Oslo, Norway, 43 pp. Partirevisjon (2016, February 29). Oppdrag om kontroll av Demokratene i Norge (Assignment concerning control of the Democrats in Norway), Partirevisjonsutvalget (Party auditing committee), Oslo, Norway, 5 pp. Hjort (2016, September 11). Rapport til styret i DNB (Report to the DNB board), law firm Hjort, Oslo, Norway, 18 pp. Deloitte (2017a, January 24). Gransking. Byggesaksavdelingen. Drammen kommune, (Investigation. Building permits department. Drammen municipality), auditing firm Deloitte, Oslo, Norway, 53 pp. Thommessen (2009, January). Uavhengig undersøkelse av Eckbos Legater (Independent inquiry into Eckbo’s Foundations), law firm Thommessen, Oslo, Norway, 119 pp.

296

Appendices

14. BDO (2011, December 19). Rapport til Lotteri- og stiftelsestilsynet vedrørende gransking av stiftelsen Fadderbarnas Framtid (Report to the lottery- and foundation authority concerning inquiry into sponsored childrens’ future), auditing firm BDO, Oslo, Norway, 46 pp. 15. Deloitte (2017c, November 27). Undersøkelse av varsel: Fjell kommune (Examination of whistleblowing; Fjell municipality), auditing firm Deloitte, Oslo, Norway, 50 pp. 16. Dalseide (2006, June 16). Rapport fra Granskingsutvalget for IKTkontrakter i Forsvaret oppnevnt av Kongen i statsråd 6. januar 2006 (Report from the investigation committee for ICT contracts in the Defense appointed by the King in state council January 6, 2006), committee leader Nils Dalseide, Oslo, Norway, 184 pp. 17. PwC (2014c, October 21). Forsvarets logistikkorganisasjon. Rapport etter gjennomgang av salg av fartøy (Report after review of vessel sales), auditing firm BDO, Oslo, Norway, 35 pp. 18. PwC (2015, March 20). Forsvarsdepartementet. Undersøkelse av forhold knyttet til Forsvarets avhending av fartøyer (Ministry of defense. Inquiry into circumstances related to Defense sales of naval vessels), auditing firm PwC, Oslo, Norway, 50 pp. 19. Grette (2017, June 12). Granskingsrapport til Fretex Norge (Investigation report to Fretex Norway (subsidiary of the Salvation Army), law firm Grette, Oslo, Norway, 132 pp. 20. Hald (2006, December 1). Granskingsrapport. Ledelse og styring av Øyestad helselags boligstiftelse Furuheim (Report of investigation. Leadership and management of Øyestad health institution’s housing foundation Furuheim), law firm Hald, attorneys Dalane and Heimvik, Arendal, Norway, 164 pp. 21. BDO (2013a, June 25). Gjennomgang av anskaffelsesprosess, konsulentinnleie og habilitiet i Gassnova (Review of procurement process, consultancy and bias in Gassnova), auditing firm BDO, Oslo, Norway, 27 pp. 22. Wiersholm (2018, March 11). Rapport til landsstyret i Gartnerhallen (Report to the national board of the farmers’ hall), law firm Wiersholm, Oslo, Norway, 32 pp.

Appendices

297

23. BDO (2016, December 7). Rapport til kontrollutvalget. Undersøkelse om kjøp av helsetjenester i Grimstad kommune (Inquiry into procurement of health care services in the municipality of Grimstad), auditing firm BDO, Oslo, Norway, 164 pp. 24. Hjort (2018, February 28). Rapport til kontrollutvalget i Grimstad kommune: Analyse av e-poster (Report to the control committee in Grimstad municipality: Analysis of email), law firm Hjort, Oslo, Norway, 8 pp. 25. PwC (2014a, June 10). Hadeland og Ringerike Bredbånd. Rapport— gransking. (Hadeland and Ringerike broadband. Report—investigation), auditing firm PwC, Oslo, Norway, 32 pp. 26. PwC (2014b, June 23). Hadeland Energi. Rapport—gransking (Hadeland energy. Report—investigation), auditing firm PwC, Oslo, Norway, 25 pp. 27. KPMG (2012, February 1). Halden kommune—Granskingsrapport (Municipality of Halden—Report of investigation), auditing firm KPMG, Oslo, Norway, 121 pp. 28. Hjort (2013, October 24). Gransking i Halden kommune / Enhet for plan, byggesak og geodata (Investigation in the municipality of Halden/Department for planning, building permits and geo data), law firm Hjort, Oslo, Norway, 46 pp. 29. Wiersholm (2015, June 25). Monika-saken. Arbeidsgivers håndtering av Robin Schaefers varsling (The Monika case. Employer’s handling of Robin Schaefer’s notice), law firm Wiersholm, Oslo, Norway, 111 pp. 30. Ernst & Young (2012, May 11). Troms Kraft AS. Gransking av Kraft & Kultur i Sverige AB (Troms Energy Inc. Investigation into Energy & Culture in Sweden Inc.), auditing firm Ernst & Young, Stockholm, Sweden, 31 pp. (Swedish firm subsidiary of Norwegian energy company). 31. Deloitte (2012, March 30). Rapport Kragerø Fjordbåtselskap AS— Gransking (Report Kragerø Fjord Boats Inc.—Investigation), auditing firm Deloitte, Skien, Norway, 109 pp. 32. Wikborg (2015, May 12). Granskingsrapport Kvam Auto AS (Investigation Report Kvam Auto Dealer Inc.), law firm Wikborg Rein, Bergen, Norway, 93 pp.

298

Appendices

33. PwC (2008a, May 21). Granskingsrapport. Undersøkelser foretatt på oppdrag fra Oslo kommune, Byrådslederens avdeling v/Seksjon for internrevisjon (Investigation report. Inquiries carried out on behalf of the municipality, city council leader department, section for internal audit), auditing firm PwC, Oslo, Norway, 27 pp. 34. Midt-Norge (2017, January). Gransking. Rådmannens arbeidsavtaler. Leksvik kommune (Investigation. Councilor’s employment contract. Municipality of Leksvik), regional auditing network Revisjon MidtNorge, 36 pp. 35. KomRev (2018, January 29). Forvaltningsrevisjon: Anskaffelse av helse- og omsorgstjenester (Administration audit: Procurement of health and care services), public auditing KomRev Nord, Tromsø, Norway, 104 pp. 36. Vierdal (2012). Rapport til Stavanger tingrett. Lunde Gruppen AS, konkursbo med datterselskaper og deleide sleskaper (Report to Stavanger district court. Lunde Group Inc. bankruptcy with subsidiary companies and partially owned companies), law firm Vierdal, Stavanger, Norway, 86 pp. 37. Ernst & Young (2013a, October 39). Gransking—NRVS (Investigation—NRVS), Ernst & Young, Oslo, Norway, 52 pp. 38. Wiersholm (2016, October 31). Tilgangskontroller i NAV. Gjennomgang, analyse og forslag til forbedringer (Access controls in the social security service. Review, analysis and suggestions for improvements), law firm Wiersholm, Oslo, Norway, 41 pp. 39. Lynx (2012). 1192-rapporten. Gransking. Internasjonale spilleroverganger (The 1192 report. Investigation. International player transitions), law firm Lynx, Oslo, Norway, 50 pp. 40. BDO (2014c). Rapport til Norges Idrettsforbund: Faktautredning av enkelte opplysninger i boken «Fotballagenten» (Report to the Norwegian Sports Association: Facts examination of selective information in the book «The Soccer Agent»), auditing firm BDO, Oslo, Norway, 8 pp. 41. Mannheimer Swartling (2016, July 19). Report to Nordea Bank AB Governance Review, law firm Mannheimer Swartling, Stockholm, Sweden, 42 pp. (Nordea bank operates in Norway, and Norwegians were paid attention in the Panama Papers).

Appendices

299

42. Deloitte (2010, August 16). Norsk Tipping—Granskingsrapport (Norwegian betting—Report of investigation), auditing firm Deloitte, Oslo, Norway, 61 pp. 43. PwC (2016, September 1). Gjennomgang av korrupsjonsregelverk, antikorrupsjonstiltak og eierstyring (Review of corruption regulations, anti-corruption efforts and owner management), auditing firm PwC, Oslo, Norway, 77 pp. 44. BDO (2017a, December 6). Rapport om risikokartlegging for Boligbygg Oslo (Report on risk assessment for Housing Oslo), auditing firm BDO, Oslo, Norway, 79 pp. 45. Kommunerevisjon (2013, June 11). Oslo kommunes saksbehandling i Lindebergsakene (Oslo municipality’s handling of the Lindeberg cases), municipality auditing authority Kommunerevisjonen, Oslo, Norway, 92 pp. 46. PwC (2009, December 17). Gransking av “Spania-prosjektet” Oslo kommune (Investigation of the Spain project in the municipality of Oslo), auditing firm PwC, Oslo, Norway, 92 pp. 47. Deloitte (2017b, April 25). Renovasjonsetaten Oslo kommune. Gjennomgang av anskaffelsesprosess og kontraktsoppfølging i Renovasjonsetaten (Renovation service Oslo municipality. Review of procurement process and contract follow-up in the renovation service), auditing firm Deloitte, Oslo, Norway, 93 pp. 48. PwC (2007, December 19). Granskingsrapport Samferdselsetaten. Undersøkelser foretatt på oppdrag fra Oslo kommune—Byrådslederens avdeling v/Seksjon for internrevisjon (Report of investigation. City transportation Authority. Inquiry carried out on behalf of Oslo municipality—Council manager’s department at internal audit function), auditing firm PwC, Oslo, Norway, 88 pp. 49. Kommunerevisjon (2006a, August). Granskingsrapport Undervisningsbygg Oslo (Report of investigation school buildings Oslo), municipality auditing Kommunerevisjonen, report number 16, Oslo, Norway, 30 pp. 50. Kommunerevisjonen (2006b, December). Granskingsrapport 2 Undervisningsbygg Oslo (Report of investigation 2 school buildings Oslo), municipality auditing Kommunerevisjonen, report number 27, Oslo, Norway, 44 pp.

