Journal of Financial Crime
- Emerald Group Publishing Limited
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- Corporate governance: on the crossroads of meta-regulation and social responsibility
Purpose: The purpose of this paper is to discuss incongruities in the corporate entity over the matter of agency. In lieu of the traditional notion of moral agency theory, the stakeholder model offers congruent grounding to corporate governance. Socially irresponsible or unethical corporate activities are perceived to increase expenses, diminish shareholder value and tarnish business reputations. In contrast, socially responsible corporate practices contribute to positive attitudes to the company and contribute to the creation of competitive advantage. Design/methodology/approach: This paper follows the ongoing evolution of the regulatory changes instituted after the scandalous corporate fiascos of the present century, such as those of Enron and WorldCom in the USA, Polly Peck in the UK, HIH Insurance and One.Tel in Australia, and Siemens in Germany, inter alia. The exposition also touches on the regulatory metamorphosis of corporate governance in its convergence towards “meta-regulation” with corporate social responsibility at the core. Findings: While meta-regulation has so far worked in many countries, caution is expressed over the perils of over-reliance on a meta-regulatory approach. Industries or market sectors should also attempt to operate from the start within the confines of self-regulation and government regulation. Market sectors and industries need to find the framework of regulation that is best suited to their operations. Originality/value: The paper concludes by discussing the observed challenges and implications of such convergence, as well as future directions for law practitioners, academics and researchers in the realm of corporate conduct.
- Bribery, extortion and “morally ambiguous” leadership in organizations
Purpose: The purpose of this paper is to examine how four styles of “morally ambiguous” leadership could have a philosophical basis, while relatively contributing to efficiently prevent bribery and extortion in the organizational life. Design/methodology/approach: The paper identifies four styles of morally ambiguous leadership in taking philosophically based representations of “sociopolitical saviors” into account: “occasionally cruel saviors” (Niccolò Machiavelli); “occasionally compassionate saviors” (Adam Smith),; “socially conformist and compassionate” saviors (David Hume); and “revolutionary and implicitly compassionate” saviors (Hannah Arendt). Morally ambiguous leaders choose paradoxical ways to assume their moral responsibility. They use paradoxical strategies to prevent bribery and extortion in the organizational life. Findings: The philosophical basis of those styles of morally ambiguous leadership unveils two basic antagonisms: the antagonism between cruelty and compassion; and the antagonism between social conformism and revolutionary spirit. The axis of power (Machiavelli) does not allow any connection between both antagonisms. The axis of self-interest (Smith) shows an intermediary positioning in both antagonisms (relatively compassionate, implicitly revolutionary). The axis of social conformism/compassion (Hume) and the axis of revolutionary spirit/compassion (Arendt) make leaders deepen their paradoxical positionings about moral issues. Research limitations/implications: The four styles of morally ambiguous leadership have not been empirically assessed. Moreover, the analysis of Eastern and Western philosophies could allow decision-makers to identity other philosophically based and morally ambiguous positionings about moral issues. Other philosophies could also unveil further kinds of antagonisms that could be applied to prevention strategies against bribery and extortion schemes. Originality/value: The paper presents a philosophically based analysis of morally ambiguous leadership and its potential impact on prevention strategies against bribery and extortion schemes.
- Modelling external debt – growth nexus: how relevant is governance?
Purpose: Amongst the major concerns of sub-Sahara Africa are the rising external debt and poor performances in governance. This paper aims to lend a voice to the relevance of governance on the relationship between external debt and economic growth in selected five sub-Saharan African (SSA) countries. Design/methodology/approach: Using available data from the World Governance and Development Indicators, between 1996 and 2016, the study uses the fully-modified OLS technique after establishing the absence of unit root and existence of long-run relationship amongst the variables of the model. Findings: The findings confirm a non-linear relationship between external debt and economic with a positive net effect of $5.05 increase in economic performance for a US$ rise in external debt. While the index of governance depicts a negative association with economic growth, the indicators show mixed results. The interaction effect of external debt and governance on economic performance explain that improved governance quality reduces its negative effect on economic performance by US$1.288 (with a total effect of –4.180 + 1.288*EXDBT); it equally enhances the (net) positive impact of external debt by US$1.288 (with a total effect 5.05 + 1.288*IQ). Practical implications: The governments of the selected countries are, therefore, advised to seek other means of financing their expenditure while curbing financial mismanagement and its long-term impacts on growth. Also, governance infrastructures should be improved to restore both domestic and foreign investors’ confidence so that more private capitals may be attracted in lieu of excessive borrowings. Originality/value: The research is the first to comprehensively examine the nexus between external debt, governance and economic growth in the selected countries, given their external debt position in SSA. This includes examining the impacts of each of the governance indicators and the comprehensive index of governance on growth. Furthermore, the study adds to the literature by examining the interaction effects of external debt and governance on economic growth of these countries. This gives both the partial and total estimates of the effects of external debt and governance on economic growth in the countries under consideration.
