The Basics of Evidence for Fraud and Corruption Investigators

This paper briefly discusses the basic principles of evidence with which fraud and corruption investigators should be familiar, followed by their application to the proof of Corrupt and Fraudulent Practices.

I. THE BASIC PRINCIPLES OF EVIDENCE

The two most important principles of evidence for investigators are relevance and weight.

Relevance

Probably the most fundamental rule of evidence states that, with few exceptions, “relevant evidence is admissible, irrelevant evidence is not.” Information is said to be relevant if it tends to prove, or disprove, a fact in issue.” In fraud or corruption investigations, this means that a piece of evidence is probably relevant (and hopefully, compelling and convincing) if it tends to prove, or disprove, an element of proof of an offense, including proof of knowledge and intent.[1]

This means that fraud and corruption investigators must know:

  • The elements of proof of the suspected offenses and
  • The type of evidence – direct or circumstantial – that would be relevant to prove them,

and apply that knowledge at every stage of the case, including:

  • In case planning, to ensure that all potentially relevant evidence is identified and provision is made for its collection;
  • In the conduct of the investigation, to ensure that all the appropriate questions are asked, and all the pertinent documents and data are collected, to the fullest extent possible;
  • In report writing, to ensure that all of the relevant evidence is included, and the irrelevant excluded, according to the elements of proof.

See the typical elements of proof for fraud and corruption and the type of evidence needed to prove them, below.

Weight

Several factors affect the weight of evidence – its reliability and persuasive power – including most importantly:

  • The source of the evidence (How does a witness know what he or she is testifying to?)
  • Whether the evidence is direct or circumstantial, and
  • The credibility of the witness.

The source of the evidence

The source of the evidence refers to the basis for a witness’s knowledge: is the witness testifying to what he or she knows for a fact, or what the witness overheard on the train, or what the witness supposes or thinks might have happened? Obviously, evidence of which the witness has direct personal knowledge is considered to be weightier than information overheard from another or supposition. Investigators should always look for witnesses with direct personal knowledge (although in practice, as we’ll see below, it might not be so easy in many cases to know the source of the information.)

Direct and circumstantial evidence

Direct evidence, as the name implies, is evidence that tends to prove a fact directly – for example, a statement from an eyewitness or the cancelled check used for a bribe payment or a confession by the subject. Direct evidence is usually considered to be the strongest method of proof, but circumstantial evidence – evidence that tends to prove a fact indirectly, or by inference from other facts – also can be quite persuasive if presented correctly.[2]

To be convincing (and admissible in court), circumstantial evidence must:

  • Be relevant, of course, that is, tend to prove or disprove a fact in issue;
  • Be cumulative, that is, not limited to one, isolated piece of evidence, but of several inter-connected parts; for example, a husband not only comes home late, without an excuse, but has lipstick on his collar, liquor on his breath and a matchbox in his pocket from the Stagger Inn Lounge;
  • Be tightly organized and clearly presented: many circumstantial cases fail not because the evidence is weak, but because it is presented in a disorganized and confusing manner which the fact finder cannot understand;
  • And finally, to be persuasive (and admissible in court) circumstantial evidence must exclude all plausible innocent explanations.

In most corruption and fraud cases the combination of direct and circumstantial evidence usually is the most persuasive. For example, in a case in which a witness admits paying a cash bribe to a government official, for which there is no other direct evidence, the steps of proof might include circumstantial evidence to corroborate the direct evidence. For example, the investigator could:

1. Record in detail (when, where, how, why, etc.) the statement of the witness that he paid the government official in cash (this is the direct evidence);

2. Prove that the government official spent or deposited a significant amount of cash shortly after he allegedly received the cash bribe;

3. Eliminate all other potential sources of income for the official’s cash expenditures or deposits, to the extent possible;

4. Interview the subject official, and show that the official cannot explain the source of the cash expenses or deposits, or lied about it (the last three points are the circumstantial evidence).

Such evidence, if believed by the jury, would be legally sufficient to convict a defendant in most courts.

Circumstantial proof of “knowledge and intent”

Proof of knowledge and intent – proof, for example, that the subject knew that a document was forged and submitted it with the intent to defraud another party – is an essential element in all fraud and corruption cases: there are no unintentional bribes or accidental frauds.

Because knowledge and intent are states of mind of the subject, courts permit these elements to be “inferred from all of the facts and circumstances,” in other words, to be proven by circumstantial evidence.[3]

A typical US jury instruction states:

“Intent may be proved by circumstantial evidence. Indeed, it can rarely be established by any other means. We simply cannot look into the head or mind of another person. But you may infer the Defendant’s intent from all of the surrounding circumstances. You may consider any statement made or act done or omitted by the Defendant and all the facts and circumstances in evidence which indicate the Defendant’s state of mind.”

