Forensic and Dispute Services

Gary Bauer is a Partner in the Forensic practice of Deloitte in Russia & CIS, based in Moscow. He has led forensic engagements across 18 countries in Central & Eastern Europe over the last 13 years. A substantial part of Gary’s work has involved investigating general or specific concerns of foreign investors including concerns around business practices in relation to their subsidiaries, investments or potential acquisitions.

Q

Deloitte has one of the largest forensic practices in the world with 2,500 dedicated practitioners in over 30

countries. Can you tell us more about how you advise your clients?

We have one of the largest forensic practices in the CIS with 50 professionals, including 4 partners. From Moscow, our team works with both international and local clients across the CIS region. The mainstay of our work is detecting and investigating fraud, corruption and other irregularities. This involves traditional forensic accounting and interviewing, plus the deployment of forensic technology and the use of background information and intelligence.

We also work with clients on reviewing the effect of their compliance programs and advising on fraud prevention. The remainder of our business includes (a) litigation support –testifying as expert witnesses in local or international disputes, (b) advising in construction disputes/investigations and (c) anti-money laundering and compliance for financial institutions.

Q

What are some of the fraud and corruption risks that investors should be aware of with respect to Russia and

what can investors do regarding these concerns?

Public comment indicates that Russia has deep and enduring problems with fraud and corruption and our experience is that procurement fraud is at the centre of this. Investors should be aware of the following features of the Russian business landscape, allied to procurement fraud: • Prolific use of intermediaries and agents. There are ingrained and historical reasons driving the use of intermediaries for everyday business. This

adds a layer of complexity to determining the true beneficiary of payments. Intermediaries could be used to harbor ‘black cash’ for company management, which can then be used for fraudulent and corrupt purposes. There is a prolific service industry around providing these vehicles and all the necessary contracts and documentation to suggest bona fide transactions.

• Opaque control of companies. There are historical reasons for entrepreneurs seeking to mask the beneficial control of their companies and hidden affiliations and extended informal groups of companies can be common. This presents an obstacle to understanding the true identity of business partners and thus determining whether they are bona fide in nature. Several of our investigations have uncovered links between company insiders and vendors.

• Abundant regulation and documentation. There is an abundance of regulation and paper documentation in Russia for everyday transactions and this contributes to both the pressure to make corrupt payments (often through intermediaries) as well as a culture where internal company procedures are aimed at satisfying formal requirements. The form- over-substance culture in Russian companies can take priority over identifying the underlying nature of transactions and associations and lead to vendors and business partners that present well-prepared documents not being properly scrutinised for nefarious purposes, such as harbouring black cash for fraudulent or corrupt payments.

Nevertheless, there are ways and means to investigate payments and procurement: • Specific documentation and accounting information. There is a keen need for an awareness of the types of documents typically

used in Russian business and an appreciation of shortcomings and red flags in such documents.

• Availability of public information. There are public sources available – both commercial, subscription-based corporate information providers and state authorities publishing detailed information – that allow for a review of business partners to establish red flags in terms of whether they may be linked to company insiders or seemingly lack the bona fides of genuine businesses.

Q

Deloitte offer Computer Forensics specialists, Data Analytics specialists and E-Disclosure specialists. How can

these specialists help your clients, and in what circumstances would your clients need this help?

The use of forensic technology in investigations continues to grow in importance. We have a dedicated Forensic Technology lab in our Moscow office, from which we service the CIS region. The design and components of our lab are consistent with Deloitte Forensic Technology labs around the world.

Our forensic technology engineers are skilled in: • Analysing information from disparate sources – various types of client data, combined with third party information - to identify outliers, deviations and indicia of concern, thus narrowing down transactions and relationships that should be followed up;

• Imaging and interrogating the servers of clients as well as employee laptops/computers and mobile devices to identify ‘smoking gun’ emails and electronic documents; and

• Helping comply with regulatory requests for data from clients and their employees.