DEAN

Deception has always intrigued me; understanding what drives people to deceive, how humans engage in deceit, and how it unravels, propelled me into the police force at 19. Twelve months later, I began training and working as a detective. As a detective I shared interview rooms with the underbelly of society, uncovering how criminals use deceit to commit crimes and investigating their unrelenting attempts to lie and deceive.

At 23, I plunged deeper into the murky world of deception, moving into organised crime investigations. I worked alongside some of Australia’s top detectives and crime-fighting legends. I learned that deception wasn’t only about lying, instead, it’s a pattern of behaviour where people mix lies with omissions of truth to get their way. After a decade as a Detective, I stepped into the corporate world, turning my attention to how people use deception inside corporations.

Over the next 10 years I would spend many months on mine sites, production facilities and in factories across West Africa, Asia and Latin America. Here I saw first-hand, demands from corrupt government officials and the bribes individuals in some organisations were prepared to pay to secure an unfair advantage.

Back home, I turned my attention to employees colluding with suppliers, manipulating financial records and abusing their positions. I've worked with some of Australia's largest companies as they tackled head-on multi-million dollar frauds. Time and time again, I’ve watched the most trusted employees, who were well-liked and respected, take advantage of their position to deceive and steal.

In this series we turn the Forensic Lens to deception and hear from people who are on the front line: Detectives, Lawyers, Psychologists and the corporate regulators. We’ll explore their stories from decades of detecting and preventing deception.

Welcome to KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business. I’m Dean Mitchell.

Deceit is a common bedfellow of crime. Wherever we find crime, we find deceit, and corporate crime is no different. But what is it that drives people to mix lies with omissions and distortions of truth to achieve their ends? Are humans born to deceive, do they learn to deceive or do they have deceit thrust upon them? Today we go inside the human mind to demystify deception. I’m joined by Forensic Psychologist Oscar Williams. Oscar has spent his life working with those who commit crime, both inside prisons and now in private practice.

Oscar, what you do sounds fascinating and something we see on TV, but how would you describe what you do as a forensic psychologist?

OSCAR

I suppose forensic psychology is just the application of psych theory, but within a criminal justice kind of space. So I suppose forensic psychs, you see them working for SAPOL [South Australia Police], corrections, things like the courts. And what we try to do is look at assessing, treating, and providing expert evidence on usually criminal matters, or matters related to mental incompetence. So it's the same as normal psychology, except we apply all of those principles within a forensic setting.

DEAN

So what does a day look like for you?

OSCAR

Usually, most forensic psychologists will do a bit of a mixture of assessment and treatment. So for example, when I used to work in correctional services, it would be assessing the risk of sexual offenders or violent offenders, or terrorist offenders. So sometimes that was for court purposes, but a lot of the times it was for selecting participants for groups. And then in the afternoon, you might run a sex offender programme, or you might run a violent offender programme. We also dealt a lot with Attorney General's so looking at providing expert evidence around whether someone should be kept indefinitely detained, so things like that it's pretty busy, but very, very fascinating work, because I guess you get to learn things that most other people don't get to learn about, and get some very interesting stories.

DEAN

You've been a forensic psychologist for a number of years now, you must have met some of those interesting people that you've sat opposite for months and months, is there anything you've learned from those people?

OSCAR

I've learned that some people are very, very good at lying. So there have been a lot of cases when I was one of the managers at a remand centre, where you'd get offenders who say, for these reasons I need to be moved to a different part of the prison. So a lot of the times, it's interesting to kind of hear what they say, and then go back and have a look at the data that we have on this prisoner in particular, because a lot of the time, you know, for them, it's about getting cushier cells or a better environment. So it's interesting to see how a lot of prisoners think they can deceive, I suppose a psychologist or someone who works there, but also observing how prisoners interact with staff and try to split staff against one another. So they'll ask a prison officer to get them a specific phone call, because there's an emergency, that prison officer says no, and then all of a sudden, you kind of watch them going to a different prison officer and using kind of a different approach. So I suppose that's the most interesting thing, just watching these guys day to day, you know, on a unit where you're not necessarily sitting in front of them doing an assessment, but just kind of watching how they all meld and interact. And kind of seeing this alpha male dominance stuff come through, watching people steal other people's food and that kind of stuff. I think that's probably the most fascinating part of the work that I've done is just observing these guys in, I suppose, a hot pot environment where they don't get to go out and go and see their families, they're all kind of mixed in together,

DEAN

And how did you end up doing it? Did you wake up one day, and I want to be a forensic psychologist, what was going through your head?

OSCAR

I went into psychology initially, and had no idea what I wanted to do. So a lot of people were talking about, you know, I want to be a child psych, or I want to be a clinical psych, and to be fair, when I started uni, I wasn't even quite sure what psychology really was about. And then in third year, we had an elective, and I did forensic psychology and got really, really interested in it. Because I suppose again, it's kind of understanding some of the most awful behaviour that we get to see, you know, people engaging in violence, people engaging in fraudulent activity. So I think when I saw that kind of research and started learning about it, it just lit a fire.

DEAN

Almost at all crimes there’s an element of deceit. Why do people lie?

OSCAR

I suppose if we're thinking about deceit, it's probably useful just to kind of define what it is right? So deceit usually is kind of wanting to encourage people in believing something that isn't true. But there's kind of two types of deceit, right? There's the deceit of just telling a lie. But there's also the deceit of omitting information. So purposely choosing not to share something. So a lot of the times people will tell big lies, so things like ‘No babe, you know, I've stopped drinking, or I haven't been going out and getting high with my mates’, or things around cheating, but then most of us will tell little lies, things like ‘this outfit looks great’, or ‘yes, I've almost finished that report that's due this afternoon’. So there's these kind of three areas of deceit, where you've got positive impression management, which is, you know, I'm going to present myself in a more favourable light. And we tend to see that in job interviews, right. When you interview someone, they're not going to be telling you they're pretty lazy at work and they take a lot of smokos, they're going to tell you, they're amazing. Then you also have negative impression management where people will make themselves out to be more problematic. And I suppose we see this in kind of work cover cases. You know, when people are trying to fraudulently get some money out of Work Cover. So they'll say yes, you know, I can barely walk I can't get out of my bed. But then we've also got this really interesting group of people where it's called self-deception. So it's kind of like lying to yourself. And these are the people that come across as really grandiose and they kind of know it all. And you might ask them questions about things, you know, they know nothing about. But they'll present in a way that makes them look like they know everything. And so people tend to lie for three reasons, right. One to get what I want, so it's kind of that instrumental deception. There's also the protecting myself or promoting myself. And I suppose the best example of that is, you know, for people that have kids, kids will often want to protect themselves, right? So avoid punishment. So it's like, ‘no, no, mum I didn't draw on the wall’ and they're holding a crayon. Or, you know, ‘no I didn't pinch my sister’, even though the sister’s crying and there's no one else there. And then we've got that really, really awful group of people who engage in deceitful behaviour or lie, just to harm others. And that's the stuff you know, I know, we'll be talking about in a different podcast. But it's those kinds of psychopaths, that Machiavellianism where people have a personality trait that's about manipulating others, and getting excited about being able to do that and seeing it as a game.

DEAN

So some people are just prone to manipulate others, are they?

OSCAR

Yeah, so some people, especially when it comes to kind of those personalities, like psychopathy, they don't know any different, right? They kind of enjoy lying. They want to lie, it makes them feel more powerful. It gives them control, it gives them the things that they want. Because if you think about lying in general, it's always based around context, right? If you're in a high demand situation, so your boss is coming to your office going, ‘Hey, this report was due yesterday, where is it?’ When you feel that pressure, you're likely to lie, right. You're likely to go oh, you know, yes, it's almost done, I'm just waiting for the printer. Or you might blame someone else. These people that are more likely to kind of engage in that higher level lying, it is about manipulation and high level manipulation, usually with quite a lot of planning.

DEAN

I guess we've talked there about the people doing the deceiving, but what about the people on the other side, that people hearing the deceit, are some people just more prone to be deceived than others?

OSCAR

Yes. So if you think about society, right, we kind of believe that society is based on this idea of truth, right? We believe other people are going to be truthful. And that helps us to have this kind of shared view of reality. So our default assumption is always that people are not likely to be deceiving us, they're likely to be telling us the truth. The research really does show that actually, all of us are pretty terrible at picking up deception or detecting deception. But there are people that are more vulnerable. And I suppose these are the people that tend to get targeted when we're talking about, kind of higher level deception. So these are the people that might have some things going in their lives or they feel vulnerable, or they feel like they're not particularly liked, they're much easier to manipulate, because you can tell them a few things that will make them feel good about themselves, and then they'll kind of believe that lie. And you sometimes see this kind of in relationships. But you also see this in the workplace with certain people kind of, you know, blowing a lot of smoke, or trying to manoeuvre themselves in the organisation around people that might have access to some power or some knowledge that you want to seek.

DEAN

And I know, you've done a lot of court work and assessment of criminals over the years. Obviously, they've got a real desire and drive to deceive you to get a positive outcome. How do you deal with it on the other side?

OSCAR

We have to realise that every criminal is going to engage in some deceit, it's exactly what you just said, right? They're kind of in this win-win situation. They know that if they lie to the court, they might get a shorter sentence or a different penalty. But they also know that if they get caught in a lie, they're just going to get what they thought they were going to get initially anyway. So there's a high driver to engaging in deceitful conduct. I suppose for us as psychologists, we're lucky because we can use some psych testing, there's a couple of psych assessments that I utilise every time which detect deception. So they detect that positive impression management, negative impression management and self deception. So oftentimes, when they fill out this paperwork, I can already tell whether this person is likely to be trying to deceive me. But it always comes back to what other information do I have access to. If you just rely on an interview with a criminal, it's very likely that you will be deceived. So it's so important to have some background information, you know, whether it's other sentencing remarks or other records, or whether there's other information that you can just garner to see whether the things that you're being told are actually in line with the reality of the situation. And you know, even in a prison environment where it isn't about doing court assessments, like I said before, you know, in the remand centre, I had a few prisoners who would tell me that they're suicidal, because they knew a) suicide is a high stress kind of discussion, right? So you're going to be worried about them, but they also knew that for you to kind of try and call their bluff could potentially be a huge risk, right? And for them, the benefits were huge, they get to go into the health centre, which is much more comfy, smaller cells, you know, access to some additional privileges. So sometimes it takes a bit more time and effort in kind of looking at how these people behave, looking at their kind of non-verbal cues and then the stuff that's coming out of their mouth. But I think if you're doing an interview with someone who, you know, is engaging in criminal conduct, you have to realise that they are going to be lying to you. It's completely unlikely that you're going to get a criminal who's going to sit in front of you and tell you the full truth.

DEAN

And why is that?

OSCAR

Again, it's, I think it's about just personal gain, right? So for these guys, they know that lying has a lot of benefits, so they don't just lie to staff in a prison, they lie to each other, you've got prisoners who might say they've engaged in higher level crime, because they want to be seen as the alpha male, and that gives them power. Some guys will lie about their offences, especially if they've engaged in some criminal behaviour that might be seen by society as being, you know, at the bottom of the pond kind of pond scum behaviour. So to protect themselves, they'll lie and say, ‘Oh no, I'm just in here for drug offences’ rather than something that might be a bit more sinister. But like I said, the benefits of lying in crime are huge, right? So you'd be almost stupid not to lie.

DEAN

It's a really interesting point I guess. And have you ever felt like you've actually been deceived? Have you walked out of one of those assessments and gone, they got me?

OSCAR

100%. So when you work with psychopaths, right, and I think all of us have to acknowledge that we like to have our ego stroked, right. So sometimes you'll sit in an interview, and it might be your first interview, and this guy's like, Oh you're the best psychologist I've ever had, you're so smart, you're so intelligent, Oscar, you're so good looking, kidding, not that good looking part. But you know, you kind of go, oh yeah like, this makes me feel great, right? Like, who doesn't want to feel like they're doing a good job. And usually you walk out of that interview, and you have a bit of a chuckle to yourself, because you go, uh huh, I see what just happened here, right? Like all of that ego stroking was because this person thought I had some influence in the prison to either move him or to get him to see his family more often, or to get access to more phone calls, or they thought I'm going to write a really positive report. And I suppose the other thing I want to add is, you know, in the work that I've done, which was writing reports on how people went in treatment, they're gonna lie to you, right? No one's going to be like, oh, yeah, I still want to go out there and commit violent crime, or yes I still want to go out there and use drugs or engage in fraudulent behaviour. They're going to tell you yes, I'm cured, everything's fine. And this is again, where that psych testing comes in, because we can check whether what they're saying is actually in line with what we're expecting. And sometimes, you know, when we realise people are deceitful, we'll say that to the parole board, and then these guys get really angry with you after when they realise that you kind of saw them for who they really are, rather than believing all the things they tell you.

DEAN

And what's it like inside that room, you're having this conversation with criminals. Do tell them you know that what they're saying is not true?

OSCAR

It depends right? So sometimes, if I feel the interview’s going nowhere, right, and I'm getting a little bit grumpy, because I know that the person's just told me a complete lie, then I might say, ‘Oh look, you know, I just want to let you know that some of the psych testing that you completed, like it has lie scales, right. So it's going to tell me whether you're being truthful or not’. And I'll play the devil's advocate and go, ‘hey like, what do you reckon your lie scale came up as?’ Sometimes you see the penny drop, right? And these guys will be like, ‘okay, yeah, I have actually committed more crimes than just the one’. Or they'll go, I didn't realise he had access to that information. And in those times, I'll go, ‘Okay well, let's start again, right, I'll give you the opportunity to start again, and tell me the story from the beginning’. But even then, sometimes they'll still continue the lie. So a lot of the times, you know, for them, I think it is quite tricky, because they know that if they get caught out in the lie with a psychologist it's not gonna look good for them in terms of the parole board. But also they don't want to necessarily tell you the full truth, because it will also make them look bad for the parole board, right. So there's this catch 22, it's either I tell Oscar that everything's crappy, and I'm still thinking about committing further crimes, or I tell him that I'm cured and he'll know that that's a lie as well. So it's often really interesting to watch that happen in a room in psychology we call it cognitive dissonance, this kind of bit of being like, oh I'm acting in this way, but I realise it's not quite accurate. And you see it on their face.

DEAN

Oscar, there's some people that are just more prone to lie than others?

OSCAR

Yes, definitely. So it's interesting. There was some research done by Dr. DiPaolo, and what she talked about is that lies are like wishes, right? So when people lie to you, it's actually they’re kind of telling you what they wish was true. So if I say yes, I've done all my work for the day, what I'm actually saying is I wish I had done my work for the day. But there's this principle called Pareto Principle, which is the law of the vital few. So what we know is that 20% of people account for 80% of behaviour. So even though most of us will tell a few lies every day, the stats are about two lies per day for the general population. There is a small group of people that will tell a lot more. And so we know that in general, men lie more than women, you're more likely to lie if you're in a higher status job or occupation, usually business or tech, but in general, kind of lying tapers off into our adulthood, it spikes as teenagers. So you see a lot of teenagers lying to their parents, no I'm not going out and I'm not drinking with my friends, and then kind of peters off. But for people like the guys we've talked about in terms of psychopaths, narcissists are people that have a lot to lose, they're more likely to lie and more likely just to see it as normal.

DEAN

The human element of crime is fascinating, but of course, deceit doesn’t stop in at the corporate door. On our next podcast, Oscar and I will discuss deception in the workplace, getting an understanding of why fraudsters engage in their crimes, and how we can easily identify these deceivers who walk amongst us.

OSCAR

When we’re looking into the research on psychopathy or white collar crime, oftentimes the only way these guys get caught is through whistleblowers, so listening to your staff is really really important. These guys will know that you’re someone in power, so the way they present themselves to you will be very different to how they present to people who are their subordinates, right? Because they know that they have to keep you happy so you don’t feel like there’s anything going on.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Corporate crime isn’t a victimless crime. There are both very real victims and very real offenders. These offenders have spent decades perfecting the art of deceit before they bring it into our workplaces. How do we spot them? How do we know if the person sitting opposite us right now is a corporate criminal just waiting for the chance to make us their next victim? And what is a corporate psychopath?

I’m again joined by Forensic Psychologist Oscar Williams. Oscar has spent his life working with criminals inside prisons and in the community, understanding how and why people deceive, and why some turn out to be corporate psychopaths. So who better to help us understand why and how these tricksters of trust make their way into our workplaces.

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Oscar thanks for joining us again. We spoke last episode about the corporate psychopath and narcissists. Who is this corporate psychopath that you were speaking about?

OSCAR

Corporate psychopaths, yeah. Psychopaths, usually kind of the way I see them is masters of impression management, right? These guys see lying as pleasurable, they're very parasitic. The scary thing about them is they don't experience any empathy. And there was this really interesting study done a few years ago, where they had a group of psychopaths that were exposed to two types of pictures, right. One set of pictures was I think, a tree, a rock, and a house, just general pictures. And another set of images were a knife, blood and another distressing image. And what they found is in psychopaths, the area that lit up rather than insula, which is your empathy centre, what lit up was language. So we also know that these guys tend to want to use language as a way to express themselves, right. So they don't express the emotion, they don't understand the emotion, but they can use language to get around that. So they'll mimic emotions, because they know emotions are important in society. But they don't actually know what emotions are. They don't experience things like feeling upset, or being scared or trying to understand how you're feeling. So manipulation for them is completely normal part of the day, they just see it as part of life. Sometimes they assume that other people are like them, that other people also lie. And as I said, in our last podcast, you know, these guys will often tell you a story that has a tiny grain of truth, and then just lots of lies.

DEAN

So what does a day look like for you?

