2023’s Biggest Financial Scandals: The Crumbling Houses of Cards

Looking back at 2023, we can conclude that it was – again – a year like no other in the world of white collar crime. The year is filled with eyebrow-raising financial scandals and interesting new pieces of guidance and enforcement actions. In this article, we take a deep dive into 2023’s biggest financial scandals. So, grab your popcorn and get ready for a rollercoaster ride through the year’s most scandalous financial misadventures. And remember, we love hearing from you! Share your thoughts, insights, or any trivia you think we missed in the comments below. Let’s dissect these stories together and see what we can learn to prevent similar misconduct in the future.

To compile our list of 2023’s Biggest Financial Scandals we focused on scandals that had significant financial impact, drew attention from the public and regulators, involved a high level of deceit, and had far-reaching effects on the global financial system and societies. In other words, organisations of which C-suit executives saw their houses of cards crumbling. The top 5 includes crypto, money laundering, corruption and financial reporting fraud. These financial scandals demonstrate the fragile foundations upon which some corporate entities built their success, and the profound effects their collapse (can) have on the wider financial landscape.

The Green Hyena Top 5 of 2023’s Biggest Financial Scandals

1. FTX / Samuel Bankman-Fried (Crypto)

The first on our list of 2023’s Biggest Financial Scandals is the Samuel Bankman-Fried/FTX case due to the widespread attention for its complexity and scale. FTX collapsed in November 2022, leading to Bankman-Fried’s arrest (as well as his ‘not guilty plea’) and multiple charges in 2023. The case illustrates the risks in the relatively unregulated crypto market and highlights issues of corporate governance and financial oversight. The financial impact of this scandal is extensive. Investors and users of FTX faced substantial losses, estimated in billions of dollars. This collapse shook confidence in the crypto market, leading to a broader decline in cryptocurrency values. The exact figures for fines or settlements remain uncertain, as legal proceedings continue.

Various countries have initiated enforcement actions. The United States, where FTX was based, leads the investigation, with several federal agencies involved, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission. Additionally, authorities in other jurisdictions, such as the Bahamas where FTX had significant operations, have launched their investigations. Additionally, there is a current enforcement action concerning breaches of the Foreign Corrupt Practices Act (FCPA). It is alleged that Bankman-Fried (with others) authorized and directed the transfer of cryptocurrency, then valued at about USD 40 million. This transfer aimed to bribe Chinese government officials to release several cryptocurrency trading accounts. These accounts collectively held close to USD 1 billion in cryptocurrency, a clear violation of the FCPA.

The implications of the FTX scandal are far-reaching. It exposed the vulnerability of the crypto market to mismanagement and potential fraud. The case lead to calls for stricter regulation of cryptocurrencies and raised questions about the efficacy of existing financial oversight mechanisms in a rapidly evolving digital finance landscape.

2. Singapore Money Laundering Case

Although not involving an established formal organisation, the recent Singapore Money Laundering case deserves a spot on our 2023’s Biggest Financial Scandals list. In august, the police performed an ‘island wide’ raid ending up seizing assets currently worth more than USD 2,8 billion, making it one of the largest money laundering cases globally and certainly a major scandal for Singapore.

Singapore authorities were initially alerted to the case in 2021 and quietly launched an extensive probe in early 2022. The investigation was kept discreet to avoid alerting the suspects and to develop a comprehensive understanding of the situation. This led to the identification of a network of individuals believed to be connected, including through familial ties. The authorities gathered intelligence, eventually leading to the large-scale operation involving over 400 officers, conducted by the Commercial Affairs Department. In total, 30 foreign individuals are involved, of which 10 are arrested, 12 are assisting with investigations and 8 are still wanted. Our colleagues of the Singapore Times created a cool interactive visual showing the ties between the individual involved.

The assets seized and frozen include properties, gold bars, vehicles, USD 23 million in cash in various currencies, over 250 luxury items like bags and watches, and even cryptocurrency. Curious to see what over USD 1 billion (currently worth USD 2,8 billion) in seized assets looks like? The Singapore police published pictures of their haul and below some examples.

This case has prompted significant scrutiny of Singapore’s anti-money laundering measures and raised questions about the effectiveness of existing systems to detect and counter such illicit activities. The ongoing investigation may lead to more arrests and asset seizures as it progresses. We will keep you posted.

3. Trafigura Enforcement Actions (Corruption)

The third enforcement action that deserves a spot in our 2023’s Biggest Financial Scandals list is the Trafigura case. The case involves investigations by authorities in the United States, Brazil, and Switzerland, centered on allegations of improper payments made by former employees via third parties, dating back over a decade. Trafigura’s involvement follows from statements made by a former Trafigura employee, as part of his plea agreement following his conviction in Brazil. The company anticipated resolving the U.S. Department of Justice investigation shortly and disclosed a provision of USD 127 million in its 2023 Annual Report for this purpose.