Circumstantial evidence of knowledge and intent in a fraud investigation might include, among many other things, proof that the subject, or someone acting at his or her direction, e.g., deliberately:

  • Altered or forged a relevant document, such as a supporting document submitted with a bid or invoice;
  • Deliberately destroyed a relevant document, or improperly withheld it from investigators;
  • Lied to investigators or to another party about a material point to hide their guilt, for example, in a bribery case, lied about the source of sudden new wealth (such lies are known in court as a “false exculpatory”);
  • Obstructed the investigation, by, for example, instructing or threatening a potential witnesses not to meet with or cooperate with investigators;
  • Committed prior similar acts, which demonstrated that the acts currently under investigation were done knowingly and willfully, and not accidentally or innocently (also known as “pattern evidence”).[4]

The rationale for the above methods of proof, often referred to as “badges of fraud,” is that such acts betray a certain willfulness by the subject and are inconsistent with a defense of accident or mistake.

Credibility of a witness

Factors that affect the credibility of a witness include, in their general order of importance:

  • The plausibility, or the lack thereof, of the witness’s statements when compared to other evidence in the case (i.e., the extent to which the witness’s statement is corroborated);
  • The consistency or inconsistency of the witness’s current and prior statements;
  • Whether the witness’s statements promote his or her self-interest, or are neutral or even contrary to it (the latter are termed “statements against interest’ and are considered to be more credible);
  • Whether the witness has a “reputation for truthfulness” or the contrary, and whether the witness previously has been convicted of a criminal offense (these factors are often admissible in court to attack the credibility of a witness);
  • To a lesser extent, because of many witnesses’ legitimate concerns for their safety, whether the witness is willing to be identified, sign a statement, or give testimony.

Other factors that increase the weight and persuasiveness of evidence:

Corroboration

Investigators should always look for evidence that corroborates the statements of an important witness, particularly if the credibility of the witness is subject to attack.

If, for example, a witness admits he paid a bribe, ask for copies of the withdrawal slips, the wire transfer receipts or any other records of the payments; if the witness claims he met with the official to discuss the bribe, find out when and where they met, anyone else who was present, and request copies of all documents, such as travel records or credit card receipts, that would confirm the meeting.

Remember that circumstantial evidence can be used effectively to corroborate direct evidence, and vice versa.

Rebuttal of potential defenses

This is very important in most corruption and fraud cases and is absolutely essential in cases that rely heavily on circumstantial evidence.

For example, a typical defense to fraud is that the false statement was made inadvertently or was a good faith mistake, or that a forged document was prepared and submitted by someone else; in a corruption case, as noted above, the bribe recipient often invents a legitimate source of income to account for his excessive expenditures. Steps to discover and rebut these defenses should be a part of every investigation, and the information obtained should be included in the final report, where it often is the most persuasive evidence in the case.

Discovering and rebutting defenses often requires an in-depth interview of the subject, in which the subject is invited to describe his or her defenses and is allowed to do so, without interruption. (This approach assumes that the evidence against the subject is not sufficient to obtain a confession; if it is, the approach to the interview would be different; see http://guide.iacrc.org/step-nine-interview-the-primary-subject.)

II. THE TYPES OF EVIDENCE

This section briefly discusses the primary types of evidence in corruption and fraud cases, which are:

  • Witness statements
  • Documents and data
  • “Real” evidence, such as sample construction materials from a road site
  • Demonstrative evidence such as photos, charts and graphs

Witness statements

As noted above, in court, a witness usually may testify only to facts based on his or her direct, personal knowledge, and not on his or her speculation or opinion,[5] or information received from a third party, commonly referred to as “hearsay,” as discussed at page 10, below.

Whether a case is headed to court or not, investigators always should try to ensure that a witness’s statement is based on his or her direct, personal knowledge, and if not, should try to identify and interview the person with such knowledge.

In general, “direct knowledge” means that the witness personally and directly:

  • Did or participated in the act or transactions in question, or
  • Saw them being done, or
  • Heard about them from a subject of the investigation (but not, as noted above, from another person, which would be hearsay).

To ensure that a witness is describing matters to which he or she has direct, personal knowledge, the investigators should lay a proper foundation for the questions. This includes asking:

  • When and where the transactions or conversations occurred;
  • Who was present
  • The precise details of the transactions or conversations: what the witness did or saw, or, in the case of admissions, what was said by each party;
  • The background or context of the transactions or conversations; how they came about and how the witness became involved in them, if not obvious from the other facts, and
  • Whether any memos or other record of the events or conversations was made, and if so, what, when and by whom.

“Admissions”

Relevant statements by a subject of an investigation to an investigator or to another person (the third type of “direct knowledge” set out above) are known as “admissions,” are not hearsay, and quite often provide important evidence in a fraud or corruption case, especially of knowledge and intent.