OSCAR

Usually, most forensic psychologists will do a bit of a mixture of assessment and treatment. So for example, when I used to work in correctional services, it would be assessing the risk of sexual offenders or violent offenders, or terrorist offenders. So sometimes that was for court purposes, but a lot of the times it was for selecting participants for groups. And then in the afternoon, you might run a sex offender programme, or you might run a violent offender programme. We also dealt a lot with Attorney General's so looking at providing expert evidence around whether someone should be kept indefinitely detained, so things like that it's pretty busy, but very, very fascinating work, because I guess you get to learn things that most other people don't get to learn about, and get some very interesting stories.

DEAN

How do I know if I'm sitting opposite a corporate psychopath?

OSCAR

I suppose if you notice someone that just looks like they're too good to be true, and you're sitting in an interview, and you feel like you've lost control of it. So you've noticed that this person is starting to steer the interview in a way that they want. And you're noticing that they're quite superficial, but also really, really charming. So these guys tend to come across as these amazing employees who put in all the hours and things like that. But usually that's a sign that there's something not quite right. The best way to identify if the person you're sitting in front of is a psychopath is if you hear other people in your company, or your workplace saying, hey like, do you know that Joe Blow is actually quite arrogant and quite cold hearted and throws people under the bus. Or if you notice someone who constantly takes credit for something that you know they didn't do, usually a sign of this person is trying to get something out of me, and they're probably manipulating me or trying to.

DEAN

And psychopath doesn't mean criminal, of course. There are some people that have psychopathic tendencies. Who are they and how do they operate in the world?

OSCAR

So what we know with psychopaths is they're 1% of the population, but about 14 to 15% of the prison population. But we also know that psychopathy is a spectrum. So some people can have, like you said, some characteristics of psychopathy. So they might not necessarily meet the criteria for psychopathy, but they can still do a lot of damage. So these people might still be able to do their jobs and put some of the work in, but they'll manipulate kind of bits and pieces. Psychopaths, on the other hand, just manipulate everything. So they'll find people in the organisation that they know have access to informal power. So informal power are you know, the Secretary who has access to a CEO’s diary, or the guy who does the shredding of confidential information. They'll befriend those people and then use that information to be able to engage in fraud or to be able to manipulate the organisation in giving them high positions. So these guys really get ingrained in the organisation, they'll work out the people who they should befriend, and the people that can get them to a higher level, and they'll completely disregard anyone below that. So you'll often see this split where managers will be like, what do you mean like John's amazing, he's this great guy, he's got a lovely family, all that kind of stuff. But the people underneath him will be like, you know, I'm working really long hours, and he's telling me that I'm crap, or he's telling me that my work is not good enough, and that I need to do more. So usually seeing that split is a good indicator that something's not quite right.

DEAN

Are they born that way, or do they become that way?

OSCAR

Oh, that's still something that the research is split on. So there is some research to show there's a genetic predisposition, right. Some brain imaging of psychopathic brains show that the area of the brain that does look at empathy, so the insula, is actually smaller in size, which will indicate that possibly they're born that way. But some characteristics of psychopaths like being parasitic or engaging in kind of irresponsible behaviour or being manipulative, they can be learned behaviours. So it's kind of that nature nurture debate. Part of the psych community says it's very much genetic, but there is a part of the community that also says, well, there might be some nature that comes into play, because to be fair with you, there are some psychopaths who actually use their power for good right. So they might use their ability to charm others to get money for a donation drive or something like that. The ones that we worry about are the ones that are within organisations who do a lot of damage because it's self serving, right? It's money, prestige, power and it's done through a criminal aspect.

DEAN

So psychopaths aren't always that scary person in the corner, sometimes they're quite charming?

OSCAR

Usually you see kind of, you know, people think of psychopathy and they think of Hannibal Lecter. Yes, there are people like that right, but generally speaking, they're going to be seen as the great guys at work who are really, really nice, sometimes a bit flirty, you know, really great communicators, can show you a lot of work output. What you don't realise, though, is that the work is actually being done by somebody else, and they're taking the credit for it. And also not realising that they're being really nice to you, because you're someone who can be manipulated. So like I said, they kind of go through this three stage process, they'll assess you first, they'll go into a new organisation and go right, I need to work out who the power players here are. So they'll look at someone's usefulness, whether they're a source of money, power, sex, that kind of stuff, influence, and then they'll manipulate. And what they do is they carefully craft messages to be able to build and maintain control. And what they tend to do is they'll find what are referred to as pawns in the organisation, so someone who might be vulnerable, who might have had something awful happen to them, and they’ll befriend them and be like, oh, you know, I'm here for you, I'll help you. And then quickly, they can change that and be like, you know, now that I know some secrets about you, how about you tell me what's going on in the CEOs office? Or can you tell me, you know, what's being minuted in the last meeting at a higher level, so they'll manipulate, manipulate, but just as quickly as they manipulate you, they then abandon you. So a lot of the times people that have unfortunately been victims of these guys, and I'm saying guys because it generally is men, end up kind of waking up one day and being like, what's going on? When the lies come out, they don't believe them right. They still believe the perpetrator, rather than the information that's been presented.

DEAN

It's a really interesting point you raised there about most psychopaths are guys, certainly most corporate criminals the research suggests are guys, why is that?

OSCAR

Well, I think, first of all, generally speaking, in terms of crime, we know men commit more crime than women do anyway. Part of it could be that, you know, men are more driven toward powerful positions, so they're more likely to be kind of those go-getters and want to climb the corporate ladder. And men are more likely not to think through emotionally, right? Not saying that women are all emotional, but women have a much better capacity to understand emotional intelligence, right? They will look at a situation and go right, if I do this action, this person will be hurt, and this is what it means for them. When men are seeking power or prestige, it's kind of that blind-sidedness. You know, it's that one aim that I have, so they're more likely to do more damage. And of course, you know, statistically speaking still, at the moment, when we're looking at CEO level positions, it generally is mostly men. And we know that the typical fraudster is someone in their 40s or 50s. Usually, first time offenders have university degrees or higher level positions in those organisations. So it's probably part of the reason. But there are still female psychopaths, right? I don't want people to think there's no women who engage in psychopathic behaviour. There definitely are.

DEAN

And you touched on the typical fraudster. Can you tell me more about that? Who are they?

OSCAR

Again, mostly men. We tend to see kind of 40s to 50s, those positions in power because for you to engage in fraud, you kind of have to have some influence, right? You want to be in a position where people aren't going to question you. If you're just coming into an organisation and you're at a junior level, you're not going to have access to the people that actually make the big decisions where there's money involved or accounting. So they usually kind of have to climb a little bit. And once they get to a certain position, that's where you can engage in more fraud because like I said, it's about establishing relationships. They're usually seen as highly respected, high level of superiority, they're often seen as friendly, likeable, very rarely will they be described as kind of loners. So fraudsters, like I said, they kind of don't just manipulate the situation, they manipulate everyone around them.

DEAN

And do these people join organisations to commit fraud, or are they opportunistic?

OSCAR

A bit of both, so we know these guys will seek out positions in relatively new organisations or organisations that push the envelope. But a lot of the times when it comes to fraud, what happens is sometimes these guys will walk into a situation and an opportunity presents itself. So someone might not even be thinking about engaging in fraud, but all of a sudden, they're in a position where they do have access to the accounts, or they have access to some form of power, and so this opportunity presents itself and then they go with it, right? And it's kind of the fraud triangle stuff really applies here - opportunity, my motivation, you know, they kind of look at what's the risk of getting caught, but more importantly, like if I get caught, what's the likelihood of being punished? And if I get punished, what's the likelihood that's going to be bad? We know with kind of white collar crime, the sentences are relatively short, because white collar crime is never viewed the same as violence. You know, you hear someone who's murdered someone and you go lock them away for life, you hear someone who's stolen some money, and it's kind of like, oh well, that's a bad thing, but you know, it hasn't really hurt anyone in particular, so they tend to get away with quite a lot more. And hence why fraud can happen quite regularly. Because even when they get caught, the punishment is small. And then after, you know, they rationalise the crime and go this is fine, everyone else is doing it, I just got caught.

DEAN

Rationalisation is such an interesting issue. And I've sat opposite fraudsters for many years, and the one thing that still amazes me is that need for them to have to rationalise their behaviour. Other criminals don't necessarily do that. And to the extent where fraudsters inside an organisation, they'll feel aggrieved because they haven't perhaps got a promotion and they've lost out on $10,000 a year, and they will steal exactly $10,000 a year. Why do they think that way?

OSCAR

I think you have to realise that because most fraudsters, it's their first crime, they don't want to be associated with criminals, right? So they straightaway want to kind of identify as oh I'm just a battler who tried to save his family or try to do the right thing or try to increase the share value of the company. So they're more likely to rationalise because a) they don't want to believe that they've committed a crime. But b) it's kind of like what we talked about on the previous podcast, rationalisation sometimes results in lower sentences, right. So they might be like, oh look, yes, I did throw a bit more money around than I was supposed to, but you know, it wasn't that bad it's not like I went and stabbed someone or it's not like, you know, I hurt somebody, it was just a bit of money and I'm sure we can get it back. So rationalisation often is about protecting your ego so they don't want to believe they're just like a normal criminal. I mean, even the term white collar crime, it's got its own little silo, right? Rather than you're a criminal, it's like, you've got this special provision here, we're going to call it white collar crime, and you're going to be treated differently.

DEAN

And what are the differences between white collar criminals and the rest of the crooks?

OSCAR

Whoa, big, big question. So it really depends on the type of offending. A lot of the times white collar criminals, it's about money, prestige and power. When we're looking at violent offenders, violent offences mostly are about power or control, right if we’re looking at things like DV, it’s power and control. When we're looking at someone who decides to run a gang, it's about making some money, but again, it's about power and control. White collar criminals, it is more kind of about making money, if we're thinking about fraud. So they'll look at other people and go ha! like all of these people have these amazing lives and this person on Instagram’s on a private jet, like I should be able to do that. So again, they kind of rationalise it and go, well I'm just trying to live the American dream, so to speak, or kind of live the Western world's way of living. So I think kind of that's the bigger difference. Usually it is about trying to keep up with the Joneses, whilst general criminals it's about getting back at someone. And like I said, for psychopaths, it's also a game and they kind of enjoy the process.

DEAN

It's interesting because we know when we sit down with a criminal, they're going to minimise their behaviour. The one thing I've always found really fascinating with fraudsters, which is different, even when they want to tell you all of the fraud they've committed, and they tell you about the crimes they've committed, they often underestimate their frauds by many, many multiples, and that's not actually them deceiving you it's them deceiving themselves, isn't it?

OSCAR

Yeah, it's that self deception that we talked about before, right? It's not wanting to realise that actually what they're engaging in is really problematic. And I think, you know, some of the criminals that I've worked with who might have engaged in robberies of banks and stuff, they go, well they're insured, right? So no one loses anything like the bank will get its money back. But a lot of the times, you know, you want to lie to yourself and go, oh you know everyone's making out to be this awful person, but it's not really that bad. And like you said, when you're like, hey mate, do you realise across you know, the last six months, this is the amount of money that was lost, they kind of get a bit of a fright. And oftentimes, you'll see them stutter a bit, and then still try to find a way to minimise that, even though you've presented them with the facts.

DEAN

And when you confront those fraudsters with the facts or call them out on that deceit or that undervaluation, do they react differently to other criminals?

OSCAR

Generally speaking, when you call a fraudster out, say if we start with a psychopath, right, they'll do what we talked about before they won't get embarrassed, they'll just adjust the story. So they'll go oh yeah, but actually what you're missing is X, Y and Z. Other fraudsters tend to deny or a lot of the times what we see is blaming others, which you don't tend to see in other criminals. A violent offender is not going to blame someone else for their crime, because that's what prisoners call a dog act, right or it's ratting someone out. So a lot of the times other criminals will actually admit to it eventually and be like, yeah, I did that. A lot of the times fraudsters will blame someone else play the victim, deny or find a scapegoat, and they'll say, well actually, yes, I did do this. However, it's because I was under pressure. Or yes I did do this, but it's because our projections were supposed to be us making a profit of a million dollars, and we were under so that's why I was made to do this. They always want to find someone else to lay the blame on. They don't want to take any responsibility, even like what you said is you present them with all that information, they'll continue to deny, deny, deny it, or try to minimise it.

DEAN

And finally, if I'm looking in my organisation, and I'm trying to find that fraudster, are there some things I can see, are there some tell-tale traits, or is it all different?

OSCAR

When we're looking at the research into psychopathy, or white collar crime, oftentimes, the only way these guys get caught is through whistleblowers, right? So listening to your staff is really, really important. Because like I said, these guys will know that you're someone in power, so the way they present themselves to you will be very different to how they present to people that are their subordinates, because they know that they have to keep you happy, so you don't feel like there's anything going on. So a lot of the times, if you notice a team that's quite unhappy, or there's grumblings, or someone saying that this guy took credit for it, I'd be looking at that. You want to get the information from people that see these guys on a day to day basis, because like I said, psychopaths, they can present to you for short periods of time with that impression management stuff, but they can only hold on to it for so long, because it takes them energy. So you want to get access to the people that see them in their natural habitat on a day to day basis because they're the ones that are going to see the true behaviour because it's over, you know, separate times at different times of the day, whilst you might just see them in a board meeting or you might just see them when you're having a quick chit chat.

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DEAN

Sadly, these fraudsters and corporate criminals are often good at what they do. They take our trust and they use it against us, lining their pockets with our cash. But often they also get caught. When they do, they end up in an interview room opposite a detective or a corporate investigator. Next episode we’ll be joined by Professor Becky Milne who has developed interviewing techniques for police forces across the globe, to learn what really happens inside the interview room.

BECKY

Most of the research really shows that you cannot detect deceit through non-verbal behaviour. So our brain has so much cognitive resources, so if you are lying you are using up some of your cognitive resources to think about the lie so you have less resources to move. Their eyes give it away, they will fidget more, you know this is pop psychology, you know, leave it on the television.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Corporate criminals leave a financial fingerprint when they commit their crimes. When we find those fingerprints, those criminals find themselves in an interview room. On the other side of the table is often a detective or a corporate investigator, but what comes next? What really happens when the interview room door closes and the fraudsters find themselves confronting the evidence of their crimes?

Becky Milne is a Professor of Forensic Psychology and is a chartered forensic psychologist. The main focus of Becky’s work over the past twenty years has been the examination of police interviewing and investigation. Becky has worked with police forces globally to improve interview techniques and consults on the toughest terrorist and serious crime interviews.

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Becky, the work you do is really fascinating. But how did you get into it? Where did you start this journey?

BECKY

Okay, how I started this journey was many, many moons ago. I won't give you the full full story as we'll be here all day. However, I did a first degree in psychology at the University of Portsmouth. And then I was very, very fortunate, I was asked to do a PhD. My mentor, my dad, number two was someone called Professor Ray Bull. And Ray Bull is internationally renowned for the interviewing of vulnerable groups for legal purposes. Now, I had this task with my PhD to start examining police interviewing. Now I started that in 1992. And I'm going to keep referring back to that year, because it's a really crucial year within police interviewing. Everything stemmed from 1992. And I know we're talking about other types of investigation today, but all the world that you know, in your organisation stems from this police interviewing world. So in 92, in Britain, Ray Bull was asked to write the first ever national guidance of how to interview children for legal purposes. It was called a memorandum of good practice, based on research. Now it's evidence based policing, we call it but it was, for us, it was called research base. Because at the end of the day, as a chartered forensic psychologist, everything I do, can result in a court, me being an expert witness. So obviously, we've always had to base any of our advising based on some form of research, we can't say and sometimes I'd love to say, Becky Milne thinks this is a really good idea. It has to be based on some research. And when he was scribing this national guidance, he realised the research base was really quite low regarding how best to interview vulnerable groups, especially children with learning disabilities, adults with learning disability. So I was asked to do this PhD with him to fill, start filling in that void, and it seemed obvious to me that if I'm going to be researching police interviewing for the next three years, that I need to know what the police do, it seemed pretty common sense. So in my first year, I worked with a local police force in the UK, they were very, very welcoming and I just observed what they did and tried to find out what was going on in the real world of policing. And then I went over to Los Angeles. And I worked in LA with someone called Professor Ed Geiselman because he with Ron Fisher was developing this new technique called the cognitive interview. And it was this cognitive interview that I was going to be researching for the next three years, didn't realise it was going to be the rest of my life, and trying to think about how psychology as a psychologist can fit into the world and how it can form practice. So that was in 92. So I've been doing this a long time. But in 95, I started lecturing at the university. And I helped sort of start and run the first ever police degree. And so all my teaching really started having to look at how can psychology improve practice? I have been teaching legal practitioners and investigators, the role of psychology, interpersonal skills, stress management, investigative decision making, cognitive biases, heuristics, mindsets, interviewing. I also write national guidance so we have something called the cheating best evidence guidance, which every police officer and social worker and anyone who's interviewing vulnerable groups has to abide by for legal purposes. But I also work on real cases. So I'm there giving advice of how best to gather accurate, reliable information for people. So I'm very fortunate I love my job. Even after 30 years, I feel very privileged to be at the cutting edge sometimes, and to have some form of impact to everyday policing, and investigation as a whole.

DEAN

You've described before what happens in the interview room is not like TV, and if someone was inside that interview room, they'd probably be pretty bored. What did you mean by that?