300

Appendices

51. Wiersholm (2012b, May 24). Rapport til styret i Unibuss (Report to the board at Unibuss), law firm Wiersholm, Oslo, Norway, 23 pp. 52. Kvale (2013, December 11). Innberetning til Oslo byfogdembete i konkursbo Oslo Vei AS (Report to Oslo city bailiff authority in Oslo Road bankruptcy), law firm Kvale, Oslo, Norway, 53 pp. 53. KPMG (2016). Politiets utlendingsenhet. Faktaundersøkelse og vurdering (Police immigration unit. Factual survey and assessment), auditing firm KPMG, Oslo, Norway, 74 pp. 54. PwC (2008b, June 10). Granskingsrapport. “Terra-saken i Rana kommune» (Report of investigation. The «Terra case» in Rana municipality), auditing firm PwC, Oslo, Norway, 52 pp. 55. Kromann Reumert (2015, November 21). Undersøgelse af hændelsesforløbet vedrørende tilretning og ændring af fakturatekst fra ekstern leverandør (Investigation of event sequence regarding alignment and change of invoice text from external supplier), law firm Kromann Reumert, Copenhagen, Denmark, 27 pp. 56. Stiftelsestilsynet (2017, February 13). Stiftelsen romanifolkets/taternes kulturfond (Foundation gipsy culture fund), Stiftelsestilsynet (Foundation review board), Førde, Norway, 36 pp. 57. Distriktsrevisjonen (2007, May 30). Rapport etter granskingsoppdrag fra styrene i Nedre Romerike Vannverk og Sentralrenseanlegget (Report following inspection assignment from the boards of Lower Romerike Water Works and Central Drainage Plant), regional auditing service Nedre Romerike Distriktsrevisjon, Lillestrøm, Norway, 555 pp. 58. Tenden (2017, July 4). Rapport fra undersøkelse varsling Sandefjord kommune (Report from investigation whistleblowing Sandefjord municipality), law firm Tenden, Sandefjord, Norway, 54 pp. 59. KomRev (2015, October 2). Undersøkelse i Skjervøy Fiskeriutvikling (Investigation into Skjervøy Fisheries Development), regional auditing service KomRev Nord, Tromsø, Norway, 138 pp. 60. Ernst & Young (2013b). Stangeskovene granskingsberetning (Stange forests investigation report), lawyers Berg and Roscher, auditing firm Ernst & Young and law firm Lynx, Oslo, Norway, 103 pp. 61. PwC (2013b, September 11). Kontrollutvalget i Stavanger kommune v/Rogaland Kontrollutvalgssekretariat. Undersøkelse/gransking knyttet til Stavanger kommunes utbetaling av a-kontobeløp i forbindelse med

Appendices

62.

63. 64.

65.

66.

67.

68.

69.

301

den såkalte «Tyrkia-saken» (The control committee in Stavanger municipality by Rogaland control committee secretariat. Investigation/review related to the payment of account amounts by the municipality of Stavanger in connection with the so-called Turkey case), auditing firm PwC, Stavanger, Norway, 14 pp. Haavind (2011, June 21). Undersøkelse av bekymringsmelding vedrørende psykiatridivisjonen (Inquiry into the concern message regarding the psychiatry division), attorneys Davidsen and Sandvik, law firm Haavind, Oslo, Norway, 15 pp. Deloitte (2016a, April 27). Review—Ownership VimpelCom. Telenor ASA, auditing firm Deloitte, Oslo, Norway, 54 pp. BDO (2017b, September 20). Rapport Tjøme commune: Gransking (Report Tjøme municipality: Investigation), auditing firm BDO, Oslo, Norway, 39 pp. Holmen (2014, May 2). Granskning Tomter Handelsforening AS—Rapport (Investigation Tomter Trade Association Inc.—Report), auditing firm Holmen, Halden, Norway, 16 pp. Norscan (2013, September 9). Sammendrag av granskingsrapport— Troms Kraft AS. I henhold til Nord-Troms tingretts kjennelse av 4. juli 2012 (Summary of investigation report—Troms Energy Inc. According to North Troms district court’s decision of July 4, 2012), economist Nergaard, consulting firm Norscan, 38 pp. Duane Morris (2016, January 22). Project House—report, conclusions and notes from interviews with selected landlords, real estate agents and locally engaged employees of the Royal Norwegian Embassy in Hanoi, law firm Duane Morris, Hanoi, Vietnam, 172 pp. Kontrollenhet (2016, December). Gjennomgang av Utenriksdepartementets tildeling og forvaltning av tilskudd til ILPI gjennom prosjektet Nuclear Weapons Project (Review of the Ministry of Foreign Affairs’ allocation and management of grants to ILPI through the project Nuclear Weapons Project), central control unit in the ministry Sentral kontrollenhet, Oslo, Norway, 23 pp. Kontrollenhet (2017, May). Gjennomgang av Utenriksdepartementes forvaltning av samarbeidet med ILPI 2009–2016 (Review of the Ministry of Foreign Affairs’ management of the cooperation with ILPI

302

70.

71. 72.

73.

74.

75.

76.

Appendices

2009–2016), central control unit in the ministry Sentral kontrollenhet, Oslo, Norway, 25 pp. Deloitte (2016b, February 12). Report of factual findings on the review of IRRANA program components VTY and HA, auditing firm Deloitte, Oslo, Norway, 36 pp. Wiersholm (2012a, November 19). Verdibanken ASA (The Value Bank Inc.), law firm Wiersholm, Oslo, Norway, 5 pp. PwC (2018, February 25). Rapport fra ekstern undersøkelse av takstbruk ved avdeling for klinisk patologi (Report from external inquiry into fees at the department of clinical pathology), auditing firm PwC, Oslo, Norway, 30 pp. BDO (2013b, June 28). Gjennomgang av økonomiske bidrag til NVHF Forlag (Review of financial contributions to NVHF Publishing), auditing firm BDO, Oslo, Norway, 20 pp. BDO (2017c, March 16). Rapport: Leverandørkontroll Vitalegruppen (Report: Vendor control Vitale group), auditing firm BDO, Oslo, Norway, 50 pp. Stiftelsestilsynet (2014, February 19). Lotteritilsynets tilsynsrapport om World Ventures i Norge med varsel om stans av ulovlig pyramidevirksomhet (Lottery Authority’s surveillance report on World Ventures in Norway with notification of suspencion of illegal pyramid activities), Norwegian authority for lotteries and foundations Lotteri- og stiftelsestilsynet, 17 pp. Advokatpartner (2017, December 12). Årsredegjørelse til Bergen tingrett for Zachariasbryggen (Annual report to Bergen district court for Zacharias pier), law firm Advokatpartner, Bergen, Norway, 33 pp.

303

Appendices

Table A.2

Investigated organizations and investigating firms

#

Investigated organization

1

Adecco nursing home

Wiersholm law firm 2011

2

Ahus hospital

PwC audit firm 2013

3

Andebu municipality

BDO audit firm 2014

4

Arendal traffic station

Internal audit function 2017

5

Askøy municipality

BDO audit firm2018

6

Bergen municipality

Internal control function 2018

7

Bergen havn port authority

Havarikommisjon commission 2019

8

Bergensklinikkene private health clinic

Ernst & Young audit firm 2019

9

Betanien foundation

BDO audit firm2014

Investigating firm

10 Briskeby public sports arena

Lynx law firm 2011

11 Bærum municipality

G-partner law firm 2007

12 Bårlidalen public water waste site

Svendby consulting firm 2016

Suspicion of white-collar crime

Report pages

Fraud in employment contracts Fraud when charging mapping services Abuse of mayor position in procurement Corruption for illegal vehicle permits Public procurement from family members Building permit to friends without control Accidents from maintenance cost savings Subsidy fraud by false number of addicts Embezzlement by chief executive (CEO) Fraud in public construction funds Corruption at public procurement Fraud by overbilling the municipality

23

15

23

32

40

28

24

59

10

267

43

80

(continued)

304

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

13 Dale property development

Komrev. Rogaland public audit 2015

14 Danske Bank banking

Bruun & Hjejle law firm 2018

15 Demokratene political party 16 DNB banking

Partirevisjon internal control function 2016 Hjort law firm 2016

17 Drammen municipality

Deloitte audit firm 2017

18 Eckbo foundations

Thommessen law firm 2009

19 Fadderbarna foundation 20 FilmCamp public fund for productions

BDO audit firm 2011

21 Fjell municipality

Deloitte audit firm 2017

22 Flyktningtjenesten public refugee funding

Buunk et al. internal audit 2015

23 Forsvaret military contracts

Dalseide special committee 2006

24 Forsvaret military logistics

PwC audit firm 2014

25 Forsvaret department of defense routines

PwC audit firm 2015

Komrev. Nord public audit 2016

Suspicion of white-collar crime

Report pages

Public funds spent on private vacations Money laundering in Estonian branch Illegitimate government subsidy Tax evasion in wealth management Corruption in building permits Chairperson fraud in foundation funds Fake documents hiding fraud Fraud by abuse of public funding Corruption in construction permits Embezzlement by refugee services manager Corruption in military computer contracts Corruption in military sales unit Illegal profits from sale of discarded equipment