An “admission” includes any relevant statement by a subject, whether the statement is true or false, incriminating or helpful to the subject. For example, a confession would be an admission, of course, but so would knowing false statements by the subject that could be used to impeach him, or any other statement that could be offered against him.[6]

EXAMPLE:

In the example below, the Project Manager is the subject of the investigation, and the witness worked for the Project Manager. Therefore the Project Manager’s statements to the witness would be admissible against the Project Manager (and, vicariously, his employer) as “admissions” and could be used to prove their knowledge and intent.

Note the use of short simple, questions, the focus on detail, the insistence on responsive answers, and the strict organization of the questioning to ensure that all relevant points are covered:

Q Did you tell your boss, the Project Manager, that the invoices were inflated?

A Oh, several times

Q Do you recall the first occasion?

A Yes, it was about May 1, this year, during a meeting about our first billings on the Southern Roads Project.

Q Would you be able to pin down the exact date of the meeting?

A I think so; I think I made notes of the meeting. I usually do.

Q Could you check and a get that for us?

A Yeah, sure

Q Where was this meeting, which occurred about May 1?

A In my boss’s office at the job site.

Q Was anyone else present?

A Yes, our assistant accountant, Gloria.

Q Anyone else?

A No.

Q Tell me, as best you can recall, what was said about the billings at that time by each person present?

A We talked about the invoices…

Q Please tell me, as best you can recall, what was said by each party (not what was talked about)

A I said I had seen the draft billings for the site work and that they included charges for work we had not yet done.

Q What did your boss say to that?

A Oh, he just brushed it off.

Q Yes, but what did he say, if anything, as best you can recall?

A He said: “Don’t worry about it, we’ll deduct the extra amounts from our later invoices,” or words very close to that.

Q Do you have a clear memory as you sit here today that he said that?

A Yes, I clearly remember he said that.

Q What did Gloria say, if anything?

A She said it was no problem to correct the invoices and our boss again said not to worry about it.

Q Again, do you have clear present memory of that?

A Yes, absolutely.

Q Was there any other discussion at that time about the billings?

A No.

Q When was the next time you discussed the billings…etc.

Gloria should be interviewed next and then the boss about the conversation.

If the interview is not recorded, the witness can be asked to review, correct and sign the memorandum of interview.

Questioning about telephone conversations

Admissions or other important evidence often come from witness statements about telephone conversations. When questioning about such conversations, have the witness state that he placed the call to the known number of the other party, or received a call from that number, and/or that the witness was previously familiar with the voice of the other party, if known to the witness. Then examine the witness as you would for any conversation.

“Hearsay”

As mentioned above, in general use “hearsay” refers to statements by a witness that repeat what the witness heard from a third party; technically it is much more complicated, as discussed in the footnote below.[7] Hearsay is usually not admissible in court in the US because it is not considered to be reliable.

“Hidden hearsay

A big problem in fraud and corruption cases is “hidden hearsay,” a statement that sounds as if it is based on a witness’s direct knowledge but which is not. To avoid inadvertently using hidden hearsay, always ask, politely, how the witness knows what he or she is saying.

The statement below, which appeared in a recent report, illustrates the problem:

“A witness stated that a competitor routinely paid bribes of exactly 8% to three named government officials.”

The quote gave the impression that the witness had direct personal knowledge of the facts, but further questioning revealed otherwise:

Q How did you become aware that your competitor paid these bribes?

A It’s obvious, he wins whatever he bids for…

Q But how do you know that he always pays 8% to these three officials?

A Everybody knows it, it is common knowledge in the industry

Q But specifically, how did you become aware of this?

A Mr. Mayerling used to be his agent and told my partner, who told me (double hearsay).

Q Where are Mayerling and your partner today?

The investigators can interview the partner to find out exactly what Mayerling said (in case Mayerling “forgets” the conversation), and then Mayerling, before approaching the competitor.

Documentary evidence

Documentary evidence usually is considered to be more reliable and persuasive than witness statements, but, as with direct and circumstantial evidence, a combination of the two, with one corroborating the other, is usually the most powerful.

To be persuasive (and admissible in court), documentary evidence must:

  • Be relevant, of course;
  • Contain admissible direct or circumstantial evidence of the facts in issue (as opposed to written hearsay, that is, information recorded in the document that came from other parties), and;
  • Be “authenticated.”

A document can be “authenticated’ by any witness who can state, based on his or her direct, personal knowledge, that the document is in fact what it purports to be, i.e., that it is an accurate original or copy, not a forgery or an altered version, etc. This might be the author, the typist, the custodian of records, the recipient or someone else, depending on the circumstances.

