ABB Korean Fraud

We are overwhelmed by media blaring news of cyber security events and in this noise, we tend to form an opinion that may be Cyber security risk is the most impact risk event for businesses to manage. However, it’s interesting to note that traditional fraud embezzlement (internal fraud) events are still happening with significant consequences. One such risk event happened in Feb 2017 in South Korea, where a German enterprise- ABB reported an estimated loss to tune of $100 million embezzled from their accounts books. Unfortunately, any further news on this risk event is no more available and there is little update to the eventual outcome or any further update. I took help of my Korean friend to obtain if there is an additional information about the risk event in local news channels.

Link: http://techholic.co.kr/archives/66634

Google translated version states: “ABB, a multinational engineering company headquartered in Switzerland, has become the victim of a “sneaky criminal plot” in ABB Korea, and ABB Korea’s ethics education officer is the main suspect in the case, Reuters reported on Tuesday (Reuters) did.  According to Reuters, the officer, known as A, was a financial officer and one of two ABB Korea Ombudsmen (ethics observers). He was also the managing director of ABB Korea until 2010. ABB said that Mr. A faked the documents, conspired with third parties to take out the company’s money and estimated the damage to be about 100 million dollars (about 113 billion won) before tax. Mr. A remained on the 7th, and ABB later caught a serious financial fraud. ABB CEO Ulrich Spisshofer described the fraud as “shocking news”. He said it could undermine ABB’s reputation.

ABB said the embezzlement was limited to South Korea. ABB employs about 800 people in Korea and generated sales of $ 525 million in 2015.

ABB spokesman Jasvathodas said, “On February 9, we learned suspicions about financial negligence in Korea and we started an investigation immediately.” Given the scale of the case, the investigation could be extended to third parties in and out of ABB in Korea.  Analysts at the Zurich-based bank Chuier Hanconturk claimed that ABB’s corporate governance was about 4 percent of ABB’s 2016 net profit of $ 1.96 billion.”

Role of Mr. A as an ethics manager is quite opposite to his actual fraudulent actions to steal the company’s money. Its not clear from the news what motives was behind Mr. A to steal but it also throws challenge for Multi national corporate senior management to assess how much trust can be placed on the senior managers running their shops in remote parts of the world. In these times of technological advancement where you can be in touch with your staff with click of the button but its still not sufficient to get tab of what may be the risk culture on the ground.  Cyber security risk are at times too technical and complex for senior leadership to get their heads around in first few instances of reporting but so may not be the case of embezzlement, which is much better understood by shareholders, regulators and public at large.

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