BECKY

Yeah, I mean, it's the glamorous TV of seeing a detective come in, solve a crime within, you know, five minutes, the quiff of their hair still sort of standing on end. But unfortunately, as you know, we all know, who's doing this job that most investigators it’s all about attention to detail. Research that we've done in the UK, and in Australia and New Zealand, looking at what makes a good investigator, it’s great communication. And even investigators will say that themselves. So it's the attention to detail, it’s that minutiae of going through and filtering and examining information and trying to assess the reliability of information over time. And I think that's really important. Investigators, whatever organisation you're from, make decisions. Now decisions are only as good as the information you feed into them. Information is only as good as the questions you ask. So poor questions, results in poor information, results in poor decisions. And as investigators, we want to be informed decision makers. You know, and I think that is really, really important for us to realise whether I'm a frontline communicator as a police officer just rocked up at scene, whether I'm a paramedic, whether I'm fire service, whether I'm fraud investigators, whatever type of investigation I am in charge of conducting, it's all about informed decision making. And I think we really need to be mindful of that information. So in the interview room, it's absolutely pivotal that we communicate appropriately to garner the accurate, reliable information so we can make informed decisions later on. And the problem that we all know that you need to be trained to do this. And people say, why Becky, you know, I've been talking since the age of three, why do I need to be trained to talk? And the problem is, if we listen, and I urge anyone to just listen to everyday conversation, we ask very closed and leading questions. You know, like I'll say to you do you know, married, kids, family? They’re three leading questions. You know that I really don’t want ‘War and Peace’. What I want is ‘yeah’ you know, end of story. So in everyday conversation, these conversational rules actually hinder our communication within the investigative interview room. And one major thing is what we call the quantity issue. So we learn from a very young age is that detail is not required. It's called the Maxim of Quantity, that detail is not something that we need in everyday conversation. And so we learnt in the early sort of 90s, from a lot of our miscarriages in the UK, that in fact, police officers need to be trained how to communicate differently in that interview room. They couldn't learn through osmosis through more experienced colleagues, so you need to be trained. So there was a real big change, a step change in the UK in the early 90s about training police officers. But then the other side of the coin was actually we had to start creating techniques to enable an investigator utilise to allow the people you're interviewing to overcome these same communication rules. And so there was almost two lots of research going on, how do we train investigators to interview investigatively to garner accurate, reliable information counter to their everyday conversation? And then on the flip side is, are there techniques that we can create to help those investigators utilise with people that they're interviewing?

DEAN

Becky, you've been talking there about what happens in the interview room? What doesn't happen, as we both know is good cop, bad cop, but also makes good TV. Why doesn't that work?

BECKY

It doesn't work because all the research shows that a humane humanitarian approach is what gets the best results. An aggressive approach doesn't work. If anything, it'll give you a false confession. So again, we don't want that false information to make informed decisions. And there's research now all over the world and what's really quite fascinating is the basic communication rules, the basic memory rules are cross-cultural. Of course, there'll be cultural twists on top, don't get me wrong, but the general principles are the same worldwide. And what we know from the most hardened criminal, to the most vulnerable group, that the only way to get accurate, reliable information is good decision making with a very good approach. Now, it all comes down to this wonderful word rapport. And when we started explaining what rapport was, back in the early 90s, we didn't know much about rapport, you know, we knew it was getting on with someone it was that clicking. If you go to a pub, you can see people interacting the same as getting on and who's not getting on. So we all know what rapport is by observing behaviour. But one can you train it, two, how do we explain to people how to develop rapport and also in an investigative scenario, you have to develop rapid rapport techniques. We do a lot of work with people in call rooms, you know, call handlers control room, you know, they've got to build rapport with someone in jeopardy very quickly. So rapport really is a little bit more complex than just someone being your mate. In fact, it's not being someone's friend, it's about using verbal and nonverbal behaviour. You start establishing it at the beginning of the interaction, which could be over the phone, which actually first interaction for the individual interviewing could be a letter from an organisation. So even the tone of a letter can really, really make a first impression for you the interviewer later down the line. It's all about positivity. And all the research says you cannot fake rapport, it has to be genuine, you have to have empathy. You're not condoning what people have done, but it's empathic, you have to have this natural curiosity. You can't be too emotionally charged in a negative way, you've got to engage. So a lot of it is this real mindset of going in with a positive mind. And I think that's what we've seen in the past, if you're too overly emotionally charged within an interview, you really should stay away from that interview room. And you know, that's really important so the good cop, bad cop really doesn't fit into one, there's no research base and two, there's no backing for that. And in fact, all the research shows that if you just go and treat someone in a humanitarian way with respect and with a genuine interest, you're more likely to get someone to talk to you.

DEAN

Becky whilst we’re dispelling myths and talking about what the research says and doesn't say there are a number of practitioners around the world that will say you can detect lies - there are techniques that will help you do that. Do they work? What are your views on those?

BECKY

Okay with regarding detecting deceit, there is now quite a wealth of research. However, there are a number of ways you can have a nonverbal way. But really, I mean, we know that humans are individual beings. So most of the research really shows that you cannot detect deceit through nonverbal behaviour, you know, we don't have the text of anything, we reduce our nonverbal when we align, because we've got cognitive resources. So our brain has so much cognitive resources, so if you are lying you using up some of your cognitive resources to think about the lie, so you have less resources to move. So the fact that eyes give it away, they will fidget more, you know, this is pop psychology, you know, leave it on the television. So you've got the non verbal, then you've got the more verbal, so there are verbal techniques, I know scan is one, the research base is really poor for scan. So the research that does exist does show that it isn't an accurate reliable tool, there's not a wealth of research like there is with nonverbal and so more research really is needed. So when I advise police organisations and they say shall we adopt various techniques, my message always is look at the research base, and make sure you have independent research. It's almost like Bob has built the best barbie in the world. Okay, I always use the example not just because I'm talking to the Aussies, I promise. Bob has built the best barbie in the world. Now do you believe Bob and buy his $500 barbie? Or do you want to go and speak to Dave in Melbourne? Sue in Queensland? Is it just Australians like Bob's barbie? Also, does Becky like it in the UK? That's what you check in. You don't just go on Bob's word going, yes, it's a great Barbie. I mean, just think about it comprehensively. You want to look at the research, not only just by Bob, but all over the country. But then all over the world. That's how I always explained it to the police. Is there enough research and independent research in peer reviewed journals? Because if it's in peer reviewed journals as well, it means other people have assessed the methodology, evaluating these techniques, so you know, it's sound researched. And that's really important.

DEAN

And finally, Becky, you've said the two main questions that a detective will want the answer to is what happened? And who done it? How do they get those answers?

BECKY

How do they get the answers to what happened and who done it does depend on the type of crime. So that's police, obviously. We know that the investigation of homicides or murder, as we like to call it over here, we're very successful generally, because there's a range of evidence. So normally, you might have forensic scene, you've got witnesses, you've got mobile phone footage, you’ve got a whole range of things. It's above 90%, success rate roughly, very generalistic now. Sexual offences, unfortunately, around the world, and I'm generous by saying we're successful 20% of the time, and that's been incredibly generous, unfortunately. So if you start looking at the crime types you have to start understanding the different types of event incidents, crimes we're investigating. So different type of events will require different evidence. And the main problem with these word against word affairs, is it is a word it’s a voice. You know, there is no forensic evidence often in sexual offences, it comes down to a someone said yes or no. So when you're trying to establish what happened, if anything did and who has done it, it does really depend on the crime type. But generally, it's about forensic, if you've got a bit of forensic evidence, we're all happy, you know, we probably don't ever have much, but the strength of it is fantastic within a court. As soon as we then having to gather information from other sources, speaking to people, this is when I always talk about the contamination timeline, that's when that kicks in. So a forensic scene is normally locked down. But what I want you to think about if you're communicating with people, I'd love to put police tape around everyone's head at the scene. So everyone that you can get valuable information from, you've got to see that brain that memory as a scene in its own right. Memory is like snow, it’s so so fragile, that so fragile, that we've got to really try and protect it. And if that is our only evidence, then you know, we've got to be so careful that we don't walk on it ourselves, because asking really poor questions, contaminates my snow. And I think depends on the case, but if we're relying on the voice, and I think part of the voice and I do a lot of work on trauma informed approaches, to gaining those voices, then that's what's really important is to make sure that when we interview someone, be they witness victim suspect, when we evaluate the reliability, we look at the contamination timeline across garnering that information. And you know, when we do interview people, we have to make sure we use what we call a therapeutic jurisprudence approach. That you know, we don't re-traumatise them as it were that we are mindful of what we do will impact on that individual.

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DEAN

So now we know that suspect interviews are less about slapping tables while yelling at people, and more about forensically and carefully dissecting a version of events. Next episode we pull up a seat inside that very interview room. We’ll be joined by former Deputy Commissioner Dave Owens, to hear what it’s like to ask the tough questions and be face to face with deception.

DAVE

As long as you keep them talking or an absence of talking, they will fill that void with conversation. And that’s what you’re looking for. The more they’re gonna talk, the more chance they’re gonna say something that’s going to incriminate them.

DEAN

With his more than 30 years fighting crime in Australia and leading specialist organisations for the NSW Police including counter terrorism and undercover investigations, we’ll hear more about life inside the interview room.

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Dealing with deceit when it’s right in front of you is a tough ask. Understanding how to get information from a corporate criminal is not for the faint hearted and our criminal justice system is littered with tales of interviews gone wrong and subsequently failed prosecutions. So, who better to help us understand more, then the man who formerly oversaw all criminal investigations, undercover operations and electronic surveillance in NSW, former Deputy Commissioner Dave Owens.

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Dave, let's start at the beginning. It's 1981 and a younger Dave Owens has made the decision to become a police officer. What were you thinking? What was driving that decision?

DAVE

I had done about three months at university, Sydney Uni, doing a teaching degree there, found out it wasn't for me, the social side was but the study not so much, and actually just saw an ad, you know, join the police, this is what they offer. Good wage, good lifestyle and as a private school boy and invincible back then, I know certainly different now. And the cops seem like a really good idea. And for 30 years absolutely loved it.

DEAN

Did it turn out to be what you expected?

DAVE

Aw you know that and a whole lot more, blindsided in some areas. Would I recommend my own kids to go into it? As long as I go in with their eyes open, 100%. I have a saying, I miss the circus, I don't miss some of the clowns. And that's with the cops, that's very true. Politics at the end is not so much policing, it's about politics.

DEAN

And I won't ask you about the clowns. But I will ask you about the crooks. Are there any crooks that stand out to you over that 30 years of policing that really stick with you as someone who surprised you, who their level of deceit, the level of manipulation - is there someone or a group of people that that stick with you?

DAVE

It changed so much over the 30 years, you know, when I first started it was old school crooks that would have a beer, they were hard crooks, that’s how I would refer to them. Fraud used to be oh it never hurts anybody, you know, it's white collar crime so no one really gets hurt. Well, sorry, but yeah, they do massively. That's how I've seen it change over the years. Look, probably the crook that surprised me the most is Michael Kannan, down at the White City tennis court shootings when I was a duty Officer at Rose Bay. The guy who shot a bloke because he looked at him the wrong way outside a pub in Leichhardt, then opened fire on two police officers. He just had no concept of what real life or value was about. And he just, you know, I still don't think he does to this day.

DEAN

And you draw a really interesting comparison there between some violent criminals, and you know, what we often call white collar criminals or fraudsters. Are they different? Are they different types of people?

DAVE

Oh they're all crooks, just the ones doing white collar don't see themselves as that. They have a lifestyle that they want to live, or they've got themselves in a situation that they can't get out of, and they just keep digging the hole, trying to get out of it, or keep living the lifestyle by deception all the way through of friends of family. And that's the biggest thing that gets me is these people, it's not somebody who they don't know that they're deceiving, it's friends and family. And we're talking millions and millions of dollars in some instances.

DEAN

And talking there about deceit, as you've said, crooks start lying to you as soon as they open their mouth, and they stop lying to you when they stop opening their mouth. But how have you dealt with that over the years how have you dealt with that constant barrage of of people looking to deceive you?

DAVE

Oh look it comes in many ways, I think technology is probably changed a lot of things now, particularly with investigations. Investigations, you've got to have the CCTV footage, you've got to have the DNA, all the ducks need to line up in a row. In the past you didn't have that quite as much you had to prove to the crook but you knew what they did. You had proof to prove what they did, and therefore you'd get an admission. Nowadays, it's everything is recorded, everything's on body cams, everything is technology. So it's hard. Some crooks even when they're fronted with the truth, they see themselves on video and they will lie till they're blue in the face saying it’s not me. And you’re going, it’s you, I can see you on the video, nah not me, must be my twin brother, do you have a twin brother, nah, no it’s you. They won’t admit anything, even when caught red handed, deny, deny deny.

DEAN

And 30 years, obviously a long time. Number of different roles you had over that period all the way from a Constable all the way through to Deputy Commissioner. Have crooks changed over that 30 years?

DAVE

Oh yeah. It's a saying but I think it's true is, honour amongst thieves. There used to be some credibility amongst the crooks if you'd catch them, fair dinkum. They would normally go yep, you got me fair dinkum. And they’d wear it, they know they were caught. Nowadays because of the money that's involved, there's no boundaries, and there's no honour amongst thieves, they'll do anything for money.

DEAN

How's that different to 25 years ago, when you were starting out as a detective?

DAVE

A lot of the older time, crooks would keep their mouth shut, they wouldn't talk, I’m not saying a word. Whereas nowadays, a lot of them they're caught - what deal can I broker? Who can I give up to get a lighter sentence, and they'll give anybody up to protect themselves. So they say they're harder crooks, they're more sophisticated crooks, they're using technology and all this, but as soon as they're caught, or you want someone bigger than me, I'll give someone up. I'm happy to give someone up as long as I get a lighter sentence. Old time, crooks would just sit there and look at you for hours on end, and you could ask them whatever you want and they‘d just sit there and look at you. Because they weren’t saying a word do your best, but I ain't helping you.

DEAN

And I know you and I have spent some time in inside interview rooms talking to criminals, but the vast majority of people haven't. How do you explain what it's like inside that interview room? What happens? How does it unfold? How do you help somebody who hasn't been there understand what it's like?

DAVE

I don't want to say it’s a game but it sort of is. You're pitting your wits against the criminal, and you have a strategy that you stick to. It may change through the interview, depending on what the criminal says, but it's you testing your skills and ability against theirs. And I guess to an extent, you got to say your ego against theirs, because you're doing the right thing, you're trying to put someone behind bars for a crime that they committed and convict them. Whereas they're doing everything they can to throw you off and point to someone else, or I wasn't there didn't do it. It is exciting I guess that's the word I'd use, because I don't know if it's exciting or if it's satisfying, that you go through that process. And in the end, there'll be a point in time when you go, oh I gotcha. Now, it's not verbal, you don't say it in the interview, you know, I've literally got ya, but it's answered that one wrong, or you went down the wrong track, or you've just given me something that I haven't had before. Because as long as you keep them talking, or an absence of talking, they will fill that void with conversation. And that's what you're looking for, the more they're going to talk, the more chance they're going to say something that will incriminate them.

DEAN

And we've heard in a few earlier episodes from our forensic psychologists, that the purpose of those interviews is not always to get a confession, or it's often not to get a confession, because crooks often don't confess. It's to get a version of events that you can later prove or disprove. How do you help people understand that because I think we've all seen TV, and we all think we're going to slap the desk and get a confession. It's not like that, is it?

DAVE

No, all crime is not solved within one hour. It's not CSI. It's not, you know, they’re great shows great entertainment. But this is painstaking meticulous work, particularly some of the homicide investigators, those guys are just outstanding. Their attention to detail is exactly as you say is, give me a version of your truth, and I will pit it against what we actually know. And that's what they're out to get is tie them down to a version and then you pick that version apart and you fill in the gaps, or you have the other version and they might generally give you a little bit of the truth, because a little bit of the truth is woven into their lies to make it realistic. But solving a homicide, no greater satisfaction getting a young kid returned to their parents unharmed. No greater satisfaction to an investigator.

DEAN

And fraudsters, they're a little bit different to other criminals in the sense that they often think they're smarter than you, and they're often much more likely to talk or give a version of events and perhaps other criminals. Has that been your experience as well?

DAVE

Yeah, they think they're a step above you. You're a flatfoot, they're a white collar crime, a white collar criminal. They want to tell you, they want to show you how smart they are and how dumb you are. So you go okay, let me know, tell me, and normally they're happy to tell you, which is you know, would you like another nail because you’re just hammering in your coffin. And it's great that they do that, but they are a different breed. They're equally out for the thrill of committing the crime as what somebody who's doing theft, you know, stealing. It's exactly the same, but they don't see it that way. They think they're only hurting a corporate entity. They're not hurting individuals and insurance will cover that money, so I'm not really hurting anyone. Does it really matter? It's not really a crime. That's how they convince themselves to keep going back to the well and keep taking the funds off people.

DEAN

And have you seen that over the years when fraudsters have committed a crime and being caught, they come back and do it again?

DAVE

I've seen repeat offenders time and time again, sometimes very rarely using the same strategy. Normally they've tested their art out whilst they've been in jail. They've thought about it, they've manipulated the system, and they're trying something new. Because they go, okay, I tried that one I got caught, now I'll try something different. But it's very difficult for somebody who's had that rush of blood, who's had that exposure to lifestyle, how are they going to give that up all of a sudden to go and work Monday to Friday, nine to five like normal human beings do.

DEAN

And at the end of your career, you were Deputy Commissioner in charge of counterterrorism, state crime command which is major crime investigations in NSW. In that role deception is being used for good, particularly in undercover operations and electronic surveillance. How do you reconcile deception for good and deception for bad?

DAVE

Well, exactly, as you said, it's being used for good, it's being used to not do something that the person wouldn't otherwise do. But it's to interrupt that practice or get ahead of the person or an understanding of the processes, so that you can end up locking that person up or the group up normally. It's a different lifestyle, they've got to take on an identity that they’ve got to be able to click on and click off. It's really hard. And you know, full credit to the people that do that there's been some massive breakthrough in cases, simply because the UC has been able to sit there and talk to someone and gain their confidence. And again, the person can't help but talk.

DEAN

And a UC, obviously undercover operative, that's a whole new level of deception, isn't it?

