Forenote
All of the below references relate to the period from 2009 onwards, unless stated otherwise. Due to contractual and other legal arrangements, full identity of clients or more engagement details cannot be shared publicly.
AUTOMOTIVE / LOGISTICS
Investigation for a global automotive client
Dan’s team was appointed by a global automotive client, who suspected risks in one of their production sites in the Czech Republic. The key focus of the outlined specific review was, under a legend of FCPA regulatory review, to investigate the key circumstances and understand the potential of fraud or betrayal in the areas of procurement, agency workers, and clocking system.
The review brought significant findings as to undue arrangements between the site manager and work agencies, deficiencies in functioning of the clocking system, and major issues around the procurement of certain materials. Following the review, Dan’s team was asked to train the employees on compliance with rules and regulations and perform similar review on another site.
Addressing suspicions of serious bribery and financial manipulations
DABRICON was retained by a global logistics group to address a number of serious issues uncovered in its Slovak entity. They ranged from bribery allegations to manipulations of financial statements. The Client therefore wanted to hire a specialised risk management and forensics advisor to address any potentially outstanding issues, identify the suspects who might have participated or still are participating in the irregularities, to help the Client subsequently introduce appropriate risk mitigation steps and strengthen the Slovak organisation to the maximum extent in the areas of corporate governance, processes and internal controls.
CONSTRUCTION / REAL-ESTATE
Post-acquisition DD focused on ABAC
We were contracted by a major construction materials company to conduct a post-acquisition due diligence review of anti-bribery and anti-corruption (“ABAC”) program in Serbia. Specifically, the review was designed to obtain a current-state assessment of processes, controls, infrastructure, and related activities and transactions for the 12-month period prior to the closing date of the acquisition. The review focused on applicable anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Acts (“FCPA”) and the U.K. Bribery Act of 2010.
Investigation of allegation towards a manager of one of the biggest global logistic real-estate companies
For one of the biggest global logistic real estate development and management companies, Dan investigated allegations of undue business relationships of their Czech manager. These concerned suspicious payments from the facility management vendor via accounts in Hong-Kong, Poland, Lithuania, and Slovakia for potentially manipulated tenders and planned illegal collusion in a selling transaction of an FM company in Hungary.
Through a thorough forensic review of available documentation, data, and information initially obtained from the Client, we attempted to confirm the allegations in linking suspicious payments with the chronological flow of critical events, supplemented by tender conditions and results. We also applied forensic interviewing and interrogation methods to unearth key information from relevant personnel to gather the remaining intelligence regarding the alleged payments and undisclosed relationships and circumstances.
The review ultimately included three CE countries.
The review resulted in the suspect acknowledging certain illegal payments occurring in the reviewed period and voluntarily terminating his employment with the Client.
Review of potentially unjustified management fees from a shopping centre to a supplier for a private equity fund
Our Client, a private equity fund and minority shareholder of a shopping centre, approached us to review payments made to its supplier – a facility management company, based on an allegation of potential unjustified management fees which were charged to the Client.
The team conducted a high-level review of payments to the facility management company for the period from 2007 to 2010. We compared the entitlement of facility management company with contract provisions and identified a difference amounting to EUR 3.5 mln. Our results were used as the basis for a legal complaint of the Client and were also provided to the counterparty.
Conclusively, we provided the Client with the detailed calculations indicating the difference in management fees which was charged by the facility management company and the potential loss for our Client.
Former executive´s mismanagement review
Dan’s team was retained to conduct a forensic investigation of allegations against the former CEO of a major construction company. The alleged irregularities included:
- Asset stripping and embezzlement of funds by the former CEO and senior members of management;
- Members of management pursuing other business interests representing a conflict of interest due to their positions within the company;
- Collusion with suppliers and sub-contractors;
- Bribery and corruption;
- Non-commercial contracts entered into with third parties to the detriment of the company; and
- Very weak internal controls.
Detailed Forensic review for a major European property developer
Dan’s team was engaged by a major European property developer to perform a detailed forensic review of the Client’s Romanian activities with the key focus on a recently built shopping mall.
The review focused primarily on operations regarding the shopping mall in respect of the following:
- Exposure of potential non-standard transactions, undisclosed relationships and individuals involved;
- Identification of potential non-standard transactions, schemes and/or wrongdoings from the commencement date of the project;
- Identification of potential involvement of the local management and employees in the non-standard transactions and/or misconduct;
- Review of internal controls in place and procedures related to the areas of the Client’s concern; and
- Recommendation on enhancement of policies, procedures and controls to mitigate identified risks for future projects.