- Estimations of business exposure to corruption in Malaysia
Purpose: This study aims to investigate the level of business exposure to corruption in Malaysia. The authors estimate the effect of bribe requests from business establishments by public officials and identify the level of vulnerability of businesses to such requests. Design/methodology/approach: This study uses firm-level data from the World Bank Malaysia Enterprise Survey 2014. The analyses are based on binary logit, tobit and generalized ordered logit regressions. Findings: The authors find that one-fifth of firms applying for construction permits or had visits or meetings with tax officials were expected to pay bribes. Firms’ encounters with corruption were higher still when applying for import (29%) or operating license (24.7%). About 40% of the firms considered corruption an obstacle to their business operations to the degree of moderate, major and even severe. On average, 11% of firms’ total annual sales were apportioned for informal gifts or “speed money.” The authors also find that larger, younger and women-managed/owned companies were more likely to be targeted for bribe payments. The amount of bribe paid by foreign-owned firms was higher than the local firms. Manufacturing firms had lower incidences of bribe requests, but the amount paid was higher than services-related companies. Firms run or owned by women also, on average, paid a higher amount bribe. Social implications: These findings should be taken into consideration in the efforts to eradicate corruption affecting businesses in Malaysia. Originality/value: This study is unique in the sense that it is based on firm-level data for a Malaysian case.
- An innovative approach in combating economic crime using forensic accounting techniques
Purpose: The purpose of this study is to develop an innovative approach of combating economic crime using the forensic accounting techniques. Design/methodology/approach: The approach considered the identification of the effective forensic accounting techniques from the available literature and also explored the anti-economic crime policy, capable of assisting in the combating of economic crime. This brought about the development of two conceptual models, which incorporate all the requirements for the implementation of forensic accounting and the integration of forensic accounting technique into the organizational control system for effective fraud mitigation. Findings: The analysis of the literature review indicated that one of the drawbacks, which has continue to mitigate the implementation of forensic accounting as a tool for combating fraud is lack of a suitable framework. This was the major focal point of this work, which produced two simplified conceptual models suitable for effective fraud mitigation. Research limitations/implications: This study is limited to the development of conceptual models for fraud mitigation only. Practical implications: The simplified model can easily be adopted into the structure of an organization to provide a sustainable solution to mitigate fraud occurrences. Originality/value: The novelty of this study lies in the development of two simplified conceptual models. The first model addressed the incorporation of forensic accounting into the organization structure while the second captured the detailed investigation and comprehensive data analysis processes of uncovering fraud. The development of conceptual models with all these peculiarities for fraud mitigation has not been widely reported by the existing literature.
- The relationship between the companies’ political connections and audit fees
Purpose: The purpose of this study is to investigate whether the political connections of companies are correlated with auditor selection, audit fees and abnormal audit fees. Design/methodology/approach: The research data contains 756 observations of companies listed on the Tehran Stock Exchange during 2011-2019. In this study, the relationship between companies with political relationships and the selection of a qualified auditor, audit fees and abnormal audit fees are reviewed. The regression used for test the hypotheses. Findings: The results of hypotheses testing indicate that there is a positive and significant correlation between the political relationships of companies and certified auditor selection, auditing fees and abnormal audit fees. In addition, the political relationships of companies have a significant and inverse effect on the relationship between institutional ownership and auditing fee and abnormal audit fees. It was also found that there is a positive and significant correlation between companies and political relationships and abnormal audit fees. Originality/value: So far several studies conducted on audit fees, however, no study conducted on the relationship of political relationship of the companies with audit fees and the results of the current study may bridge the gap in the current field.
- Controlling insider dealing through criminal enforcement in China
Purpose: The purpose of this paper is to review the criminal enforcement of insider dealing cases in People's Republic of China's (PRC) securities market and to provide feasible suggestions for improvement for a more coherent and streamlined insider dealing regulatory framework in the PRC during the enforcement of China's new Securities Law (SL 2020) in March 2020. Design/methodology/approach: Through analysing the previous literature on public interest theories and economic theories of regulation, this paper examines the necessity to regulate insider dealing in China with criminal law to ensure fairness and avoid monopolies in its securities market. The paper reviews the criminalising of severe insider dealing cases in China from the Nanking National Government in the 1920s to the inception of the securities market of the PRC in the 1990s to the present day. The investigation, prosecution, enforcement and trial of criminal offences of insider dealing in China are thoroughly examined. Findings: The paper finds a tendency for over reliance on the investigation and the administrative judgement of the China Securities Regulatory Commission in criminal investigation, prosecution and trial in the PRC. Originality/value: To the best of the authors’ knowledge, this paper is one of the first papers to critically and thoroughly analyse the criminal enforcement of insider dealing in China following the recent enforcement of China’s new Securities Law in March 2020.