See the sample authentication questioning below.

EXAMPLES: How to authenticate a document

Example #1: Interview with the purported author of a document:

Q Did you prepare and send this email that you showed me?

A Yes, I did.

Q Please look at this copy carefully and tell me if it is an accurate copy of the original?

A Yes, it is.

Q And can you initial and date this copy here in the lower left corner?

A No problem.

Example #2: Interview with the president of a consulting firm…

Q I’m showing you a copy of a proposal we obtained from the Project’s procurement files. It looks like the original of the document. Can you take your time and tell me if this is in fact the proposal your firm submitted on the project?

A It seems to be, but you’ll have to confirm this with Enrique, who prepares all of our proposals.

Q Well, look at the bottom of page 18; is that your signature?

A Yes, it is.

Example #3: Interview with an assistant, familiar with the handwriting[8] of the purported author…

Q About how long have you worked with Mr. Smithson?

A Oh, many years, about nine or twenty-six.

Q Are you familiar with his signature?

A Yes, I’ve seen him sign hundreds of documents.

Q Did you see him sign this one?

A No.

Q Can you tell me if this looks like his signature?

A Yes, it does.

Some business records, such as computer printouts, might be difficult for any one witness to authenticate. In such circumstances, have a person familiar with the business records system state that the relevant records were kept in the regular course of business or are accurate copies of such records to authenticate them.

Other documents, such as public records under seal, are said to be “self-authenticating,” that is, they do not need to be authenticated by a witness with personal knowledge of the document. When in doubt, obtain a statement from the custodian of records from whom the document was obtained that it is an accurate copy of an official government record.

Use of copies

Original documents should be obtained if available, particularly if the contents of the document are in issue (for example, if the document is alleged to be a forgery), but accurate copies are usually acceptable. If copies are used, account for the missing originals.

If the authenticity of document or signature is in issue – for example, if a party claims that a signature or other writing on the document is a forgery – the original should be obtained if at all possible.

Chain of custody of documents

Carefully preserve all documents obtained and establish a chain of custody (by initialing and systematically filing the documents), so that they can be traced to their source and easily authenticated.

Absence of entries in a record

Absence of entries in regularly kept business or official records, or the absence of a document in regularly kept business or official files, often can be used as evidence that an event did not occur, or that document does not exist or was nor received. The investigator must establish that is was the regular habit or practice[9] of the organization to record and keep such information.

Finally, during interviews, always ask if there are any documents that corroborate the important statements of a witness – such as notes, emails, memorandum – as well as documents of the relevant transactions.

Electronic evidence and data

Care should be taken when collecting electronic data not to not alter it in any way, or to collect it in a way that would allow the subject to assert that it was altered or corrupted. Also ensure that the data came from the most reliable source, not secondary sources that increase the risk that the data could contain programming or other errors.

Emails, information from hard drives and other electronic evidence should be authenticated using the standard methods discussed above, for example, a statement from a witness with direct personal knowledge that the electronic evidence contained in the report is the same as that created by the subject; this can be the person who collected, created, received or stored it.

Demonstrative evidence (photos, charts, graphs, etc.)

Demonstrative evidence should be an accurate and fair depiction of the subject matter, and not unfairly emphasize one aspect over another, create a misleading impression or delete relevant information.

For example, before submitting photos of poor quality roads as evidence of their fraudulent construction, be sure that road damage was not due to other factors, such as poor maintenance, severe weather conditions, overweight trucks, and so on. Such errors will seriously damage the credibility of a report and the investigators. And if the road damage occurred only on one segment of the road, say so, to avoid claims of bias and unfairness.

“Real” or physical evidence (e.g., sample construction materials, test results, etc.)

Physical evidence, such as sample construction materials from a job site, should be “authenticated” by identifying when and where they were obtained and creating a chain of custody for the materials to ensure that they can be matched to the source. Test results should be authenticated by the person who conducted them as having been done fairly and objectively, according to the appropriate standards.

III. HOW TO PRESENT EVIDENCE OF FRAUD AND CORRUPTION

A. The elements of proof of FRAUD

DEFINITION

A typical definition of “fraud” is:

“Any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.”

THE ELEMENTS OF PROOF

  • Any act or omission,
  • including a misrepresentation,
  • that knowingly or recklessly misleads, or attempts to mislead
  • a party
  • to obtain a financial or other benefit
  • or to avoid an obligation

Any act or omission

A fraudulent act” could include, for example, forging a document or signature or altering (backdating, etc.) a document.

An “omission” refers to knowingly and willfully failing to disclose a material fact, for example, that a contractor has been debarred, to obtain an improper benefit or avoid an obligation.

