Last week, UBS America finally confessed that it had perpetrated a series of tax frauds which affects 19,000 US taxpayers. Richard Murphy questions whether this is the tip of the iceberg. He is right to do so. I was more interested in the controls aspect:
“Our compliance system had failures, and misconduct appears to have occurred,” Mark Branson, chief financial officer of UBS’s global wealth management unit, told a Senate panel today. “It is apparent now that our controls and supervision were inadequate.”
…going on to add…
“We did have detailed written policies that prohibited our employees from engaging in some of the conduct that our internal investigation has uncovered, such as assisting in the creation of sham offshore companies to defraud tax authorities.”
Colour me stupid but exactly how were controls over-ridden? Where was the peer review? Where was the internal audit review? Surely someone must have spotted something when so many customers were at risk? What about the external auditors? At a time when the topic of tax avoidance and offshore is receiving so much publicity, what was going on among these groups of actors?
It strikes me that the more I read about these kinds of fraud, the more likely it is that policies and procedures are just that. Without an expert eye on the mechanics of client contract engagement and execution, companies are putting themselves and their customers at risk. Without processes in place that red flag such activities, it is very easy to walk around procedures. But ever it was so.
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