NEW YORK, July 23 /EMWNews/ -- As anti-fraud enforcement levels have

surged to an all-time high in the investment management industry, a recent

online poll, conducted by Deloitte, found that nearly one-quarter (23.8

percent) of respondents' companies do not have a "suspicious transaction"

monitoring system and an additional 32.4 percent of respondents were not

aware of whether their firms did.



    "Because hedge funds, private equity firms and other investment

managers are often incorporated offshore and serve a client base of high

net worth individuals from around the world, these organizations can be

potential targets for suspicious transactions that may be part of money

laundering, Foreign Corrupt Practices Act violations and other fraud

schemes," said Michael Shepard, a principal in the Anti-Money Laundering

practice of Deloitte Financial Advisory Services LLP (Deloitte FAS).



    "Even though these organizations are only a fraction of the overall

financial services industry, fraud can be a potential sleeping giant of

financial woes for individual and institutional investors, not to mention

legal trouble for the firms through which schemes are perpetrated," added

Adam Weisman, a partner in Deloitte FAS' Forensic & Dispute Services

practice.



    While 39.2 percent of respondents' surveyed said that their companies

maintain formal anti-money laundering policies and procedures, one in 10

(10.1 percent) respondents' surveyed said that their companies have not

addressed money laundering at all. An additional 31.7 percent of

respondents surveyed do not know whether their firm has established formal

anti-money laundering policies and procedures.



    Investment management firms must also be wary of potential FCPA

violations. The FCPA states that it is a federal criminal offense for any

company or individual doing business in the U.S. to offer, pay or authorize

a bribe to a foreign government official to gain business advantage. While

the FCPA was passed in 1977, enforcement has increased dramatically in

recent years. Yet, despite the increase in the number of enforcement

actions, 13.6 percent of respondents surveyed indicated that their

companies have not addressed FCPA risk at all; 12.1 percent said that their

organizations had addressed FCPA risk, but have not established a program

to address the risk; and 10.9 percent said that their organizations have an

established FCPA program, but that it needs improvement.



    "A severe lack of viable checks and balances designed to prevent and

detect wrongdoing, combined with high pressure to deliver strong investment

returns, may make firms within the financial services industry vulnerable

to fraudulent behavior," said Simon A. Charlton, a principal in Deloitte

FAS' Forensic & Dispute Services practice. "Just because compliance

programs aren't federally mandated for these companies, shouldn't

necessarily make them optional. Fines for money laundering, FCPA and other

fraud violations have, in many cases, been in the millions of dollars per

case with jail time included for certain individuals."



    According to Deloitte, some of the key steps that can help mitigate

fraud, money laundering and FCPA violations include:



    -- Establish a consistent organizational culture that does not condone

fraudulent activity.



    -- Understand that the complex transactions inherent in hedge funds and

private equity are often unique to each organization. Fraud prevention and

detection programs should be tailored to the organizations they serve.



    -- Do not expect banks to catch all anomaly transactions. Consider

implementing detection software designed to help uncover troublesome events

more quickly; some programs currently available can track investing

patterns and report back on less routine activity.



    -- Institute an anti-money laundering compliance program. Such a

program should be designed to address several areas including: assessing

risk, establishing proper governance and reporting structures, designating

an anti-money laundering compliance officer and conducting an

enterprise-wide training program.



    -- Help mitigate FCPA risks by conducting FCPA due diligence. Learn

about which geographic regions and industries are at higher risk for

bribery and corruption, then institute controls designed to identify

violators before they become investors.



    More than 500 executives from the banking and security, financial

services and investment management industries responded to the polling

questions during the webcast, which was titled "Investment Management

Anti-Fraud Programs: Are You Ready if the Government Launches an

Investigation?"

    About Deloitte



    As used in this document, "Deloitte" means Deloitte LLP and its

subsidiaries. Please see http://www.deloitte.com/us/about for a detailed

description of the legal structure of Deloitte LLP and its subsidiaries.