DAVE

Oh yeah, absolutely. Got to have a very good memory if you're going to tell lies, because you've got to remember what lies you've told to who and when, because they will remember. And that's generally why you see, undercover guy has a really, really good memory. They're very good at what they do. And again, you got to weave in a little bit of the truth with deception to make that more believable.

DEAN

And one of those things that, for us that have grown up through perhaps law enforcement or doing corporate investigations, we get used to being lied to constantly 24/7. How have you learned to switch that off in your personal life, because that can be a challenge can’t it?

DAVE

Oh yeah I drive my wife crazy. I can sum someone up in about 30 seconds and I go nope, don’t like them. Or I go yeah that person’s A-gerade. And it's not a boast, but I've been wrong once because it's a self defence mechanism that, are you a crook, are you a cop, a normal person, because you know, if you're normal person, you got to flick that switch and deal with it differently. But yeah, it's difficult. And I've been out what, 10 years now, and probably the last two, I've been able to do it really effectively. That's how long your system stays in your protective mechanism that is this person, good or evil. They lying to me is their background. You know, my three kids, I was probably over protective with my kids because of what you see every day.

DEAN

30 years, is there something that sticks out in your memory as a really memorable moment of policing?

DAVE

There are so many. The people that you get to work with, they are just some of the finest human beings you'd ever want to meet. And they're lifelong friends. And I have a lot in there that are still we're all out, we still meet, we still have a chat. The stories get bigger. So everyone knows the truth, but everybody's happy to have a laugh. And when you think you're right yourself into doing a bigger job than you did and you didn't, again, the deception but no look, I had the absolute pleasure of doing the Sydney Olympics. I had the pleasure of doing APEC, the World Leaders Conference here, I had the Pope's visit for World Youth Day. But some simple stuff, you know, just convicting offenders that needed to go behind bars. And occasionally, somebody would come up and say thank you. And you know what, that to me sounds really corny, but that made it all worthwhile.

DEAN

You just mentioned APEC there and reminds me of something that happened during APEC that probably many of us have forgotten. And there was a little bit of deception that happened during APEC with a comedy group who managed to get inside the perimeter and make their way to a hotel. How do you feel about that deception today?

DAVE

Probably the same as I did at the time. Privately I had a bit of a chuckle. When you look at the video, what they did, you just think you lunatics. What are you doing? You know, you're lucky you didn't get shot. They didn't go near the US Consulate or where anybody was staying, which was a good thing. Did they get through the first level of security? Yeah they did. Human error. You know that's going to happen. But it's hard standing before the cameras, trying not to have a little smirk on your face going yeah, what was actually a little funny, but at the time no it was deadly serious. And you know, the boys shouldn't have done it and it won't happen again.

DEAN

And it didn’t and you did a wonderful job looking after everyone at APEC. As we finish up today, is there one bit of advice you'd give to budding investigators out there that they can take and use?

DAVE

Listen to senior investigators, because they've been there done that, and they're not boasting in their stories, they're telling you how to go about some investigations and you learn from them, then always be true to yourself. You know when someone's telling the truth, equally, if somebody is not guilty, and you know, they're not guilty, go to the enth degree to prove that they're not guilty. Don't just leave it as, oh just kind of leave that open and it's going to hang over their head, do the right thing. And always be true to yourself as you go through. And that's in all your investigations, everything you do, the normal test of the public is, is it the right thing to do? And you'll always know if you say the telegraph test, if that was on the front page of the telly would my mum be proud of it? Yeah beauty.

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DEAN

Crooks are crooks no matter who they are, it’s just their crimes that vary. Or are they? Over this series, we’ve heard that individuals often set out to deceive. But what happens when criminals start to collude together in corporations? Are crooks at the big end of town the same as the ones you find on the street?

Next episode we’ll delve into what really happens when criminals operate in corporations. What happens when the criminal is no longer an individual but a company? Cameron Watts, the former Australian Federal Police National Team Leader of Foreign Bribery, will lift the veil on corporate crime as we explore corporate corruption.

Cameron

If somebody in the corporate world that is considering or actively doing something that they think or they know is illegal, you’re going to be dealing with law enforcement agencies that have the power to listen to your phone calls, to monitor your email, to have surveillance devices on you and other things related to you and the potential conduct.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Big payoff for big profits…this has for too long been an acceptable way of doing business for a small minority of corporations. When individual deceit develops into large scale corporate malfeasance the harm caused spikes dramatically. As business travels offshore, especially into emerging markets, all too often it’s met by demands for kickbacks from government officials, and shady back room deals that line the pockets of despots - while literally taking food off the tables of their struggling citizens.

The vast majority of corporations resist the dark deals, but some don’t. To help us understand why corporations and the individuals inside them choose this illicit path, we are joined by Cameron Watts, the former Australian Federal Police National Team Leader of Foreign Bribery.

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Cam, you were previously a federal agent with the Australian Federal Police. What does the day look like investigating corporate bribery and corruption in that space?

CAMERON

I think most people would like to think it starts with briefings and very high level conversations about some of the corporate criminals we're going to go after that day, but in almost every case, it starts with coffee. And I think from your former life in law enforcement, you'd know that that's really the starting point of any good day. But of course, that's a bit of a flippant response. Look, I think when you're dealing with corporate criminals, and when you're dealing from an enforcement perspective, your day is really about crunching and understanding information intelligence. From a perspective of investigating and oversighting investigations, where you have millions upon millions of documents, you have extensive spatial maps of the conduct you're trying to identify, you're using AI and machine learning and massive data crunching to understand the evidence you're looking for. It's really a very forensic and comprehensive process.

DEAN

And stepping through the investigation, obviously, toward the end of the investigation it often ends with a knock on the door from the federal police with a search warrant in hand. How do corporations respond when you turn up on their doorstep?

CAMERON

Well, I suppose it depends on the way that you're doing it. I think from my time, the AFP, there was certainly a number of instances where companies self-reported their conduct, which is something that from the AFP perspective, when I was there, that was something we were trying to actively encourage companies to undertake. I think in Australia, we're a little hamstrung by the lack of prescriptive legislation around companies being able to do that. We have agreements between the AFP and the Commonwealth DPP in relation to companies self-reporting conduct, and how companies doing that might be treated in a judicial process. But there's certainly nothing codified in legislation, as you know, for us for a company to put their hand up and say, hey this has occurred, or talk about it. So when it comes to how a company these days will deal with things, if they've self-reported to the AFP, typically that process will then be conducted in a very non adversarial manner. Because, of course, if a company has come forward and said, we think this conduct is underway, or it has occurred in the past, they typically will have dealt with somebody like a KPMG in the past, and there might already be a forensic report, and it will be a fairly not benign process, but it will certainly have a level of, I guess, understanding around it from both parties. Where there are instances where intelligence or information is derived from foreign law enforcement or from other sources, and it's an investigation that’s conducted without the knowledge of the party that's being investigated, that's very different. So you're right the sort of 6am knocking on the door of the CEO, or the CFO or the chairman, or chairperson of the board that can be pretty confronting for people who have lived their life in the corporate world, and who rightly or wrongly, probably don't have an expectation that something like that might happen to them. And so those responses when it's certainly something that is sprung upon them, without their knowledge can, it's an intimidating thing I would imagine to have a bunch of uniformed armed police enter your property and say, here's a piece of pipe which allows us to do certain things.

DEAN

And when that door opens, who often is standing on the other side? What does that corporate criminal look like? Is there a typical crook? Or is it very different each time?

CAMERON

Whilst externally you might look at somebody and they might be suppose rightly or wrongly, typically male, typically 40s to 60s, probably, and maybe have a very similar career arc in terms of school, university, whatever part of the corporate realm they sort of exist in, they might have started somewhere gone elsewhere and worked their way up. I don't think there is a one personality type, but there's probably not a dissimilar type of person in that they're typically clean skins. So they probably haven't ever had any interaction with law enforcement previously - might be traffic related offences or something like that, but that's probably the extent of it. Typically, they're not the criminals you would see on a day to day in general policing.

DEAN

And before we get to the front door with armed federal agents, obviously a lot of investigation’s gone on. Can you help us understand what the AFP do when they find out about an allegation of bribery, corruption? How do they go about getting that information to take it further?

CAMERON

Well, like any enforcement agency, the first step there is evaluating that piece of information or intelligence and then try to corroborate it or trying to ground that in some truth. So if you're able to do that and get more than one source to corroborate certain information through various databases or through other witnesses, what you're going to be looking to do is to understand whether what the conduct is being alleged is actually an offence. Corporate crime, particularly foreign bribery and corruption can be quite a grey area, there can be legitimate reasons for a company paying payments to a third party. And there can also be defences, certainly within the criminal code in relation to foreign bribery. So I think that once you've established the framework of what the potential offending might be, you then look to build that out. So you're going to then look for other pieces of evidence and information you can find, you're going to be looking at corporate structures, you're going be looking at bank records. Once you've then started to develop a bigger picture, and you have a case theory about what is actually going on, you're then going to start to look at individuals and who in terms of the conduct that they're undertaking might be doing something that is illegal or criminal. And then once you start to establish what that looks like, you're sort of moving out in concentric circles, you start with a little piece of information, you move it out with a bit more and more, and almost, you know, while you're actually developing a bigger target for yourself to aim things at. And so once you've got that big target and you know you're looking at individuals, you might then start to pull certain levers that are available for law enforcement and regulators. So in ASIC’s space, for example, that might be an interview that they conduct in relation to the corporations act, for the AFP and other law enforcement agencies, for example, that could be a myriad of things. And of course, there's some sensitivity around operational policing methodology. But I think it's fair to say that if as a corporate offender, or as somebody in the corporate world that is considering or actively doing something that they think all they know is illegal, you're going to be dealing with a very different type of enforcement, as opposed to the company's lawyer, for example, or an internal investigation, you're going to be dealing with law enforcement agencies that have the power to listen to your phone calls, to monitor your email, to have tracking devices, to have surveillance devices on you and other things related to you and the potential conduct. So I think it's a very different perspective that people need to understand from a corporate perspective, if they are involved in or considering being involved in any sort of illegal activity,

DEAN

You raise a really good point, because I always find it interesting, where particularly corporate criminals feel like they can avoid detection by jumping off the email and jumping onto WhatsApp or some other text device. And I'm constantly amazed when they see the brief from the police, and there have been telephone intercepts or there have been surveillance devices. I think corporate criminals, particularly executives, are absolutely bamboozled that they've had that type of investigation. Has that been your experience as well?

CAMERON

Most definitely, I think there's a number of specific instances, I probably won't mention them by name, but certainly specific instances where the conduct when it's presented to the individual, in most cases, if you're interviewing or watching an interview of these people, they're typically in their own environment, they’re the CEO, or a director or the owner of the company, and they have primacy over everything within their own environment. But once they're in an interview room, and they're presented with certain things that then I guess, cascade that primacy down to nothing, you can actually see it sort of fall away in their face when they realise that their status or their power in the workplace doesn't apply.

DEAN

It's really interesting, because it is a hard cold reality that and it's no exaggeration, that sometimes that results in handcuffs literally going on CFOs or CEOs as they're marched out of their building. How do they respond, when that happens?

CAMERON

That's down to the individual isn't it, the individual reaction to dealing with stress. I mean, in almost every case, I would suggest that that's the first time that person may have dealt with law enforcement. So if the first time you're dealing with law enforcement isn't, excuse me driver, can I see your licence, instead it's you're being arrested for the offence of foreign bribery or money laundering, whatever it might be, that's a very big step up. And look, I haven’t been arrested for either of those things so I'm not quite sure what the actual reaction is, personally, but I can imagine if you have crafted your life and your career around being successful, that could only be a very significant junction in your career and your life.

DEAN

And to get to that point, obviously, these offences involve deep deception, manipulation. How important or how integral do you think deception is to the types of offences like foreign bribery or money laundering?

CAMERON

Look, it's crucial. And I think there's two perspectives there. I think that in the instance where somebody commits the offence of foreign bribery, and they have a legitimate belief that what they're doing is not an offence for whatever reason, that's a bit different. Because, you know, typically that's transparent, they're open about it, they might as a company, then self report it and say, look we went down this path, and we've now realised that was a mistake so we want to talk about it. Where it is completely conducted in secret, where processes that would typically be followed or deviated from, where separate bank accounts become involved, where different commodities might be the transacting commodity, so instead of it being US dollars, it's gold bullion, or its school fees being paid for somebody. Those things are very deliberate and very calculated to deceive. So when you have that kind of innate deception I think you can only know that your pathway is down the path of committing an illegal or criminal act.

DEAN

And obviously, you and I have spent probably more years than we care to remember investigating and now you and I are both preventing foreign bribery. But for people who haven't spent the time, what is foreign bribery? What does it look like? How does it happen?

CAMERON

So foreign bribery at its outset, it's the offence of gaining an advantage that's not otherwise legitimately due by bribing a foreign public official to influence an outcome. So foreign bribery, 101 is an Australian company goes overseas, not to tarnish money in general but it's a good example because you're typically in countries where there might be governance issues, or there might be a lack of a rule of law, as we know it. And typically, what it will be is Company X goes overseas, and they say we want to buy the rights to this particular area to mine it, the local politician or mining Minister says that's fine, it's going cost you 50 grand US and we'll speed the process up. That's foreign bribery, you are obtaining a benefit that's not legitimately due with the intention of achieving an outcome for your company. But what it looks like from the perspective of society is a very different one. So if you think about breaking news, at six o'clock, there's been a terrorist incident somewhere. Breaking news, there's been a child sex ring smashed, those things terrible and great when the people brought to justice. But what is at the heart of those offences is actually the victims. So 10 people were killed, these children were saved from this awful outcome in life. There's a focus on the victims. But when you talk about corporate crime, the victims are very rarely in the picture. Now, the one caveat I'll say to that is that the Hain Royal Commission, I think that brought a lot of those people to life, and then previous things like that maybe the HIH Royal Commission where they had, you know, hundreds of sort of ordinary Australians affected. But typically, when it comes to corporate crime around money laundering, bribery, corruption, those victims are nowhere. And you know why? Because they're actually not in our face. Those victims are overseas in countries where, as I said, the rule of law is very lax. And those victims are in places where they actually need in a lot of cases, they seek influence from outside actors to help improve their community, their family, their lifestyle. And so when you have bribery in the middle of that, what happens is, it completely distorts the playing field. So it makes the playing field not level for anybody. And it means that there's certain individuals along that supply chain that actually get enriched simply because they're in a position of authority. And the people that always miss out on the people on the other end of that, that actually need that infrastructure in their town, or the jobs in their region. So I really focus on talking about the victims of foreign bribery and corruption. Don't think about the offence, don't think about the reputation of your company, don't think about how you'd have to go through an investigative process. Think about the victims of foreign bribery in the country you've never been to, but are a part of your supply chain. To me, that's how you actually engender a real sense of caring about what the issue is.

DEAN

And finally, what's the one bit of advice you'd give to corporations or organisations when they find out they might have a foreign bribery issue? What are the steps I should take?

CAMERON

The former AFP federal agent me says, call us straightaway, and we'll talk you through it. There is nothing wrong with putting your hand up and saying, we've identified that this person in our company did this, or certainly an example that I know from my time in the AFP where a company acquired another company, and through their due diligence process, identified the conduct, and they put their hand up straight away and said, look this is what's going on, we know it's going to come at a price, but we want to be very upfront about it. And those things ultimately, if you try and go down the path of putting that to the back or you know hiding in the book somewhere, it will come out and in 10 years time when something happens when there's another audit or there's some forensic due diligence that occurs and it comes out, it's going to be 10, 20, 50 times worse, 10 years down the track, rather than now. Best advice is put your hand up, be honest, own the conduct, because what you're doing is you're sending a signal to your company, to the market and to everyone else that's going to be involved in this process from solicitors, lawyers, counsel, the AFP, ASIC, whoever might be there, that you understand it's a problem because if you don't at that level put your hand up and try and stamp out that conduct, you allow corruption to flourish. And if corruption is the fourth biggest economy in the world, based on last year's figures, you're going to simply make that a bigger problem for everybody.

DEAN

The former detective in me would probably give you the same answer. The Corporate Advisor now would say to you, at what point do you put that hand up, though, because we don't want to run off too early until we know what's gone on, and disclose information before we really understand what's happened. So at what point do you put up that hand and go forward to the authorities?

CAMERON

If you identify conduct within your company, you need to if you're a director of the company, clearly you've got responsibilities under the Corporations Act in terms of how you disclose that information to not only the market but the regulator. I think what you want to do is you want to understand the conduct first. But what you don't want to do is you don't want to be in a situation where everything gets captured within a legal professional privilege process. Because in my view from the AFP, that can lead to some complications when corporates are trying to share information.

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DEAN

Corrupt corporations steal not only from the market, but from the communities where they operate. They create a playing field which is far from fair, and make it tough for companies who do the right thing and return wealth to the local people and economy, to succeed.

Colluding corporations can have an equally perverse effect on the market and communities involved. Next episode we’ll look beyond individuals in an organisation, to the corporations themselves - as we explore the murky world of corporate cartels with the man charged with uncovering them. Rod Sims has been the Chair of the Australian Competition and Consumer Commission, Australia’s consumer watchdog, for the past 10 years. Together we’ll delve into price fixing, bid rigging and other forms of cartel behaviour.

ROD

The first one in, to tell us about the cartel will get immunity. Now this is very unusual in all forms of the law. But because cartel behaviour is hard to detect, probably 70% of the cartels we’re investigating come from immunity applications.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Cartel behaviour is when companies collude to fix prices and manipulate the market. It undermines competition for consumers, takes the legs out from underneath those companies trying to compete fairly, and ultimately means the market, the consumer and the economies all suffer.

Capitalism works when there is true competition. Competition delivers cheaper prices for customers, better service delivery, and lays the foundation for a growing economy. Not every company, or every individual in those companies, is committed to genuine competition. When they stray from this fundamental principle, the man charged with investigating and prosecuting them is Rod Sims, Chair of the Australian Competition and Consumer Commission, and he joins us today.

