No matter how well it is concealed, corruption is a clear and present danger for both the private and public sectors in business dealings and major projects worldwide. Independent forensic investigators must weigh up the practical challenges, strategy options, and available tools to support counsel and international arbitrators in the most cost and time effective way. Understanding this perspective can inform the steps counsel and arbitrators take to fulfil their legal obligations as the scope of anti-corruption legislation evolves.

The red flags that signal corruption could be at play are numerous. None provides proof, but they do point to the need for closer scrutiny.

These red flags come in many forms at different points in the project lifecycle and vary with the industry. No area of economic activity is immune, but the scale and complexity of major infrastructure and capital projects are magnets for corrupt practices. The warning signs may be seen before or after contracts are awarded – through tender manipulation or how contracts are administered. In some cases, detection may require technical industry knowledge. In others, anomalies are more obvious.

Red flags that signal tendering has been manipulated

The tendering process may be manipulated to exclude or favour bidders. Vague or unreasonable pre-qualification criteria, pressure to appoint a specific contractor, or unknown or unqualified subcontractors are each clear red flags.

Interference in bid selection by senior executives and decision-makers often leads to non-compliance with tender rules. Examples are where evaluation criteria or scoring systems are changed during the process, where the award is not to the lowest bidder, or is not justifiable on quality or other valid grounds.

Other red flags – such as unreasonable pre-qualification criteria or contractual terms prejudicial to one party – may be harder to spot. The first indicator that a tendering process is unfair is often when losing bidders raise complaints.

Evidence of corruption in contract administration

Red flags may not appear until after a contract is awarded – for instance, when the winner’s contract price is increased. The approval of questionable change orders – or client-side failures to respond by contractual deadlines to contractor’s notices of claim – are further warning signs. As is the payment of unsupported, opaque, or duplicated claims.

Similarly, one-sided disputes where one party simply accepts liability or undermines its defence by failing to appoint qualified counsel, or only at short notice, deserve extra scrutiny. Contractors resisting inspection of their books and records can also arouse suspicion that claims may be unsubstantiated.

Many projects overrun their budgeted costs and/or planned schedules and for a variety of valid (even if avoidable) reasons. But overruns can also be an indicator of corruption, whether that stems from collusion over unrealistically low tender prices, appointment of unsuitable contractors or suppliers, excessive variation orders (VOs), overpayments, or inflated claims.

Contextual factors that increase corruption risk

The risk of corruption is also influenced by contextual factors, such as where business is conducted and the track record of the contracting parties. International corruption NGO Transparency International’s^[1]Transparency International is a global non-governmental organisation dedicated to fighting corruption and promoting transparency, accountability and integrity in governments, business, and civil … Continue reading Corruption Perception Index shows sharp international variations, sometimes even between neighbouring countries. Companies may have been convicted in the past or subject to criminal investigations by domestic authorities. Certain parties or state entities may have a reputation for corrupt practices. In the absence of a code of conduct or certification of a company’s compliance with anti-money laundering obligations, it must be assumed that the corruption risk will be higher.

Approaches to investigating corruption

Not all red flags are created equal. Some have more probative value than others.  Before launching an investigation, counsel must answer a series of key questions, which are essentially the same ones that confront independent investigators.

Key questions

1. Are the allegations specific and serious enough to justify investigating?

2. What kind of evidence would best substantiate the allegations?

3. How can the evidence be collected and by whom?

4. Are there any procedural, jurisdictional or technical restrictions to

undertaking the investigation or collecting relevant evidence?

5. How will the evidence be analysed and reviewed?

6. How will the evidence be presented and to whom?

The weight and credibility of corruption allegations—whether raised by the media, whistleblowers, or competitors—will vary. They may well be anonymous, which raises the possibility of malice on the part of a disgruntled employee or competitor, for example.

It is critical to identify the kind of evidence that will substantiate an allegation of corrupt activity. This may be technical in nature, or often, are financial transactions, so we need to see bank statements and other financial data as well as the underlying contracts – sham or otherwise. Communications between the suspected parties, whether by email or SMS and WhatsApp, can be revealing. Where covert relationships between parties are involved, corroboration may also come from social media or details of travel arrangements or meetings (see case study below).

Access to information is crucial, and is usually the greatest challenge we face as forensic investigators. We want to be involved in the disclosure process. Most of the evidence required tends to be held within the involved organisations or by the participants. By advising counsel or the tribunal on disclosure and discovery we can help guide the investigation, helping to generate time and cost efficiencies. Questions over procedure and jurisdiction, however, must ultimately be resolved by counsel.

The process of investigating corruption

The process a forensic investigation follows will depend on the answers to the key questions mentioned above and will vary also with the nature of the allegations and evidence, and time and budgetary constraints.

A typical forensic investigation process will include:

• A preliminary review of allegations and available information
• Formulating an initial hypothesis
• Preparing a detailed investigation plan
• Collecting, logging, and securing evidence
• Analysing the information/evidence collected
• Concluding on findings and collating evidence
• Preparing a Report on findings supported by the relevant evidence
• Recommending appropriate remedial actions

Having formed a preliminary view on the allegations and available information, the starting point for the investigation is an initial hypothesis for how the corruption occurred. For example, Company A is suspected of paying kickbacks to government Official B for a public contract. What assumptions can be made to test the theory?

How was the cash generated to transfer value from one party to the other? Cash for corrupted payments can be generated by raising false or inflated invoices, for example, or by paying undue or inflated claims. Also, what form would the bribes take and what evidence trail would they leave?