82

87

5

18

53

119

46 90

50

30

184

71

50

(continued)

305

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

26 Fredrikstad municipality

PwC audit firm 2018

27 Fredrikstad municipality

Simonsen law firm 2018

28 Fretex Salvation Army

Grette law firm 2017

29 Furuheim foundation nursing home

Hald law firm 2006

30 Fyrlykta foundation child care

Deloitte audit firm 2017

31 Fyrlykta foundation child care

Stiftelsestilsynet public examination 2018

32 Gartnerhallen fruits and vegetables

Wiersholm law firm 2018

33 Gassnova public projects

BDO audit firm 2013

34 Grimstad municipality

BDO audit firm 2016

35 Grimstad municipality

Hjort law firm 2018

36 Grimstad municipality

Tinia consulting firm 2018

37 Hadeland broadband mobile company

PwC audit firm 2014

38 Hadeland energy supply company

PwC audit firm 2014

Suspicion of white-collar crime

Report pages

VAT fraud by public company VAT fraud by public company Financial targets to remove executive Fraud in foundation construction Fraud of public funds for excessive salaries Fraud of public funds for excessive salaries Fraud by farmers demanding repay Corruption in public procurement Corruption in public procurement Corruption in public procurement Fraud against caretaker of handicapped person Embezzlement by chief financial officer (CFO) Embezzlement by chief financial officer (CFO)

78

100

132

164

70

28

32

27

64

8

40

32

25

(continued)

306

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

39 Halden municipality skating hall

KPMG audit firm 2012

40 Halden municipality buildings

Hjort law firm 2013

41 Hedmark municipality 42 Helse Nord hospital

Wiersholm law firm 2007 PwC audit firm 2018

43 Hordaland police department

Wiersholm law firm 2015

44 Hordaland police department

Stamina consulting firm 2019

45 Jondal municipality

SBDL law firm 2018

46 Karasjok municipality

Vest-Finnmark public audit 2018

47 Karolinska hospital

Setterwalls law firm 2018

48 Kjøpsvik municipality

Komrev. Nord public audit 2015

49 Klengstua kindergarden

Halden municipal internal audit 2019

50 Kommunaldepartement BDO audit firm 2018 department of interior 51 Kraft & Kultur energy Ernst & Young audit enterprise firm 2012

Suspicion of white-collar crime

Report pages

Fraud in construction project Corruption in building permits Illegal benefits for executives Fraud at executive removal from position Whistleblower financial retaliation Corruption in public procurement Corruption and private enterprise Friends got illegitimate favors Public procurement of consulting without tender Fraud by property developer Fraud in subsidies from municipality Fraud in subsidies for kindergartens Accounting fraud by misrepresentation

121

46

59 40

111

112

71

52

42

60

20

32

31

(continued)

307

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

52 Kragerø shipping

Deloitte audit firm 2012

53 Kristiansand municipality

Komrev. Agder public audit 2016

54 Kristiansand municipality

Tofte law firm 2018

55 Kvalsund municipality

Vest-Finnmark public audit 2012

56 Kvam Auto car dealer

Wikborg law firm 2015

57 Kvinnherad municipality

Deloitte audit firm 2019

58 Langemyhr building company

PwC audit firm 2008

59 Larvik havn port authority

Komrev. Telemark public audit 2018

60 Larvik municipality

Komrev. Telemark public audit 2017

61 Leksvik municipality

Midt-Norge audit organization 2017

62 Lenvik municipality

KomRev audit organization 2018 Vierdal law firm 2012 Stiftelsestilsynet public examination 2018

63 Lunde transportation company 64 Lyoness-Lyconet gambling enterprise

Suspicion of white-collar crime

Report pages

Compensation for leader without contract Private property developer abused political position Harassment for financial benefit Fraudulent consulting fees Majority shareholder fraudulent behavior Fraud in chief executive retirement compensation Fraudulent working hours invoicing Corruption in container terminal Corruption in building permits Illegal benefits to chief executive Fraud by executive Bankruptcy fraud Pyramid play similar to Ponzi scheme

109

25

37

101

93

85

27

58

92

36

104 86 25

(continued)

308

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

65 Moskvaskolen school in Moscow

Ernst & Young audit firm 2013

66 NAV social security authority

Wiersholm law firm 2016

67 NDLA public learning software 68 NFF football players association 69 NIF sports association

Deloitte audit firm 2015 Lynx law firm 2012

70 Nordea banking

Mannheimer Swartling law firm 2016 Deloitte audit firm 2010

71 Norsk Tipping public betting

BDO audit firm 2014

72 Norwegian Poker Team private gambling 73 Næringsdepartement department of industry 74 Næringsdepartement department of industry

Aftenposten media investigation 2018

75 Orange health services provider

Bergen municipality audit function 2016

76 Oslo Boligbygg municipal housing

BDO audit firm 2017

77 Oslo Boligbygg municipal housing

Deloitte audit firm 2018

78 Oslo Boligbygg municipal housing

Komrev. Oslo public audit 2018

PwC audit firm 2016

Ernst & Young audit firm 2018

Suspicion of white-collar crime

Report pages

Paid teachers without teaching Employees illegal abuse of information to gain Private abuse of public funds Fraud in player transfers Association president bribed Tax evasion in wealth management CEO private property served Money laundering at poker game Corruption in state-owned enterprises Embezzlement by executive in aid program Fraud by executive compensation Corruption in public procurement Corruption in public procurement Corruption in procurement of facilities

52

41

57 48 4

42

61

20

77

49

60

79

593

184

(continued)

309

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

79 Oslo Bymiljø municipal parks

Ernst & Young audit firm 2019

80 Oslo Lindeberg nursing home

Kommunerevisjon public audit 2013

81 Oslo Omsorgsbygg housing administration

PwC audit firm 2009

82 Oslo Omsorgsbygg housing administration

Komrev. Oslo public audit 2018

83 Oslo Omsorgsbygg housing administration

PwC audit firm 2019

84 Oslo Renovasjon public garbage collection 85 Oslo Samferdsel public transportation 86 Oslo municipal school buildings

Deloitte audit firm 2017

87 Oslo municipal school buildings

Kommunerevisjon public audit 2006

88 Oslo Unibuss public transportation

Wiersholm law firm 2012

89 Oslo Vei public transportation firm 90 Politiets utlending police department

Kvale law firm 2013

91 Rana municipality

PwC audit firm 2008

PwC audit firm 2007

Kommunerevisjon public audit 2006

KPMG auditing firm 2016

Suspicion of white-collar crime

Report pages

Fraud by fake invoicing of park works Fraud in employment contracts Abuse of Norwegian public funds in Spain Chief executive employed family members Chief executive employed family members Fraud in employment contracts Corruption in public procurement Project manager bribed in corruption Property manager bribed in corruption Corruption in public procurement Bankruptcy fraud Executive abuse of overtime compensation Corruption in public investment fund

28

92

92

76

21

93

88

30

44

23

53 74

52

(continued)

310

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

92 Re municipality

Komrev. Vestfold public audit 2015

93 Region Syddanmark public authority

Kromann Reumert law firm 2015

94 Romanifolket foundation 95 Romerike Vannverk public waterworks

Stiftelsestilsynet public examination 2017 Distriktsrevisjon public audit 2007

96 Sandefjord municipality

Tenden law firm 2017

97 Siva state funding of industries

Wikborg law firm 2018

98 Skien municipality

BDO audit firm 2017

99 Skjervøy municipality

KomRev public audit 2015

100 Stangeskovene forest company

Ernst & Young audit firm 2013

101 Statoil energy

Hagen et al. internal controllers 2013

102 Statoil energy

Saure et al. internal controllers 2016

Suspicion of white-collar crime

Report pages

Insurance fraud by putting a building on fire Fraud by abuse of public position Fraud in abuse of public subsidies Fraud in privatization of public property Abuse of executive position for family benefit Chief executive funded his own company Fraudulent removal of sand from public property Public funds allocated to personal property Private stock exchange excluding bidders Cost savings in security measures causing accident Cost savings in security measures causing accident

81

27

36

555

54

74

19

138

103

88

68

(continued)

311

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

103 Statoil energy

Østby et al. internal controllers 2017

104 Stavanger municipality

PwC audit firm 2013

105 Sykehusapotekene hospital pharmacies

Moberg Segrov consulting firm 2019 Kluge law firm 2017

106 Sykehusbygg hospital buildings

107 Sykehuset Innlandet hospital

Haavind law firm 2011

108 Telenor VimpelCom mobile company

Deloitte audit firm 2016

109 Tennisforbundet tennis association

Lewis et al. consulting firm 2018

110 Tidal music streaming service

NTNU research group 2018

111 Tjøme municipality

BDO audit firm 2017

112 Tolga municipality

Fylkesman public examination 2019

113 Tomter shopping center association

Holmen audit firm 2014

114 Transocean oil rig company

Riksadvokaten public prosecutor 2017

Suspicion of white-collar crime

Report pages

Cost savings in security measures causing accident Kidnapping fraud in public child care Harassment for corporate profits Executive benefit from harassment of subordinate Fraudulent abuse of chief executive position Corruption to obtain licenses in Uzbekistan Fraudulent arrangements of game results Fraudulent manipulation of streaming accounting Corruption in building permits at the seaside Fraudulent diagnoses for retarded inhabitants Fraud in deregulation of shopping area Tax evasion

