Populism and nationalism greatest threat to businesses in region: Kroll MD

• Cyber investigations and crisis response is a huge growth area for the company and suddenly a hot topic in SEA
• Corruption – the paying off of government officials for favours and commercial advantage  – is probably the largest issue in the region

IF YOU read newspapers and magazines, chances are you might have heard of Kroll. But many of us don’t exactly know what exactly Kroll does. The reason for Kroll’s studied obscurity is due to the nature of its work, most of which needs to be done under the cloak of secrecy.

Kroll is a corporate investigations and risk consulting firm based in Midtown Manhattan, New York City.  According to its corporate website, Kroll was founded in 1972 by Jules B. Kroll with the ‘ground-breaking mission of helping clients improve operations by uncovering kickbacks, fraud or other forms of corruption’. Over the past 40 years, Kroll has evolved from a small investigative consultancy to an international technology-enabled intelligence and information management company and has a presence across the globe. 

Offices in Hong Kong, Shanghai, Mumbai, Beijing, Singapore and Tokyo carry out Kroll’s Asian operations. It has a multicultural team of leading experts from the fields of investigations, intelligence, risk analysis, cyber security, data breach response, and e-discovery. They help leaders reduce risk, manage compliance, navigate litigation and make confident decisions.

To understand more about Kroll’s ways of working, especially in the context of Southeast Asia (SEA), we interviewed Singapore-based Kroll managing director Richard Dailly (pic).

Kroll is a large, global business intelligence agency. How long has it been active in Southeast Asia?

About 21 years. However, we had traditionally been very small here until about 2011.  Since then, we have significantly increased investment into the region and now have a team of 25 covering business intelligence, corporate investigations, compliance and most recently, cyber investigations and crisis response, which is a huge growth area for the company and suddenly a hot topic in SEA.

For us, SEA includes Australasia in addition to Asean.  Although we do not have an operational team permanently based in Australia at this time, we have a business development adviser and over the last two years have invested heavily there.  Many Australian companies are international and operating in some fairly risky and opaque geographies. Australian resource companies are operating in risky geographies throughout the world; most notable, perhaps, are the Perth-based miners, who are present in large numbers in Africa.

Why haven't we heard much about Kroll? Is it because of the secrecy under which it works? Are there client embargoes on stories?

Most projects we are engaged for are extremely confidential and discreet. We are often trusted with highly confidential information in which we cannot, for obvious reasons, disclose or publicise our involvement. Confidentiality and discretion are central to our business and drilled into all Kroll staff. 

However, elsewhere in the world, particularly when we have been engaged by governments, we have occasionally hit the headlines.

What kind of fraud or risk matters are prevalent in SEA? Can you give us some examples?

It is three pronged.  Essentially, these are generally opaque jurisdictions with immature regulatory systems.  Many are essentially run by the “businessman-politician”: the businessmen with an interest in politics, or vice versa.  Of course this is not unique to SEA but it is a significant characteristic in the make-up of the region here.  What this means is that business and politics are completely intertwined. 

There are very often political dimensions to corporate disputes. Further, when non-local investors come into the region, they frequently do not realise this and can get stung badly.  There is nothing they can do if a senior political leader within a country, for example, suddenly declares that a corporate deal is void or starts to act against the interests of an external investor.

In addition, because of the businessman-politician characteristic, there is little enthusiasm to tighten the regulatory environments in many SEA countries.  If you are one of these political tycoons, why would you make life harder for yourself?  Hence the countries tend to have weaker regulatory regimes with often little enthusiasm for reform.

Finally – the “double whammy” is that if a company finds that it has a problem, and that it is politically driven, then it is highly unlikely that the judiciary are going to act against the interests of the local political tycoon.

This is why it is extremely important to understand exactly who you might be partnering with, how they are connected, their political connections, their track records, before considering entry into some countries in this region.  It is rather easy to make very expensive mistakes.  We see it all the time.  Prevention, in the form of detailed investigative due diligence, is much, much cheaper than being stung, particularly when companies can be potentially caught up in internal investigations, disputes and legal tangles for years. 

There are countless other risks, but most are a result of the characteristics of the business politician and the ensuing weak and opaque regulatory systems.

Singapore is a financial hub in Asia now. Do you see or investigate a lot of financial crimes in region? Crimes like money-laundering? Please share some examples with us.

I’m afraid I cannot give you examples.  But yes, we do investigate money laundering and are engaged regularly by clients in the region looking at these issues.  There are a wide range of financial crimes that we investigate: collusion between corporate executives and suppliers; Intellectual Property theft; price fixing; theft and grey market investigations; share price manipulation; pilferage. 