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DEAN

Rod, thanks for joining us. To help our listeners understand what cartel behaviour actually is, can you explain it to us in simple terms?

ROD

Yes. Look, it's when competitors, that is companies that are competing in the same market, they're competing essentially for the same customers, it's when they get together to fix prices, or allocate customers saying, look I'll deal with these customers, you don't poach them, and I won't poach your customers. Or when they're rigging tenders, you're tendering for a contract and they're getting together and saying, well it's your turn to win the contract of tender for x and you can tender for x plus y so that we make sure that I win, and then I'll return the favour next time. So it's either fixing the price, allocating the market volumes, or rigging a tender bid. That's essentially what cartel behaviour is and obviously, it works to help the competitors and the people who are buying the services of those firms are paying more than they should.

DEAN

And it seems to be a little bit more common than we might expect. I know in September last year, you said there were 10 cases or at least 10 cases under investigation by the ACCC, what types of conduct are you seeing in those?

ROD

It's in just about all sectors of the economy. And it's all of what I've just described. We get one, 1.5 on average immunity applications per month. We get a lot of cartel activity, it's across all sectors of the economy. I mean, a little bit more perhaps in construction, because of that bidding process. Perhaps a bit more in government procurement because of that bidding process. It's often an issue in pharmaceuticals, as well, so those sectors play a big role. But as I think about the cartel activity that we are looking at, it really is across just about every sector of the economy.

DEAN

And we've been talking throughout this series about deceit and the role deception plays in corporate Australia. You just spoke there a little bit about immunity applicants, obviously, that's one way that the ACCC finds out about bad behaviour, what role do they play? And how important are they to your investigations?

ROD

Yes, it's an interesting aspect of how a competition agency does things and it happens all around the world, that there is an immunity avenue. So we can determine that there's a cartel through firstly, our own analysis by just looking at things, looking at a lot of data and saying, this looks a bit concerning. Secondly, we get reports from government or the private sector that say, I've just got two bids in here and they looked incredibly similar in ways that suggest there's been some collusion going on. And then thirdly, we have the immunity path. Now the immunity path says that the first one in, to tell us about the Cartel will get immunity. Now, this is very unusual in all forms of the law, we accept that. But because cartel behaviour is hard to detect, because you may be getting representatives of three firms turning up at the hotel every Friday night to chat about things, it's been held to be fairly hard to detect. And so the immunity process means that probably 70% of the cartels we're investigating come from immunity applications. And those immunity applications come from unusual sources. I mean if a lawyer inside a company finds out about activity that they think is concerning, they'll look into it. And they may then go to the board and say we need to go to the ACCC for immunity because that's the right thing to do. And of course most boards will agree and go along with that, because of their corporate reputation and because you know, not to, might leak and that's a bad look. So it's not so much that one of those three people meeting in the pub on a Friday night decide they'll come in, it's someone in their firms finding out about it and saying, right we need to be in straightaway to get immunity to protect ourselves, but also that's the way the law works. So it's an accepted part of the law. It means, of course, that people involved in cartels at whatever level need to be very careful because somebody could come to us and dob them in. So as I say, 70% of our cartels come in that way, but this is done all around the world. It started in the United States, they pioneered it, you know, very innovative thing, but now caught on everywhere.

DEAN

And immunity applicants is obviously one way the ACCC investigates, but without going into all of your operational methodology, what are some of the ways you would typically investigate when that immunity application comes across your desk? When someone comes and sees you and says, hey we've been involved in conduct we shouldn't have been, what is it the ACCC practically does to get the information they need?

ROD

There's two ways that can go. One way is that we could look at it and say, look thank you, but really, we don't think that really is a cartel. And we've had examples of that. Or, look yes you're right but it's very technical, we don't really think there was much detriment here, we don't think there was really much intent to do the wrong thing. We certainly don't think the companies will do it again. So it goes away that way. Sometimes there are immunity applications that come because these are international transactions and they've gone for immunity in 10 different jurisdictions. And we say, well, you know, there's nothing particular about Australia, we'll leave it to the other jurisdictions to deal with. So they're the ones we don't take forward. The ones we do take forward, require the full cooperation of the immunity party. So when you come in for immunity, you only get immunity on the condition that you help us completely to get to the bottom of the behaviour. And so having come in, you run a risk of immunity being withdrawn if you don't fully cooperate. So of course, that gives us documents, that gives us a whole lot of evidence. For example, an immunity applicant may give us exchanges of documents, or texts, or whatever, then we go to the other two parties keeping up my example of the three players, and those parties say, no we haven't gotten any documents and yet, we've got documents in our possession that clearly the other company has got, because we've got them from the immunity application. So it's very powerful. When there is no immunity application that other 30% of times, you know, we can still use our powers to get telephone records, we can get 155 information, we very often do raids of companies. They're virtually never reported, but they happen a lot, we do them quite a lot. And so we just turn up without warning, take all the documents on the premises that we think are relevant. And that gives us access to a lot of information. So once we're seriously investigating, we have quite a lot of tools at our disposal.

DEAN

And as we said before you said last year that 10 matters or over 10 matters currently under investigation, is that more than you've seen historically, are we seeing a spike?

ROD

On the one hand, the matters that come to us have been fairly constant. On the other hand, we've got a better capability to deal with more of them. So we've got quite a number of matters before the court at the moment, both criminal and civil. And we've still got a very strong pipeline of matters. So that number 10 that I gave you, is probably still the correct number. In essence, that's probably the limit of our capability to investigate. But that's enough, I'm comfortable we've got the resources to be investigating cartel activity as much as we should. I'm comfortable that when we decide not to investigate, really, there's probably not much public benefit in doing so. So we're in the right space I think at the moment in terms of how we're going about this. Of course, I probably would say that, wouldn't I but I think it goes pretty well. Look, we've had a lot of prosecution, we've had a couple of guilty pleas in two cases in recent months for criminal conduct, criminal cartel conduct. So yes, we've lost a couple of high profile cases and when we lose, they get a lot of reporting. But we've won way more than we've lost. So the cartel program’s pretty healthy, and so I think, very much urging companies to make sure they're not engaging in.

DEAN

We've been speaking about the role individuals play and people perhaps meeting up at the pub and sharing information they shouldn't have and then colluding and forming these cartels. But is it the individuals who are responsible or is it the corporation or is it both? What in your view, who are the real offenders?

ROD

The ACCC always takes the companies to court and quite often takes the individuals. We have a very strong view that if we find cartel behaviour or anti competitive behaviour or misleading conduct consumer behaviour, that if we just take the individuals involved the company will dismiss them as bad apples and won't take accountability for what's happened. So we believe companies should set up processes that make sure this sort of behaviour doesn't happen. So ultimately, we think the companies are accountable. In cartel matters we’ll usually also take the individuals involved and of course, the reason why parliament has agreed to make cartels a criminal offence is that all senior executives don't want to end up in jail. It's one thing for the company to pay a fine, but going to jail so completely, it's a massive deterrent. So we take the companies and usually the individuals, and if it's criminal, we very much want to take the individuals to send a quite strong message.

DEAN

What are some of the common mistakes companies make in failing to prevent cartel behaviour? What can they do better?

ROD

I think companies need to have systems in place that monitor what their senior business people and business units are doing. So companies obviously set objectives for their business units and the individuals in those business units. And of course, they will say that meet your profit objectives by complying with the law. But it's very easy for people in business units to mix with people from other companies. It's very easy for them to say, look, this is terrible, our margins are all thin, this is unsustainable, let's get our margins up and agree to fix the price. And basically, they'll convince themselves, that's the fair thing to do because margins are too low. And often business people do, at all levels, as I say, convince themselves they're doing the right thing, because sustainability requires fair margins. But I think companies need to both make it clear to people that they could end up going to jail, but also, that there are systems in place to check that these sort of things aren't happening. And ultimately, it's the systems and it's the same with your marketing department, not misleading consumers in its energy to get good marketing and increase sales, you give people incentives to make money, you need to make sure they do that in ways that don't cross certain boundaries. And so I think if people are aware that the company is actually taking active steps to check whether cartel behaviour is occurring, that sends a message to people not to do it. Because as I say, that Friday meeting in the pub, it's so easy to think about it if you've got no other voice inside your brain telling you not to but if the company is pointing out as part of its regular training, that cartels are bad and etc, etc, that voice will be there and stop you. So I think it's about good compliance by companies, making sure that companies understand how easy this is to happen, and saying to people, look this is a circumstance you could find yourself in but it's illegal, you can go to jail, it's the wrong thing to do anyway, it's not what our company wants. And usually with companies, as we know, Dean, you've got to say things a number of times, when you're trying to mention compliance objectives, you can't just say it once and move on, you've got to make it clear that the company feels very strongly that this is the sort of behaviour that shouldn't happen. And then I think that message will flow through, and you won't have any cartel behaviour.

DEAN

And finally, you've previously raised concerns that perhaps the public sector aren't as aware or alert to cartel behaviour as they should be. What are you seeing there that's of concern?

ROD

Pretty well what you just said, then Dean, they're not as alive to look at the tenders and see whether there's a problem. I mean, in the private sector, usually you've got a procurement officer who's there to get the best procurement deals, and there's usually somebody watching to see that they do and if they don't, they might get moved on if they're not a very good procurement officer. But in the private sector, you know, it's not the same sort of discipline, they're running through process steps and look, this is sounding more negative than I mean it to but, you know, whereas the private sector procurement officer is looking for competitive bids to get the best price and they're probably better at spotting when they're not getting them and better at working out perhaps why they're not getting them. Whereas the public sector is probably just not as attuned. So we try and do a lot of training with the public sector to say, this is what you should to look out for, and this is why it's a problem. Now we try and do that a bit with the private sector as well, but often the law firms who advise the private sector are doing that, so we spend most of our time with the public sector. But is somebody looking to see whether the tenders are just too similar. And you'd be amazed Dean how often when parties have agreed that Fred will be 10% more than Jenny, that Fred's bid is the same as Jenny's bid, except for a little bit of an add on which is 10% higher. So they’re easy to spot if you know what you're looking for.

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DEAN

Keeping corporations honest might in part be the job of the ACCC, but the people ultimately responsible for making sure companies do the right thing by their employees, customers, shareholders and the community is their Board of Directors. When corporations commit crime, ultimately the Board is responsible. What happens behind closed doors inside the boardroom can allow corporations to lose their way. Next episode we open the boardroom door, with one of the nation’s most respected Board Directors Ming Long.

MING

People who are extremely motivated by money, they’re willing to sacrifice everything for it. We are all capable of doing really terrible things. If that motivation is there, there’s degrees of what you’ll sacrifice to be able to get it.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

When things go wrong in a corporation, the Board Directors are accountable. Directors are responsible for setting the guard rails on what is acceptable behaviour for the corporations they lead. Recent history is littered with examples of Directors who lost the confidence of the community and ultimately their shareholders. So why do companies lose their way, and why is the Board not always effective at setting the standards we expect?

To help us take a seat at the boardroom table and listen in on what is discussed in that space, we are joined by Ming Long. Ming is a well-respected and influential leader, with a long history of board experience in major corporations. Ming is currently Chair of AMP Capital Funds Management Limited, Chair of the Diversity Council of Australia and Board Director of QBE Insurance.

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DEAN

Ming over the course of this series we’ve been talking about deception, and the role individuals and corporations play in deception. But the board obviously has a role to play as well. What is the board's role in setting the tone and the expectations?

MING

The tone actually comes from us as individuals, I'm very careful that it's not just what we say on boards, it's also how we behave on boards, because everybody's watching you, you do feel like sometimes you’re a goldfish in a little bowl. And sometimes it's the unsaid things and how you approach things in the mindset that actually, I find, trickles into the organisation. So you know, the board has a pretty important role to be able to set that tone from the top, but then I always don't forget that there is a pretty senior executive team, CEO and their leadership team, that has the biggest influence around culture and that tone from the top and how the board's tone translates to the rest of the organisation.

DEAN

And have you seen some examples where that's gone well, and perhaps some examples where it hasn't gone so well?

MING

I mean the quickest one that comes to mind is something that sort of happens more recently, where, you know, I'm on the board where we had a potential for a conflict of interest, there was a perceived conflict of interest rather than an actual one. And it was interesting, because I was bracing myself for a discussion with another colleague on the board, and one of the outcomes I wanted to discuss was the fact that we might need to resign so that there would be no perception that we had invested interest in a decision. And, you know, you never know quite how those discussions go, but you know, what I was expecting to be like a half an hour discussion as to why and this is really important, it took 10 minutes, because he was very aligned from a values perspective to myself, and we are not motivated on this board by money. We don't need to do the job, we don't have to have the money. And when I raised the issue that this potential, and it's only a perceived conflict, so this is actually quite remote, he said straightaway, Ming I think we should offer to retire slash resign. And it was such a relief, because I thought, wow, you know, what could have been a much harder discussion if you are really motivated to keep the job, I need the money, took 10 minutes. And it was so easy when you had that values alignment. You know what I've said before, if you actually want to join the board, you need to be able to retire the next day as in, you don't need the money to do that job, you don't need the profile or the job, or, it doesn't give you any relevance other than to ensure that you're on the board to look after the stakeholders in this organisation first, over yourselves. Basically, I put directors last on the list of all the stakeholders that we should be thinking of. And that doesn't always translate into boards. So you see sometimes on boards, people who will, overstay their welcome, they're supposed to be non-executive directors, and they've been there forever, which means that you lose your independence. And they say that they're working on succession for their role, especially if they’re Chair. And the Chair role is especially important to set that tone for the rest of the board. And they seem to be endlessly working on succession for their role and they can't find the right person so therefore, they get extended again. And it's those sort of, I think, behaviours are sometimes seen on boards, and you know what, it’s not great for that organisation, but also for the business community, because we tolerate some of these behaviours. And if anything for leaders, and especially board members, the bar is higher for us. It should be higher for us because of the governance and influence and the power we have in an organisation.

DEAN

Recently, a number of judicial commissions have been quite critical of boards, and have said they should have done better. Do you think that criticism has been fair?

MING

Yes and no. You know, there's every reason to listen to like a Royal Commission, and think I don't do that, and that doesn't happen to my board. But then you miss the genesis of why they're saying this is important, why it's a problem. So I listen to and take the feedback from all of those royal commissions, or whatever it is that's been investigated through organisations. And there has to be a lesson out of every single one of them. And there has to be a point where we stop rationalising that we would never do those sorts of things. You know, I always think that, you know, it's very easy for us in society to blame the bad apple or or it's just that one evil person. There is a recognition I think that we all need to have that we can all regardless how good we think we are, can do really evil things and do bad things. And there's obviously degrees where for some people that's easier or harder, but we are all capable of doing really terrible things to other people. And it's a very fine line we tread sometimes when we're thinking about ethical dilemmas about where that line is. Where sometimes I think it's unjustified is that there has to be a recognition that directors are not full-time, there's a reason why we are non-executives, we do not spend our entire life with one organisation. I sit on a number of boards. And so there has to be recognition that it's not just the board that people point to, but there is an executive team that is also really responsible for what happens to that organisation, how it's actually behaved. And it's not just the organisation, it's actually every single individual in the organisation, it's very easy to point to that leadership team, they're just terrible. But through that whole organisation, we all had a hand in allowing things to happen that shouldn't have happened. So there has to be a level of humility, by which you listen to some of those investigations.

DEAN

Ming, you spoke there about sometimes the board's letting things happen, that perhaps they shouldn't have let happen. What do you mean by that?

MING

You know it's interesting, the one characteristic I have found that I've needed to have on every single board I am on, is courage. And it's the courage to raise the really hard things because you think, you know, what if my colleagues didn't come off the planet, or I'm just, you know, if I'm raising something, and they think it's extreme, you've just gone off, you know, off the edge. There are times when it is not appropriate to raise certain things cause there’s a time and place for everything. But courage is the thing that I find I need to have the most to be able to raise issues that are not going to be popular with the executive team. There are actually ways you can overcome that. So a lot of times what I do if I feel like I'm having to raise something that's contentious or difficult, either there are a few things I can say before I launch into, you know, what I'm asking like, hey I'm gonna wear a really black hat here but I just want to test, and I turn a lot of things into questions, because what I find is that the leadership team sitting in the room actually need you not to give them the answer, they need to go on the journey of the thinking that's required to get to the nub of the issue. And there are times when you just think, should I have raised that? And later on you think I should have raised it and I didn't! And I think there's also an evolution around stakeholder expectations of organisations, and I think COVID has absolutely accelerated that. So if we, as you know, directors on the board are not aware of how society is changing and, and the whole shift from the primacy of the shareholder to stakeholder and the fact that as organisations, there are a lot, many other stakeholders we need to look after in an organisation rather than just the shareholder, then you find that we make decisions that are poor, and where we are judged by our customers and our future customers, because they're really important to us, as having made a very poor decision.

DEAN

Ming you've probably heard this quote before, shareholder supremacy at all cost is the definition of an organisation as a psychopath. Does that resonate with you?

MING

Yeah absolutely! Absolutely. And you see that a lot I think, you know, just to be fair, that's the MBA I did. That's what I was taught at business school, when I did all my degrees it was the primacy of you do that and then you are seen as successful. And unfortunately, in society, we also attribute success to people who are extraordinarily wealthy. So you know, how we measure success is actually a problem within society, and we migrate all of that sort of thinking into our organisations. So I do find that people who are extremely motivated by money, they're willing to sacrifice everything for it. We are all capable of doing really terrible things. If that motivation is there, there's degrees of what your sacrifice to be able to get it to be seen as successful. You know, I have a saying that money has no values, the values that money brings come from the individuals that use that money as part of their transfer of power, or exerting influence with the money that they have. So, you know, unfortunately, there are people who are very wealthy and have that power and success. They're very capable of doing very good things, as well as absolutely terrible things. We who sit on boards, you know, have got there because as I said before we can retire tomorrow, we don't actually have to have those jobs. And that's how we spend our money not just as directors, but also spend the money of the organisation, that's how we translate value and values to our customers and future customers.