Forensic review focused on property management at two organizational units of the Czech Ministry
One of our forensic reviews focused on property management at two organizational units of the Czech Ministry, including:
- Forensic examination of tens of recent tenders and contractual and accounting documentation for expenditures within the organization units in order to identify potentially irregular and non-transparent tender procedures, unfavourable contracts, mismanagement of state-owned assets and breaches of internal policies;
- Gathering of business intelligence and other information about entities and individuals potentially involved in irregular conduct and detection of any relationships and undisclosed links to employees of the relevant units;
- Highlighting of actual or potential conflicts of interest as per applicable external and internal rules;
- Forensic analysis of available data to identify irregular trends and transactions indicative of mismanagement.
ENERGY & ENVIRONMENT
Forensic review for an independent energy trading company
An independent energy trading company appointed DABRICON to review allegations of customer data misuse, undue business arrangements with sales commissioners, and misuse of the bonus system.
Thorough forensic data analyses within the company’s DLP system were key to uncovering wide misuse of sensitive data by the key managers, seemingly in favour of their relationships with some of the sales agents, resulting in harsh breaches of internal security policies and legal obligations. A detailed report showed each individual misuse with all relevant electronic traces. These became the trigger for a criminal prosecution of the suspects who ended up either serving four months in jail or settling monetary fines.
Further, Dan’s team thoroughly analysed the commissions scheme that was evidenced to favour undue contract signing of certain agents, that, in the end, were interlinked. The main issue was an overall failure to verify customer contracts brought in by the distributors, which were to a large extent later confirmed as fake.
FINANCIAL SERVICES
Resetting AML compliance system at a top 5 Central European bank
A member of the Board of Directors of a major banking group in Central Europe asked us for expert assistance in resetting their internal AML compliance system in the complicated area of corporate banking. The reason for DABRICON’s involvement was primarily their deep knowledge of regulations and systems for the prevention and detection of money laundering, and setting up appropriate AML systems, as well as our flexibility to start and work on such project with the highest possible urgency. The client’s condition was that we will implement agile project management and methodology.
After several months of initial regulatory, system, technical and control analyses, we designed an agile project aimed at identifying and analyzing current shortcomings in the bank’s AML compliance system in the areas of client onboarding, periodic inspections and auditing, especially with regard to (front- / middle- / back-office), the second (compliance department) and the third (local and group audit authorities) line of defense, including risk management.
The project was originally planned for 4 months, however, the gradual revealing of the bank’s non-compliance with regulatory requirements and a number of identified gaps in technical and control mechanisms showed the need to extend the whole project to completely reset the AML compliance system to minimize the risk of non-compliance with applicable regulations, especially considering many findings presented by the National Regulator after approx. 7 months of the project work.
In-depth review of risk management in the retail lending division of a major Czech bank
Dan performed an in-depth review of risk management in the retail lending division of a major Czech bank. The engagement scope included analyses and recommendations for improvement, focusing primarily on product development, distribution channels, loan approval and underwriting, and collections. The project also included an overall review of the fraud risk management framework in retail lending and suggestions for improvements in fraud risk management at the bank in general.
Special review of irregularities during insolvency of a bank’s debtor
Dan led a team investigating fraud suspicions occurring before the insolvency of a significant investment of the bank (clothing manufacturer). The client asked us to identify potential asset stripping, financial statements fraud, and conflicts of interest cases within the company under the reign of the management prior to the insolvency announcement. The engagement was performed under the collective powers of and in close communication with three banks participating in the creditors’ committee. Major issues like misappropriation of the company’s intellectual property, services paid but not provided, and unallowed conflicts of interest of previous managers were identified.
Large-scale investigation for a Swiss insurance group
Dan’s team led the data analysis part of a large-scale investigation for a Swiss insurance group which was suspected of deceptive reduction of reserve balances, leading to improved financial statements. Our specialists performed data testing which focused on analysis and detection of potential fraud in the area of damage claims and insurance operations. During the review, we identified specific deviations in the Company’s behaviour.
Special review of selected loans for a major Adriatic bank
A team of Dan’s specialists conducted a special review of selected loans for one of the major Slovenian banks. We selected loans concluded with several clients from the whole Adriatic area. We focused on the loan approval process in order to identify potential gaps in the process and/or potential non-standard treatment of the selected loan recipients. In addition, we performed background checks on loan recipients based on publicly available sources of information in order to identify potential conflicts of interest. Dan’s teams focused on the review of 150+ loans which appeared to be irrecoverable, with a special focus on conditions under which loans were provided and the procedures which were taken by the bank for credit risk assessment and loan approval. The investigation revealed that some of the loans were provided to PEPs in the Adriatic region.