Including a misrepresentation

A misrepresentation refers to a false statement of fact (e.g., “our company employs 2000 people” when in fact it employs ten) and generally not to an opinion (“Our company is one of the leading contractors in the area.”) An exception might be an opinion as to the correctness of a financial statement, issued by an accounting firm, which it knows to be false or which it issued recklessly.

That knowingly or recklessly misleads, or attempts to mislead

Knowingly” means that the subject acted with actual knowledge that a statement was false and would tend to mislead the recipient.

“Recklessly” means that the subject:

  • Acted without knowing whether the submitted facts were true or false, or did not make an adequate inquiry to determine the truth, or
  • Acted with willful blindness as to the truth or falsity of the statement, i.e., deliberately failed to determine the correctness of the facts, or to put in place procedures that would enable it to do so.

“Reckless” usually requires proof that the subject acted with something “more than mere negligence.”

A party

Includes a public or private person or organization.

To obtain a financial or other benefit

For example, to be pre-qualified to bid, to receive a contract award, or to inflate a payment request.

Or to avoid an obligation

For example, to avoid performing work to contract specifications, or to avoid refunding overpayments received under the contract.

HOW TO PRESENT EVIDENCE OF FRAUD

The following are the standard steps to prove a fraud involving a “misrepresentation.”

1. First, prove that the subject made a “representation” (do not be concerned with proving truth or falsity at this stage)

Obtain the original or an accurate copy of the “representation,” e.g., a bid or proposal, a CV, an invoice or supporting document, bid security, etc., that is alleged or suspected to contain the false statement or misrepresentation. Carefully examine the document for all potential misrepresentations and internal inconsistencies that could assist in the proof of fraud.

Authenticate the document, as described above, by showing it to the author, the recipient or another person with direct personal knowledge of its preparation, submission, or receipt.

Carefully preserve the chain of custody of the document; make a copy with a notation in a corner recording from whom the document was received, the date and place and your initials.

In the unlikely event that you will rely on verbal misrepresentations, closely question the witness who heard the representations to obtain all pertinent details, and promptly prepare a memoranda of interview or statement for the witness to sign. Make sure you have identified and recorded all the relevant representations by the subject – it is much harder for the subject to explain away several false statements than just one or two.

2. Next, prove that the representation was false

Locate witnesses with direct personal knowledge of the truth or falsity of the alleged or suspected false representation. Examine the witnesses in detail, addressing each alleged misrepresentation separately, as set out in the example below.

Find out the basis of the witness knowledge – if the witness says a representation is false, find out how he or she knows this, and make sure it is not based on opinion, speculation or hearsay.

EXAMPLE: Interview of a witness to prove falsity

In this example, Company D submitted a proposal to provide consulting services on a water supply project in which it claimed to have worked on several similar projects, including the Capital Region Water Supply Project. This purported prior experience was an important factor in the scoring of the proposals.

The witness below worked as the project manager for the Capital Region Project, and knew which consultants worked on the project.

First, establish the basis for the witness’s knowledge (“lay the foundation”) for the subsequent questions:

Q Were you involved in the Capital Region Water Supply project?

A Yes.

Q In what capacity?

A I was the Project Manager for the water agency, in charge of all aspects of the project.

Q For how long?

A During the entire project, from its start in June 2007 until it ended in late 2009.

Q What were your specific duties?

A I directly managed all aspects of the project for the client, including help in preparing and evaluating the requests for bids and proposals, visited the site every day, approved invoices, negotiated change orders and so on.

Q Are you familiar with Company D?

A Yes, I know them.

Q How do you know the company?

A From some work they did on some other projects I was involved in, and in general from my fifteen years in the industry. It is a well-known company.

Then, have the witness state whether the specific representations are true or false:

Q Company D claimed in its proposal for another project that it had “successfully completed three prior supervision contracts of water supply contracts in Faroffistan, including Phase I and II of the Capital Region Water Supply Project. Is this correct, to your knowledge?

A No, not at all. Company D was not involved in the Capital Region project at all. They did not even submit a proposal.

Q Specifically, for the record, how do you know this?

A As I said before, I was involved in every aspect of the Capital Region project from beginning to end, on a daily basis; I reviewed the bids and proposals, signed the contracts and the paychecks. And I know that Co. Y did the supervision on both phases of that project.

Finally, try to identify other records or witnesses that could corroborate the witness’ statements:

Q Where are the proposals, contracts, invoices and other documents for Capital Region contract?

A At the client’s office.

Etc., for further relevant details.

3. Prove that the subject knew that the representation was false or that subject made the representation recklessly (without any basis in fact), with the intent to mislead another party.

Based on the witnesses’ statement above, the fact finder could easily find that Company D must have known that the information in its proposal was knowingly false; as stated above, knowledge and intent can be “inferred from all of the facts and circumstances.”