DEAN

What is it, do you think, that stops some of those organisations becoming psychopaths?

MING

Hopefully, individuals and people, you know, hopefully, people on boards that bring their values, the integrity, the Northstar, I always look for the ‘what is it’ that's going to motivate you to do the right thing. I find that you know, if a board is values-aligned, it is much easier to have the difficult discussions. If it is not, you're still stuck trying to get to first base to even talk about things that are hard . If you have a values-aligned board, that is much easier. And I think for boards as well, who we hire now into executive teams, is even more important. It's no longer the person who meets budget and keeps on meeting budget, which seems to be in the past, the first criteria you must tick before you get promoted. You know, I would say that should be the last thing. There are so many other things that are more important in terms of who we should have in leadership than meeting budget.

DEAN

And what role do you think the changing faces around the board table and the changing faces are in executive teams that are, I think, perhaps probably slowly becoming more reflective of our society, what impact has that had?

MING

Yeah, you know, I find that it makes the discussion richer, and we lose so many blind spots. And it was interesting recently, I mean, this is not an example from a board, there's a group that I've met with recently, and we were actually quite diverse. But I still found within that group, there are biases that were so evident to some of us and got together with a minority of them, and we all laughed at the biases that were so obvious to us, but wasn't obvious to others. And so when you have a diverse board, and people are allowed to bring the wealth of the lived experiences that they have, and to lay it on the table for discussion, and it is valued equally with everybody else's experiences, then you really are able to avoid some of the landmines in decision making that you know, maybe in the past, we would have just completely ignored. And that's where, you know, the discussion around the importance of customers and future customers, because you think about future customers and the face of future customers is completely changing and how they're spending their money is completely changing, we need to have that insight on a board to make an organisation successful. So diversity on a board is actually one of the greatest strengths that I think you can have in an organisation not just on the board, obviously throughout the organisation, through the leadership team at every single level. And what I've said in the past is that diversity is hard because it takes longer to get to a decision. But that's probably the most dangerous thing for an organisation to be without.

DEAN

Returning to corporate accountability, we spoke with Rod Sims earlier in this series, obviously, the chair of the ACCC, and Rod said that it's important for corporations to be held accountable. And the ACCC's position is that even when an individual in a company commits an offence or a crime that the board would never have tolerated had they knew about it, the ACCC thinks it's critical that the company is held to account. Do you think that's fair?

MING

I do. The reason being is that, you know, an organisation's not an individual, it's teams and teams of people, we don't really have people that work completely in isolation. And culture matters a lot to whether an individual feels like they can do certain things or not. Now, you know, there will be instances where individuals or a number of individuals even collude to do the wrong thing. But I'd like to think that as an organisation, we can exert a level of, it's almost like peer pressure on each of us to all strive to that Northstar. There are certain fundamentals in business - integrity, transparency of some of our decisions, not everything, obviously are commercial in confidence, but you know, for some of our decisions now, it's quite important that we together should be able to get to a better outcome. I mean, I do think that where you know, there has been an individual that is a bad apple etc. that individual must be held into account that unfortunately in the past, you've held organisations to account but not individuals, and we've had many examples of that. Individuals must be held into account, so that as individuals, we don't feel like we can perpetuate that behaviour or get away with that behaviour. But then as an organisation we also need to learn to ensure that doesn't happen again.

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DEAN

Boards ultimately serve at the pleasure of their shareholders. These shareholders are often large superannuation funds, investing billions on behalf of everyday Australians who have saved that money to support them in their retirement. So, it is a solemn duty for board members, and one where shareholders are holding them directly accountable for bad behaviour. But share markets themselves are also vulnerable to manipulation. What happens when corporate insiders and external organised groups deploy deception in the share market? In the next episode, we’ll explore what happens when manipulation hits the market with one of Australia’s preeminent class action lawyers, Global Head of Class Actions for Herbert Smith Freehills, Jason Betts.

JASON

I think it is easy to think of this as a corporate concept, but where you have any sort of market manipulation or deception, it is going to have, eventually if not controlled, an economy-wide impact.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens and I’ll see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

What happens when deception strikes the share market? Over the past decade big name Hollywood movies have told the stories of what can happen when people set out to manipulate our markets. Companies can collapse, workers lose their jobs and retirement savings can be lost. In this episode we uncover how it happens and how we can respond. To help us understand what happens when deception strikes and markets are manipulated we are joined by Global Head of Class Actions for Herbert Smith Freehills, Jason Betts.

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Jason, over the course of this series we've heard a lot about individuals engaging in deceit and corporations engaging in deceit. But what happens when that deceit lands in the share market? What happens to the market? And how does that play out?

JASON

Yeah, excellent start to this discussion because I think when people talk about deceit, and how it affects the share market, it's useful to step back for a moment and just think why we care about that. And it goes back to those old principles that modern economies like ours have learned through bitter experience that, theoretically, the more information you have in the market, the more accurate the market estimates of value are, and that's what an efficient market is. I like to think of that as the circulating blood in an economy's vital organs, you know, grows and gets stronger, and the better the information is, in really efficient markets, the theory is that everyone, all traders get the information at the same time and so there's limited information that can be used in an insider sense, and there's not much chance for arbitrage but that market probably doesn't exist. So what can affect our market through deception is probably useful to categorise in three ways. One is as everyone knows at this stage insider trading, where you've got insider sensitive information you're trading to make profits with it. Another also extremely famous in Australia now, is when listed up companies are not disclosing material information so they're breaching what we call the continuous disclosure rules. And then the third, which is a form of I think activist short selling is when you're spreading false information intentionally to advance a position, persons who can take short positions in financial products, and then by publicly disseminating bad information, they generate profits. And so all three have a couple of effects that the obvious one is that the markets not trading efficiently, so values aren't accurate. And that's cutting off that blood flow. But there's a domino effect, I think, which is that people lose confidence in the market. When you've lost confidence as an investor in a market, you've actually got obstacles for the economy generating cash investment, you create an unfair market, businesses don't want to raise capital in that market, which sounds a little intangible and airy fairy, but when you've got insider trading, for example, not only does that affect investors confidences, but it can disincentivize the retail economy, all that circulating blood isn't happening. And so you find an absence of the building blocks to grow the economy so that is why lawyers, economists and the broader community are so obsessed with ensuring our market has as little deception in it as possible.

DEAN

And it's not about it's not just about the big end town is that because mum and dads have shares, Australia has one of the per capita highest share ownerships in the world. So when the market skews, then everyone loses out right, mum and dad's, everybody.

JASON

Exactly. So I think it is easy to think of this as a corporate concept. But where you have any sort of market manipulation or deception, it is going to have eventually if not controlled, an economy-wide impact. And our laws are really clear on that. And that's why our law has developed so significantly around market deception. The whole idea of us, for example, having a continuous disclosure obligation in Australia, is to enhance the integrity and efficiency of our capital markets. That's it. It's not because there's some underlying moral centre to telling the truth. That's all good stuff. But it's to ensure the entire economy is running efficiently. At its absolute extreme, you could say, these concepts are sort of fundamental to our democracy because they've built the economy around which all those structures are built.

DEAN

Jason, we've been talking there about deception and what goes wrong. Are there some specific cases that stand out to you over your career?

JASON

A couple of years ago, there was a decent Australian example of how market manipulation can hit home. It was a case that actually went to trial or at least through the interlocutory process by plaintiff against the defendant, the plaintiff was called Rural Funds Management. They were responsible entity for a couple of registered managed investment schemes that were trading on the market. And in the middle of 2019, an activist short seller emerged, their name was Bonitas. And this got a bit of publicity. It launched a fairly concerted course of conduct which was designed to make statements and disseminate information about RFM that was not true, was scathingly critical of the way those entities were being run. And, in fact, it went as far as to accuse RFM of engaging in dishonesty and fraud. The whole intention here was to drive down the price of units in those schemes, and it worked. That conduct caused a very significant drop in the traded price of the unit, something close to 42% loss of value over a few days. So the target RFM correctly requested a trading hold, and it issued a statement rejecting all of those claims, it even went to the trouble of getting an independent investigation conducted of those claims, which was a smart move, because that came back with a clean bill of health, they got an accounting firm to do that work. And so they then sued Bonitas, the short seller, and they alleged that it was just engaging in essentially a misleading and basically reckless campaign of disseminating information to drive value. And that's it as we know that against the Corporations Act. It went to the Supreme Court of New South Wales, the court agreed with that characterization, in fact, went further and said, Bonitas has didn't even care whether what it was saying was true or not. And I think that's an important case because while those cases aren't necessarily common, that decision from 2019 could be significant given we're seeing an increase in complaints now going to ASIC, concerning similar attacks from overseas based short sellers. And that's increased significantly since 2019. And there've been calls from broader corporate Australia, our client base, for ASIC to take more aggressive action to address that kind of market manipulation and in particular, short selling, which I'm sure we'll talk about later. ASIC has not warmed to stricter regulation here. They have said basically do what that company did, which is to produce better information, more accurate information and to let the market decide for itself. But there's a fear factor to how easy it can be in blatant disregard of the law to drive value. And if you're sitting offshore, you maybe have a level of protection from the Australian law that you wouldn't if you're here.

DEAN

And for people not overly familiar with the share market. Short selling effectively just means people are investing in a particular way, and betting that that share price will fall. Now, how does short selling itself is not illegal, but manipulating the market is? Where is that line on short selling and deceit?

JASON

Excellent question, because the line is not as clearly drawn as certainly as the law would always like, let alone the market. And so just to try to draw a red line between short selling and everything else, and I know for this very sophisticated audience, this is a little bit of an oversimplification. But just dealing with short selling, you've got two types. On one hand, you've got a situation where a person executes a short sale, relies on some existing security arrangement that they’ve got in place that allows them to exercise the right to vest the security. So sometimes called a covered shorts sale, totally permitted under the Corporations Act. The other kind, you've got a practice of short selling the securities without any lending arrangement in place. So sometimes called naked short selling, because you don't have the cover prohibited in Australia, unless it falls within certain exemptions that we won't go into today. It's important to have that prohibition to safeguard against those knock on effects we were talking about earlier to ensure there's no disorderly market. But naked short selling is a major part of where the line is drawn and when you see activist short sellers, you really start to see how prices can be distorted against the target, which is really doing nothing in terms of information to change its valuation. So short reports from an activist are often released during trading hours and that gives it maximum impact and an immediate effect on price. And if enough traders short the stock, it sends a message to the market that there's a problem with the value of the security. So how that translates into the economy is these very unfortunate slogans called pump and dump, which is an activity when you're buying shares in a company, it starts an organised campaign to seek to increase pump, the share price up, they do that on social media, they do that on online forums to create a sense of excitement about the stock and then they dump it, hence making their profit or alternatively short and distort. And that's illegal. That's a trading scheme that involves selling short the shares of a company and then spreading negative rumours in order to influence the stock price downwards. It's very hard to draw the line here and there's often a lot of misdirection. And this is a really important point for commercial lawyers and for the broader economy. Just because a company has been shorted does not necessarily mean that there's been some deception in the market, or that there's some problem with the company's value or its securities. Sometimes people think if a company's being shorted, then the markets worked out some true position that no one else knows, and so sell, sell, sell. But that's not true. Sometimes you just get shorted. And there are companies that are heavily shorted, but it definitely doesn't mean that the company's wrong, reasonable minds can differ about forecasts. And so there's a line there, which identifies totally benign conduct, which is extremely bad for the company still, but not illegal. So that's where you see, shareholder class actions really start to bite, because if you've got that combined with allegations of non disclosure, the stock runs, huge values, you've got ASIC involved, you've got a private shareholder class action involved, it gets very messy.

DEAN

For many people, the first time they would have heard of short selling was probably early last year when something very famous happened in the US with Game Stop, a games retailer.

AUDIO GRAB

An ongoing battle between bullish day-traders and hedge fund short sellers that have bet against the stock. Game Stop shares have now risen some 700%.

DEAN

That was a really interesting example of manipulation you in a different way, wasn't it?

JASON

It really was and it's famous, and so it's a good way of thinking about market manipulation. But it's also pretty unusual. Gamestop was just a bricks and mortar game retailer, its performance had declined steadily over a decade, because obviously everyone's shifting to online gaming and online shopping. And so it wasn't unusual to see the value of those stocks decline. But then in January ‘21, out of nowhere, it’s stock increases by 140%. And it's being sold short. And what happened was, it was initially triggered by a group of, I'm not even sure I fully understand what subreddit users are even as I sit here today, but they're out there, and they thought this stock is undervalued, and there's a large number of shorted shares would allow them to orchestrate a short squeeze. So what they did was, famously, the response to this was, the stock price started to increase, and it eventually got to the point where it increased by 1500%, over the course of two weeks. And you've got buzz on the internet, and people are actually being encouraged to join the movement and engage in market manipulation, which is not something you see every day. And in fact, it got to the point where not just retail investors, but hedge funds are purchasing shares in GameStop. Nothing was happening with GameStop that would justify that, it hadn't changed anything about its structure or operations that would justify that value increase. But then it got really weird because many amateur investors were actually totally ambivalent to the fact that they were engaging in activity that was arguably illegal. And this wasn't the traditional pump and dump or short and distort concepts we were talking about earlier, there was actually not a lot of false or misleading information put into the market, people were extremely transparent about their strategy. Instead, this was just an activist community looking to punish hedge funds who were shorting stock, short sellers. And so it sort of got pretty confusing because there was almost a political or democratic sort of movement created around that. Anyway, while existing shareholders and third parties were experiencing significant gains, short sellers and many retail investors were suffering losses. So this was sort of a payback to short selling. I think what it showed us is our markets are much more vulnerable than we would like to think. And that is why Australia in particular, takes very seriously its market integrity laws, and that's why ASIC is sort of, in part leading the world. In trying to make those laws as tight as possible. With our superannuation schemes embedded in our share market, maybe there's a self interest there not to engage in this kind of conduct as much, but what happens globally invariably affects Australia. And so we have to be alert to the Game Stop kind of example.

DEAN

You’re right, it showed how the market can be so easily manipulated. And when we think about continuous disclosure, so where a company obviously has to share information in certain conditions with the market, how common is it for not only a company not to share information, but for a company to intentionally withhold information, so that protects their position or protects the share price? Is that common in Australia or uncommon?

JASON

So two answers one, it is very common to see shareholder class actions commenced, which allege almost exactly what you've said, are close to intentional withholding of material information. We have one class action filed in Australia every week, and 20 to 50% of those are around the securities and corporate governance space. So those allegations are common. But is it happening in fact, at the level of intentionality? Very uncommon. I mean, the criminal and civil penalty exposure for intentionally withholding information from the market, if you're a listed entity, is extreme. Australian corporations are probably the most sophisticated in the world around continuous disclosure, we're one of the few economies that has a very unique combo of a true continuous disclosure requirement the minute you have material information, go to market, strict liability for misleading conduct so if you say something without a reasonable foundation, it's against the law, the highest rate of adult share ownership in the world, as you said earlier, and very few economies combine all that. We've also got an American style class action regime, litigation funding is legal, and now we have contingency fees in Victoria. So for a company and believe me, there are none or few that say I'm going to intentionally withhold information from the market, it is inviting the end of that company's liability.

DEAN

The vast majority of Australians have some interest in the share market, whether that be owning shares in their own right, more than 50% of Australians do that. And for the rest of the population, there's obviously our superannuation where a lot of our retirement funds sit. Does that level of share ownership impact the level of or the lack of deception that you're talking about, do you think?

JASON

It is relevant, we've got the sort of economy where market interference is going to have 6, 7, 8 layers of consequence. And that might be an explanation of why we've seen comparatively little activist short selling compared to, you know, global analogues. But it also may be a product of the fact that we've just got some of the strictest regulatory structures in the world around these matters. As I said, not many people realise that unique combination of law, economics, economic reality, and so we've got an environment that really doesn't permit people to easily get away with market manipulation. Doesn't mean it isn't happening. It's only one of the highest priorities for ASIC over the last decade. And the consequences are not just the obvious ones, for example, the growth of the shareholder class action market in Australia, which is prosecuted claims that companies have been withholding information from the market, which is a very short step away from a form of market manipulation, those kinds of claims have been so significant that in part, they've dislocated the insurance industry for those kinds of claims. We've seen the evacuation of a lot of sightsee insurance for that very kind of claim. So we, you think of the moral of the story, it's not just having an economy that's functioning well, but all of those knock on effects throughout our layers of corporate governance in Australia are very real.

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DEAN

Deceit in the share market can lead to corporations losing billions, and everyday people losing a significant chunk of their life savings. But what happens when these lies go digital, and organised crime groups from across the world focus their attack vectors on Australia?

Next episode we will be joined by Professor Alex Frino, Senior Deputy Vice Chancellor of the University of Wollongong and two time Fulbright scholar. We’ll explore his new research showing how Australian companies are losing more than $2 billion a year from cybercrime attacks and how cybercrime is leading us to an increased risk of war, as we explore digital deception.

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens, see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Cybercrime can lead nations into war and companies into economic peril. Gone are the days of cyber criminals operating in dark basements. Today, they are coordinated criminal gangs or state sponsored actors. These cyber criminals coordinate their attacks across borders, using the dark web to plan their attacks and trade in their illicit gains. It's a dark and sinister world of digital deception that lives in the shadows. To help us shine light on this phenomenon we're joined by two time Fulbright Scholar Professor Alex Frino, who is the Senior Deputy Vice Chancellor at the University of Wollongong.

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Alex, we're seeing a rise in state sponsored cyber attacks.