- The risk of financial fraud: a management perspective
Purpose: A number of highly publicised scandals such as Enron, Lehman Brothers, Parmalat, Satyam, Toshiba and 1MDB (to name a few) have heightened the awareness of the effects of fraudulent financial reporting. While enormous measures have been taken to curb the fraudulent activities among large and small businesses, the issues are still alarming worldwide. Thus, this study aims to explore the extent to which the prevalence of fraud risk in state-controlled companies and to enhance understanding of the underlying reasons of the fraudulent activities. Design/methodology/approach: As this study is a descriptive and exploratory in nature, an exploratory case study method was used in four state-controlled companies. Using the fraud triangle theory to underpin this study, the qualitative face-to-face interviews were carried out with top management of the companies. Findings: The study reveals a high risk of fraud occurrence at state-controlled companies that involve dealing with various suppliers, governments, customers and shareholders, even when standard operating procedures and rules and regulation are in place. The apparent reason for this phenomenon is attributed to not only opportunities but also incentives and rationalisations in engaging fraudulent activities. Originality/value: As there are relatively few qualitative studies conducted in this area specifically among Malaysian state-controlled companies, this study extends the fraud literature by examining risk exposure and reasons underlying the fraudulent activities. The findings demonstrate that to a certain extent, the fraud triangle theory explains the motivations behind the fraudulent activities. The finding from this study is relevant to regulators, investors, companies and academicians in understanding, preventing and combating fraud.
- A Bit of an Ending: The Bre‐X Litigation, Class Actions and the Liability of Professionals
The notion of suing professionals — lawyers, brokers, accountants — appears to make good financial sense. It seems fiscally sensible because, while an offender may melt into the night, take up residence in a foreign haven or otherwise dissipate his assets, established professionals usually have...
- A critical appraisal of the role of UCLAF
Purpose: The purpose of this paper is to consider the mission of Unité de Coordination de la Lutte Anti‐Fraud (UCLAF); how it cooperated with Member States and how it accounted for its actions. The paper seeks to detail examples of its investigations and to consider the criticisms made of UCLAF by...
- A crossroad in combating and preventing financial crime. Looking for synergetic instruments for attack and prevention
Purpose: The paper aims to address regulators, enforcers and the academy, presenting reflections on some research‐driven innovative approaches, strategies and tools in the fight against financial and economic crime, with reference to some instances of concrete application deriving from the Italian...
- A Fresh Insight into the Corporate Criminal Mind
As the commercial activities undertaken by companies have a deeper impact on our lives, it has been recognised as increasingly important to control corporate activities. Control is provided by the criminal law and by statutory or quasi statutory regulation whose purpose is to outlaw corporate...
- A longitudinal assessment on the development of financial fraud offending
Purpose: Fraudulent behaviors have a significant influence on society, impact millions of citizens and result in billions of dollars in losses. Consequently, it is essential to understand the potential correlates and causes of financial fraud offending. To date, however, there has not been much...
- A public perception study on bribery as a crime in Turkey
Purpose: The purpose of this study is to explore the perception of Turkish citizens of the severity of bribery relative to other crimes and violations. Design/methodology/approach: A questionnaire survey was administered to 545 Turkish people respondents. A five-point Likert scale that measures...
- A taxing assessment. Evaluating South African mechanisms that curtail tax fraud in cases of impeachable transactions
Purpose: The purpose of this paper is to enlighten the reader about the development in tax law. Moreover, the author intends to show that other measures could be implemented to supplement the existing machinery. Design/methodology/approach: The paper explores the duty vested in the courts to probe ...
- Accession blues: modest successes and major difficulties in Romania
Purpose: The purpose of this paper is to analyse the legislation and case law relevant to preventing and combating fraud affecting the European Union (EU)'s financial interests in Romania. Design/methodology/approach: The paper explores how the legislation is implemented in the process of Romania's...
- Addressing illicit financial flows in Africa. How broad is the whole of government approach supposed to be?
Purpose: This paper aims to identify the underlying key components of illicit financial flows (IFFs) and highlights the priority areas where government resources should be pooled under a whole of government approach to mitigate the risks posed by IFFs. These areas are tax avoidance and tax evasion (...
- Advance fee fraud: the big lie
Negotiable instruments by means of which large sums of money are transferred between banks have long been a source of fascination to the more sophisticated fraudsman. Careful study of the instruments and their conventional usage, combined with the exercise of imagination and knowledge of psychology ...