Bad news for a medium-sized bank: the financial supervisory authority Bafin demands information about incorrect expense reports. She initiates proceedings against the bank and two board members, the financial institution has to provide information.
The lawyer Claudia Pott knows the case well. She is claims manager at the insurance broker Hendricks in Düsseldorf. “Then the bank has to determine internally who was involved in the alleged and later confirmed expense fraud,” says Pott. In addition, it must be examined how it came about that large numbers of expense reports were forged and manipulated. “The total costs for these internal examinations amounted to 400,000 euros,” reports Pott. This adds to the actual damage caused by the expense fraudsters, who put more than 500,000 euros in their own pockets.
Pott is not allowed to name the bank. But she knows: “This compliance damage is increasing very sharply, and soon it will be much more.” Coming soon, that is after the “Act to Strengthen Business Integrity” or the Association Sanctions Act, which is currently in the legislative process, has come into force. It provides penalties for associations and companies that do not adhere to the applicable rules, i.e. violate so-called compliance.
For real estate agent Hendricks, part of the UK Howden group, the issue is very important: it opens up great business opportunities. “So far, the bank could have insured the damage from the fraud, which it did not have, but not the amount for the internal investigation,” explains Pott. “So far there are no policies for this.” A new compliance legal protection policy for companies, which Hendricks offers together with the Cologne legal protection insurer Roland, is intended to close the gap. It pays for violations of competition law, corruption and fraud or damage with the help of IT.
It was designed, among others, by the lawyer Michael Hendricks, who once founded the broker and now works as a consultant. The biggest problem with such a policy: “Compliance measures are initiated by those responsible in the company on their own.” A system in which the customer can unilaterally trigger the insured event may lead to a dispute with the insurer. That is why Hendricks and Roland have introduced a binding arbitration system.
Since there is only one provider so far, it will take time for prices to drop
The matter is clear with the bank and its expense collectors – the Bafin demands the investigation. But Pott gives another example. “At a housing company, employees committed bribery and extortion when awarding construction work.” The company initially investigated against unknown persons and subsequently against numerous employees. The company itself made the decision to carry out these investigations – without any external trigger.
“It incurs large costs for internal investigations,” says Pott. Finally, it had to be clarified who was involved, who knew about it and was silent, and why such crimes could happen at all. That costs 250,000 euros.
Such policies are not cheap. Companies with 250 employees are likely to pay around 4500 euros per year, with 1000 employees that easily adds up to 12,000 euros. Then up to 500,000 euros are insured. Since there is only one provider so far, it will take time for prices to drop. The policy is still attracting great interest in business, says Hendricks. Sure – with the new law at the latest, internal compliance investigations will be much more frequent.
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