AUDIO GRAB

Scott Morrison says that Australian organisations are being targeted by what he's described as a sophisticated state based actor.

DEAN

Perhaps if we start with how cybercrime can potentially lead to international conflict, how has this changed in recent history?

ALEX

I think it's very interesting, as a case in point that the battle that commenced in the Ukraine a few weeks ago, didn't commence with carpet bombing, which is what we're accustomed to, but commenced with a cyber attack. That's where it started. So the Russian cyber attacked the Ukraine and then moved in their conventional ground forces in, so I think that was for me was an absolute case in point in illustrating that the world is a very different place, and that cyber is front and centre of attacks of a military nature, as well as of a corporate nature.

DEAN

And to take that a step further, what does that mean for individual countries and global cooperation?

ALEX

Look, I think that the cyber problem, the cyber crime cyber security problem cannot be solved by one country acting alone. I think it's going to be attacked most effectively, through collaboration and cooperation of a multinational nature. So cyber criminals look for and attack the weakest link, and then attempt to infiltrate, and cross over. We had an example last year of a service provider in the United States whose systems went down, and it affected the Reserve Bank of Australia's website, the Hong Kong stock exchange, and so on. I think that illustrates just how linked IT systems are globally and the fact that a cyber attack on the weakest link offshore can affect all of us and more broadly. So it's going to have to be for the most effective solution, it's going to have to be a global collaboration of the sort that we've never seen before, frankly.

DEAN

And what does that global cooperation look like?

ALEX

Some of the work that I'm doing is NATO based, so it's NATO plus Australia, plus the United States. The interesting thing about NATO is, a couple of years ago, they announced that Article 5 which is the collective defence article NATO, that says if an attack on one country is an attack on all NATO countries and will draw an equal and opposite response. It was stated by one of the leaders at NATO that Article 5 could apply to cyber attacks, in fact, did apply to cyber attacks. So a cyber attack of a significant kind on a NATO nation could trigger Article 5 and a collective response by all NATO countries. So that's kind of interesting. That article, of course, hasn't been tested in a cyber sense, yet. It's unclear how high the bar needs to be in order for Article 5 to be triggered. But I think it demonstrates an awareness that this is a global issue and requires a global response.

DEAN

Now if we turn from global cooperation to corporations, because of course, it's not just countries but also companies that need to be concerned about these cyber attacks. You've recently completed some research on the cost of cyber attacks in Australia. What is that research telling us?

ALEX

Yeah, so we looked at cyber attacks on major Australian listed companies. And what we were trying to get at was the cost foisted on companies, not just an out of pocket sense, but also of a reputational sense. And we were trying to quantify what the aggregate cost of a cyber attack that was successful, I don't like using that word, but one that penetrated the systems of the company costed. We looked at approximately 40 cyber attacks that were reported in the media over the last 10 years, and the bottom line number or the headline number here is four and a half percent. So the cost of a cyber attack on average causes a decline in the value of a company of the order of four and a half percent. The sample of companies we looked at were on average worth $10 billion. It's huge amount of money. So I mean, obviously it depends on the size of the company. But four and a half percent of your market value is the expected cost, foisted on a company from a successful, in inverted commas, successful cyberattack.

DEAN

How do we determine how much cyber attacks impact companies and the economy?

ALEX

The literature talks about two main types of costs. They talk about out of pocket costs, that includes remediation of your system. So we've been cyber attacked, we've been penetrated, we need to build stronger defences, the cost of those, any legal suits, any regulatory actions, all those go into a bucket called out of pocket costs. And the second major component of cost is reputational cost. So if you think about a bank that announces it's been cyber attacked, and has lost sensitive data, then the customers of that bank may walk away from it. So that's what we mean by reputational costs. So the literature has kind of suggested that the majority of costs incurred by companies that face successful cyber attacks, are typically the latter, so they're typically reputational costs. That's not to say that out of pocket costs are not insignificant. They're very significant, but 98-99% of the damage done is to a company's reputation. So that's a very interesting point, and very clear out of the most recent literature.

DEAN

And are there certain types of attacks that result in more significant financial losses.

ALEX

Yeah, absolutely. So cyber attacks that steal sensitive data, especially of a financial type, have more significant reputational impacts on companies, especially if they're in the financial services sector, which is a focus of cyber criminals. So that's very clear in the literature. And it's also very clear in our research that if systems have been compromised, and information of a financial type have been taken, that the impact is greater. We found for Australia that the majority of cyber attacks were one of three types. Firstly, a denial of service attacks, that represented about a third of our sample. Secondly, hack and steal data attacks, were the second type of common attack. And then thirdly, ransomware attacks. There was no one of those three that was dominant, they were all equally important. I think in our sample, the hack and steal financially sensitive data was the most expensive type of attack in terms of reputational costs.

AUDIO GRAB

Criminal gangs are increasing the severity of attacks, as a cyber incident is reported every eight minutes.

DEAN

Companies are facing increased attacks and more coordinated attacks. So it's not becoming an if you'll be attacked, but when will you find yourself in the sights of those cyber criminals? What are some of the things that business leaders should be considering when they're determining what investment they should make in cyber defences?

ALEX

Yeah, so this is a focus of my research. Essentially, the amount that you can invest in cybersecurity is infinite. You can just keep buying and buying systems and improvements and whatnot to improve your IT system. So the question how much could I spend on cyber security? The answer to that is how long is a piece of string. So companies have to be quite sensible about how they go about deciding what the appropriate level of investment is. We built a little model that demonstrates that there's actually an optimum amount of investment in cybersecurity and it's a function of three things, very logical. One is the chance that you'll be cyber attacked. Two is the chance if you're attacked, what the chance of success is of that attack. And thirdly, if you're attacked, and it's successful, what is the cost. You can use those three things to estimate the expected cost of a cyber attack. And you have to weigh that up against your investment. So for example, it doesn't make sense if the expected cost of a cyber attack on a company at any point in time, is $10 million. There's no point in spending 100 million to solve the problem. So the solution very much depends on those three variables. And what those variables mean to individual companies is basically up to them to investigate and decide, but there is an optimum, that's the important point.

DEAN

And when that day of compromise does ultimately arrive, companies need to not only think about their cyber response but also what and when they'll tell the public. So what are some of the considerations for companies here?

DEAN

Yeah. Well, I mean, I think the law is very clear, when you're cyber attacked if you expect it to have an impact on your market value or share price, then it's price sensitive information and you have to tell the market, I think the law is clear. In our research, I think we were very surprised by the relative infrequency with which the market found out directly from the companies. So of the 40 companies that we examined, only six directly reported it to the market through the regular channels through the Australian Stock Exchange signals. Most of the time, the market found out through media, and through a secondary source, like a customer of a particular company told the media who then reported it. So there's clearly some companies that are falling foul of continuous disclosure rules, and they need to be careful about that. So we need to tighten up a little on our reporting of cyber attacks. And I guess companies need to be aware that, you know, on average, the impact of a cyberattack is four and a half percent of their market value. That's the expectation, and therefore, that's reportable. If we look at what's happening in the United States, the United States, the SEC, is playing around with a rule in which they will require companies to report the existence of a cyber attack, successful cyber attack, within four days of that attack, within four days of the company knowing that it's been cyber attacked they'll have to tell the market. I think that's indicative of the fact that at least the SEC, who usually gets it right, appreciates and understands the importance of telling the market early that a company has been cyber attacked. So it's a very, very important issue. And there's a number of considerations that companies need to take into account when deciding whether to pay a ransom. It's a very complex issue and it's complex, because you don't want to tell the market or you don't want cybercriminals to know that you're the type of company that pays ransomware because that could make you a target. So it's complex. And there's no doubt that sometimes it makes sense for a company to pay ransomware and at other times, absolutely not. So it's very, very specific to the circumstances, but companies need to think about the second order effects of paying a ransom in that if it becomes known in the cyber criminal world, that you do pay a ransom, then you will definitely be subject to more cyber attacks in future of a ransomware variety.

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DEAN

Deceit in the digital world can bring companies to their knees. Criminals across the globe can coordinate their attacks and hold companies, and potentially even nations, to ransom. But back in the physical world, deceit and greed can literally condemn people to a life of slavery, where they can barely make enough to feed themselves and their children.

Next episode we explore what happens when lies and deceit create the conditions of modern slavery. We’ll be joined by Richard Boele, KPMG’s Global Leader of Business & Human Rights, and Kylie Porter, Executive Director of the United Nations Global Compact Network Australia. We’ll look at the human face of modern slavery and how this exploitation impacts organisations and individuals.

KYLIE

There are 40 millioin people in the world who live in modern slavery-like conditions, and of that they think that there is at least 16 million within the private sector alone.

DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens, see you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

Forced labour, child labour, domestic servitude, debt bondage and trafficking people for the purposes of exploitation are just some of the sickening ways modern slavery continues in our world today. No Australian company will knowingly support these practices. However, they still find their way into our supply chain, and it happens through deceit, lies and concealment - often by third parties operating offshore. Over 40 million people are still victims of modern slavery, with 25 million of those in forced labour. One in four victims are children, and women and girls account for 71% of the victims.

To see just a glimpse of the world through their eyes, we’re joined by Kylie Porter, Executive Director of the United Nations Global Compact Network Australia and Richard Boele, KPMG Chief Purpose Officer and Global Leader of Human & Business Rights.

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What is modern slavery, what does it actually mean?

KYLIE

So modern slavery definitions tend to vary between jurisdictions. So the Australian modern Modern Slavery Act is the only act in the world that actually defines modern slavery quite acutely. So realistically, you know, from a corporate legal perspective, it's an umbrella term that refers to exploitative practices. So it includes forced labour, slavery, servitude, debt bondage, human trafficking, deceptive recruitment, for particularly labour practices, forced marriage, and then as I mentioned before, the worst forms of child labour, so it covers quite a lot of human rights related risks and harms.

DEAN

When you're talking there about debt bondage and some things that sound really awful, is that why Australian businesses should care about it?

KYLIE

Yes, absolutely. Like, there's definitely that altruistic angle to it. You know, there are 40 million people in the world, or it's estimated anyway, who live in modern slavery like conditions and of that they think that there is at least 16 million within the private sector alone. So there's that altruistic lens of wanting to protect an individual and the collective human rights of people. But also businesses need to care because it constitutes a criminal offence. So in Australia, it is a criminal law violation, it obviously also seriously violates a person's human rights and dignity. So those two factors alone should be enough for it to spark a level of interest at the integrity level, and particularly through the lens of a risk and compliance manager.

DEAN

Where do you see deception in modern slavery? How did those things come together?

KYLIE

Yeah, look, it's absolutely one of the key challenges with modern slavery very similar to corruption and bribery, where deception plays a key role. And the deception within modern slavery, I guess you could break it down into a sectorial issue. So we know that areas like agriculture, construction, domestic work, meat processing, cleaning, hospitality, and food services are those industries that are most likely to have modern slavery within them. Child labour tends to be across all of those industries, and also within the mining sector. But it's very easy for suppliers of major companies or suppliers of small companies to hide the practices that are going on within their factories. It's very difficult to then map that supply chain to understand where the goods are being produced. We also know that there are countless instances of suppliers being told that they're going to go through a supply chain or supplier audit. And what they do is ensure that in the lead up to that audit, everything on the factory floor looks like it should for an organisation or a company that isn't using anything in the modern slavery bucket. There's also other ways of deceiving it in terms of threatening employees that if they put forward a grievance mechanism complaint is not in the best interest of the company. And when those people are faced with those threats, it's very difficult to identify if they've been experiencing modern slavery. And then if you overlay all of that with a government that scores or a country I should say that scores highly on like the Corruption Perception Index, or a country that's got a high level of corruption risk, it then becomes a very complex chain and a very complicated one to unwind.

DEAN

Richard, can you help us understand what a day is like for somebody who's living through modern slavery? What does it look like? What are their experiences really, like?

RICHARD

I think a lot of people jump to an assumption that someone's sitting there in chains. And I think what you need to do is understand that modern slavery is metaphorically being chained, but it's not literally being chained. So just give you you know, highlighted in Sydney suburban shopping centre, we’re there talking to the mum and dad cleaning outfit. You know, they've got a contract through a couple of layers with a major property owner. And can we talk to your cleaners? So two young Indian men, we get the opportunity to talk to them one on one, we go through our usual questions, you know, how's the work? Good. You know, what are you here on in terms of visa? I'm here on student visas. Okay, that's good. Now, how's the pay? Look, the pay is fine but because we're students, we only get paid for 20 hours a week. Well, how many hours a week do you work? 40 hours, maybe sometimes 50 hours. Well, hang on no, that's not right. You should be being paid for the hours that you're working. No, no, we don't want to be paid for those hours, because that would breach our visa conditions. Now that's not modern slavery. That's wage theft. But when we ask the next question, so okay, you're on your student visas, who has your passport? Do you hold your passport? No, no, no, we had to hand those in to get the job. Now, that is a form of modern slavery. That's both illegal, but that is binding somebody to a workplace so they can't freely move because you're holding the passport. Now, that was really confronting because you've got young people whose families have taken out significant loans to get them a student visa to come here and find a better life, right. So that's the vulnerability that those employers are using to one, underpay them, but two, to hold them into the job that they're in so they can't freely move. And I use that example, because it should shake people's assumptions up about modern slavery being really easy to spot. It's not.

DEAN

Child labour, modern slavery is something for us sitting in Australia that's really hard to visualise. Can you help us understand what that looks like when someone is in those conditions and they wake up, they open their eyes in the morning. What is it they see, what does a typical day look like for somebody who's living through these rendus conditions?

RICHARD

If I sort of take the agricultural sector, which I'm drawing on an example that was more prevalent before COVID, which will become more prevalent again, you're almost certainly waking up in a house that's been organised by your gang master, someone who's running your gang. You'll be woken up very, very early, you'll be sharing the room in a crowded fashion, you'll probably be lucky to have some room to walk around in the house, the toilet that's designed to be used by four or five people is almost certainly being used by 20 to 30 people, the kitchen facilities are the same. They'll all be pretty dirty and pretty disgusting because the place wasn't designed to have that many people crammed into it. You'll be woken up early, you'll be shepherded onto a bus, you probably don't know where you're going to work that day, it could be an hour, it could be two hours to get to that location. If it's agricultural, you'll arrive at that farm, you probably won't understand what's being said, because your command of English is really poor. And you won't get sunscreen. If you're lucky, you've got your own hat. And out in the field, you'll go and there'll be very clear instructions on what's expected in terms of your productivity. You’ll work really hard and while you might be questioning, why are you working this hard, you'll remember the debt that's owed. And that's what's gonna keep you working. You remember that it might have been your family, it might have been a close relative that took out the debt to get you to Australia, because the agent who brought you into that has told you the story of how this is your first job, just do this, work hard at it, and you'll get residency. But you've been doing this now for six months, and you've realised that that was just lies to get you to come here. And while that's not the future, you can't go back until you've paid the debt. You can't escape from this until that's cleared because the shame in terms of letting your family down because they've sacrificed so much to give you the opportunity for a better future, that's harder to face, then what's happening to your body. If you're lucky, there might be within your gang some people who might come from the same region that you came from your home country. And that might give you some relief to be able to at least share some of the struggle together, the pain together. But you'll also be sharing the stories about how you were tricked into this. You never chose this. This isn't what you chose and how you're locked into it because of that debt.

DEAN

Kylie as companies focus on those supply chains offshore and what they can do to influence it, the last few years has seen a really strong focus on ESG or environmental, social and governance issues like modern slavery and like bribery and corruption. Why do you think that focus has been there more recently?

KYLIE

I think there's been numerous reasons for this revitalization or huge interest in ESG. And a lot of it can be derived from some of the things that people might call buzzwords over the last few years. So we had the revision of the ASX governance corporate guidelines. And they led to this quite substantial debate around whether or not to include the words social licence to operate. And there was a lot of conversation about well, what does that actually mean? And when it's broken down, it means a lot of the things that you're discussing throughout this podcast series around integrity around what's the purpose of an organisation? Is it just to the shareholders? Or is there a broader altruistic purpose that companies should be striving towards? But also, what does leadership mean, and is a good leader one that's purely managing the P&L and doing a really good job at balancing what goes out and what comes in and the brand and, and it's also about walking the talk. So things like responding to human rights risks, including modern slavery. If you don't do that, there are substantial reputational risks. And we've definitely seen those risks be actioned in courts and on the front pages of newspapers. And there's numerous cases that I can think of recently where those human rights ones are also getting intertwined with environmental ones. And you think about some of the corruption cases when those corruption cases start unfolding and the bribery cases start unfolding. Yes, there's absolutely the issue between the company and the entity or the government that's been involved in that bribery. But it's also the impact on the people, and what that's led to, in terms of the social environment that they're living in, how that society operates, you know, these are very large issues and they all require really strong levels of governance. And we know that without having strong leaders, you're not going to have good governance, which means that you're not going to have a good response to environmental risks, you're not going to have a sound response to human rights risks that include due diligence, you know, across both your environmental and human rights lens. So I think overall, it's this leading with purpose, and it's ensuring that the tone from the top really is demonstrating not only value for shareholders in terms of the value of the share price, but also value for shareholders in terms of the longevity and the sustainability of the company over the next 10, 15 years.

DEAN

And Kylie we know that modern slavery impacts young girls and women much more than men around the world. Why are females so disproportionately represented in those statistics?

KYLIE

It's really the nature of work. So if you go back to what I said about the industries most affected, it's predominantly women in those industries and it's industries that are hard to shift to more male dominant industries, right. So we know that domestic work, it's the majority of women. We know that a lot of horticulture practices, while there might be men, it is quite often women out there picking strawberries or helping on horticulture fields. Cleaning hospitality, food service, very much female dominated industries, not only here in Australia, but globally into the supply chains of large companies. So if they're the industries that are most likely to be exploited, when you add other lenses over that, for example, a corruption bribery lens, the COVID- 19 pandemic, right when you add COVID-19 and the extreme opaqueness that we've experienced with supply chains, we know that women are more vulnerable to being exploited. And they are you're right, disproportionately so. And a lot of that is because of the nature of the work that they're doing.