In Switzerland, the Office of the Attorney General charged Trafigura Beheer B.V. (TBBV), the parent company for failing to prevent alleged unlawful payments to a former employee of Sonangol (an Angolan state energy company), between 2009-2011. Despite TBBV’s willingness to resolve the Swiss investigation, the authorities decided to send the case to court. TBBV planned to defend itself, highlighting the compliance and anti-bribery controls in place at the time. The OAG also charged former Trafigura Chief Operating Officer Mike Wainwright, who denied the charges and planned to defend himself in court. Additional charges are brought against a former Sonangol employee and a former consultant to DT Group. In Brazil, TBBV remained involved in an ongoing civil case.

You might wonder why we’re putting an unresolved case like Trafigura’s on a list of major financial scandals. Well, it’s a pretty big deal. For starters, it’s the first time a high-profile company in Switzerland faces the top criminal court for suspected bribery. That’s a major shift, showing Switzerland is stepping up its game against corporate corruption in line with the US and UK. This case isn’t just about the final verdict; it’s more about the strong message it’s sending and the new standards it’s setting. It’s making waves and changing how large organisations think about playing by the rules. Another interesting perspective is the fact that Swiss authorities address alleged behaviour of a Dutch company. Similar to the Albermarle case, where the DOJ reached a settlement and the Dutch prosecutors decided to close their investigation into the alleged involvement of the Dutch entity. It is unclear whether the Dutch prosecutors also investigate and prosecute Trafigura, like they did in the past.

4. Americana (Financial Reporting Fraud)

The fourth case on our 2023’s Biggest Financial Scandals list is the Americana case, due to its financial impact. This case concerns a corporate scandal, primarily involving Americanas SA, a prominent Brazilian retailer. The company faced severe scrutiny following revelations of a substantial accounting irregularities and a shortfall exceeding USD 3.8 billion (20 billion Reais). This disclosure led to Americanas filing for bankruptcy protection. The size of the hidden debt raised critical concerns regarding the auditing practices of PricewaterhouseCoopers LLP (PwC), the firm responsible for auditing Americanas’ financial statements since 2019.

The core of the scandal involved supplier financing that was not accurately reflected in Americanas’ financial statements. Consumer and corporate activism groups filed lawsuits against PwC, with some seeking to freeze the auditor’s assets. These legal actions stem from allegations targeting PwC for failing to identify and report these significant financial irregularities in Americanas’ records.

The case has drawn considerable attention due to the involvement of Americanas’ management and three key shareholders, noted Brazilian billionaires. These individuals have been implicated for their potential role in the fraud, although they have denied any wrongdoing, claiming to be victims themselves.

This scandal has had widespread implications, not just for Americanas and PwC, but also for the broader Brazilian business community due to the involved parties and the fact its collapse could seriously harm the Brazilian supply chain.

5. US Healthcare Fraud Scheme

Last but not least on 2023’s Biggest Financial Scandals list; the US Healthcare Fraud Scheme. In 2023, the United States experienced a significant health care fraud enforcement action, marking it as one of the largest corporate scandals of the year. The Department of Justice, in collaboration with various law enforcement agencies, charged 78 defendants across 17 federal districts. These charges were part of a coordinated national effort to combat health care fraud and opioid abuse, involving alleged false billings totaling over USD 2,5 billion.

The allegations encompassed a range of fraudulent activities. Defendants included telemedicine platform owners, laboratory owners, durable medical equipment providers, and pharmacists. The schemes often involved submitting false claims for unnecessary or unprovided items and services. In some instances, adulterated and misbranded prescription medications were distributed unlawfully. This enforcement action spanned multiple states, with various federal districts involved in prosecuting the cases. Examples of allegations included medically unnecessary prescriptions and services, kickbacks for patient referrals, and billing for unrendered services. Districts like the Southern District of Florida, District of New Jersey, and Eastern District of New York were notably active in bringing these cases to court.

A notable aspect of these cases is the impact on society due to the exploitation of vulnerable groups. For instance, one scheme in Wisconsin targeted low-income pregnant women, enticing them to sign up for prenatal care services that were never provided. Another case involved the diversion of expensive HIV medications, highlighting the sophistication and breadth of these fraudulent activities. Furthermore, the proceeds from these schemes were often used for purchasing luxury items, such as exotic automobiles and yachts.

Although an enforcement action on this scale has not been seen like this before, fraud in healthcare is unfortunately not a new development. For example, healthcare has risen to become the sector with the most FCPA violations after ER&I, and Europe has recently seen many fraud and corruption scandals in hospitals and private clinics.

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