In closer cases, look for the indicia of knowledge and intent set out above.

4. Finally, prove that the subject made the false statement to obtain a financial or other benefit or to avoid an obligation.

Link the false statement (“Our company has performed many similar projects”) to the intended benefit, e.g., to qualify to bid, to obtain a higher technical score or a contract award.

Although not explicitly required by the definition, this element of proof encourages the investigator to show that the statement was “material,” i.e., that it was relevant and important enough to potentially influence the actions or decisions of the recipient. Proof of materiality also increases the weight and persuasiveness of the evidence and supports claims for stiffer sanctions.

It is not uncommon for counsel in fraud cases to admit that their clients submitted knowing false statements, but are not guilty of fraudulent practices because the false statements were not material.

EXAMPLE: Proof of materiality

In a recent case, lawyers for a consulting firm admitted that the company made several false statements in its proposal in a category that accounted for 5% of the technical score, but argued that the false statements were not material because even if the entire 5% was deducted from the firm’s score, it still would have been the highest evaluated bidder and won the contract.

Arithmetically, the argument was correct. The investigating organization, however, took the position that “integrity is always material” and rejected the argument.

A simple way to establish materiality is to ask the decision maker how a false statement or document would have affected its decision if the falsity were known at the time.

B. THE ELEMENTS OF PROOF OF CORRUPTION

DEFINITION

A typical definition of “corruption” (bribes or kickbacks) is:

“Offering, giving, receiving or soliciting, of anything of value to influence improperly the actions of another party.”

THE ELEMENTS OF PROOF

  • Offering, giving, receiving or soliciting
  • Directly or indirectly
  • Any thing of value
  • To influence improperly the actions of another party

Offering, giving, receiving or soliciting

An offer of, or demand for a bribe, even if not paid, can be an offense if the other elements of proof are present.

Directly or indirectly

“Indirectly” refers to bribes offered, demanded or paid through a middleman or other intermediary, such as an agent, a subcontractor or family members of a project official. A common example is payments by contractors to the children of government officials studying abroad.

Any thing of value

The “thing of value” need not be money, and often is not. Any tangible benefit given or received with corrupt intent can be a bribe.

“Things of value” that have been offered and paid as bribes include:

  • Expensive gifts, paid travel and lavish entertainment provided by contractors to government officials;
  • Employment by contractors of children and spouses of government officials, often in “no show” positions;
  • Gifts by contractors of their inventory or services, e.g., building or equipping a second house for a government official;
  • Prostitutes provided by contractors to government officials and site inspectors;
  • Free use of an apartment, or free use of a leased car, provided by contractors to government officials;
  • “Donations” by contractors to social funds, NGOs or political parties;
  • Payments by contractors to government officials and site inspectors, directly or through subcontractors or other middlemen, disguised as legitimate fees and commissions;
  • Hidden ownership interest in the corrupt contractor or vendor.

To influence improperly the actions of another party

The payment of a thing of value alone does not constitute a bribe without proof that it improperly influenced the recipient, or was intended to.

The “actions of another party” most commonly include the approval of contract awards by procurement officials, the acceptance of substandard works by site supervisors or the processing of invoices by project financial staff.

A “party” can be a public official or private party.

HOW TO PRESENT EVIDENCE OF CORRUPTION

In practice the first indication of possible corruption often will be evidence of corrupt influence, e.g., abuse of the procurement rules by a government official to ensure the selection of aprticular contractior, with the evidence of the payment of thing of value coming next, depending on the strengthe of the influence evidence. Therefore, the investigator might begin with steps evidence

1. First, prove that the subject offered, gave, solicited or received a “thing of value”

Proof of corrupt payments by direct evidence

The payment of a thing of value is usually proven by direct evidence, such as canceled checks, wire transfer receipts or the admission of the bribe payer, collected (1) through the exercise of contract audit rights, (2) a corruption investigation, (3) the service of a subpoena in a civil or criminal court case, or (4) the cooperation of an inside witness.

Proof of corrupt payments by circumstantial evidence

A corrupt payment occasionally can be proven by circumstantial evidence, such as:

From the suspected bribe payer’s side, proof that the bribe payer:

  • Paid an agent, consultant or subcontractor a grossly excessive fee compared to the services rendered;
  • Made cash withdrawals or disbursements without correctly recording the transactions or adequate supporting documentation;
  • Recorded substantial expenditures as “business development,” “marketing,” or other similar expenses without adequate supporting documentation;
  • Made payments to agents or other parties supported by false documentation, e.g., an invoice from an agent for services that were never performed;
  • Improperly inflated reimbursable expenses in an amount equal to the required bribe payments, and falsified the supporting documentation.

