Page Reader AI | Fraud risk of sovereign wealth funds: fraud triangle and agency theory perspectives

Fraud risk of sovereign wealth funds: fraud triangle and agency theory perspectives | Emerald Insight

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Key Findings

This research paper investigates the susceptibility of Sovereign Wealth Funds (SWFs) to fraud. It uses a qualitative approach, analyzing three case studies to illustrate the factors contributing to fraud within the framework of the fraud triangle theory. The inherent lack of transparency and regulatory oversight, coupled with the operational flexibility often associated with SWFs, creates a breeding ground for fraudulent activities.

Methodology

The study employs a qualitative research methodology, relying on case studies of SWF fraud to demonstrate the presence of fraud triangle factors. The findings are not generalizable due to the limited sample size.

Implications

The research highlights the overlap between public sector governance and SWF governance as a significant factor increasing the risk of fraud. It emphasizes the need for improved governance recommendations, informed by lessons from past fraud cases. The inherent opacity and strategic flexibility designed to advance political goals can inadvertently facilitate fraudulent behavior.

Limitations

The authors acknowledge that using only three case studies restricts the generalizability of the findings. Further research is recommended to expand upon these findings and develop more comprehensive recommendations for SWF governance evaluation.

Originality

The authors claim this is the first paper to apply the fraud triangle to analyze fraud risk factors associated with SWFs using case studies.

Abstract Purpose The purpose of this paper is to examine failures in internal and external controls associated with sovereign wealth funds (SWFs), using three caselets to illustrate the fraud triangle theory factors. Design/methodology/approach This study uses a qualitative research approach. Caselets are used to illustrate the fraud triangle factors associated with SWFs. Findings Ideally, SWFs would be characterized by opacity and the strategic flexibility to advance political goals, but this operational agility facilitates an environment ripe for fraud, in large part because there is little transparency with regard to their regulatory structure. Elements of the fraud triangle inherent in the structure of SWFs contribute to the fraud found in the three case examples. Research limitations/implications The authors use three SWF fraud cases rather than statistical sampling of all SWFs, which limits the generalizability of the findings. Future research should explore additional recommendations for the evaluation of SWF governance. Practical implications The overlap between public sector governance and SWF governance creates an environment amenable to fraud, and as a result, fraud has occurred in several SWFs. Governance recommendations should take into account the lessons learned from previous SWF fraud cases. Social implications Ideally, SWFs would be characterized by opacity and the strategic flexibility to advance political goals, but this operational agility may also facilitate an environment ripe for fraud, in large part because there is little transparency with regard to their regulatory structure. Originality/value To the best of the authors’ knowledge, this paper is the first to identify the fraud triangle risk factors associated with sovereign wealth funds using SWF fraud caselets. Keywords Citation Lootah, M., Gleason, K., Smith, D. and Zoubi, T. (2025), "Fraud risk of sovereign wealth funds: fraud triangle and agency theory perspectives", Journal of Financial Crime, Vol. 32 No. 3, pp. 515-529. https://doi.org/10.1108/JFC-05-2024-0155 Publisher: Emerald Publishing Limited