DEAN

Are we doing enough? Do you think?

KYLIE

No, I think if we were doing enough, then modern slavery wouldn't be as substantive a problem as it is today. You know, we've got more slaves now than what there were during the US slave years. And companies really need to start thinking about what they need to do to respond to those human rights issues within their supply chain. But if we start talking about transparency, and desire to change the world and eradicate modern slavery, which is one of Australia's commitments under the Sustainable Development Goals, the question really is, well, if we know modern slavery is that prevalent, why aren't companies willing to be transparent, where they have found instances of modern slavery? So there's a long way to go.

DEAN

Richard, in addition to your role as a human rights leader that you've been working in, I know for decades, you've recently taken on the role as KPMG’s first Chief Purpose Officer. Is purpose perhaps the answer to some of these issues like bribery and corruption, modern slavery, how does purpose play a role? And what does that actually look like?

RICHARD

I guess the glib answer would be to go, yes. But you kind of got to unpack that, you know, you've got to kind of consider it really carefully. You know, we're human beings. You know, we've come together in a society and what's our fundamental being, I guess, and I think it is altruistic. We do want to do good. We do want to see things improve. And then people choose a different path for perhaps different reasons. I've got a great optimism about fundamental human nature, right, if you look at those that choose the pathway, Dean that you've dealt with so much in terms of criminality, right, there's so many times you can kind of see those trigger events, or you see the context from which they've come. And you go, gee, they didn't have much choices. I think it's different with white collar crime. I don't know if you'd agree with me on that, where you just go, why, why did you do that? And then you kind of probably end up with psychopathic issues, there's an element of mental illness sometimes, that then is that trigger to taking that pathway of crime and deception. And I think we're better able to buffer those conditions. Or better treat those conditions when we do take that altruistic, when we look after each other in general, I think that's when we do have the opportunity to reduce crime. And that's what we have is KPMG a really clear commitment in Australia. And our core purpose is to empower change, inspire confidence, to then have a positive impact on society. And that aspect, you know, I think, is a really powerful way to have that opportunity to have a touchstone by having that purpose and by having the underpinning values, and I think for us, particularly together for better, that gives you a North Star, that gives you an opportunity to just check in and go, I'm about to do this is that aligning with the purpose that I've signed up to or the purpose that's mine personally, to make a positive contribution to other human beings, that then takes you away from getting involved in modern slavery from a perpetrator point of view. We don't have modern slavery, if it wasn't for human beings that prey on vulnerable people. Purpose should be there to help us reduce the conditions that make people vulnerable. But then purpose should also be there as a touchstone for those who are benefiting from crime and those around them. Because I think that's the key right, is generally, that's the undoing of most criminals is those around them who are uncomfortable with the way they're behaving or uncomfortable with the impacts or the pain or the hurt that they're causing. Look big picture question it's a great one Dean, and I hope that I've given the big picture question a bit of practicality in terms of bringing it down is that there is definitely a couple of points there where purpose has a significant contribution, I think to make in reducing both conditions that lead to people finding themselves enslaved in modern slavery like conditions, as well as those who are perpetrating it.

DEAN

The human impact of modern slavery is catastrophic and a continued focus on eliminating it, not only from our supply chains, but from our world, is incumbent on us all. Next episode we move from the physical world to the digital, as we explore the murky corners of the dark web. We’ll explore how cyber criminals are working together across the world and coordinating their attacks.

In our next and final episode we’ll be joined by the man charged with protecting Australia’s National Broadband Network from cyber-attacks, nbn Chief Security Officer, Darren Kane, as we take a journey into the dark web and see what really happens when cyber criminals attack.

DARREN

The stereotype of criminals being lone actors in a basement or sitting there in a hoodie in a darkened room, I think is sadly outdated. Many of these gangs are based in jurisdictions where the law enforcement may not only be turning a blind eye, but may be in fact, working with them.

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DEAN

If you’d like to know more about how KPMG works with organisations to prevent deception and restore trust, head over to our website which you can find by searching KPMG Forensic.

I’m Dean Mitchell and this is KPMG’s Forensic Lens. See you next time.

DEAN

I’m Dean Mitchell and this is KPMG’s Forensic Lens, detecting lies, deception and fraud in the world of business.

With more of our lives and businesses moving into the digital world, this new era of online deceit is a danger for all Australians. Today we go on a journey into the dark web and find out why, and how, crooks are finding a new home online. To help us understand how and why foreign organised crime groups are targeting Australians on the internet, we are joined by the man responsible for protecting Australia’s national broadband network from online crooks, NBN’s Chief Security Officer Darren Kane.

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Darren over the course of this series, we've been hearing a lot about fraud at an individual level, at a corporate level and even in the share market. But what does it mean when fraud goes digital and cyber criminals start to attack us?

DARREN

Well, it's really quite simple. It's just using digital means to do the age-old act of conning, manipulating and stealing. And while the intent is age old, you know, the modern technologies make it a lot easier for deceptive people to catch out more of us. And to make the use of information about us. It's quicker, it's cheaper than ever before. Now some of these examples include, you know, the email, instant messaging, social media, multiplayer online video games, SMS, or even more traditionally, the telephone. And basically these are attempts to steal a person's identity for financial gain, or to control or create false perceptions. And these sort of scams and ‘connings’ can come in many forms, and the examples include such things as fake news scams. Romance scams are big at the moment, even pet scams, where you expect to buy a golden retriever and you end up with something very different, charity scams, investment scams, remote access scams and online shopping scams. The phishing attempts where they’re seeking out the lazy fat forefinger, compromising doctored images of people that are fake but look real. This is known as deep fakes. Of course there’s social engineering. And then there's a hackers attempt to attack a network using credentials obtained by some of the methods I've just mentioned.

DEAN

And you talk there about some of those attackers, who are they, who is it that it's trying to get into our computers? Who is it that's really causing all this havoc for us?

DARREN

A hacker is typically someone who uses their skills to get into a computer system or network, it's usually synonymous with someone who is technically very skilled. But also in the security industry, we also tend to focus more on the general idea of attackers, who are someone who are going to attack us with a purpose. In the industry, we sometimes refer to those attackers as bad actors. But because we're talking about cybercrime today, I think that's the wrong language. I'd much rather use the concept of crooks online. So you've got someone with a criminal intent to do us a bad injury, if you like, where we'll end up the victim. So yeah, these people are out to damage us increasingly using both technical and non technical methods, that don’t always have to get into our systems. Sometimes they just focus on deceiving us for financial gain but using technology to do that. Sometimes they don't necessarily do it for financial gain, sometimes they do it just to prove they can. And look at the very end of the day Dean, as security folk we're trying to protect our systems and businesses and our customers from this malicious activity. And the bottom line is, it's getting more and more difficult to do so.

DEAN

And you and I obviously started both of our careers in the police force and looking at crooks but when we talk about crooks online, what is it that motivates those types of crooks or those types of criminals?

DARREN

Generally speaking, attackers are driven by a variety of different motivations. You know, obviously the first ones financial, you know, to get into an organization's network to extort them to steal, and sell sensitive information on underground marketplaces, or to scam or defraud an individual or business to make money. Secondly, there's political motivation. There's bad people who act in the interest of a nation or government, often for geopolitical reasons, example espionage, IP theft or disruption. Ideologically, there's hacktivists, who use cyber means for the use of awareness and attention to a particular issue or cause. And a really good example of someone who is a hacktivist with ideological bent is of course Anonymous, the cyber gang that you hear about so often. Then there of course, is another motivation is revenge. Disgruntled employees, for example, can compromise the security of our organisation from within, leaking classified information or installing software to help other threat actors easily access a network, or just to get back in an organisation or individual who they claim they have a grievance against. So there's some examples of the different motivations.

DEAN

And perhaps just to take that crooks online one step further, if there are crooks online, then there must be good guys online. Right, there must be cops online. Is that what your role is? What is your role at NBN?

DARREN

My role is the Chief Security Officer of the National Broadband Network, Australia's biggest critical infrastructure project. And the actual aim and mission of the wholesale broadband network I work for, is to connect nearly every premises and small business large business in the country through a wholesale broadband network. And that's at the end of the day, probably the bulk of the Australian population. So I own the accountability for managing security risk right across the enterprise. And there's many different areas that actually make up that accountability. Some of the areas I have is obviously cyber defence, and one of the reasons we're talking today. So I actually have the cyber defence accountability for managing the prevention and defence of the organisation from cyber attack. I think the most important message I can give anyone listening to this is, my job is about saying what is an acceptable appetite of risk in the security regime, and then working with the organisation to maintain it within that threshold. So keeping it within that risk threshold, Dean, one of the most important areas for me and one that I'm most proud of, is what I call influence and trust. And we have a team whose sole reason for existence here in the network security group, is to push out the message of security, hygiene, posture, culture, and our help for employees and customers, our end users those access seekers right across the country, and in the retail service providers that security is everyone's responsibility.

DEAN

And we've been talking there a lot about trust, is that becoming more and more important, because we're seeing these online crooks turn to gangs and cyber gangs and cybercrime gangs?

DARREN

Look, trust is a word that's often used and, I think, rarely understood. Trust is turning on a computer and having faith in what you're doing on that computer is private and secure to you. It takes a hell of a long time to build trust, but where an experience doesn't live up to your expectations, it's incredibly easy to lose the trust in the experience. So cybercrime is an increasingly maturing industry. It's worth billions of dollars of a year. I think last year the report coming out of the ACSC where the self report here in Australia, it was a $33 billion issue. Now it's categorised by a high degree of specialisation and trading on underground marketplaces. And what we refer to as cybercrime gangs or large groups of crooks online if you like, look, they're highly organised, they're highly skilled, they're efficient, and they're a nimble organisation. You know, the stereotype of criminals being lone actors in a basement or a hacker sitting there in a hoodie in a darkened room, I think is sadly outdated. Many of these gangs are based in jurisdictions where they are afforded a degree of freedom because they don't get overly active attention from local law enforcement. And we've seen examples of that in recent times across particularly Eastern Europe. Or they live in jurisdictions where the law enforcement may not only be turning a blind eye, but may be in fact, working with them. These gangs are ruthlessly financially motivated, which basically means they’ll even act as a cartel so they'll collaborate with each other. And many ransomware gangs not only target victims directly, but offer ransomware as a service for other cyber criminals to use. They'll also offer customer service and IT support to victims to even help them pay a ransom. So they've got all points of the compass covered here. These are very well organised international gangs that are financially motivated and working for a political end and are incredibly dangerous. From my perspective, the message is do more to protect yourself. I'm going to use your home as the example - burglar alarms, CCTV, locks on doors and, and the family culture of neighbourhood watch them whatever, all good ideas to protect your home. You've got to actually start to think about doing something similar around your digital use and your technology.

DEAN

What role does the dark web play in their attacks on us?

DARREN

Though this name sounds really ominous, the Dark Web did not hatch from some evil hacker's basement. The Dark Web is a network of websites through encrypted and not immediately accessible without specialised browsing tools. The key thing is users on the dark web are anonymous. So it's heavily used by criminals to facilitate illegal activity, evading government surveillance or censorship. So whilst the criminals exploit the networks anonymity to sell guns, drugs, contract murders, it's a place also for legitimate folk. Organisations like United Nations use encryption to protect dissidents in oppressed countries, and monitor the dark web to share data on drugs and crime with the public and global police organisations, such as Interpol. So even though we call it the dark web, and it is synonymous with criminals, there also is also an effective use for good. And whenever something is used for good you obviously have cyber criminals or crooks online with that nefarious intent to do people harm.

DEAN

And that nefarious intent, sometimes, there's some social engineering and exchange of information that's passed around that dark web where crooks build up those profiles to be used for those nefarious reasons. How does that happen Darren? And why is that such a concern for all of us?

DARREN

Look, the criminals who are using the online space use the dark web as a marketplace. They take what they've stolen, and sell it. Think of it as a pawn shop for stolen goods. It's accessed by using a free security focused browser known as TOR and it's available on any operating system. So TOR is spelled T-O-R, it stands for The Onion Router. Think of it like an onion and its layers. And that's what the onion browser does to internet traffic, it layers upon layers upon layers, to make it almost impossible to trace. Therefore, it anonymizes the users, impossible to follow. And once you've got it up and running the browser, you subscribe to a VPN or virtual private network if you like, you download and configure it, and bang, you're on the dark web. So for those really wanting to join the dark web, the actual process is relatively easy. And here's something you didn't know and a really interesting fact for listeners I think. Most of us are used to website URLs ending in .com. But on the dark web URLs in with the suffix dot onion, to the note the domain points to an encrypted site and is inaccessible to traditional browsers that let you know the security plugins.

DEAN

Darren in addition to the dark web, the other thing we hear a lot about is ransomware and ransom attacks. How does that affect our businesses and our corporations in Australia?

DARREN

Ransomware and ransom attacks are becoming incredibly common. The actual ransomware itself is a piece of malware that locks or encrypts data on a network. And most of the time it's delivered by way of phishing attacks, that lazy fat forefinger that is busy all the time and, accidentally clicks on the link, or a fail to patch a network in a net facing port, they'll actually scan your perimeters come in through that way and, and once it's in, it encrypts the data on the network, and generally domains a ransom to release the data. So if you go to log in Dean and you can't log in, and you can't access your data, you generally get a message to say you've been a victim of a ransomware attack, please pay the ransom and we’ll release your data. And that's the decision you have to then make. Ransomware losses have gone from effectively zero to 10s of billions of dollars across the globe in the last seven or eight years. And what we're seeing now is a double extortion coming out of ransomware attacks, not only do they actually encrypt your data and say to get your data decrypted or unencrypted, we're going to actually expect you to pay a ransom. To put more pressure on you to make the decision harder, they've also exfiltrated the data out of your databases so they've now got all of your data, incredibly sensitive, personal identifiable information, which is a privacy breach. And what they do is they ask you to pay the ransom, or you'll never get the access back to the data. And not only that, they'll actually sell that data on the dark web as explained before. The majority of these ransomware gangs or variants and double extortion gangs, they're operating out of Eastern Europe. We used to see ransomware attackers imposing some sort of ethical boundaries around those types of targets that they’ll be looking for. But increasingly, we're seeing this fade away with the targeting of schools, healthcare facilities, charities and other settings where people are more vulnerable. As I said they are not particular, it's all about their success.

DEAN

But what can organisations do to stop that attack or to prevent that attack from occurring?

DARREN

I think firstly, accept the fact that what I'm saying is real and get yourself if you've got a company or an organisation you have an accountability for, or if you're in a position that I have in a smaller organisation, get yourself informed, and then have your board or C-suite or the management of that company informed to the risk, because these things do happen. There are many great resources online, and you'd start with the Australian Cyber Security Centre website and their essential 8 mitigation strategies, which will give you a baseline of security posture that you should be familiar with, and implement. Secondly, be prepared to defend across the management of cyber defence. There's the identity of threat, the prevention, if you can, there's a detection of the threat you have been taken down or compromised. And then of course, there's the response, the recovery, and what you've learned, I call it the review. No matter how much money and how good you are, I think given technology and the complexity of the networks and platforms we're now dealing with, you should at least accept the fact that you need to script, have playbooks, train, and train as you fight to respond to a successful attack. And do you have the processes in place for when the day arrives? And I use the concept of the fireman analogy. Sure, firies are trained to prevent fire and they often give lectures at schools. But ultimately, they spend a lot of their time, effort and resources in training to fight the fire, and then how to recover from it. And they do that on the basis that they accept the fact that no matter how good they are about prevention, there'll eventually be a fire. Same concept here. Look at who you've given admin rights or privileged user credentials to, make sure you understand who's got them and why they've got them. The crooks will look for weak links. So for example, board members, it's not a very nice term, but they're called whales. They’re called whales, because they're big fish, because they're big fish, they're the ones who are most at risk so you spend your education efforts there. And then you look at the executive assistants and personal assistants, they'll also be targeted because they are usually the ones that support the Wales in managing their online technology. And then social engineering - be a little bit more careful about how much detail you put up on the different social media sites, things like LinkedIn, Facebook, things like Snapchat or Instagram, and it goes on and on and on. It's great that you share detail but if you share too much of your personal detail, you're giving a fair bit of your life away to somebody who's got that nefarious intent. And look the other thing that's become quite popular, I should call out today, around the risk is the security of supply or SOS, Dean. Who's your vendor, not only who is your vendor, and what things have you got in place to ensure your vendors got good security, but then there's the issue of who's the subcontractor to your vendor? So not just the third party supplier, who's the fourth party, who's the fifth party, who's the sixth party? Because one of them getting infected, everything goes laterally. If you make things harder for the people looking to do that nefarious intent, it may make you less of a target, or certainly less of a profitable target. And hopefully, they'll move on. Hopefully, the person next door is taking a lead from yourself, and they’ll move right out of your street. I don't think they're ever going to go away. We've just got to accept that they’re there, we've got to manage them.

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DEAN

Hackers, crooks online, cyber gangs or whatever you call these coordinated groups attacking Australian organisations, one thing we know is they exist and they present a real and present danger. Their level of coordination, planning and preparedness must not only be matched, but exceeded, by our efforts to thwart their attacks. Cyber attacks might be the new attack vector but it’s an age old crime – using deception to lie, deceive and defraud.

Over the course of this series we have sought to better understand deception and how it is used against us. Armed with this awareness, we can be better prepared and less likely to fall victims to the dark art of deception.

You can continue the conversation and find out more at our website, which you can find by searching – KPMG, Forensic.

I’m Dean Mitchell and this has been KPMG’s Forensic Lens.