FORENSIC ACCOUNTING

Forensic technology

Nowadays, no form of economic crime is conceivable without the

substantial use of Information Technology (IT). In our global economy, a
country’s borders are of little significance as information exchange and
international payments flow instantaneously from one country to another.
The perpetrators operate with greater ease, and preferably
internationally, secure in the knowledge that international circumstances
present authorities with major procedural problems, thus making
international investigations very challenging. Even though the judicial
process is currently based on purely physical evidence such as files and
documents, which in many places such as Switzerland is still the rule, it
is foreseeable that in the not too distant future electronic evidence will
become increasingly important for investigative and judicial authorities.
Modern methods of communication such as mobile telecommunications,
the Internet, e-mails or the Internet-based information platforms such as
Facebook, Twitter or Clouds are inevitable in today’s business world but,
significantly, leave digital tracks. In recent times, an investigator’s
research has moved from the securing of physical documents to
safeguarding electronic evidence data on notebooks, desktops, servers,
backup media and mobile communication devices. As a general rule,
time is no longer an issue because digital traces tend not to turn yellow
and data on network resources – i.e., servers and the Internet – never
forget anything. That is why databases, which have long been forgotten
or were considered to be (permanently) removed, can become the
centre of attention. All such data can also be a key source of information
and thus significantly contribute towards the success of an asset
tracing/asset recovery operation. The seizure and analysis of electronic
data from people involved must therefore – in addition to seizing
traditional non-electronic data – always be a top priority. The
visualisation of digital traces for use in court cases is, of course, also an
important factor. This process can only be performed by an experienced
Forensic Technology team.

Corporate intelligence

The most immediate problem in the context of asset recovery remains

the gathering of information. With cross-border transactions, the trail can
be lost all too easily due to the involvement of various international
jurisdictions and other limitations. The affected parties are faced with big
challenges, notably in the classic offshore havens and in countries which
have little legal stability. Thus, elementary questions about events,
payment flows, perpetrators, intermediaries, beneficiaries etc., generally
remain unanswered. In this context, globally active companies which
provide globally specialised forensic services can provide valuable
support through their worldwide network. The instrument for this global
information gathering is the so-called Corporate Intelligence Research
(CI).
Corporate Intelligence is based on four sources or methods of
information-gathering, namely, the ‘public domain’, the ‘closed’ and the
‘human’ sources as well as access to a wide global corporate network.
The ‘public domain’ sources include the official registers such as the
commercial register, tax register, land registry and local residents’
register, which, in principle, are open to everyone. On the other hand,
there are the ‘closed’ sources. These contain proprietary information,
which are regularly accessible only to public authorities or have to be
requested by an authorised person. Typically, criminal records are the
focus of interest in this instance. In Switzerland, any person can obtain
relevant information concerning him-/herself (e.g., as part of the hiring
process of a new employer.)
What is of further interest upon analysing contracts is the definition of the
contractual object. The less definite the contract details are with regard
to the services to be rendered, the higher the probability that these
contractual gaps are used in order to misappropriate funds. The same
applies to the terms of the contract, i.e., when the lifespan of the contract
is left open.
Contracts and other documents can also give the investigator an
indication of when incoming and outgoing payments are due to appear in
the accounting systems, i.e., at what date, and which amount is
supposed to be documented in the creditors and debtors balances. The
investigator can single out payments accordingly that are either made
based on a suspicious contract or that are made in the absence of any
underlying contractual relationship at all. The investigator is thus
required to look into the bank statements and corresponding accounting
documents in order to identify relevant transactions.

Analyse bank account statements and accounting documents

Analysis of banking and accounting records is a critical part of every
asset tracing investigation, especially when it is funds that are to be
tracked. Before looking into the bank account statements, the
investigator should ensure that all relevant bank accounts have been
identified and are taken into account in this part of the process. Thus,
the first task for the investigator is to request a complete list of all bank
accounts held with the relevant banks throughout the review period.
Upon receipt of the list, the investigator can identify the potentially
relevant bank accounts for the investigation, e.g., off-shore bank
accounts, bank accounts with large transaction amounts etc.
Based on this list, the investigator requests the bank statements and
corresponding transfer balances for the identified bank accounts in order
to gain an insight into the transactions made within the review period.
This, of course, depends on the authority needed or available to secure
these records which, in some instances would be derived from the
holder of the account and in others from law enforcement. Depending on
the particular jurisdiction, in which the asset is to be traced, legal means
such as freezing or disclosure orders may come into play as well. By
using the latter, a bank may even be compelled to disclose the account
data.
After receiving and reviewing the bank statements in respect of
potentially suspicious transactions, the actual tracing of funds involving
the different bank accounts commences. The difficult task for the
investigator at this point is to identify the commingled funds and
categorise them as either apparently appropriate transactions or
suspicious looking transactions. The basis for the identification of
suspicious transactions may include information derived from the
intelligence gathering process, the contract analysis, electronic file
reviews, interviews conducted with third parties and other information.
At this stage, the investigator may only have indicators in respect of
improper transactions that must now be proven by tracking the
suspicious looking transactions to the beneficiary. This is primarily done
through charting tools, such as in the intelligence gathering process, in
order to be able to follow the trails of the funds through the jungle of
numerous bank accounts. By establishing connections between the
different flows of funds, previously unknown bank accounts can be
identified that may provide new leads on the remainder of the funds.
In the case of large volumes of transaction data, the use of forensic
technology software is to be considered in order to minimise the
workload for the investigator.