Bad debts investigation, Central Europe
Two major banks instructed Dan and his team to conduct a forensic investigation into the aspects of their bad debt portfolio and certain questionable transactions. The scope of our work on these engagements included:
- The review and analysis of controls, systems, and procedures.
- The detailed analysis of loans, letters of credit and other pre-financing schemes, and arrangements.
- The identification of significant, irregular, and/or fraudulent transactions.
- The apportionment of blame.
- The quantification of losses.
- The necessary support in civil and criminal actions.
In one instance, our client was suing business parties in three foreign jurisdictions as the consequence of the investigation. In another instance, our investigation led to the arrest of a high-profile businessperson on charges of fraud against one of the two major banks.
FMCG
Forensic review for a multinational sporting goods retailer
Dan was engaged by a multinational sports goods retailer to assist them with an internal review of certain issues of concern in their Hungarian operation and then to follow-up with a detailed forensic investigation in the agreed areas of concern. The review identified a number of irregularities and potential fraud risks especially in the operation’s logistics, inventory and sales processes. The client then asked us to perform similar reviews in the company’s Czech, Slovak, Polish and Croatian operations.
Economic analyses with fraud suspicion aspects
We were engaged by a Czech company trading luxury goods to review their foreign branch with regard to continuously stagnating profits, low online business, and potential for other operational risks. The focus was to understand whether these assumptions can materialize and are the results of inefficiency, mismanagement, or fraud.
We identified irregularities in the accounting of inventories and loans, but also intentional manipulations of intercompany payables to cover up the true economic situation of the branch. The resulting effects involved millions of Czech crowns. Our recommendations included changes in the management culture of the branch, strict amendments in the accounting policies, changing the accounting firm, and implementing more robust financial management systems.
PHARMA
Special review focused on compliance and potential conflict of interest, tax and organizational optimalization of the group
A long-term client asked DABRICON to evaluate the potential risk of a conflict of interest in the planned business with medical supplies during the ongoing SARS-CoV-2 coronavirus epidemic, due to its concurrent involvement in a multinational company operating in the field of medical diagnostics. Our review covered business activities of this kind in the Czech Republic, Poland, Germany, the Netherlands, and the Balkans.
After performing detailed risk analyses of the received business documents and data, and including relevant legal and professional consultations, we recommended to the client several steps to avoid increasing the risk of non-compliance of the planned transactions with their current management positions. However, we have identified a number of difficulties in the correct application of some local accounting and tax laws in the corporate reporting of one of the companies. Therefore, in cooperation with tax advisors, we also recommended a new structure of the client’s business, incl. certain adjustments to the organization, accounting, and tax operations.
Third-party compliance review for an international pharmaceutical company in Serbia and Croatia
We conducted a third-party compliance review for an international pharmaceutical company in Serbia and Croatia. The objective of this review was to identify controls in place, as well as areas of opportunity to further strengthen the compliance/FCPA program and determine if internal controls were appropriate. Our review consisted of information gathering interviews with local employees and a review of selected paper and electronic documentation with the focus on retention for services and promotional and non-promotional activities and events.
Special review on a healthcare business of a private equity business
Dan’s team was retained by a private equity business to review and investigate potentially improper business events, monetary transactions, and other activities relevant to their investments into a number of health clinics that could have led to damages of financial and/or non-financial nature to the investors of the Client.
Our investigation, which among others, included thorough data analytics and eDiscovery procedures, identified serious findings as to cash withdrawals of the previous owners and management of up to 65mln CZK, questionable transactions via Swiss bank accounts or undue cash-in transactions on ATMs totalling 20mln CZK within a year.
OTHER
Investigation of selected events at the acquired company
Our client, a German investment group, asked us for assistance in connection with the acquisition of a Czech company operating in construction and servicing of energy equipment. In the first year after the acquisition, the acquired company lost a key customer, which accounted for a significant share of its sales, after prematurely terminating service contracts and agreeing with the company’s former management to settle them. Simultaneously with the early termination of the contracts, several dozen employees of the company resigned, and most of them were subsequently employed by the key customer.
