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BW Businessworld

EY Fraud Investigation & Dispute Services: Forensic Outlook For 2016

India witnessed a host of transformational efforts toward economic growth and improved investor confidence ­during the past year.

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India witnessed a host of transformational efforts toward economic growth and improved investor confidence ­during the past year. Many regulations were launched to improve transparency and at the same time, corporates echoed their commitment to maintain and conduct business ethically. While the general sentiment remains buoyant, corporate India cannot ignore the looming threat of risks around non-compliance, fraud and corruption which lies ahead. In line with this, EY Fraud Investigation & Dispute Services has outlined the key trends that corporates in India should be cognizant of in 2016 to mitigate risks and chart a holistic growth roadmap.

Overcoming concerns in the banking and financial services sector
The banking and financial services sector has faced a significant upheaval with rising non-performing assets (NPAs) in the corporate loans space, cases around trade-based money laundering, cybercrime and the menace of unaccounted black money. Regulatory intervention ensued in 2015 in the form of Reserve Bank of India’s circular on load frauds, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and Benami Transaction (Prohibition) Amendment Bill, 2015. These were to address the concerns of the sector, keep a check on these illicit activities, increase penalizations (errant borrowers, financial crime) and enhance recovery efforts. However, the problems are still far from over. In 2016, we expect banks to focus more on proactive measures, early detection and reporting, monitoring through use of technology and innovation as well as building a robust governance mechanism with specified accountability and responsibility.

Bribery and corruption will continue to be challenging
India has continued to be on an upward growth trajectory with thriving markets. But this scenario is not devoid of risks, and it has been seen that companies may end up resorting to unethical practices to achieve unprecedented revenue targets. This exposes them to the risks of bribery and corruption. Regulations to address, reprimand and penalize are still underway; for instance, the Prevention of Corruption (Amendment) Bill, 2013, Lokpal and Lokayuktas Amendment Act, Law (Amendment) Bill, 2014, and the Whistle-blowers Protection Act, 2011 are tabled in the Parliament. In 2016, companies (esp. domestic) could continue to bear adverse repercussions around bribery and corruption and also have significant impact on their bottom line. Globally, the responsibility of mitigating bribery and corruption is on the commercial organisations and they are reprimanded if they do not succeed. It is just a matter of time before domestic companies are given that onus with increased globalisation, foreign collaborations, change in domestic regulations and expectations of the regulators. They should therefore start investing in compliance, anti-fraud & anti-corruption programs proactively.

Cybercrime will spare no one!
2015 saw a spike in cases around cybercrime as hackers scouted for opportunities to infiltrate bigger firms for data. This was in spite of lack of infrastructure and absence of dedicated cyber-security disclosure norms as currently there are no legal obligations on Indian companies to notify the breach of cybersecurity to any Government or self-regulatory agency. While there is more awareness on cybercrime, many companies still tend to have a reactive approach and act only when an incident has taken place. In 2016, we anticipate large firms to identify vulnerabilities and address them through proactive assessments, network security monitoring and deception technologies like honeypots. We will also see hackers gradually shift their focus toward less protected medium sized firms for a quick and easy reprise. The Government is also planning to bring in legislation that would ensure strict cyber security disclosure norms, which would be essential for companies to protect critical assets.

Liberating legal eagles through eDiscovery and Managed Document Review
Corporate litigation tends to be a costly and time consuming affair. Any commercial dispute, arbitration proceeding, consultancy work or even regulatory litigation can leave an undesirable impact on the company’s balance sheet. With the volume and value of litigation costs skyrocketing, General Counsels (GC) have become prudent and risk-averse. eDiscovery and Managed Document Review (MDR) is being deployed extensively to support litigation proceedings, as well as to stay compliant with regulatory changes. In 2016, this trend will continue and GCs will look at one-stop shop (integrated) solutions for their legal requirements. Companies will also enact clearer policies around on usage of mobile phones and social media at the workplace to allow inclusion of relevant data in litigation proceedings. In addition, we expect the scope of document review to widen to include audio reviews.

Commercial disputes will see an uptick
India has been witnessing a phenomenal growth in domestic as well as foreign direct investment. Consequentially, there is an increase in commercial disputes as well. Complex regulatory guidelines and policies have resulted in large number of local and foreign businesses getting involved in commercial disputes. The past year has seen an evolution in terms of avenues to resolve commercial disputes with the emergence of alternate dispute resolution mechanisms such as mediation, conciliation and arbitrations. These platforms are gaining prominence over legal and court cases. The recent amendments in the Arbitration Act including fast tracking cases, neutrality and various measures to make proceedings more effective are welcome measures. Going forward, while one has to accept the reality that commercial disputes are unavoidable, evolving dispute resolution mechanisms have certainly helped businesses to manage the commercial disputes effectively.