How NBFIs Get Caught Up in Bribery and Corruption Scandals

Following yesterday’s announcement of the trial date for the former Glencore executive facing bribery charges, it got me thinking about how Non-Bank Financial Institutions (NBFIs) like payment firms and e-money institutions are drawn into bribery and corruption scandals.

These firms don’t usually set out to break the law, but their systems can be used - sometimes without them knowing - to facilitate bribery and corruption across the globe. I thought it would be interesting to take a closer look at how this happens and what lessons we can learn from real-world cases.

The Role of NBFIs in Bribery and Corruption

Non-bank financial institutions - here were talking about payment platforms, e-money providers, and remittance services - are crucial players in today’s financial world. They make it easy to move money quickly and across borders. But this ease can come with a darker side: corrupt individuals and organisations sometimes use these platforms to hide and transfer bribe payments, all while flying under the radar.

It’s not that the firms or their staff are corrupt themselves (we'll exclude Wirecard here); rather, their systems and controls can be exploited. Bribes can be disguised as legitimate payments, or corrupt actors take advantage of the relative anonymity that e-money and cross-border payments can sometimes offer.

following are some real-world examples where payment firms and e-money platforms have been used to facilitate bribery and corruption, often without realising or identifying what was going on.

Case Study 1: Odebrecht Scandal (2016) – Bribes Hidden in Payment Flows

The Odebrecht scandal was one of the biggest corruption cases in Latin America and payment systems were right in the middle of it. Odebrecht was a massive Brazilian construction company which was caught paying bribes to government officials across multiple countries in exchange for securing contracts. To move these bribe payments, they used intermediaries and NBFIs like international payment platforms.

The bribes were disguised as legitimate payments - consulting fees, marketing services, etc. - and routed through payment firms that unknowingly processed these corrupt transactions. With the high transaction volumes and cross-border activity, these payments easily blended in with the firm’s usual business, making it hard to spot the illicit activity.

Lesson learned: This case shows how payment platforms can be exploited, especially if firms don’t have strong enough transaction monitoring systems to flag these types of payments and ask further questions.

Case Study 2: Unaoil Scandal (2016) – Payments Firms Used to Move Bribes in the Oil Industry

In the Unaoil bribery scandal, intermediaries were used to facilitate bribes between oil and gas companies and government officials in countries including Iraq, Kazakhstan, and Libya. Unaoil was essentially a go-between, handling the bribery for major corporations looking to win contracts.

So that the bribes could get to where they needed to go, they used international payment firms to process the money. These payments we made to look like legitimate business expenses and moved through various payment platforms and e-money providers which helped to conceal their true nature. The payments would pass through multiple accounts, often ending up in offshore banks where they were difficult to trace.

Lesson learned: This case highlights the importance of performing thorough due diligence on corporate clients - this is vital where intermediaries are doing business in industries known for corruption.

Case Study 3: Glencore Bribery Scandal (2022) – NBFIs Facilitating Bribes in the Mining Sector

Now we get back to Glencore. In this case, the mining giant was accused of using bribes to gain access to lucrative oil and mining deals in countries like Nigeria and the Democratic Republic of Congo (DRC). The bribes were often transacted through third-party intermediaries, with the payments travelling through NBFIs, including e-money firms.

What made these payments harder to spot was that they were often disguised as “consultancy fees” or other normal business transactions. The firms handling these payments were just doing their job - processing what looked like an ordinary transfer - when in fact they were helping to move corrupt funds.

Lesson learned: It’s not enough to look at the surface of a payment. Firms need to dig deeper into the purpose of the transaction, especially when they’re dealing with high-risk regions or industries like oil, gas, and mining.

Case Study 4: Danske Bank (2018) – Using Payment Systems to Launder Bribes

While this case primarily focuses on money laundering, it’s still a good example of how NBFIs can get caught up in bribery scandals. In the Danske Bank case, billions of dollars flowed through the bank’s Estonian branch and a portion of those funds were linked to bribes and other corrupt payments. The money was sent through layers of payment processors and e-money firms, making it hard to track the original source or destination.

By exploiting the complexity of international payment systems, corrupt actors were able to move their bribes through NBFIs without raising red flags too many red flags (at least on an individual transaction basis). These bad actors used the firms as intermediaries to route money across borders and hide its origins and destination to hide the true purpose of the transactions.

Lesson learned: The case shows just how important it is for payment firms to have strong anti-money laundering (AML) controls in place, especially when they’re processing cross-border transactions. Bribes are often hidden in complex webs of payments, and it’s up to the firms to catch suspicious patterns before the money disappears into (usually) offshore accounts.

How Can Payment and E-Money Firms Protect Themselves?

So, what can firms do to avoid getting caught up in these types of scandals? Here are a few key steps:

1. Enhanced Due Diligence It’s essential to dig deep into the background of high-risk clients, especially those operating in industries or regions with known corruption issues. Firms should pay close attention to politically exposed persons (PEPs) and any links to government officials. Documentation relating to the company, involved people and the transactions should be collected and examined in detail where risks have been identified.
2. Transaction Monitoring Advanced transaction monitoring tools can help flag suspicious activity, like unusually large payments to offshore accounts or patterns that don’t align with normal business behaviour. It’s all about detecting red flags early. It's key that firm can properly examine these transactions and raise a SAR where there are concerns.
3. Third-Party Risk Management Firms should carefully vet all third-party intermediaries and agents, ensuring they have their own anti-bribery policies in place. Regular audits of these relationships can also help spot any signs of trouble. "Nested payments" and flows involving multiple NBFIs should be closely monitored - undertake site visits to ensure that the the AML processes are actually taking place.
4. Training and Awareness A culture of compliance is absolutely critical. Staff need regular training on bribery and corruption risks and should feel empowered to report any suspicious activity they come across. This can only be driven by the Senior Management and they should be driving the "tone from the top" and a speak up culture.

The Key Takeaways: How NBFIs Can Avoid Being Used in Bribery Schemes

While NBFIs like payment and e-money firms are certainly not always directly involved in bribery and corruption but they can often be used by bad actors as conduits for illicit activities.

Corrupt individuals exploit the speed, global reach, and sometimes the relative anonymity of these platforms to move and disguise bribes.

Implementing the key safeguards - such as thorough due diligence, robust transaction monitoring, and encouraging a culture of compliance - firms can significantly reduce the risk of being unknowingly drawn into bribery and corruption schemes. Staying vigilant and being proactive is essential to protecting both the firm and the integrity of the financial system.

💼 Are you confident your firm’s compliance program is catching potential red flags? Let’s chat about how we can all stay alert in the comments!