107

13

58

96

15

54

80

78

39

51

16

111

(continued)

312

Appendices

Table A.2 (continued)

#

Investigated organization

115 Trendtech investment securities 116 Troms Kraft energy company

117 Universitetssykehuset Nord hospital 118 Uppsala municipality

119 Utenriksdepartement state department 120 Utenriksdepartement state department

121 Utenriksdepartement state department

122 Utlendingsdirektoratet foreign affairs 123 Verdibanken banking 124 Vestre Viken hospital

125 Vestvågøy municipality 126 Videoforhandlere series production

Investigating firm Finanstilsynet public audit 2016

Suspicion of white-collar crime

Report pages

Misrepresentation of investor figures Norscan consulting Fraudulent firm 2013 abuse of company funds Arbeidsrettsadvokatene Economic law firm 2015 exploitation of workforce KPMG audit firm Manipulation of 2018 audited numbers Duane Morris law Fraud in firm 2016 housing rental for diplomats Kontrollenhet Fraud in internal audit 2016 financing of development project Kontrollenhet Fraud in internal audit 2017 financing of development project Deloitte audit firm Subsidy fraud at 2016 return of refugees Wiersholm law firm Insider trading 2012 in bank shares PwC audit firm 2018 Fraudulent diagnoses to obtain more state funding Komrev. Nord public Illegal audit 2018 procurement BDO audit firm 2013 Abuse of state subsidies

29

38

60

39

172

23

25

36

5 30

57 20

(continued)

313

Appendices

Table A.2 (continued)

#

Investigated organization

Investigating firm

127 Vistamar rehabilitation center

Komrev. Trondheim public audit 2018

128 Vitalegruppen private nursing

BDO audit firm 2017

129 World Ventures gaming company

Stiftelsestilsynet public examination 2014 Selmer law firm 2014

130 Zachariasbryggen property development

Table A.3

Suspicion of white-collar crime

Report pages

Embezzlement by chief executive Fraud in municipal subsidies Illegal pyramid of Ponzi scheme Fraud in transfer of property rights

92

50

17

33

Change management recommendations from investigating firms

#

Investigating firm

1

Wiersholm law firm 2011

2

PwC audit firm 2013

3

BDO audit firm 2014

4

Internal audit function 2017

5

BDO audit firm2018

6

Internal control function 2018

Change management measures recommended

Theme

Certify new employees after the compulsory training program Identify relevant sanctions when misconduct and crime occur Introduce employment contracts and regulation of behavior Prevent fake sales documents and sales documents for relatives Define and describe routines to document roles of politicians in business matters Make individuals accountable for providing deviant advice in building matters

B

D

B

B

C

A

(continued)

314

Appendices

Table A.3 (continued) #

Investigating firm

7

Havarikommisjon commission 2019

8

Ernst & Young audit firm 2019

9

BDO audit firm2014

10

Lynx law firm 2011

11

G-partner law firm 2007

12

Svendby consulting firm 2016

13

Komrev. Rogaland public audit 2015

14

Bruun & Hjejle law firm 2018

15

Partirevisjon internal control function 2016

16

Hjort law firm 2016

17

Deloitte audit firm 2017

18

Thommessen law firm 2009

19

BDO audit firm 2011

20

Komrev. Nord public audit 2016

Change management measures recommended

Theme

Control non-commercial flights in the same way as commercial flights Introduce whistleblowing routines that protect whistleblowers from reprisals Develop routines for recovering assets from embezzlement and other kinds of financial crime Develop routines to prevent municipal commitment to ill-planned projects Conduct random controls to check relationships among parties in public procurement Formalize requirements for project management in property development Introduce stopping criteria in property development projects Implement identical IT platform at all branches of the bank Require additional documentation of subsidies to political party Implement guidelines for ethical behavior in relevant dilemma training sessions Select two building permit officers on a random basis in each case Simplify organizational structure by merging foundations Limit fraction of expenses allocated to administrative duties Increase the number of controls of spending from public funding

B

C

D

B

D

B

B

C

B

B

B

C

B

C

(continued)

315

Appendices

Table A.3 (continued) #

Investigating firm

21

Deloitte audit firm 2017

22

Buunk et al. internal audit 2015

23

Dalseide special committee 2006

24

PwC audit firm 2014

25

PwC audit firm 2015

26

PwC audit firm 2018

27

Simonsen law firm 2018

28

Grette law firm 2017

29

Hald law firm 2006

30

Deloitte audit firm 2017

31

Stiftelsestilsynet public examination 2018

32

Wiersholm law firm 2018

33

BDO audit firm 2013

Change management measures recommended

Theme

Rewrite whistleblowing policy to encourage and support suspected misconduct and crime reports Revise routines access rights for registration of arriving refugees in computer system Clarify rules and procedures for termination of employment by misconduct and crime Develop routines to monitor exports of scrapped defense equipment Focus on rules and routines where goals do not at all justify means Encourage whistleblowing by boasting and favoring whistleblowers Develop routines to dismiss executives responsible for retaliation against whistleblowers Encourage fast and professional response in cases of whistleblowing Separate authority to make decisions from authority to implement decisions Reduce the number of boards and board positions in the foundation Avoid procurement of services from foundation officials Avoid loans to farmers who are suppliers to the company Reject payments when documentation does not meet requirements

C

B

D

B

A

A

D

A

B

C

A

A

B

(continued)

316

Appendices

Table A.3 (continued) #

Investigating firm

34

BDO audit firm 2016

35

Hjort law firm 2018

36

Tinia consulting firm 2018

37

PwC audit firm 2014

38

PwC audit firm 2014

39

KPMG audit firm 2012

40

Hjort law firm 2013

41

Wiersholm law firm 2007

42

PwC audit firm 2018

43

Wiersholm law firm 2015

44

Stamina consulting firm 2019

45

SBDL law firm 2018

46

Vest-Finnmark public audit 2018

Change management measures recommended

Theme

Require more than one bid before public procurement is executed Secure storage of all emails and other digital documents for a longer period of time Develop routines to dismiss executives responsible for retaliation against whistleblowers Remove the possibility that a single person can make financial transactions Remove the possibility that approval for financial transactions can be obtained from parent company Separate roles of entrepreneur and project leader in property development Apply sanctions to employees who sabotage internal investigations Avoid turning whistleblowing cases into personnel matters Develop governance structure without any individual decision rights Encourage fast and professional response in cases of whistleblowing Help whistleblowers return to a normal work situation Prevent rumors and unfounded allegations by fast and professional response Focus on rules and routines where goals do not at all justify means

B

C

D

B

B

B

D

A

B

A

A A

A

(continued)

317

Appendices

Table A.3 (continued) #

Investigating firm

47

Setterwalls law firm 2018

48

Komrev. Nord public audit 2015

49

Halden municipal internal audit 2019

50

BDO audit firm 2018

51

Ernst & Young audit firm 2012

52

Deloitte audit firm 2012

53

Komrev. Agder public audit 2016

54

Tofte law firm 2018

55

Vest-Finnmark public audit 2012

56

Wikborg law firm 2015

57

Deloitte audit firm 2019

58

PwC audit firm 2008

Change management measures recommended

Theme

Reduce the involvement of private consultants in public projects Develop routines for professional project management Develop effective routines for asset recovery after fraud Reduce entry barriers for new vendors in the kindergarten market Activate board members in their inquiries into business problems and deviant behaviors Remove the role of meetings from board members’ responsibilities for continuous monitoring Separate roles of politician and entrepreneur in property development Introduce internal surveys among employees to receive potential information about crime Focus on rules and routines where goals do not at all justify means Remove access rights to order system for shareholders Develop routines for professional asset management Require detailed time sheets from entrepreneurs in municipal construction work

B

B

D

B

A

A

B

C

A

B

B

C

(continued)

318

Appendices

Table A.3 (continued) #

Investigating firm

59

Komrev. Telemark public audit 2018

60

Komrev. Telemark public audit 2017

61

Midt-Norge audit organization 2017

62

KomRev audit organization 2018

63

Vierdal law firm 2012

64

Stiftelsestilsynet public examination 2018 Ernst & Young audit firm 2013

65

66

Wiersholm law firm 2016

67

Deloitte audit firm 2015

68

Lynx law firm 2012

69

BDO audit firm 2014

70

Mannheimer Swartling law firm 2016

Change management measures recommended

Theme

Simplify and make reporting procedures from municipal projects more transparent Select two building permit officers on a random basis in each case Clarify who has the role of employer when a new chief executive signs an employment contract Require more than one bid before public procurement is executed Qualify bankruptcy auditors for detection of white-collar crime offenses Deny pyramid companies to start business in Norway Centralize approval of salaries for teachers in offsite locations Implement monitoring in computer systems to detect illegitimate employee reading Prepare a transparent list of all procurement agreements with vendors Make football player agents responsible for transparency in player transfers Introduce double approval among executives for all financial transactions Discontinue customer relationships with indications of potential tax evasion

C

B

B

B

C

B B

C

B

B

B

D

(continued)

