Organising the Monies of Corporate Financial Crimes via Organisational Structures: Ostensible Legitimacy, Effective Anonymity, and Third-Party Facilitation
Abstract:This article analyses how the monies generated for, and from, corporate financial crimes are controlled, concealed, and converted through the use of organisational structures in the form of otherwise legitimate corporate entities and arrangements that serve as vehicles for the management of illicit finances. Unlike the illicit markets and associated 'organised crime groups' and 'criminal enterprises' that are the normal focus of money laundering studies, corporate financial crimes involve ostensibly legitimate… Show more
“…20 The legal person of the organisation is often part of the investigations only as context, and faulty processes may be identified in order to be corrected. However, blame is hardly ever put on the organisation, although there are many examples of organisations acting as a perpetrator or facilitator (see Gorsira et al 2018;Van Rooij and Adam 2018;Lord et al 2018). In this way, corporate investigations have an inherent bias towards 'rotten apples'.…”
Public/private relations in the field of security attract considerable academic attention. Usually, the state is central to the analysis, focusing on the diminishing role of a previously dominant state. The role that organisations themselves play in the investigation and settlement of their internal norm violations is, however, much less researched. An emphasis on the role of the state downplays the importance of such actions. This research paper, based on qualitative data from the Netherlands, highlights the role of the organisation as the principal actor in corporate investigations and corporate settlements. The legal constraints upon and day-to-day activities of corporate investigators are considered and the consequences of the distance between public law enforcement actors and corporate security are reflected upon. The paper arrives at the conclusion that the limited insight into the measures taken by organisations in response to internal norm violation can be considered problematic from a democratic, rule-of-law point of view. The freedom of action enjoyed by organisations within the private legal sphere makes oversight and control quite challenging.
“…20 The legal person of the organisation is often part of the investigations only as context, and faulty processes may be identified in order to be corrected. However, blame is hardly ever put on the organisation, although there are many examples of organisations acting as a perpetrator or facilitator (see Gorsira et al 2018;Van Rooij and Adam 2018;Lord et al 2018). In this way, corporate investigations have an inherent bias towards 'rotten apples'.…”
Public/private relations in the field of security attract considerable academic attention. Usually, the state is central to the analysis, focusing on the diminishing role of a previously dominant state. The role that organisations themselves play in the investigation and settlement of their internal norm violations is, however, much less researched. An emphasis on the role of the state downplays the importance of such actions. This research paper, based on qualitative data from the Netherlands, highlights the role of the organisation as the principal actor in corporate investigations and corporate settlements. The legal constraints upon and day-to-day activities of corporate investigators are considered and the consequences of the distance between public law enforcement actors and corporate security are reflected upon. The paper arrives at the conclusion that the limited insight into the measures taken by organisations in response to internal norm violation can be considered problematic from a democratic, rule-of-law point of view. The freedom of action enjoyed by organisations within the private legal sphere makes oversight and control quite challenging.
“…Boies and Prechel (2002) note that at the time of its bankruptcy, Enron contained more than 5,000 subsidiary shells. Even modest amounts of added opacity can dramatically increase monitoring costs (Lord, Wingerde, and Campbell 2018).…”
Section: Organizational Identity and Malfeasancementioning
This article develops and tests an identity-based account of malfeasance in consumer markets. We hypothesize that multi-brand organizational structures help predatory firms short-circuit reputational discipline by rendering their underlying identities opaque to consumer audiences. The analysis utilizes comprehensive administrative data on all U.S. for-profit colleges, an industry characterized by widespread fraud and poor (although variable) educational outcomes. Consistent with the hypothesis that brand multiplicity facilitates malfeasance by reducing ex ante reputational risks, colleges that are part of multi-brand companies invest less in instruction, have worse student outcomes, and are more likely to face legal and regulatory sanctions (relative to single-brand firms). Maintaining multiple outward-facing brand identities also mitigates reputational penalties in the wake of law enforcement actions, as measured by news coverage of legal actions, and by subsequent enrollment growth. The results suggest identity multiplicity plays a key role in allowing firms to furnish substandard products, even amid frequent scandals and media scrutiny. Predatory practices are facilitated not only by the inherent informational asymmetries in a given product, but also by firms’ efforts to make themselves less legible to audiences. The analysis contributes to research on higher education, organizational theory, and the sociology of markets.
“…auditors are not encountering money laundering and wider financial criminality on the same scale as is their Iranian counterparts (Lord, 2018;Jeppesen, 2019). Also, the level of training in forensic accounting and money laundering detection is significantly higher for US auditors: judges can therefore have a more justifiable expectation of auditors given the greater knowledge which they are assumed to possess (Jennings et al, 1993;Anderson et al, 1998 (McEnroe, 1990).…”
Section: The Auditor-judiciary Anti-money Laundering Expectations Gapmentioning
Purpose
This study aims to compare judicial and auditor expectations of audit in the detection and reporting of money laundering in Iran. It also aims to assess the implications of expectations gap for the reliability of data provided to the Financial Action Task Force (FATF) in its blacklisting policy.
Design/methodology/approach
Questionnaires were administered to auditors to determine perceptions of their anti-money laundering (AML) reporting obligations. These were also completed by Iranian judges who hear money laundering prosecutions and who agreed to participate in the research. The group was created through the “snowballing” technique.
Findings
There is significant divergence between judges and auditors regarding the latter’s AML reporting obligations. Self-perception among auditors regarding investigative duties is insufficiently aligned with expectations of the FATF, particularly where there is use of corporate structures, charities and trusts in which identity of true owners, of payers and payees of funds cannot be accurately verified. This gap presents a significant terrorist financing risk.
Practical implications
The expectations gap makes training in forensic accounting, as well as compliance with international reporting expectations, a matter of urgency for the Iranian auditing profession. The judiciary needs to be more aware of international expectations.
Originality/value
Data regarding judicial expectations of auditors’ AML reporting obligations is difficult to obtain and of a highly sensitive nature. This research has obtained such data which has relevance to the FATF blacklisting policy, and to international organisations tasked with disrupting terrorist financing networks.
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