The above evidence can be strengthened by proof that the subject:

  • Destroyed, altered, concealed or withheld relevant records;
  • Lied about the purpose of payment;
  • Attempted to obstruct the investigation by, for example, threatening or intimidating potential witnesses, etc.

From the suspected recipient’s side, circumstantial evidence can include proof that the suspected recipient:

  • Displayed “sudden unexplained wealth” at or about the time of alleged or suspected bribe payments, or
  • Made cash expenditures for which there was no legitimate source of funds, or
  • Lied about the source of his or her funds or the attempted to conceal his or her expenditures

Circumstantial evidence of corrupt payments is most effective when used to corroborate other, direct evidence of such misconduct, as illustrated in the example of the circumstantial proof of the cash bribe, above. Circumstantial proof of the receipt of corrupt payments usually requires an in-depth financial interview of the suspected recipient to rebut (or confirm) claims that the unexplained funds came from legitimate sources.

EXAMPLE: How to interview the suspected recipient of corrupt payments, to be proven by circumstantial evidence

In this example, the prior investigation has revealed that the witness, the subject of the investigation, has spent funds greatly in excess of his known income during the time period he allegedly received bribe payments.

In the brief excerpt below, the interviewer asks the witness to identify all sources of income in order to lay the foundation for direct or circumstantial proof of bribes. The witness’s answers, if true, can be used as circumstantial evidence of guilt if his admitted income does not cover his expenditures, or, if false, can be offered against him as “false exculpatories” and evidence of guilt. The answers also might lead to direct evidence of payments by, for example, identifying previously unknown accounts.

A complete examination on the topic would be much more thorough to cover all plausible sources of allegedly legitimate income.

Q Can you tell me how long you have been employed by this agency?

A Six years.

Q During that period of time have you had any other sources of income, other than your salary, any bonuses and reimbursable expenses?

A No, that’s it.

Q Has your spouse worked during the time you have been employed here?

A Only occasional, part time work.

Q What would you estimate her annual earnings to be over the last six years, on average?

A Probably less than $2,000 a year.

Q What would you say is the most that she has earned in any one year over the last six years, estimated generously, on the high side?

A I don’t know, maybe $3,000, tops.

Q Do you report all of your income and your wife’s on a joint tax return?

A Yes.

Q Have you filed a return every year?

A Yes, of course. (Copies of these returns can be requested at the end of the interview.)

Q Other than your income, and your wife’s earnings, that you’ve already told us about, have you had access to any other source of funds, say $10,000 or more, during your employment here?

A What do you mean?

Q For example, have you or wife inherited any money during that time…?

A No.

Q Or received an insurance settlement…

A No

Q Or received any gifts of money…from any source…

A No

Q Or cash loans or lines of credit…

A Only a $10,000 line of credit.

Q So, if I understand you correctly, during the last six years, your only sources of funds has been your income from the agency and your wife’s employment income?

A Yes, yes.

Q What would you estimate your net worth to be at the time you began your employment here? Net worth meaning the difference between the value of your assets, account balances and cash on hand and your debts.

A I know what net worth means. It was about $200,000, including my home equity. (Financial statements or loan or mortgage information can be requested from the subject or obtained from other sources to confirm this)

Q What would you say was the most cash that you have had at any one time since your employment – actual currency on hand, not account balances or lines of credit?

A Nothing really, just ATM withdrawals, maybe $100 a week.

If the subject identifies alleged sources of funds to explain his excess expenditures, the investigator should obtain all details of the alleged funds – sources, amounts, documentation, etc. – and then independently confirm or rebut the claims.

2. Next, prove that the thing of value was intended to or did in fact “influence improperly” the actions of another party (e.g., a government official or inspector)

Circumstantial evidence of improper influence

Improper influence usually is shown by circumstantial evidence.

In the case of a corrupt contract award, for example, show that the alleged bribe recipient took steps to unfairly favor the bribe payer, by, for example:

  • Approving improper sole source contract awards;
  • Rigging the selection criteria to favor a certain bidder;
  • Leaking inside information to the favored bidder;
  • Manipulating the scoring of bids;
  • Disqualifying a bidder for invented or trivial reasons

The relationship between corrupt payments and influence can be shown effectively in a chart as illustrated below:

Date Things of value Influence
January 2010 A Bidder paid for a one week “study tour” at the Bidder’s headquarters in Paris for project personnel and spouses; the tour members spent only one afternoon at the Bidder’s facility The Bidder was added to the short list despite having no pertinent prior experience.
March 2010 The same Bidder agreed to lease office space in a building owned by the Chairman of the Bid Evaluation Committee (BEC) The BEC raised the Bidder’s score from the third lowest to the second highest
May 2010 The Bidder offered to employ the daughter of the Project Director at their Paris headquarters at an unjustifiably high salary The Project Director approved the contract award to the Bidder
Dec 2010 The Contractor gave an expensive laptop and smart phone the chief site inspector as a “holiday gift” The site inspector approved poor quality works that he had previously rejected

Remember to identify and rebut defenses

Corrupt officials will claim that they had a legitimate reason for what appear to be instances of improper influence, contending, for example, that an apparently improper sole source award was justified by time constraints, an emergency situation or the absence of any qualified competitors. As discussed above, the investigator must identify and rebut to the extent possible all potential defenses as part of his or her case in chief.