319

Appendices

Table A.3 (continued) #

Investigating firm

71

Deloitte audit firm 2010

72

Aftenposten media investigation 2018

73

PwC audit firm 2016

74

Ernst & Young audit firm 2018

75

Bergen municipality audit function 2016

76

BDO audit firm 2017

77

Deloitte audit firm 2018

78

Komrev. Oslo public audit 2018

79

Ernst & Young audit firm 2019

80

Kommunerevisjon public audit 2013

81

PwC audit firm 2009

82

Komrev. Oslo public audit 2018

Change management measures recommended

Theme

Terminate executives who have any kind of business relationship with vendors Terminate procurement executives who participate in gambling Express an expectation of compliance in the tone from the top Gather all functions for employer decisions in one unit Ensure the same employment terms for the same work in translated contracts Establish explicit competence requirements for all procurement processes Stop acquisition of housing directly from sellers Replace board members by experts in housing arrangements for the municipality Improve precision in tender documents for work for the municipality Introduce whistleblowing routines that protects whistleblowers from reprisals Punish violations of the principle of dual control at attestation and payments Make visible to politicians costs and other disadvantages of the current investment regime

D

D

B

B

B

B

B C

B

C

D

B

(continued)

320

Appendices

Table A.3 (continued) #

Investigating firm

83

PwC audit firm 2019

84

Deloitte audit firm 2017

85

PwC audit firm 2007

86

Kommunerevisjon public audit 2006

87

Kommunerevisjon public audit 2006

88

Wiersholm law firm 2012

89

Kvale law firm 2013

90

KPMG auditing firm 2016

91

PwC audit firm 2008

92

Komrev. Vestfold public audit 2015

93

Kromann Reumert law firm 2015

Change management measures recommended

Theme

Disseminate knowledge of employment regulations that the organization is subject to Develop explicit criteria in contracts for potential termination Avoid personal relationships between municipal officials and taxi owners Monitor public procurements and sanction deviant behaviors Review all supporting documents from suppliers by spot checks Stop attending dinners and travels paid for by vendors Dispute the external transfer of ownership after bankruptcy Encourage fast and professional response in cases of whistleblowing Avoid investment funds where bonds can be forced to dissolve Log negative events so that the sequence of events can be documented in retrospect Separate roles as public officials and as private citizens

B

D

A

D

C

B D

A

B

C

A

(continued)

321

Appendices

Table A.3 (continued) #

Investigating firm

94

Stiftelsestilsynet public examination 2017

95

Distriktsrevisjon public audit 2007

96

Tenden law firm 2017

97

Wikborg law firm 2018

98

BDO audit firm 2017

99

KomRev public audit 2015

100

Ernst & Young audit firm 2013

101

Hagen et al. internal controllers 2013

102

Saure et al. internal controllers 2016

103

Østby et al. internal controllers 2017

104

PwC audit firm 2013

105

Moberg Segrov consulting firm 2019

106

Kluge law firm 2017

Change management measures recommended

Theme

Deny board members in foundation excessive compensation Recruit board members who understand political processes involving the business Introduce and implement compliance program reporting both internally and externally Develop guidelines for selection of partners in property projects Calculate prices based on market value to avoid biased vendor selection Define and describe routines to document the roles of politicians in business matters Exclude shareholders from board positions where share transactions are decided Recruit competent personnel to handle complex incidents Teach internal key personnel how to handle security threats Increase the number of detection points in the value configuration Improve transparency in financial matters related to child care cases Encourage fast and professional response in cases of whistleblowing Introduce whistleblowing routines that protect whistleblowers from reprisals

B

B

B

B

B

C

D

B

B

C

B

A

C

(continued)

322

Appendices

Table A.3 (continued) #

Investigating firm

107

Haavind law firm 2011

108

Deloitte audit firm 2016

109

Lewis et al. consulting firm 2018

110

NTNU research group 2018

111

BDO audit firm 2017

112

Fylkesman public examination 2019

113

Holmen audit firm 2014

114

Riksadvokaten public prosecutor 2017

115

Finanstilsynet public audit 2016

116

Norscan consulting firm 2013

117

Arbeidsrettsadvokatene law firm 2015

Change management measures recommended Encourage fast and professional response in cases of whistleblowing Clarify ownership rules in joint ventures where operational or financial control is lacking Remove opportunities and incentives for breaches of integrity Make track findings in music streaming more transparent to album producers Prohibit employees from doing private business with employer Clarify financial consequences of medical diagnoses Separate roles of politician and entrepreneur in property development Intensify multinational cooperation among national tax authorities Warn customers about problematic aspects of frequent portfolio redeployments Focus on control mechanisms in new emerging business areas Introduce whistleblowing routines that protect whistleblowers from reprisals

Theme A

B

B

C

B

B

B

C

A

B

C

(continued)

323

Appendices

Table A.3 (continued) #

Investigating firm

118

KPMG audit firm 2018

119

Duane Morris law firm 2016

120

Kontrollenhet internal audit 2016

121

Kontrollenhet internal audit 2017

122

Deloitte audit firm 2016

123

Wiersholm law firm 2012

124

PwC audit firm 2018

125

Komrev. Nord public audit 2018

126

BDO audit firm 2013

127

Komrev. Trondheim public audit 2018

128

BDO audit firm 2017

129

Stiftelsestilsynet public examination 2014

130

Selmer law firm 2014

Change management measures recommended Add budget figures to accounting figures whenever financial results are presented Deny local embassy personnel in contracting and dealing with embassy renting houses Expand the time of quarantine for previous employees in the ministry Document decision processes in supporting external projects Assess cooperation and processes with respect to local refugee authorities in foreign countries Review legal ties also where there is a common religious community Provide training in the use of tariff codes for pathology tasks Require more than one bid before public procurement is executed Detect mistakes by random controls of subsidies among non-government organizations (NGOs) Monitor public procurements and sanction deviant behaviors Review police records before consultants are hired in childcare Control foundations that create and engage in illegal pyramid schemes or similar systems Dispute the external transfer of ownership after bankruptcy

Theme B

B

B

B

C

C

B

B

C

D

C

C

D

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Index

A

access 43, 47, 48, 81, 87, 93–95, 247–248, 252, 275 access to information 248, 249, 251 access to resources 43, 47, 94, 196, 275 accountability 26, 27, 130, 135, 181, 187, 197–198, 202–204, 252 accountants 63, 85, 262 forensic 120, 186, 203, 239–240, 256 accounting manipulation 198 accusations 70, 156, 160, 162, 173, 227, 228, 253 ACFCS (Association of Certified Financial Crime Specialists) 120–122 ACFE (Association of Certified Fraud Examiners) 122, 128

activities, illegal 48, 76 Adecco 174, 291, 303 agency approaches 103 Ahus 291, 303 AML (anti-money laundering) 5, 66, 68–70, 76, 89–92, 93–94, 171 Andebu kommune 291, 303 anti-money laundering. See AML asset recovery 120–122, 230 assets 106, 143, 199, 258, 278 Association of Certified Financial Crime Specialists. See ACFCS Association of Certified Fraud Examiners. See ACFE Astellas Europe 56, 57 Astellas Pharma 55 attitudes 3, 16, 38–39, 45, 48, 58, 114, 149, 239, 249, 279 attorney-client privilege 86, 230, 256

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 P. Gottschalk and C. Hamerton, Corporate Compliance, https://doi.org/10.1007/978-3-031-16123-0

363

364

Index

attorneys 28–29, 232, 239 attributes, social 87, 275 audit 2, 7, 85, 87, 132, 133, 178, 186 audit firm 5, 79, 277 audit functions 185–186, 201, 203 auditing 17, 22, 134–136, 214, 234, 242, 262 auditing and accounting 262 auditing firms 214 global 122, 174, 195, 205, 228, 232, 248 auditing functions 22, 58, 78, 132, 134–136, 186, 203 auditing standards 135 auditors 79, 85, 87, 131–133, 133–136, 152, 155, 158, 203, 258, 262, 277 audit procedures 132, 186, 203 standard 132, 186, 203 Australia 63, 139 Austria 28, 91, 105

Betanien Foundation 87, 137, 157, 160, 162 Betanien in Norway 137, 158 Biegelman, M.T. and Bartow, J.T. 3, 44, 47, 172, 181, 196–198, 201, 202 BNP Paribas 91 Board and Executive Management of NBSA 65 board members 19–20, 129, 130, 159, 161–162, 175, 182, 209, 212 board of directors 59, 61–62, 66–67, 79, 277 bribery 3, 92, 106, 115, 129 Briskeby 292, 303 British Petroleum 16, 28, 105 Bruun Hjejle 5, 20, 55, 56, 57–60, 78, 90, 95, 122, 196, 211, 228 business ethics 31 business ethics and values 31 business executives 76 business objectives 22, 108 business organizations 24, 122

B

bankruptcy 42, 146, 208, 274 bankruptcy fraud 307, 309 banks 5, 57–61, 64–68, 70–71, 86, 89, 93, 96, 129, 187 Barclays 91 BarkerGilmore 104, 107, 108 BDO 159–160, 174, 177–179, 230–231, 291, 303, 313 Belgium 91, 93 Berghoff, H. 3–4, 45, 47, 48, 115, 118–119, 276 Betanien 87, 137, 158, 160–162, 291, 303

C

cartels 23, 42, 44, 77, 118–119, 186, 274, 277 CEO access 61 CEO activities 20, 175, 176 CEO control mechanisms 177 CEO greed 271 CEO misconduct and crime 172 CEO power 204 CEOs (chief executive officer) 15, 19–20, 26–27, 37, 39, 67–68, 85–88, 108–110, 137–138, 157–160, 175–176, 178, 180

