Fraud

Massive document leak on offshore banking. Intro to the Panama Papers.

Old style money laundering. Image courtesy of DollarPhotoClub.com
Old style money laundering. Image courtesy of DollarPhotoClub.com

A massive amount of whistle blower information was announced over the weekend. The files are from a large law firm in Panama that helped companies and individuals set up offshore companies. This is called the Panama Papers.

There are many legitimate reasons to use offshore companies. There are many illegitimate reasons too.

I’ve just started looking at the story. Here are a few introductory tidbits.

More good stuff for auditors – 3/9

 Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

A few articles for CPAs:

  • Do group audit standards apply when there is only 1 auditor?
  • Pondering on how senior execs “go bad”
  • Link between gambling addiction and fraud
  • Steps by Big 4 to analyze ‘big data’ in audits

2/24 – Charles Hall at CPA-Scribo – Do the Group Audit Standards Apply When Only One Firm Audits Consolidated Financial Statements? – Short answer to the question: yes, they apply. Sorry if that is a shock to you.

Another Olympus fiasco, with $640M penalty. No individual prosecutions.

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

The U.S. unit of Olympus admitted it made payments to doctors and hospitals as an inducement to buy Olympus equipment. The company agreed yesterday to pay $646M and enter into two deferred prosecution agreements in return for settling two criminal charges.

I don’t usually follow Foreign Corrupt Practices Act settlements, but this one caught my eye. I’ve not previously been aware of the Anti-Kickback Statute, which prohibits kickbacks from vendors to health care providers in the federal medical reimbursement marketplace. Olympus admits to violating both sets of laws.

Current estimate of Toshiba book-cooking is at $1.9B, surpassing Olympus

Cleaning up the numbers. Image courtesy of DollarPhotoClub.com
Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

After delaying their earnings announcement a while, Toshiba announced a ¥224.8B pretax write-down for accounting irregularities which hits net income for ¥155.2B.

That would be US$1.87B pretax and US$1.29B after-tax. Even if those amounts don’t increase that means Toshiba has out Olympused Olympus at $1.7B.

The now-admitted fraud ran for seven years, not the six previously mentioned.

The view inside a Deferred Prosecution Agreement is not pretty. Selling airplane parts to Iran edition.

Fokker Dr.1 Dreidecker. produced by Fokker Services BV parent early in 1900s. Image courtesy of DollarPhotoClub.com
Fokker Dr.1 Dreidecker. Produced in early 1900s by Fokker Services BV’s parent. Image courtesy of DollarPhotoClub.com

I’ve taken a look inside one of the hundreds of Deferred Prosecution Agreements that the current Department of Justice has negotiated with corporate felons. It is not a pretty sight.

The value for me in looking at this particular DPA is the admitted criminal behavior is on a small enough scale that I can actually wrap my little brain around the situation.

This particular DPA has been denied by a federal judge instead of getting his automatic rubber stamp approval. The DoJ and now-confessed felon both appealed. The case will soon be heard on appeal. There are ripple effects if the judge’s denial is ratified at appeal.

There is an old saying you should never look at how sausage or legislation is made. Reason is the details can turn your stomach.

Here is what I’ve learned of this particular sausage making effort:

8/8, print edition – Wall Street JournalCorporate Prosecution Deals Headed for a Legal Test / Justice Department worries judges may gain sway over agency’s pacts with firms under criminal investigation

Time to start paying attention to the Toshiba accounting scandal

Picture courtesy of DollarPhotoClub.com
Picture courtesy of DollarPhotoClub.com

Yeah, yeah, I’m late to the party.  Since this has been in the news for a few months, I am a bit tardy talking about the issue. On the other hand, yet another round of billion-dollar book-cooking in Japan doesn’t have a lot of impact on accounting firms that only work in the US.

So what’s going on?

Apparently Toshiba has around a dozen different schemes to inflate profits. Make that two dozen. Make that two dozen and counting. Amounts involved are reported to be half a billion dollars, one billion, or three billion. Take your pick.

Former Upland mayor works to rebuild his life after time in prison

New book. New consulting company. Forming a nonprofit. Working in construction industry.

John Pomierski is building a new life after prison.

He accepted a guilty plea for one count of bribery because of his actions while mayor of Upland, California. That’s the city immediately to the west of where I live.

He was sentenced to two years in federal prison. He was in custody from October 1, 2012 until April 28, 2014. I’ve written of his case extensively.

He is working to rebuild his life. Yesterday, he held a book signing for his new book describing his experiences in federal prison. It is a guide for people heading off to ‘federal camp.’

Primer on money laundering and tax havens

High level overview on the how-to of laundering money and using tax havens. Will leave you curious for more details, but it’s a good intro. Also, article on another couple of billion in another settlement from the Great Recession.