If the allegations are true, Official B would be expected to have broken procurement rules or used other tactics to influence the contract award to Company A. We need to consider whether the overall pattern of transactions is commercially reasonable. Highly inflated or unreasonably low contract prices, peculiar contract terms that disadvantage a particular party, and payment of unsubstantiated claims would fail this test.

Our hypothesis and assumptions provide a basis for planning an investigation that is closely focused on the alleged offences. Time, cost, and efficiency are central. Having a working hypothesis that addresses the questions raised by counsel or the tribunal helps ensure the investigation does not spread far and wide, incurring unnecessary time and costs.

The most effective way to review and analyse the relevant information will depend on the quality and the volume of data. Evidence must be collected, logged, and secured. As well as documentation and data, this may include samples, interview testimony, and other information.

Tools and techniques of the forensic investigator

The methods available to forensic investigators – and especially digital tools – continue to evolve, enhancing our capabilities. They include:

• Public record research – retrieving records and cross-referencing them with existing documentation or aspects of allegations.
• Forensic accounting review – transaction testing, flow of funds analysis.
• Digital forensics – covering the collection, processing, and hosting of relevant information.
• Human intelligence – particularly where access to public records is limited, while recognising this also has limitations.
• Data analytics – especially where there are large volumes of available data.
• Artificial intelligence (AI) – enhancing and accelerating the data review and analysis process.

The growing value of AI in forensic investigations

Data science, predictive analytics, and large language models have proven their extraordinary value, accelerating and boosting the efficiency of certain investigations.

There needs to be an acceptance that AI-powered tools are going to be an increasingly effective weapon in the forensic investigator’s armoury. At the same time, we share the scepticism and caution of many counsel. Unleashing ever-more powerful AI tools raises problems around data protection, privacy and confidentiality, privilege, and cybersecurity.

Our use of AI is subject to an appropriate level of human supervision and appraisal. By using secure, closed systems and ensuring that decision-making remains the preserve of experienced expert investigators, we can analyse the expanding pool of available digital data to probe and prosecute corruption more effectively.

Case study – Investigating alleged corruption on a major capital project

A contract awarded as part of a major state capital project illustrates the significant financial impact of corruption and the range of evidence that may be required to corroborate allegations. The case was also notable for its high number of red flags.

The allegations against the state-run utility and a civil engineering contractor (‘the Contractor’) first surfaced in a media report. However, the utility had been embroiled in corruption scandals for decades. The jurisdiction ranks in the lower half of the global corruption index. It was also subsequently confirmed that the contractor had previously been fined by the US Securities Exchange Commission (SEC). In addition, national authorities were already investigating other alleged offences by the CEO of the utility.

The central allegation was that over USD50 million had been funnelled to a close relative of the CEO, the director of a subcontractor to the Contractor, which had been awarded the main USD100 million-plus contract.

The hypothesis was that the Contractor inflated prices to fund kickbacks to the CEO, channelled via his close family member to their mother’s businesses, in which the CEO held interests.

An internal investigation by the Contractor pointed to a corrupt relationship involving two subcontractors. The Contractor agreed to collaborate with all the investigating agencies involved, including local authorities, the FBI, SEC, and HKA, who, in this instance, provided the investigation team with expert support in quantum and delay and infrastructure procurement.

These investigations found:

• The CEO subverted the procurement process, influencing the procurement and contracting strategies, and evaluation and adjudication processes, and forced decision makers to approve the Contractor’s tender, instead of the only other bid, which was cheaper.
• The Contractor was appointed on condition that it use a specific subcontractor (‘Subcontractor 1’) (which was unqualified and owned by a close friend of the CEO) as a subcontractor.
• The Contractor failed to follow its own due diligence process in onboarding and making an advance payment to Subcontractor 1.
• Subcontractor 1’s contract was terminated after its owner fell out with the CEO and was replaced by another subcontractor (‘Subcontractor 2’) (linked to the CEO’s close family member and despite it failing the supplier qualification process twice) in return for spurious and massively inflated VOs that would be granted to the Contractor.

A wide variety of supporting evidence was obtained including digital evidence extracted from laptops, servers, mobile phones, and other digital devices. Social media searches turned up photos of the CEO as best man at the wedding of the owner of Subcontractor 1. Evidence obtained from witnesses in other jurisdictions also confirmed a pre-existing corrupt relationship between the CEO and Subcontractor 2, to whom the CEO had irregularly awarded numerous other contracts.

HKA’s technical support focused on the central roles that scheduling and VOs played in the subversion of the state utility’s regulated procurement and contract management processes.

The joint strategy devised by the CEO and the Contractor to justify its higher price was to adjust the competitor’s schedule and price on the pretext that the Contractor would complete the works sooner.  Our investigation proved that these adjustments had no technical basis as they were irrelevant to the overall construction programme. The Contractor’s earlier completion date was not achievable due to incomplete preceding works. Further strengthening our conclusion that the schedule adjustments made were arbitrary, the contrived timeline was relaxed (and the contract price increased) immediately after the contract award.

HKA’s analysis of the timing, sequencing and pricing also confirmed that three VOs were unnecessary and massively inflated, resulting in an overpayment of over USD55 million. Further extensions of time claimed by the Contractor were subsequently reduced by more than USD105 million.

In addition to savings totalling USD192 million secured by the utility, the Contractor was fined by the SEC, and those involved are being prosecuted.

This article is based on a workshop presentation at the Delos GAP Symposium, which took place in September 2024 at the Paris Arbitration Centre by Delos.

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About the author

Claudia O’Brien is HKA Partner and Head of Operations in Africa. She is an Admitted Attorney with over 22 years of experience providing forensic legal services in the public sector, including advice on evidence, the determination of appropriate causes of action, and advice on available legal remedies in criminal and civil litigation matters.