Index

Certified Financial Crime Specialist (CFCS) 120, 121 certified public accountants (CPAs) 133–134 CFCS. See Certified Financial Crime Specialist CFO (chief financial officer) 20, 61, 71, 79, 84, 86, 137, 172, 175, 197 chairperson 20, 66–67, 79, 85, 137, 157–161, 175, 230–231 change management 8, 162, 177–180, 182, 195–197, 199–201, 209, 212 change management actions 263 change management approaches 174 change management initiatives 171, 180, 264 charisma 20, 175 chief accountant 261–263 chief compliance officer 20, 70–71, 78, 108–109, 175, 211 chief executive officer. See CEOs chief executives 5, 19, 81, 87, 89, 129, 130, 278 chief financial officer. See CFO choice 39, 44, 79, 84, 110, 139, 202, 271, 273, 275, 277–279 behavioral 184 personal 269 rational 45–46, 114, 269 client management 134 client organizations 171, 173–175, 205, 207, 214, 228–230, 232–233, 237–238, 240–242, 248, 257, 261 clients 64–67, 78–79, 214, 232, 245, 250, 251, 253, 256–258, 260–263, 277

365

client systems 248 Clifford Chance 5, 20, 55, 56, 68–70, 90, 95 cognitive dissonance 46, 280 commands 18, 114, 244 committees 26, 61–64 communication and training 181, 183–184, 199 compensation 25, 28–29, 108, 257 competence 195, 229, 239, 249 formal 249 low 149 competence requirements 249 complexity in rules and regulations 47 complexity, legal 75–77 complexity of rules and regulations 75–77 compliance 1–8, 25–28, 31, 55, 66–67, 70–72, 79–81, 86, 103–108, 113–115, 120, 171, 172, 179, 182–183, 200–201, 211 global anti-corruption 120, 122 internal 17 regulatory 18–19, 23, 92, 106 compliance and anti-corruption 118 compliance and auditing functions 58 compliance and control 172 compliance and corporate social responsibility 15 compliance and governance failure 107 compliance approach of whistleblowing 140 compliance audits 15, 23, 75 compliance challenges 8

366

Index

compliance committee 61–62, 117, 179 compliance culture 31, 86 compliance failures 15, 24, 104 compliance function of investment firms 30 compliance functions 2–4, 7, 22, 23, 27, 29–31, 38, 40, 55, 57–59, 66–68, 75, 77, 79 corporate 3, 16 compliance guidelines 288 compliance issues 26, 27 compliance management 105 compliance model 31 compliance officers 2, 5, 8, 44, 55, 79, 82, 87, 96, 107–109 compliance professionals 37, 104, 107 compliance programs 22, 89, 108, 115, 120 formal 89 compliance requirements 31, 80 compliance responsibilities 106 compliance reviews 171, 180 compliance risk assessment 23, 119, 180–183, 187, 198 compliance rules 17, 117, 179 compliance violations 90, 104, 185, 203 compliance violators 104, 107 compliance work 2, 7 corporate 269 concealment 94, 130, 141, 178, 184, 276 conduct, organizational 75–76 confidentiality 68, 251, 252 conformity 5, 19 corporate 15 regulatory 16

conformity pressure 114 conspiracy 28, 88, 140–142 conspiracy theories 140–142, 155, 160 control 20, 48, 55, 57, 58, 78–79, 81, 82–85, 120–122, 175–176, 177–180, 185–186, 209–211 control functions 44, 57, 61, 78 corporate 25, 57, 78, 90 controllers 4, 82, 141 control mechanisms 82, 195 control of CEOs 20, 175 control systems 31, 61 convenience 41, 55, 196, 269, 270, 272, 274, 280 convenience in motives 214 convenience orientation 37–39, 48 convenience perspective 48 convenience 1–3, 7–8, 37–39, 46–48, 93–95, 212–214 convenience themes 38, 46, 55, 94–96, 267, 270, 279 convenience theory 1, 7–8, 38, 40, 46, 49, 57, 84–85, 94, 213, 214 convenience triangle 48–49, 270 conviction 109, 158, 262 cooperation 26, 64, 181, 197, 201, 233, 234, 240 coordination 27, 30, 31, 106, 154 corporate commitment to compliance 25 corporate compliance 1–3, 6–8, 15–17, 29, 113, 114 corporate crime 8, 20, 23, 127–131 corporate crime and occupational crime 130

Index

corporate culture 2, 16, 56, 178, 180–181, 184, 187, 197–198, 213, 230, 238 corporate deviance and crime 103 corporate governance 106, 180, 181, 184, 197, 204 corporate social responsibility. See CSR corporate transparency 181, 184, 198 corporate wrongdoing 2, 7, 88, 104 corruption 5, 6, 18, 40, 43, 44, 104–106, 108–110, 118–119, 130, 134–135, 177, 179–180, 235 corrupt practices 115 counter terrorist financing. See CTF court 6–7, 88, 108–110, 205, 232, 254, 262–263 Covid-19 pandemic 84 CPAs (certified public accountants) 133–134 Credit Suisse 91 Crime Convenience 46, 155, 212, 280 Crime Convenience to Detection 155 crime detection 134, 136, 152, 153 crime investigation principles 245, 248 crime networks 22, 44, 77, 94, 277 crime prevention 44 crime signal 91–92, 137, 139, 154, 156, 176, 209 crime signal detection 8, 91, 137, 148, 154 Crime Signal Detection Perspectives 127–162

367

crime victims 142, 144, 147, 152, 228 criminal acts 24, 45, 82, 94, 127, 178, 231, 239 criminal investigation 28, 138, 229 criminal justice systems 5, 227 criminal prosecutions 289 crisis 42, 107, 172–173, 274 CSR (corporate social responsibility) 15, 18–20, 180 CTF (counter terrorist financing) 89–91, 93 Cullen, F.T. 38, 45, 46, 76, 81, 127, 199 cultural change 187, 200 culture of zero tolerance 199 customers 42, 58–59, 61, 68–70, 106, 119, 172, 186, 231 Cyprus 69, 91

D

Danske Bank 56, 57–59, 60–61, 78, 90, 105 databases 106, 247 Deepwater Horizon 28 deficiencies in compliance functions 75, 77 delinquency 80, 280 Deloitte 4, 6, 55, 56, 61–64, 71–72, 78, 174, 196, 211, 292, 307, 317 Denmark 4, 56, 60, 68, 90–91, 105, 196 detection 121, 127, 131, 134–136, 142–144, 158, 211–214, 237, 238, 261, 262 detection of law violations in terms of self-reports 121

368

Index

detection of white-collar crime 127, 132–133, 134–136, 142–143, 145–148, 151–153, 208, 228 detection of white-collar crime offenses 318 detection sources 142–144, 228 detective measures 185–186, 201, 203, 213 detectives 133, 227, 242, 249, 260 detective skills 195–198, 209 Deutsche Bank 27, 86, 105 development of preventive measures 195–198, 208 deviant accounting practices 129 deviant acts 127, 280 deviant behavior 1, 2, 7, 37–39, 75, 211–213, 270, 271, 278, 280 deviant executives 1 deviant practices 136, 176 deviant sales practices 129, 240 differential association 45–47, 279, 280 differential association perspective 45, 279 differential value 151, 156 diffusion 78, 277 digital forensics 63, 238, 239, 245 disclosure 115, 136–137, 139–141, 155, 176, 185, 201, 260, 261 disobedience 184, 204 Distriktsrevisjonen 293, 310, 321 DNB Bank 67, 93 DNB Bank in Norway 91, 105 documents 138, 144, 151, 156, 208, 236, 237, 244, 245, 247, 263

E

Eckbos Legater 292, 304

economic crime 71, 145 elite members 4, 39, 46–49, 200, 279 embezzlement 40, 137, 158–159, 161–162, 175, 180, 231–232 embezzlement of funds 85, 159 employees 16, 17, 31, 59, 63–64, 67–70, 139–140, 172, 176, 179, 187–188, 197–198, 200–201, 261–264 bank 68, 142, 152 employer 6, 161, 185, 202, 232, 257 employment contracts and regulation of behavior 208 empowerment 202, 245 enabler 43, 270, 275 enforcement 20, 120, 122 Enron 79, 107 Enron whistleblower 138 entrepreneurs 275 environment of disclosure and investigation 185, 201 Ernst & Young 59, 292, 306, 317 Estonia 56, 57–59, 68, 71, 91, 160 ethical leadership 199 ethics 2, 16, 18, 25, 28, 47, 67, 105, 182–183 ethics and compliance practices 25 European Commission 90 evidence 91, 92, 153, 154, 159–160, 183, 186, 237, 239, 252–257 excessive salaries 305 executive deviance 37, 40, 43, 58, 204, 230 executive dismissals 96, 204 Executive Management 65, 66 executive positions 200, 211 executives and employees 63–64

Index

executives, corporate 23, 88, 182, 199 executive willingness 1, 7, 57 executive wrongdoing 4, 87 expenses 20, 28, 85, 159, 175, 250 expertise 19, 88, 154 exposure 25, 45, 135, 279, 280 external auditors 4, 44, 55, 58, 79, 132, 133, 135, 142, 152 external compliance 17 external restraints 82

F

facilitators 290 Fadderbarnas Framtid 292, 304 failure 2, 130, 154, 238, 242, 256, 258 family members 86, 177 financial crime activities 181, 198 financial crime categories 144 financial crime investigations 89, 96, 120, 242 financial crime scandals 173 financial crime specialists 120, 122, 229, 249 financial crime suspicions 5, 173, 195, 229 financial misreporting 79 financial motive dimension 270 financial motives 37, 40–41, 58, 94, 173, 196, 212, 269 financial transactions 48, 94, 128, 208, 263, 264 forensic accounting function 187 formalism 200, 245 Forsvaret 292, 304 fraud 19–20, 40, 42, 132–134, 144, 148, 186, 235

