A financial scandal occurs when an individual or company engages in fraudulent practices. This is often the result of a lack of internal controls, unethical behavior by executives seeking personal gain, and inadequate regulatory compliance. While a financial scandal is primarily a corporate fraud, it can also include other actions such as embezzlement or tax evasion. A financial scandal can have significant consequences for those involved, including criminal charges, imprisonment, massive fines, and bans from leading companies. It can also cause widespread economic damage.
A few of the biggest financial scandals in history include Bernie Madoff’s Ponzi scheme, which defrauded investors of $64.8 billion over decades. Enron was another large corporate scandal that went bankrupt after its executives used off-the-books partnerships to artificially inflate their profits and stock prices. Volkswagen was also slapped with a $30 billion bill after its cars were found to emit significantly more pollution than they did in lab tests.
Financial scandals are a reminder of how fragile our financial system is. To prevent them from occurring, it is important to foster cultures of transparency and ethics and provide whistleblower protections. It is also crucial to ensure that regulators are not one step behind the increasingly complex tactics being used by fraudsters. This is why the Serious Fraud Office and the FRC launched investigations into accounting fraud at high street bakery Patisserie Valerie in 2022. Meanwhile, accountancy firm KPMG was heavily criticised for rubber-stamping inappropriate transactions at Ted Baker in 2018.