We examined the circumstances of early termination of contracts by the key customer, its communication with the former management of the acquired company and internal decision-making in the company itself, focusing on the potential collusion between the two parties. We analyzed in detail the settlement agreement related to the early termination of contracts, the course of negotiations on its conditions and the basis for the calculation of the settlement.
Our investigation showed that the company’s former management did not act with due diligence when accepting the terms of the early termination of contracts that did not fully compensate for lost profit. In addition, the key customer did not pay some items specified in the purchase agreements for the transfer of assets used in prematurely terminated service projects. We also found that the former CEO had violated the Director Service Contract through a number of his actions, and also had not ensured the company’s proper accounting in the area of asset inventories. According to the client’s requirements, our report contained a detailed reconstruction and description of the events preceding the early termination of contracts and an agreement on their settlement, including a comprehensive timeline.
Investigation of suspected misconduct by an employee of an agricultural holding
We were contacted by the legal representative of a person, who was accused by the Police of embezzling the funds of his employer – agricultural companies in the Czech Republic – stating that they required forensic support in proving his innocence. After understanding the introductory information received from them, we conducted a detailed forensic investigation of all standpoints cited by witnesses in the existing Police investigation, with the permission of the statutory representative of the companies concerned. Our investigation concerned the following:
- Funds were stolen from companies’ accounts in cash by hundreds of withdrawals from ATMs in the vicinity of the company’s headquarters,
- Funds intended for payments of taxes, social and health insurance and land fees have been embezzled,
- Supplies of materials and agricultural commodities needed for farming were not reimbursed,
- Other unauthorized transfers of company funds were made to the suspect.
In the course of our investigation, supported by data and forensic analyses of accounting and business records, it turned out that the employee in question apparently embezzled the funds of both companies by unauthorized drawing from the companies for more than two years, then betting and losing them via the internet betting platforms. According to our conclusions, the total damage exceeded tens of millions CZK. Using applied forensic techniques, we were unable to prove anything in favor of the accused person and we were also forced to inform the owners of both companies about these facts.
In-depth review of a municipality´s management
Following the information in the national media and a change in the Municipal Council of a Czech municipality, the DABRICON team was asked to conduct a detailed review of the management and economy of the municipality’s property during the last seven years.
As part of a detailed forensic investigation of legal documents, accounting data analyses, and application of general microeconomic principles, the multidisciplinary DABRICON team documented irregularities in the real estate records in the amount of several million CZK, or repeated violations of public procurement guidelines. The final report also described a repeated breach of the obligation to dispose of the municipality’s property with due diligence, which manifested itself mainly in the sale or lease of the municipality’s real estate to the former mayor or its affiliates for a fraction of the price of comparable transactions, systematic manipulation of sales quantities and prices of wood harvested by the municipality or, on the contrary, above-standard expenditures for the maintenance of public spaces paid by the municipality to companies associated with the former mayor.
The municipality regularly passed inspections of the relevant regional authority without major findings. Nevertheless, the potential damage to the municipality identified by DABRICON’s analytical activities now amounts to almost half of the municipality’s annual budget and its recovery is subject to further proceedings.
Long-term dispute assistance to an IT security start-up shareholder
The owner of a successful IT security start-up asked DABRICON to assist in a long-term dispute with his fellow shareholders, who have had serious disagreements with him about the business’s direction, strategy, and operations. The dispute escalated into insolvency and criminal proceedings on both sides, illegal cash transfers, and undue assets removals from the entities’ premises.
After a thorough review of significant volume of data, documents, and information provided by the Client, we summarized the whole dispute into time and subject lines that provided a solid overview that later helped to better structure the work of assisting civil and criminal lawyers as well as helped the Client in dealing with the law enforcement and tax authorities.
Investigation of a suspected fraud for a law firm
A law firm asked DABRICON to identify the full extent of suspected fraud in their French branch, in which the financial controller seemed to betray the firm by approving invoices for unapproved services and goods, enabling to pay non-existent procurement, and misusing the company credit card.
A full-scope investigation had been performed to report the client all suspected and other occurrences of fraud, assessing the full damage.
Part of the process also was to forensically review the US pension scheme system of the firm to confirm or withdraw potential manipulations by an employee while asking for the withdrawal of the funds.
Defrauded investor case analyses and asset tracing
Dan’s expertise was sought by an individual investor, who invested hundreds of thousands of Euros in a globally invested fund with the promise of significant returns in the shortest period of time. We were asked to investigate the scheme that made the client lose his whole investment, trace the individuals and entities behind the scheme, and report concrete possibilities of how to potentially recover these assets for the client.
