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Kast: Bermuda’s control of corruption ranking is ‘clean’ — Transparency International

Bermuda ranks ‘clean' in a classification system that rates control of corruption, with a number that matches that of Antigua Barbuda.

The ranking of 88 out of a 100 was given in a speech to Hamilton Rotary Club members by bank director, investment manager — and Association of Certified Fraud Examiners (ACFE) newly certified fraud examiner Anne Kast.

She described how “politically exposed persons” or PEPs, defrauded the islands of Antigua and Barbuda of millions of dollars in a case that also involved a Bermuda bank.

She told club members at the Royal Hamilton Amateur Dinghy Club on Tuesday in her speech about fraud examination that it is a methodology for resolving fraud allegations “from inception to disposition.”

She said: “To carry out that methodology, an examiner will obtain evidence, take statements, write reports, testify to findings and assist in the detection and prevention of fraud.

“In 2011 The World Bank published a book entitled ‘The Puppet Masters' which discusses 150 cases of corruption. The Economist described these as 150 notorious cases. In the book, it presents 10 case studies of ‘grand corruption'.

“Case study one deals with public sector fraud. It depicts the use of shelf companies in offshore jurisdictions by ‘politically exposed persons' or PEP's, to defraud the people of the Government of Antigua and Barbuda (GOAB).

“In 1990 Mr Bruce Rappaport was the Ambassador of the GOAB. The prime minister of GOAB at the time, Lester Bird, gave Mr. Rappaport the authority to renegotiate the county's debt with IHI, a Japanese company. The required monthly payment was just under $200,000 for 25 years.

“Rappaport allegedly maneouvered the amounts so the GOAB was to pay just over $400,000 a month. Rappaport arranged to have the monthly payments paid through a company called IHI Debt Settlement, which was beneficially owned by him.

“The monthly payments were sent to Rappaport's IHI debt settlement account held at a bank in Bermuda. Court documents show that from there IHI was paid the $200,000 and the fraudulent overpayments were transferred to other companies.

“These other companies were beneficially owned by Rappaport and other GOAB government officials including Bird's chief of staff Asot Michael and his mother Josette Michael.

“The use of these shelf companies — Cayman Islands and Panamanian corporations — allowed these politically exposed persons — PEPs — to receive the stolen money anonymously.”

Ms Kast explained the GOAB was able to recover most of $14 million by reaching a settlement with Mr Rappaport and his debt settlement company, and said the country also filed a civil complaint in Florida.

“Fraud professionals across many disciplines were no doubt involved in extensive investigation and examination of documents, the interviewing of witnesses, and tracing illicit transactions, to achieve the successful recouping of the assets in this major corruption scheme.”

She explained that Bermuda has a ranking in the world of fraud and corruption.

“Transparency International, (TI) is a non-government organisation, (NGO) headquartered in Berlin. It tracks corruption in the public sector as well as among politicians in countries and territories around the world. TI utilises its Corruption Perceptions Index to rank 174 countries from zero — highly corrupt — to 100 — very clean.

The ranking is derived from the perceptions of experts, over 100,000 people, regarding the level of corruption in these countries. No country has 100 percent.

She said that tied for first place in 2012 with scores of 90 are: Denmark, Finland and New Zealand and tied for last places with scores of nine are: Afghanistan, North Korea and Somalia.

Bermuda is not in the index, however, she said, citing www.transparencyinternational.org, Bermuda was included in a 2010 study ranking control of corruption.

Bermuda did very well with a high score — clean. — of 88 tied with Anguilla and Antigua Barbuda. Trinidad and Tobago scored 46.

“We should be proud of this admirable standing,” she said.

“We earned it due to the advanced society we developed over many generations. “These attributes include the rule of law, high relative incomes, strong infrastructure, our democratic political system and individual freedoms, among other others.”

She asked: “How can Bermuda do better going forward?

“A five percent loss to fraud annually in institutions is a generally accepted measure of the damage caused.

“The industry most highly subject to fraud is financial services. Third and fourth are public sector fraud and healthcare fraud respectively.

“We know our expenses and revenues in these latter two industries — government spending and rising costs of healthcare — are under great financial stress.

“The Sage Commission, which is striving to implement ways to improve efficiency and accountability in Government, recently published its Interim Report. The report focuses on six areas of reform. It appeared to me, when I read the report, three of these areas would benefit from formalised fraud prevention and deterrence controls.

“Here are my conclusions: “Finding number three: rising healthcare costs — healthcare is one of the most susceptible industries to fraud. There are at least ten provider fraud schemes, e.g.: unnecessary medical testing, double billing. There are at least seven insured fraud schemes, e.g.: multiple claims, ineligible dependents. Removing fraud from the healthcare system will lower costs.

“Finding number five regarding efficiency and effectiveness are procurement systems — in particular the contracting process for larger endeavours are highly susceptible to bribery and corruption.

“Mr. John Barritt made the best suggestion in The Royal Gazette, 31 July 2013, page four, when he stated: “Our Westminster system provides for, and we desperately need, an active and robust public accounts committee — PAC — that can monitor and assess these multimillion dollar projects as they proceed and not just after the fact.

“PAC can summon and question key personnel with assistance from the Auditor General.”

She noted: “There are four stages to the contracting process and fraud can occur in each phase: pre-solicitation phase, solicitation phase, the bid evaluation and award phase and the performance and administration phase.”

She added that the Sage Commission mentions ‘unavailability of … information on the numbers of individuals employed in the Civil Service and the wider public service'.

“This situation is a red flag for payroll fraud schemes such as ghost, or fictitious, employees receiving pay cheques, falsified hours, salary and rates of pay.”

She said another point is lack of information on assets, particularly properties owned by Government, exposes the public sector to real estate fraud.

“Examples of real estate fraud schemes are: appraisal fraud, nominee buyers, forged documents and builder-bailout fraud.”

Certified fraud examiner Anne Kast speaking to Hamilton Rotarians(photo by Glenn Tucker)

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Published August 29, 2013 at 9:00 am (Updated August 28, 2013 at 7:27 pm)

Kast: Bermuda’s control of corruption ranking is ‘clean’ — Transparency International

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