A substantial portion of the R90-billion that white collar crime costs South Africa annually, which includes hijacking of complete businesses, can be avoided by thoroughly screening business associates and company employees.
Ina Van der Merwe, CEO of South Africa’s largest background screening company, MIE, says white collar crime had reached such proportions that foreign companies were now thinking twice before they invested in the country.
“The complete hijacking of a number of companies established as local representatives for foreign corporate has sent shockwaves through the international business community," Van der Merwe says. "One of the clear messages that has emerged from these illegal takeovers was the fact that the foreign parent company had made little or no attempt to screen the South African executives that had been appointed to run these entities.
“It has subsequently emerged that some of them had long criminal records for crimes such as fraud and other white collar crimes.”
Dave Loxton who is the head of forensics at law firm Werksmans Incorporated says the audacity of the perpetrators was breathtaking.
“When we initially became aware of the problem it seemed like something that came straight of the pages of a spy novel," Loxton says. "We were approached about two years ago by a group of European investors who had set up an operation in South Africa and made a point of it to employ only local people.
"About a year after the office was opened, one of the investors paid a visit to the country and discovered that the entire operation had been moved to new premises and that the executives they had appointed took everything with them including suppliers, clients, staff, price lists and products."
Van der Merwe says a problem with employing staff without vetting their background – and this included top management – was that it was often extremely difficult to get rid of them once they were uncovered. In cases where employees had been involved in actions that caused material loss to their company because they lacked the qualifications they laid claim to, it was often difficult or even impossible to prosecute.
Loxton says that despite their best efforts to prosecute the abovementioned case of company hijacking, the case went nowhere and the perpetrators walked away free men.
He says one of the most important causes of the fraud was the fact that the foreign investors who had employed the local executives made no attempt whatsoever to check their CVs. Had they done so, he adds, they would have uncovered several serious criminal offences including theft and fraud.
Van der Merwe agrees saying that up to 18% of CVs were “problematic” in that they contained both outright lies as well as misrepresentations.
Steven Powell, a director at Edward Nathan Sonnenberg Forensics, says corporate fraud which included white collar crime was now running at about R150-billion a year.
“White collar crime is having a severely negative impact on the economy both in terms of losses in tax revenue and also in scaring off foreign investors," Powell says. "The latest fad of stealing entire businesses – mainly from foreign investors – is going to drastically scare off foreign investors.”
He says that the best defence against being ripped off was to do a thorough forensic investigation into the backgrounds of all the local employees who would be running the local affiliate.
“Background screening is very effective in determining the veracity of the individual’s CV as well as making sure there is no criminal record and making sure that the MBA or other qualifications they lay claim to are for real,” Powell says.