369

entrepreneurial 275 reporting 79, 277 fraud and corruption 42, 134, 274 fraud examination capabilities 185, 201 fraud examination reports 25, 27, 180, 214 fraud examinations 171, 174, 203, 206, 214, 229, 230, 233, 236–238, 240, 241, 247–249, 254, 256, 258, 262 fraud examinations of compliance failures 15, 24 fraud examiners 26–27, 58–60, 63, 69–70, 159, 173–176, 179–180, 195–197, 205–206, 208, 210–214, 228–230, 232–240, 242, 244, 245, 247, 248, 254, 256, 257, 263 external 4, 173, 205, 214, 230 fraud examiners work 232 fraud investigations 245, 269 fraud prevention 134 fraud triangle 48 fraudulent behavior 118–119, 202 Fuji Xerox 56, 61–64, 78 Fuji Xerox in New Zealand 4, 61, 62 Fundación Betanien 85, 158, 160 Furuheim boligstiftelse 292, 305 FX Group 62

G

Gartnerhallen 261, 262, 263–264 Gassnova 292, 305 gatekeepers 79, 132, 277 Gazprombank 91 General Motors 16, 26, 105, 196

370

Index

Germany 4, 16, 17, 87, 91, 105, 107, 115, 118 global auditing 62, 174, 227, 249 globalization 5, 15, 18, 19, 75–76, 92, 277 Gomulya, D. 150–151, 156 Gottschalk, P. 1, 7, 15, 23, 30, 37, 270, 273, 274, 279 governance 18, 25, 104, 182, 195, 264, 277 governance and compliance 211 governance failure 107 governance functions 61–62 greed 212, 271–272 group compliance 65–66, 105 guardians, corporate 79 guardianship 44, 46–48, 55, 62, 78, 94, 115, 276–278 guardianship functions 44 guidelines, ethical 67, 139, 181, 264

H

Haavind 294, 311, 322 Hadeland bredbånd 292, 305 Hadeland energi 292, 305 Hald, Dalane og Heimvik 292, 305, 315 Halden ishall 292, 306 Halden kommune 292, 306 Hamerton, C. 1, 37, 205 harassment 139, 185, 202 health care fraud 129, 131 health care services 158 Heeren, J.W. 4, 15, 24, 76, 78 Hjort 292, 304, 314 Hordaland politi 292, 306 Hypo Vorarlberg Bank in Austria 91

I

Iceland 16, 25, 106 illegal profits 37, 40 imprisonment 138 independence 19, 58, 84, 87, 184 individual sanctioning 181, 184, 204, 211 individuals, powerful 149, 177 information and communication technologies 84 Information asymmetries 80 information flows, controlling 49 information sources 70, 144, 147, 152, 173, 237, 239, 240, 251, 253, 260, 263 information sources strategy 63, 235, 237, 239, 240, 263 ING Bank in Belgium 91 insider trading 312 inspection, regulatory 75–77 institutional deterioration 43–44, 75, 94, 177, 276 insurance fraud 310 integrity 15, 21, 104, 105, 109, 115, 180, 187, 197, 252 corporate 16 integrity violations 117–119, 187 intelligence 81, 154, 238 intelligence analysts 120 inter-bank cooperation 92–95 inter-bank cooperation challenges 76, 89 interdisciplinary environments 261 internal audit function 227 internal auditors 5, 44, 55, 58, 103, 132, 142–143, 152, 186, 203 internal compliance processes 15 internal controls 2, 7, 27, 28, 78, 132

Index

internal controls and compliance functions 27 internal investigation committee 63 internal investigation reports 26, 44, 55 internal investigation reports by fraud examiners 44, 55 internal investigations 64, 70, 108, 115, 122, 159, 171, 195, 196, 205–206, 208, 258 internal investigations by fraud examiners 196, 259 internal investigations in client organizations 171, 195, 208 internal investigators 5, 65, 249 internal practices 132 internal reviews 288 International Biathlon Union 28, 105 interviews 59–60, 63, 68, 69, 235–239, 244, 253, 263 investigated organizations 206, 214 investigation 58–59, 62–64, 65–67, 69–71, 162, 173–177, 205–206, 214, 233–235, 240–245, 248–258, 260–263 private 115, 120, 229, 258 investigation approaches 241–244 investigation by fraud examiners 58, 240, 251, 255, 257 investigation committee, independent 62 investigation implementation 241, 243, 244 Investigation Knowledge Strategy 232 Investigation Maturity Levels 258 investigation process 242, 251

371

investigation reports 65, 72, 172, 173, 178, 206, 228, 230 investigations by fraud examiners 174, 180, 195–197, 205, 214, 228 investigative skills and knowledge 227 investigators 28, 61, 65, 66, 68, 227–229, 232, 234, 235, 238–241, 243, 247, 252, 253, 259–262 private 5, 159, 229, 251, 254 irregularities 103, 135–136

J

Japan 4, 55, 62–64, 105, 106, 196 journalists 19, 142–148, 151–153 justice 139, 234 justification and neutralization 46, 278 Jyske Bank in Denmark 91

K

knowledge 60, 65, 66, 80, 149, 152, 154–157, 227, 232–235, 239, 248 specialized 83, 233 knowledge asymmetry 71, 178 knowledge collaboration 232 knowledge cooperation 233, 234 knowledge depth 233, 234 knowledge integration 232, 233 knowledge management 145, 233, 234 knowledge management practice 234 knowledge management systems 245, 246

372

Index

knowledge organization 81, 241 knowledge workers 59, 142, 232–234, 247, 260, 262 Kommunerevisjonen 293, 309, 319, 320 KomRev 293, 310, 321 KPMG 20, 27, 292, 306, 316 Kraft & Kultur 292, 306 Kragerø fjordbåtselskap 292, 307 Kvale 293, 309, 320 Kvam Auto 292, 307

L

lack of competence 229 lack of compliance 1, 5, 7, 8, 55–72 lack of controls 78 lack of self-control 213, 278 Langemyhr 292, 307 laundering, anti-money 66, 68, 70, 76, 89, 171 law enforcement 28, 196, 205, 229, 248 law enforcement agencies 254 law enforcement role 253 law firm 5, 214, 228, 230, 239 lawyers 120, 201, 228, 232, 256, 260 leadership 72 legitimacy 27, 81, 117, 178–179, 205, 277 Lehman, D.W. 3, 21, 44, 47, 75–77, 131, 172, 203, 277 Lithuania 56, 68, 69, 160 local law firms 122, 171, 174, 195, 205, 228, 232, 248 loyalties, higher 46, 281 loyalty 115, 139 Lundegruppen 293, 307

Lynx 292, 293, 303, 308, 314, 318

M

Madoff, Bernard 138 management changes 173 management information systems 251 management instability 81 management knowledge 235 management training 176, 177 managerial roles 184 managers 69, 80, 103, 134–135, 180, 183, 276 senior 56, 68, 104 manipulation 129, 144, 147, 150, 235 markets 42, 44, 55, 76–77, 94, 118–119, 186, 274, 277, 278 maturity model 16, 29–31, 258 maturity model for corporate compliance 16, 29 measures, regulatory 15 Mexico 93 misappropriation of funds 261 misconduct 20, 22, 24, 65–67, 75, 175–176, 183–186, 203, 208–209, 228–231, 236, 237, 240, 249, 252 gross 56 mismanagement 24, 43 mistakes 46, 61, 85, 158, 251, 281 Moldova 93 Moldova scandal 93 money laundering 56, 57, 65–67, 70–71, 78, 90, 91–94, 105, 120, 129 Money Laundering Control 91–92, 121

Index

Monitoring systems 185–186, 203 moral panic 42, 113, 274 Moskvaskolen 293, 308 motivation 19, 37, 78–80, 230, 270, 273 motive 38, 47–48, 94, 116, 212–214, 264, 270–273 motive and willingness 38, 46, 47 motive dimension of convenience theory 37, 40, 57 motive for financial crime 212, 271 motive for financial crime by white-collar offenders 271

373

Norfund 94–96 norms 16–17, 43–44, 47, 86, 116, 179, 182 ethical 16, 56, 179 Norscan 294, 312, 322 Norsk Tipping 293, 308 Norway 5–7, 91–94, 105–106, 130–131, 134, 137–139, 142–144, 157–159, 174–175, 195–197, 214

O N

narcissism 280 Nasdaq OMX Copenhagen 60 Nedre Romerike Vannverk 293, 310 Netherlands 4, 6, 16, 29, 91, 106 networks 81, 144, 152 neutralization 46, 49, 56, 271, 278 neutralization techniques 46, 213, 281 news media 145–146 news organizations 145–148 new technologies 89 New Zealand 4, 56, 61, 62–64, 105, 196 NFF-Norges Fotballforbund 293, 308 Nigeria 196 noncompliance 3, 7, 77 corporate 3 potential 26 non-government organizations (NGOs) 323 Nordea 64–65, 106 Nordea Bank 56, 138

obedience pressure 114 occupational crime 23, 127, 130 Oceanteam 16, 29, 106 offender profiling 234, 269 offenders 38, 40, 45–49, 78, 79, 81, 94, 96, 127, 154, 211–213, 236, 264, 275, 279–281 offshore structures 66 operations of 64–65 opportunity 37, 43, 48–49, 60, 66, 212–214, 270, 275–277, 280, 281 opportunity structure 44, 78, 155, 269 organizational barriers to corporate compliance 8 organizational behavior 186, 204 organizational culture 17, 146, 172, 181, 197, 200–201, 208 transformation of 195–197, 206 organizational opportunity 38, 43–44, 57, 77, 83–85, 86, 196, 212, 280 organizational rules 22, 117, 119, 173, 179