4/7/13 – ICIJ – Tax Havens 101: the high cost of going offshore – Good 4 minute primer on how to set up and run an offshore operation to hide assets, whether from the taxman, your spouse, or creditors.

[youtube=https://www.youtube.com/watch?feature=player_detailpage&v=gy2RgjIIZyA]

 

For under 4 minutes, it is a good explanation.

A few places to expand the ideas:

Price cut on print books

I’ve dropped the prices for the print copies of my books available at Amazon, Barnes & Noble, and iTunes store.

Here is what you can find on-line:

tragedy-cover

 Tragedy of Fraud – Insider Trading Edition

Story of Scott London’s fall from regional audit partner at KPMG to prison inmate because of his insider trading.

Rationalization in action is frightening to see

It is scary to see the power of rationalization. We humans can exert great effort to persuade ourself that wrong is right. With enough effort, we can persuasively argue that wrong is a positive good, the noble alternative.

It is unsettling to me when I see a client deeply believe that tax or accounting fraud is perfectly legitimate and I am the one who is in the wrong to suggest otherwise.  Worrisome is a watching a friend who believes that hurtful or destructive or nasty or evil behavior is Godly. Even more upsetting is when I catch my brain in full rationalization mode.

No, I’m not about to give any examples from clients, friends, or my life.

Unfortunately, we have a sad public example of rationalization racing at full power (sad pun intended).

Some background on Lance Armstrong’s massive doping schemes

Many public sources report that Lance Armstrong has been found to use performance enhancing drugs for a very long time. He won seven consecutive Tour de France races.

According to Wikipedia, in 2012 he received a life-time world ban on all competitive events in all sports. His seven wins were revoked. He was found to have engaged in sophisticated doping schemes for many years.

In 2013, he admitted massive doping in an interview with Oprah Winfrey. He admitted using a long and specific list of banned substances and did so in each of the 7 Tour de France races.

Rationalization on display

Having set the background, let’s look at an article in The Guardian:  Lance Armstrong: I would probably cheat again in similar circumstances. Thanks to Professor Mike Shaub (twitter @mikeshaub) for pointing out the article.

More good stuff for auditors – 1/9

A few articles for your growth. Comp and Review reports under SSARS 21 and 19. Bake-your-own net income measures. Lunch money thief gets 5 years in prison and $1.8M restitution

1/7 – CPA-Scribo – SSARS 21 Reports – Preparation, Compilation, and Review – Charles Hall has a great post providing sample reports under SSARS 21. Gives the reports under SSARS 19 for contrast. You gotta’ check it out.

Journalist falling for teen claiming $72M in stock market profits is object lesson for auditors

How many failures in the smell test can you identify in this story, which was published by New York Magazine?

In a few years of trading*, a 17-year old* High School junior has cleared $72 million* in profits from a diverse strategy* of penny stocks*, oil futures, and mid-cap stocks. He owns a BMW and has already rented an apartment in Manhattan that his parents won’t let him live in*. He lives with his parents in the same place they’ve lived for a while*. To validate his story, a fact-checker looked at a* Chase bank statement* that shows a $72M balance*. The stock whiz now says he met with the fact-checker “for about 10 seconds” to view the one statement*.

Update, forgot this part:  After one of the interviews, he was going to an appointment with some guy who wanted to give him* a $150M investment* to start a hedge fund* the day he turns 18*.

The whole thing was a hoax.

“The dozy watchdogs” – Deep discussion in The Economist on the state of audit profession

Gotta’ love the drawing of a seated Doberman with a wondering look on his face as he stares at a trail of muddy feline paw prints. Staring around helpless are three other dogs. The befuddled watchdog has a tag labeled “PwC” in case you hadn’t yet caught the point.

The previous drawing was of an overfed cat in a three-piece suit helping himself to a bag of cash from a safe as four dogs snoozed in front of the safe. Said dogs have a tag identifying each as a member of the Big 4.

If you are an auditor, you really should get a fresh cup of coffee and check out The Economist’s discussion of The dozy watchdogs. Will let you see what non-accountants think of the profession (not too much) and the job the big firms are doing (not so great).

Yeah, there is a problem

Huge fines are a tax on illegal behavior

Several weeks ago I listened to a continuing education class presented by Sam Antar, current felon and formerly CFO of Crazy Eddie.

In the session, he made two comments that caught my ear. First, the fines we read about as a result of various financial scandals are just a tax on illegal behavior. Second, those fiascos are, he said, a cancer destroying capitalism.

After the session, I had opportunity to interview him by phone and follow-up on both of those ideas.

Fines are a tax on illegal behavior

He indicated that essentially no one has been implicated in any of the disasters we’ve read about, which I have discussed extensively on my blog.

He said corporations don’t commit crimes. People commit crimes.

And the people who committed crimes aren’t going to jail.