Fraud, the Philippine cut

Malacañang reacted to PwC’s 2020 Global Economic Crime and Fraud Survey–The Philippine Report that cites the rise in bribery and corruption. The presidential spokesperson said it’s the fault of the private sector. I wish to make a few rejoinders to this reaction:

1. That is partially true. It is also true that between the government and the private sector, it’s the former that has the power.

2. Whenever a bribery transaction happens, it’s not the government personnel that’s the hapless victim.

3. The PwC survey finding that says bribery and corruption is on the rise is partly caused by purely B2B transactions, which I call private corruption.

The PwC report discloses that 42 percent of respondents were victimized by financial crimes about two to six times during the year, ranging from P500,000 to P5 million per hit. One of the reasons why financial crime is on the rise is that while corporates are willing to invest in technology and digital upskilling, they are not that keen on putting up the equivalent investment in IT security. Thus, the tools we sought to help us are easily used by fraudsters to perpetrate the crime. 

The thing with fraud, when compared to theft that could be random, is that fraud is always committed with much deliberation. Thus, the fraudster has analyzed where the weaknesses and laxities are, and where he or she can abuse confidence or trust. 

Financial crime is not necessarily about cyber or hi-tech. In fact, the lion’s share of financial crimes still belongs to asset misappropriation perpetrated through fraud by internal personnel. For example, if in your organization, officers sometimes sign their initials/abbreviated signature instead of their full signature, it’s probable that even the abbreviated signatures are used in check requests–which the fraudster employee will notice as easy to copy. These will be forged and if the procurement policy is decentralized or lax, checks will be processed especially if on its face it is requested by the high-ranking officer with his (forged) abbreviated signature on the request. You can start by no longer allowing abbreviated signatures on approvals that will cost money, and by having protocol signature verification on check requests.

Another big-ticket financial crime on the rise in the survey is consumer fraud. On this one, for consumers to defraud (low-tech style), they need to gain trust. Horror stories are common. The fraudster customer first buys in cash, whether it be flour, or gold, or construction material. Then the next transactions will be by check, and the check will be good. Then he will stress-test the process by getting the seller to agree to post-dated checks, which will turn out to be good. This goes on until the next transaction that’s now sizable, the checks will then bounce and the buyer will be nowhere to be found. Unfortunately, almost in all cases, the last person to know he is being schemed is the victim.

The other big-ticket item that is on the rise is bribery fueled by private corruption. This is about people losing out on bids for projects because the competition is audacious enough to bribe the owner, or contractors winning bids by submitting falsified financial reports or documents, or the day-to-day procurement fraud engineered by the procurement officer in connivance with suppliers or vice versa. When suppliers bribe the procurement officer, suppliers take over. So expect oversupply or excess inventory, not to mention extra costs.

There are cases where the procurement officer is the one that extorts the supplier, such as the

actual case of this purchase manager requiring suppliers to buy from her boxes of this organic juice supplement as a prerequisite. Even the supplier can be defrauded such as in one case where the regular supplier was convinced to drop off the order to the employee’s residence. Of course, the company would not honor the purchase made by the fraudster employee.

You may be surprised that most of these private corruptions–unless they involve estafa, forgery, or falsification of private documents–are not crimes in our Revised Penal Code. That is why these guys, when caught, are asked to pay up and leave the company but they don’t get criminally prosecuted. Thus, one of the projects of the Integrity Initiative, Inc. is to propose legislation to criminalize private corruption. It is important to name and define this as a crime because in criminal law, if you lack the elements, or when there is doubt, the fraudster cannot be convicted.

Now, back to bribery and corruption per se of government, where the Philippines relevantly dropped 14 places in Transparency International’s Corruptions Perception Index 2019. There is no shadow dancing here because it takes two to tango. Thus, the bribe giver and bribe taker are both guilty, we know that. The only reason why the government personnel or official is more guilty is because of their oath, the violation of public trust and the Anti-graft and Corrupt Practices Act.

From what we see, there is a blur between extortion and bribery but invariably, the victim here is our country: our tax collection, our public services, our quality of life, our Philippine brand, and for whatever it’s worth, our self-respect. How to rise? We can start by not pointing our finger on someone else.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of Integrity Initiative Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.