Corporate Governance, Financial Crime, Ethics and Control

This study explores the relationship between corporate governance, financial crime, ethics, and control. It discusses the importance of business ethics and ethical theories in decision making. It also examines the impact of white-collar crimes and money laundering on businesses. Additionally, it highlights the role of corporate governance in managing and controlling organizational activities.

Running head: CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND
CONTROL
Corporate governance, financial crime, ethics and control
Name of the Student
Name of University
Author Note

1CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND CONTROL
The term “ethics” has derived from the Greek work “ethos” meaning character,
custom, habit and disposition. Any business entity cannot survive without proper code of
conduct that is ethical conduct is necessary for the smooth functioning of the business in the
long run (Weiss,2014). Unethical conduct leads to doom of the business in future time.
Ethical theories are set to determine what is right and what is wrong for the given situation.
Unethical people are not meant for long run success and their fallout is obvious. Here the
main focus will be on business ethics and their related ethical theories.
Business ethics deals with the study of appropriate business policies and use of fair
business practices in areas of controversial issues including corporate governance, bribery,
discrimination, insider trading, fiduciary and corporate social responsibility. Business ethics
are set of rules and regulations that lead to fair and correct decision making for the business
and help in its sustenance in the market (Pearson,2017). A well-established set of business
ethics help in better relationship building between business entities and customers and also
among other market rulers. In order to have optimal effect business ethics are subdivided into
a number of ethical theories such as normative and descriptive. Descriptive theory simply
describes ethical phenomenon. while normative theory provides general principles and
behavioural rules. Descriptive approach describes the moral behaviour of group and societies
through empirical research to uncover moral beliefs (Weiss,2014). Normative ethical theories
prescribe the morally right way of acting in situational crisis. Right and wrong action are
decided upon normative theory. The consequentialists support utilitarianism, egoism and
hedonism, it is based on moral judgement of action outcomes. The non-consequentialists
support deontology and agent’s virtue. The diagram below shows the relationship between
the two.
Non-consequentialist ethics consequentialist ethics
The utilitarianism theory is applicable where an action is morally right if and only
if it results in greatest amount of happiness to the people at large being affected by the action
consequences (Hoffman, Frederick & Schwartz,2014). The worth of an action is not
equivalent to the worth of the agent associated to it. The net worth of the act is decided upon
motivation/duties/principles action outcomes

2CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND CONTROL
the happiness it brings to the larger part of the society. Egoism is limited to only individual
self that is it depicts the relationship between correct moral action and self-interest of the
individuals (Bowie,2017). If the moral action brings self-satisfaction then its good and right.
Individual virtue, well-being, self-interest and such parameters if met then the decision is
ethical and the person has no responsibility in the welfare of the business or the society at
large. Hedonism is the doctrine that tells pleasure is the sole good and man for that reason
seeks pleasure and this leads to them doing good because they belief pleasure is intrinsically
good. Though this illusion is partially correct because sometimes pleasure lead to pain (taking
drugs, getting drunk for relief and pleasure and mocking other people) (Trevino &
Nelson,2016). The non- consequentialist theory of deontology is all about moral judgement
on the moral duty of the underlying action and its intrinsic features. Whether one is right or
wrong is independent of the action consequences. Happiness is conditional because the
reason for one’s happiness may not be the reason for the other to be happy. The power of
“goodwill” varies from person to person but the reason alone could be universal. The agents
virtue is all about morally good character (Ferrell & Fraedrich,2015). Good disposition
analyses the rightness or wrongness of the choices in terms of character of the agent making
the said choices. In order to achieve excellence, one need to practice good deeds. Rational
deliberation of choice making is the most important factor in the agents virtue theory (Crane
& Matten,2016). People thought of doing good but at times that good is no good only a vice.
The theory adopted by Jho Low is the theory of hedonism and a bit of agent’s virtue is
also associated to it. Jho low consciously and deliberately have done the misdeeds the frauds
the money laundering cases. His sole aim was self-satisfaction. He was not at all concerned
about the position of the business but only tried to fulfil his dreams of becoming super rich
and his own demands of having a lot of money. He used some fellow partner of his for doing
the misdeeds, himself remaining out of the limelight. Doing good for himself that is
satisfying his hunger for money has led to the fallout of a number of businesses. He
deliberately used his power of manipulation and strategized ways beforehand. As if he was
somewhat aware of the dire consequences in near future but did not stop from doing the
guilty pleasure-seeking deeds. Fraud triangle is a framework which is designed to elaborate
the reason behind the decision made by any worker in committing workplace fraud and guilty
(Basu,2014). The main factors contributing to fraud triangle is pressure, opportunity and
rationalization. The factor of pressure may be individualistic or business related. The person
may be under debt pressure, lifestyle pressure or any other unethical means like gambling etc
pressure. Such difficult to solve situations lead the person to commit crime and frauds. Next

3CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND CONTROL
most influencing factor is the opportunity factor. Generally, the position in the organization is
so powerful that there occurs no roadblock in committing fraud and money laundering cases
are the most common of such privileged positions. The person not only himself but involves
others inferior to his rank in such cases and operates from behind avoiding the limelight. So,
when cases of difficulty arise, they remain undisturbed, only the scapegoats do suffer the
after-effects. Third step is the ability to rationalize the crime. The fraudster needs the
cognitive justification of his own self in committing the crime (McCahery, Sautner &
Starks,2016). They do not suppose them as criminals but circumstantial victims and so their
internal morality encompasses them in the crime. Based on the case study Jho Low frequently
used the first two parameters of fraud triangle that is his own pressure and greed of becoming
super rich and using the opportunities in the most optimal manner. Whenever he got scope of
money laundering and fooling people, he has done them without a second thought. He knew
the bad effects of his deeds but his inner self did not resist him from committing such crime.
Money laundering is the act of concealment of the main origins of the illegally earned money
by means of transfers in foreign banks and other legitimate businesses (Claessens &
Yurtoglu,2013). Low created many overseas accounts in various offshore financial centres to
back the powerful middle eastern funds which he attracted through illusion and finally was
able to transfer funds all round the world easily and even the strictest bank DBS could not
find him guilty. He also opened a fake account in swiss based Falcon bank and falsely
acclaimed of a company in the name of finance ministry. Not only banks but he also fooled
many financial institutions and influential people and tried to cover up his intentional white-
collar crimes.

4CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND CONTROL
(Clikeman,2013).
White collar crime also called corporate crime refer to financially motivated crimes
which are non-violent in nature generally committed by business and other governmental
professionals (Khan & Shiddiqui,2013). White collar criminals are of high social status have
respectable position in the society and occupational standards are high. Common white-collar
crimes include fraud, bribery, insider trading, money laundering, forgery and many more
(Gandhi,2015). White collar crimes are most dangerous for the business because the higher
position holders and the influential people in the company are responsible for such crime and
to catch them is like ‘who will bell the cat?’.
The Development Bank of Singapore (DBS) in -spite of being the strict bank in the
nation had no clue about the million-dollar wiring policy of Low. Low has previously done
some homework about the ways of money transfer in DBS and has easily carried out his
crime. This could have been restricted if the Cayman Islands home to US bank branches and
hedge firms has a no questions asked approach to company incorporation and the ease of
setting up offshore accounts was not so easy. Proper enquiry and document supervision could
have easily restricted the money laundering process.
A typical organizational structure having structured framework has its chairman and
CEO in the most crucial roles and responsibilities. They are likely to have a transparent
linkage to the company policies and should be aware of all the big deals being made in and
out of the company. But here they themselves are victims of crime and are manipulated by
Low in such a manner that they took active part in the laundering case. The purpose of
1MDB was long term economic development and promotion of foreign direct investment.

5CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND CONTROL
But very soon it incorporated with Tanore Finance Corporation and without proper knowhow
started trusting them blindly. As a result, the company transparency gets disturbed and the
chairman himself fall in the clutches of Low. At the time of establishment, the company
1MDB should have made some serious code of conduct or ethical rules to follow while
operating the company. Any sort of misdeed will lead to penalty and every higher authority
like chairman and CEO should act as the backbone for the company and should be examples
for the lower operational hierarchy. Without any ethical conduct no business can run in long
run and 1MDB is a proof of it. The CEO being the main operational decision maker should
be aware of the money investment areas in the company and the Chairman has the duty of
protecting the investors interest as a whole. Lack of transparency in communication has led to
financial frauds.
Corporate Governance is the system of practices, rules, and processes which helps in
smooth functioning of a firm. It acts as a way of managing, directing and controlling the
activities in the firm. It provides balance in company’s interest with stakeholders,
shareholders, management, customers, financiers, suppliers, government and general
community. Corporate governance is the road to attaining the company’s objectives and is
encompasses an overall management sphere from action plans, internal controls, performance
measures and corporate disclosure (Tricker & Tricker, 2015). The shareholders theory states
that the sole responsibility of the business is profit maximization. The shareholders are
responsible for obeying the legal and moral obligations for the company. However higher risk
taking and short-term strategy formulation are the two limitations of this theory. Continuous
pressure from higher management lead to corporate frauds instead of profit maximization
(Staut & Blair,2017). On the other hand, stakeholder’s theory has broader approach it
includes employees, customers, shareholders, creditors, suppliers and general community of
people. the stakeholder’s theory is an important aspect of corporate social responsibility. The
case study does not validate any of the theories appropriately. But an inclination to
shareholders theory is seen at some point of time. The chairman of 1MDB thought of his
interests and does not give prior importance to the stakeholders at large. If the stakeholders
were much active in company interests then the company could have survived in the long
term. Ethics and control cannot eradicate frauds from its root but could be curbed to a great
extent. The business runs with a number of people involved with it. Everyone is not same so
the chances of fraud cannot be restricted but yes proper ethical conduct could lessen the
number of frauds.

6CORPORATE GOVERNANCE, FINANCIAL CRIME, ETHICS AND CONTROL
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