Leading the Fight Against Corporate Fraud: How Every Business Can Embrace Transparency
With criminals flourishing in the shadows of the global economy, shining a light on the legal entities involved in cross-border transactions is a foundational requirement to restore trust. For even the smallest organizations, this represents a compelling opportunity to make transparency a strategic priority and combat risk by advancing the identifiability of legal entities across global marketplaces.
Author: Alexandre Kech
Date: 2024-10-01
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The scale, sophistication, and impact of corporate fraud have reached unprecedented levels worldwide.
Interpol’s 2024 Global Financial Fraud Assessment reports that “financial fraud has increased and diversified significantly [and] represents a pervasive, global threat.” Even more sobering is the expectation that the “magnitude of financial fraud [will] grow in tandem with technological advancements and the expansion of virtual services across the globe.” With Nasdaq estimating that at least $3.1 trillion in illicit funds flowed through the global financial system in 2023, even the most diligent organizations find themselves impacted.
The potential pitfalls are many. Organizations may invest in a sham operation. Inadvertently inherit hidden criminality during a merger or acquisition. Or unknowingly use a supplier that flouts labor or environmental protections.
Putting aside the cost and impact of the actual fraud itself, organizations must contend with growing compliance burdens and the threat of financial penalties—along with reputational damage—should any regulatory missteps be identified. There are also untold opportunity costs as organizations swerve sound investments, deals, and suppliers that appear too risky or shady on the surface.
More profoundly, high fraud levels erode the trust between counterparty organizations—particularly across borders and jurisdictions—which stymies innovation and impedes the economic growth societies need to prosper.
The root cause of these issues stems from a fundamental lack of transparency and identifiability across the global marketplace. A report from PWC, for example, found that it is “very common” for even multi-billion-dollar, publicly traded companies to have incomplete information about their suppliers. The impact of this opacity ripples through all levels of the global business community, evidenced by shortfalls in risk management, operational efficiency between counterparties and, importantly, also in regulatory supervision.
Given this increasing need for global transparency and identifiability, there is growing industry momentum for the use of the Legal Entity Identifier (LEI) and its digital counterpart, the verifiable LEI (vLEI), in cross-border ecosystems.
All legal entities can obtain a LEI—a unique, globally standardized code that enables anyone, anywhere in the world, to trust that the bearer is who they claim to be. The result is the unprecedented availability of verified corporate identities, including detailed information relative to the ownership structures and subsidiary relationships of legal entities everywhere. This open availability helps all stakeholders to ‘connect the dots’ and ensure the accurate and consistent identification of the legal entities across the full lifecycle of counterparty transactions in all their forms, encompassing payments, supply chain relationships, and environment, social, and governance (ESG) obligations.
Yet gaps in identifiability still linger. If entities within a corporate structure are not reported or become outdated, for example, the capacity to assess risk and identify criminality is, at best, delayed. At worst, it is inhibited.
Happily, the job of plugging these gaps is neither cost, time nor resource-intensive. It does, however, require commitment. The reality of the fight against financial crime is that it requires every business to demonstrate transparency. This starts with firms making trust a priority by ensuring their corporate identity data is not only easily available, but also accurate, current and complete.
In exchange, each organization is then empowered with the identity credentials needed to access the investment, trade finance, and supply chain relationships that permit their full participation in the global, digital economy—safe in the knowledge that their operations and reputation are underpinned by a proven, globally recognized foundation of trust.
Promoting transparency with the Policy Conformity Flag
In recognition of this opportunity, the Regulatory Oversight Committee (ROC) and GLEIF have reaffirmed their strong and continued commitment to encouraging LEI renewals and promoting current, complete reporting by legal entities of open, standardized, and high-quality legal entity reference data.
The Policy Conformity Flag was launched to provide global data users with a simple and clear visual sign indicating whether an individual LEI record is up-to-date and complete with relationship reporting. Possessing an LEI adorned with a ‘conforming’ status delivers various benefits to both individual organizations and the wider ecosystem.
An organization with a conforming LEI strongly signals that it is reliable, trustworthy, and fully committed to transparency. From a practical standpoint, this makes doing business easier by demonstrating to counterparty organizations that its LEI can be used to automate and streamline due diligence checks, onboarding, and myriad other business processes.
Increased accuracy and completeness in data reporting also means interconnections between legal entities can be detected and critical data sets more efficiently shared and matched. Only on this bedrock of high-quality data can today’s advanced analytics accurately identify hidden market risks and reveal the complex criminal networks used to obfuscate and perpetuate fraud.
It also provides a simple and elegant way for legal entities everywhere to ensure technical compliance with more than 200 regulations worldwide that reference the LEI.
Collectively, these benefits promise to significantly bolster trust and transparency across the global marketplace. Each time the LEI is utilized in a new business identification use case, the value delivered to all ecosystem participants compounds, and the world moves another step closer to achieving the universal visibility and traceability needed to eliminate corporate criminality.
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Alexandre Kech is the CEO of the Global Legal Entity Identifier Foundation (GLEIF).
Prior to joining GLEIF, Alexandre Kech was Head of Digital Securities at the SIX Digital Exchange. As a member of the Executive Board, Alex had full executive responsibility for the Digital Securities business vertical, including sales and relationship management, product development, business design, and ecosystem expansion.
Over the past 25 years, Alex has constructed a unique career combining finance at BNY Mellon, payments/securities infrastructure and standards at SWIFT, and blockchain and digital assets at Onchain Custodian (ONC) and, most recently, Citi Ventures. As co-founder and CEO of ONC, Alex led the Singapore and Shanghai-based team that built custody and prime brokerage services for crypto and other digital assets from scratch. As Blockchain & Digital Asset director at Citi Ventures, he built a team to engage the European ecosystem on emerging use cases for blockchain technologies and digital assets.
Alex is also involved in industry and standardization initiatives. As the convenor of the ISO TC 68 / SC8 / WG3, which produced the ISO 24165 Digital Token Identifier (DTI), he is a member of the DTI Foundation Product Advisory Committee. He also recently served as co-chair of the Global Digital Finance (gdf.io) custody working group.
Alex earned a bachelor’s degree in translation and an Executive MBA from the Quantic School of Business and Technology while building Onchain Custodian, putting theory into practice in real-time.
