Brazil’s Best Counsel 2022 - Chapter Opening: Forensics and Complex Investigations

Posted Thursday, December 9th 2021
Brazil’s Best Counsel 2022 - Chapter Opening: Forensics and Complex Investigations

Empowering compliance with technology and data analytics

While many organizations are still adapting to a VUCA world, few of them are prepared for the even more challenging environment which has rapidly superseded it.  Volatility, Uncertainty, Complexity and Ambiguity have given way to a world which is characterized as Brittle, Anxious, Non-linear, and Incomprehensible, or BANI. Ironically, at this apex of unclarity and uncertainty, at least one new certainty has emerged which can be added to the proverbial death and taxes: the use of data, technology and—more specifically—data analytics to extract insights from growing volumes of data. Given the significant growth of regulatory and fraud investigations, as well as the rapidly developing compliance practices in Brazil, the adoption of data analytics generates significant opportunities for compliance and investigations teams to operate with greater precision, efficiency, and cost effectiveness. This article will focus on a number of areas in which data analytics can support them in this pursuit.

One of the consequences of excessive and persistent volatility is a state of brittleness, in which proven processes and methods are no longer reliable, and it is often impossible for companies to identify a clear path forward, or even to develop a coherent strategy. As a result, many organizations—and their employees—find themselves in a state of perpetual uncertainty or anxiety.  Additional complexity is brought into the mix by the speed with which data becomes available, and the ever-growing formats and sources of data. Identifying, collecting and processing relevant data in near real time is already challenging enough. But the data also needs to be interpreted and analyzed if it is to be of any use for decision making. This is where data sciences such as analytics can serve as a powerful tool, including for compliance teams. They can help eliminate the excessive noise in data sets and quickly identify the underlying trends and insights in what otherwise might be interpreted as random and incomprehensible signals.

In general terms, data analytics and technology can be used to collect, normalize, process and analyze large volumes of structured and unstructured data, in a scalable, fast and cost-effective manner. This makes data an invaluable asset, and data analytics one of the most sought-after skills in organizations, with broad practical applicability, including in investigations and compliance.

The adoption of data analytics generates significant opportunities for compliance and investigations teams

Internal investigations can benefit from leveraging technology, making it possible to analyze a high number of transactions while searching for patterns, trends, outliers and other red flags suggestive of suspicious or potentially problematic transactions. These can be cross-referenced with insights gained using specialist technological tools to analyze and correlate communications in a broad range of formats such as emails, instant messages, blogs and interactions on social media.

Data analytics can be performed against historical data, applying descriptive or diagnostic analysis to verify past problems, identify root causes, evaluate risks and measure damages caused by illicit acts.  And they can also be deployed to monitor transactions in real time, to detect possible irregularities and generate alerts so that the company can take swift corrective action.

Another resource which can be leveraged by data analytics is open data, which includes a growing number of open government initiatives. Through these initiatives, governments and other organizations make data available and accessible to all stakeholders in an effort to promote transparency and accountability. By combining, consolidating and enriching data from different sources—public and private—it is possible to connect apparently unrelated dots and transform raw data into relevant and actionable insights. For example, using technology and data analysis, it is possible to identify relationships between third parties and politically exposed persons (PEPs). This can in turn bring to light a potential problem such as the payment of an improper advantage or a conflict of interest in what might otherwise look like a perfectly legitimate transaction. Open data also enables an organization to rapidly identify a vendor with connections to another entity which has been sanctioned by a government or organization. And finally, through data analytics embedded in monitoring tools, companies can detect and flag suspicious transactions in the making—for example, ones which are in breach of internal approval processes—before those transactions are authorized.

In a fast-paced and rapidly evolving economic environment, data analytics can help companies make better business decisions. During pre-acquisition due diligence, it is possible to extract and analyze a broader range of data from various modules of corporate enterprise resource planning (ERP) systems to ultimately provide an overview of a fuller spectrum of risks related to an acquisition. In fact, the evolution in the guidance from regulatory authorities suggests that there is a growing expectation that data analytics and technology be used broadly where it is cost-effective to do so, to detect risks, including in M&A transactions. Data analytics can also be used to conduct more robust and comprehensive fraud and corruption risk assessments by searching through entire sets of corporate data as opposed to focusing on samples. This approach allows for a more complete analysis and review of how effectively internal controls are working, and can identify a broader range of potential risk issues which may be relevant for both compliance and valuation purposes.

Cutting-edge technologies such as artificial intelligence (AI) and machine learning (ML) are at the forefront of advanced data analytics, in which prescriptive and predictive analytics are used for forward-looking analyses and decision-making processes. For organizations to effectively deploy these methods, it is critical that they have a robust data governance structure in place, which is not only compliant with data privacy laws, such as LGPD in Brazil, but also maintains data quality standards, to ensure that the algorithm model performs with the highest level of accuracy and consistency.

In a fast-paced and rapidly evolving economic environment, data analytics can help companies make better business decisions

As data and technology advance, don’t write human intelligence off just yet. There is a mistaken belief—and underlying fear—that machines will substitute for human intelligence. On the contrary, technological advancements, including machine learning, neural networks and natural language processing, actually empower and augment human intelligence. Technology brings significant productivity gains and allows us to effectively work with growing volumes of data and generate unique insights from data which is otherwise humanly impossible to process, interpret and analyze. But it does not replace learnings from well-conducted structured interviews and discreet inquiries, or our capacity to create, to think critically, to communicate and empathize, and to solve ethical dilemmas.

At Control Risks we increasingly hear clients express their frustrations about the growing number of automated data solutions sold as cost-effective panaceas to deliver third-party due diligence, risk monitoring and other compliance needs. The number of these types of solutions have mushroomed in Brazil as companies scramble to comply with increasingly strict regulatory requirements and guidelines.  Many of the solutions recently introduced in the market, however, generate excessive volume of data and alerts, many false positives, and non-specific analyses devoid of a “so what”. These often place the onus on the client to filter out the significant “noise” that is intrinsic to mining large data volumes. Companies which manage to effectively combine insights from data with human experience and intelligence, and strike the right balance between the two, are by far best equipped to successfully reap the full benefits of data analytics and technology.

Control Risks continues to invest significantly and take a leading role in the deployment of data analytics to augment human intelligence in investigations, compliance, security and risk management. We deploy this approach to provide our clients around the globe with timely, relevant and actionable intelligence to help them take critical decisions and to enable them to succeed in the constantly and rapidly changing business environment characterized by BANI.


About the authors:

Operations in Brazil, Argentina, Chile, Paraguay and Uruguay are headed by Senior Partner, Geert Aalbers, who manages complex investigations into fraud, corruption and other ethics breaches from São Paulo. He is a Certified Compliance and Ethics professional (SCCE), and a member of the International Bar Association where he sat on an expert panel advising the OECD, World Bank and United Nations Office on Drugs and Crime.

Phone: +55 11985367414


Renato Akamine is an Associate Director for the Data Analytics practice in the Americas’ region and is based in Brazil. Renato has extensive experience in accounting and data analytics, helping corporations as well as organizations to analyze and identify patterns, trends, outliers and red flags, in addition to gaining insights into several types of data, structured or unstructured, including large volumes of transactional, operational, accounting and financial data.
Phone: +44 20 3821 6149