Direct evidence of improper influence

Improper influence can be proven directly by the standard methods discussed above, including:

  • Documentary evidence, such as indiscreet emails that set out the corrupt agreement (the discovery of which is not an uncommon occurrence), or
  • A statement by a third party witness describing the improper influence, or
  • The admission of the bribe payer, usually made as part of an agreement to cooperate against the bribe recipients.

NOTES

[1] Evidence collected in an investigation also may be relevant for other purposes, of course, such as to support or attack the credibility of a witnesses or to prove or rebut the bias of investigators. In court, some relevant evidence might be excluded if it is protected by some privilege (such as the attorney-client or spousal privilege), is cumulative to other evidence, or if its “probative value is substantially outweighed by the danger of undue prejudice.” Irrelevant evidence is never admissible.

[2] US courts make no distinction between direct and circumstantial evidence. Judges give the following instruction to juries in criminal cases on direct and circumstantial evidence:

“Some of you have heard the phrases “circumstantial evidence” and “direct evidence.” Direct evidence is the testimony of someone who claims to have personal knowledge of the commission of the crime which has been charged, such as an eyewitness. Circumstantial evidence is the proof of a series of facts which tend to show whether the defendant is guilty or not guilty. The law makes no distinction between the weight to be given to direct or circumstantial evidence. You should decide how much weight to give to any evidence. All the evidence in the case, including the circumstantial evidence, should be considered by you in reaching your verdict.”

A simple example of the difference between direct and circumstantial evidence would be:

On a snowy winter evening, a witness is awaken from her sleep by what sounds like an intruder at her front door; the witness stumbles to the door and catches only a glimpse of what appears to be a person fleeing down the steps. This is direct evidence. The witness then goes outside and sees fresh footsteps in the snow down the path the intruder fled. This is circumstantial evidence. Which is more persuasive evidence that an intruder was in fact at the door?

[3] Knowledge and intent also can be proven directly, of course, if such evidence is available, by, for example, an email that puts the subject on notice of the relevant facts or a witness’s statement to that affect.

[4] Perhaps surprisingly, in court evidence of “prior similar acts, wrongs or crimes” is not admissible to prove that a subject is guilty of similar current charges (“If he did it once, he probably did it again”), but can be used for other, narrower purposes, such as to prove “motive, opportunity, intent, preparation, plan, knowledge, identity, or to rebut a claim of accident or mistake, if raised by the subject.

[5] An exception is an expert witness, who may testify to his or her opinion on certain issues.

[6] An employer is vicariously liable for the acts of its employees committed in the course of their employment, if intended to benefit the employer, and the admissions of an employee are admissible against the employer, if it also is a subject of the investigation.

[7]The strict legal definition of hearsay is an “out of court statement offered to prove the truth of the statement.” For example, a witness’ statement that someone in a theatre shouted “fire” might not be admissible to prove that the theatre was actually on fire (that is, if it was offered to prove the “truth of the statement”), but probably would be admissible if offered to prove why everyone fled the theatre. (And it might even be admissible to prove that the theatre was on fire, under the “excited utterances” exception to the hearsay rule – I told you it was a bit complicated!)

A better example for investigators would be the statement of the witness in the above example that she informed her boss of errors in invoices submitted to the project. Her out of court statement probably would not be admissible to prove that the documents were in fact false (that is, if offered to prove the truth of the statement), but should be admissible to prove that the boss was on notice of potential problems – to prove knowledge and intent – particularly if the boss denies this.

Hearsay exceptions

There are a number of statements that technically are hearsay but which are admissible in court as exceptions to the rule. These include, most importantly for investigators, statements by coconspirators in furtherance of a conspiracy, statements against a witness’s interest, statements of then existing mental condition, including intent, records of regularly conducted acts and certain public records (hearsay also can occur in documents).

[8] In US courts, any witness who is familiar with the signature of another person may testify that the signature is authentic; an expert opinion is not required.

[9] Proof that a witness or organization had a common practice or habit with respect to certain transactions or procedures can be used to prove that the transactions or procedures were performed in a particular case, even without direct evidence of this. For example, evidence that it was the habit or practice of an organization to notify a bidder that its bid had been received could be offered to prove that this was done in a case, even if no witness can recall doing it.