374

Index

organizational setting 46, 212, 276, 280 organizational structure 17, 69–70, 183, 202 organizations 1–5, 16–21, 23–24, 40–42, 43–44, 75–77, 79–85, 103–104, 108, 129, 197–203, 139–140, 171–173, 175–186, 274, 276, 277 complex 1, 16, 89 public 115, 131, 229 Oslo 261, 293, 309

P

Panama Papers 5, 64–67, 138, 245 past events 173, 195, 227, 232, 234, 250, 253, 254, 256, 258, 260 penalties 23, 25, 184, 204 performance 185, 201 organizational 129, 183, 204 perpetrators 133, 204 personnel changes 117, 179 Poland 174 police 5, 133, 137, 144, 160, 162, 227–231, 236, 250, 253, 254 police detectives 249, 253, 254 police investigators 29, 142 police officers 142, 152 policing 134 politicians 293, 294, 313, 321 Ponzi scheme 307, 313 position of chief compliance officer 70 potential offenders 2, 8, 37, 44, 45, 48, 178, 184, 269 power 40, 43, 84, 87, 94, 180, 185, 201, 204, 209, 275

Prescription Medicines Code of Practice Authority (PMCPA) 56 pressure 41, 48, 85, 89, 113, 114, 159 peer 280 pressure and threats 85, 159 prestige 88 preventing fraud 120 prevention 133, 136, 180, 210, 212–214 preventive measures 180, 184, 186–188, 204, 206, 208, 211 PricewaterhouseCoopers 55 priorities 56, 69, 146, 261 private policing 4, 205, 228, 229, 242, 248 privatization 205, 229, 248 privileged position of white-collar criminals 276 privileged positions 1, 7, 47, 131, 271, 276 privileges 177, 252 procurement 177, 178, 291–294 professional response 208, 211 professional response in cases of whistleblowing 208, 211 profiling 8, 270 profitability 158, 160 profits 42, 56, 89, 186, 270 promotions 18, 88, 211 prosecution 6, 88, 93, 121, 205, 254 public audit 306–308 public authorities 67, 79, 115, 140, 177, 227, 254, 257, 277 public funds 305, 308–310 public procurement 294, 303, 305, 308, 316

Index

public prosecutor 66, 71, 254, 255, 257 public sector 120, 139, 206, 214 punishment 176, 204, 229 PwC 291, 303, 313

R

Rana kommune 293, 309 Rank Xerox Limited 64 rationality 44, 45, 271, 278, 279 receivers 130, 139, 155–157, 209, 235 regulations 2, 16–19, 21–23, 29, 31, 46–47, 75–76, 105, 106, 108, 136, 173, 208–209, 211 regulators 22, 80, 106, 108, 114 regulatory affairs 86 regulatory requirements 7, 106 removal 28, 237 reports of investigations by fraud examiners 174, 180, 195, 196, 205, 214 reprisals 103, 141, 176, 185–186, 202, 208, 211 resources 30–31, 40–42, 43, 47, 48, 92, 94, 116, 145, 146, 196, 199, 244, 253, 254, 259, 275 respectability 4, 196, 270 response actions 195–197, 203, 208, 211 responsibilities 18–19, 26, 46, 72, 106, 132–136, 181, 183, 197, 199–201, 252, 253, 256, 257 retaliation 62, 137, 139, 141, 176, 185–186, 202, 208, 211 retaliation and reprisals 185, 202, 208, 211

375

risk assessment 5, 15, 23, 87, 180, 198, 199 role of auditing 132 role of compliance 8 rotten apples 23, 24, 131 routines 185–186, 195, 201, 202, 208–211, 263 rule complexity 21, 44, 75–77, 94, 277 rule of law 260 rules 16–17, 21–22, 29, 30, 47, 75–77, 105–107, 131–133, 178, 179, 208–211, 260 corporate 3 formal 2, 16, 22, 117, 184, 205

S

Samferdselsetaten 293, 309 sanctions 17–18, 106, 184, 202, 204, 208–210, 213 Sandvik, R.K. 201, 206, 207, 209, 210, 264 Santander 91 scandals 95, 107, 113, 117, 119, 158, 173, 183, 239, 278 Scotland 147 secrecy 4, 178, 181, 184, 196–198, 229, 251, 278 security 7, 59, 139 segregation of duties (SoD) 19, 183, 200 self-control 49, 178, 213, 278, 280 low 178, 280 self-control and neutralization 49 self-interest continuum 271 self-interested materialism 279 self-regulatory phenomenon of corporate compliance 1, 8

376

Index

Siemens 115–119, 172, 173, 178–180, 184, 187–188, 204 signal 21, 92, 137, 148–154, 155–157, 175–177, 209, 274 signal alertness 149–151, 176, 209 signal detection analysis 154 signal detection features 151 signal detection theory 148–153 signal events 153 signal intensity 149–151, 209 Skjervøy kommune 293, 310 SKUP 146 social control perspective 81–82 social disorganization 76, 80–85 social status 270 Spain 85, 104, 137, 158–161 specialists 120, 233 stage process 254 stages-of-growth model for knowledge management systems in fraud examinations 245 stakeholders 16, 18, 107, 114–116, 119, 172, 181, 187, 204, 251, 275, 276 external 20, 67, 117, 119, 175, 183 Standard Chartered Bank 91 standards 2, 16, 91, 106, 121, 122, 136, 184, 204 ethical 18, 130 legal 5, 19 moral 21, 140 Stangeskovene 294, 310 statements 65, 104, 107, 114, 138, 237, 247 state subsidies 129 status 29, 40, 47, 48, 87–88, 93–95, 272, 275, 278

Stavanger kommune 294, 311 strain perspective 40–41, 272 strains 38, 40–42, 140, 270, 273 strategies 31, 129, 130, 139, 207, 261 structures corporate 238 economic 81 subcultures 83 subjective assessment process 87 supervision 44, 82–85 suspected fraud 28 suspicion of misconduct 176, 186, 203, 228 suspicion of white-collar misconduct and crime 122, 205, 228, 249, 253 suspicions 4–5, 134, 150, 173, 176, 205, 228–230, 256, 260 suspicions of misconduct and crime 185, 202, 203, 228 suspicions of white-collar crime 140, 174, 185, 201, 206, 229, 240 Swedbank 4–5, 56, 68–71, 90, 91, 106 Sweden 4, 6–7, 56, 90, 91, 106, 196, 262 Switzerland 91 Sykehuset Innlandet 294, 311 systems, financial 90, 91

T

Taiwan 63 tax evasion 40, 56, 65–67, 120, 129, 130, 145 tax havens 5, 64–65, 67, 129, 138, 239, 245 team cognition 154

Index

Telemark 307, 318 Telenor 56, 71–72, 106, 294, 311 terrorism 91 thematic analysis 206–207 Thommessen 292, 304, 314 threats 40–42, 57, 62, 85, 94, 159, 269, 270, 272, 274 time in compliance and conduct risks 65 Toshiba 4, 78, 106 trust 15, 21–22, 108, 115–118, 130, 187, 200, 202

U

UK (United Kingdom) 57, 91, 93, 105, 121 understanding of methods and procedures 261 Undervisningsbygg 293, 309 unethical behavior 42, 177, 199, 273, 278 Unibuss 293, 309 United States 4, 6, 16, 22–23, 24, 26–29, 104–106, 107, 196, 197 Uzbekistan 6, 56

V

values 16–17, 30, 31, 39, 151, 153, 155, 181–183, 197, 201, 240, 243, 248, 252, 260 values and beliefs 181, 197, 201 value shop 240–245, 261 Verdibanken 294, 312 Videoforhandlere 294, 312 Vierdal 293, 307, 318 VimpelCom 4, 6, 71–72, 78, 106

377

W

wealth management 5, 60, 64, 129 wealth, personal 143, 271 Wells Fargo 4, 16, 24–26, 78, 196 Wells Fargo Bank 106 whistleblowers 62, 136–137, 138–142, 145, 151, 152, 155–162, 176, 208, 211, 235, 236, 240 defined 185, 202 whistleblowing alerts 139, 155 whistleblowing behavior 140 whistleblowing intentions 137, 176, 209 whistleblowing policies 140 whistleblowing procedures 139 whistleblowing routines 176, 185, 201, 208 white-collar crime 4, 37–41, 44–48, 80–84, 86, 130, 132–133, 134–136, 142–144, 146–153, 185–186, 275, 278–280 corporate 4, 8, 127, 129, 158, 225, 226, 233, 240 white-collar crime by CEOs 20, 176 White-Collar Crime Characteristics 129 white-collar crime convenience 155, 197, 212, 270 white-collar crime investigations 229, 231, 232, 241, 246 corporate 238 white-collar crime phenomenon 47, 196, 212 white-collar crime scandals 44, 55, 173, 180, 195–197, 205, 208, 214, 258, 262, 263 corporate 131, 158, 228, 237–240, 258, 262

378

Index

white-collar criminals 131, 142–145, 175, 231, 232, 269, 276 white-collar offenders 37, 45, 46, 75, 128, 130, 173, 195, 196, 270, 271, 275, 280, 281 Wiersholm 291, 303, 313 Wikborg Rein 292, 307, 317 willingness 38, 44, 46–48, 79, 88, 89, 94, 116–117, 128, 213–214, 269–271, 278–281

willingness for deviant action 269 Wirecard 4, 16, 27, 87, 107 World Ventures 294, 313

Y

Yara Corruption Scandal 104, 108 Yara executives 6