However, corruption – i.e., the paying off of government officials for favours and commercial advantage, is probably the largest issue in the region.  If companies have exposure in the US or UK then they might also be investigated by the authorities in the US or UK under the FCPA and UKBA legislation.  Fines can be huge, and of course the company has a responsibility to investigate internally and demonstrate that it has compliance systems in place to prevent such an event happening in the future.

We were once asked to investigate a senior executive who had helped himself to a small piece of hotel furniture. The fees were far more than the value of the theft, but the client had to make an example of him.  

How about trafficking and counterfeiting-related crimes? Do you see a lot of that happening in this region? Any syndicates that you have unearthed so far? 

Again – I cannot give you solid examples.  We are engaged a lot to look into counterfeiting.  You can imagine that the biggest risk is if a member of the public is hurt or killed by a counterfeit item. Car parts are a big issue and, of course, pharmaceuticals and health products.  We were recently engaged to help a supplier of health products understand counterfeits that were getting into the market.  Their greatest fear was of someone being poisoned and the resulting damage to their reputation.

We have investigated animal trafficking and are now deeply involved in investigating human trafficking.  Indeed, Kroll in SEA has pioneered this aspect of Kroll’s work, which we were inspired to do after the collapse of the Rana Plaza building in Bangladesh. 

Our view is that corporates have an ethical duty to understand all elements of their supply chains. A surprising number of corporates do not take reputation seriously; the power of civil society, particularly when the media sense a good story can destroy value in companies if they are perceived as operating unethically.

In Kroll’s view, a supply chain audit is not really enough.  If a supplier is engaging in unethical or illegal activity, they will obviously try to hide it from an auditor.  In the same way that corporates hire Kroll ahead of major transactions, to investigate the history and ethics of a potential partner, they need to understand that supply chains present just as big a risk.

I’m pleased to say that global laws are catching up with us, most recently with the Modern Slavery Act in the UK. We partner with the NGO Liberty Asia on this issue.

I am sure a lot of VC firms come to you to vet a startup or its founders? How do you go about doing that kind of work? 

Actually not many VC firms; Private Equity (PE), however, is one of Kroll’s key client sectors. This kind of work certainly ebbs and flows depending on the economic cycle. I ran Kroll in India from 2007-11 and before the crash in 2008, almost all of our work was driven by external PE; so it varies.  But PE demands a very high level of compliance and mistakes can be very costly.

Again, I cannot go into too many details, but one of the strangest cases I ran was for a non-local PE firm investing in the agri-sector in Asia.  The client thought that their partner of choice was fine, and told me that they had “checked him on Google”.  They sent us his CV and very quickly we worked out that the “person” they were dealing with didn’t exist, and that the CV was pieced together from elements of three different real people with the same name.  Years later, purely out of curiosity, we tracked down the fraudster to a small apartment in London.

We are also asked to help PE firms when they realise that they have problems at portfolio companies. Another strange case I handled was when a portfolio company was underperforming.  The management of the portfolio company claimed that the performance of the company had been badly affected by witchcraft. Needless to say, we found a much more prosaic reason for the underperformance.

What kind of threat landscape do you see emerging in Singapore and the region?

It is obvious that the world is going through a dynamic period of flux at the moment. It is difficult to see that many emerging issues are positive, and at the very least are likely to lead to instability.

Everyone should be concerned by the emergence of nationalism across the globe. Nationalism can only be bad for the majority of people, whether that is because of trade wars and the imposition of tariffs or, in the worst case scenario, as a precursor to war. When times  are perceived, often incorrectly, as not so good, there is a tendency amongst the majority to blame “the other”. This usually takes the form of blaming immigrants and immigration for perceived problems.  I think we are seeing this in Indonesia, Myanmar, Malaysia and it is part of the story of Thailand’s divided politics.  If anything, populism and nationalism is on the rise and almost being normalised. Instability reduces economic activity and will inevitably affect growth and progression.

Connected to this, is the election (or empowerment by other means) of governments who are less inclusive and more authoritarian.  A worrying trend has been the tendency to treat free speech, criticism of leadership and the media as the enemy. Power without accountability equals corruption, so it is imperative that governments the world over are held to account.

Geopolitically, the stakes have been raised with a newly confident and aggressive Russia, geopolitical tensions between China, Japan, North and South Korea and the US, and of course, a US president who is different to his predecessors and is still bedding in.

I am sure that Singapore is in a unique position to play a stabilising role. As a modern and inclusive, multicultural democracy which genuinely straddles Eastern and Western cultures, it seems clear to me this is the right time for regional and international leadership from Singapore.

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