Economic crime is increasingly impacting global businesses according to a recent report from professional services firm PricewaterhouseCoopers (PwC). Globalization and growing reliance on technology and online processes are two significant factors heightening the legal and financial threats posed by crimes like misappropriation, fraud, bribery and corruption.
PwC surveyed 5,128 representatives in more than 95 countries, over half of which work in an organization with more than 1,000 employees. More than one-third (37%) of respondents indicated their business had been a victim of an economic crime, an increase from 34% in 2011's survey. The most common crime reported was misappropriation (69%), followed by procurement fraud (29%) and bribery and corruption (27%). Although cybercrime came in fourth, 48% of respondents — up significantly from 23% in 2011 — believed the risk of online crime had increased.
Some 53% of respondents saw bribery and corruption as the largest threat to global businesses, followed by money laundering (22%) and competition law/antitrust law (21%). These types of "systemic" crimes pose a greater risk and can do significantly more damage to business than "episodic" frauds like asset misappropriation. Of the reported victims of fraud, 18% suffered a financial loss of between US$1 million and US$100 million. And in addition to causing collateral damage to employee morale, corporate and brand reputation and business relations, these crimes are also more highly regulated and violations can result in significant fines.
PwC reports that businesses are more than twice as likely to report systemic crimes in high-risk markets. This may be why it reports increased globalization as one of the reasons for the growth in economic crimes in this year's survey. The results show that businesses are increasingly moving into emerging markets, with 50% of respondents operating in territories identified as posing a high risk for corruption, and another 8% planning on expanding into such areas within the next two years. These countries often have different cultural attitudes toward fraud and corruption and/or fewer regulations and inconsistent enforcement of those regulations. Consequently, more businesses report incidences of bribery and corruption in those regions (36%) than the global average (27%).
The report also cited the increased business reliance on technology as a factor in the higher level of economic crimes. While 11% of cybercrime victims reported financial losses of more than US$1 million, the report notes that the number of businesses affected by cybercrimes may be much higher. Many of these crimes are not reported either because victims were not aware of an attack or — if an attack was detected — it is difficult to quantify the loss or businesses do not reveal losses for competitive reasons.
Despite the worrisome rise in economic crimes, the survey results did show businesses are taking these threats seriously and are better able to detect them. This year's report showed 55% criminal activity was revealed by internal controls, up from 50% in 2011. In particular, the percentage of fraud detected through transaction monitoring and data analytics increased by over a third, from 18% to 25%.
Some of the most effective defenses to economic crime are a good compliance program and a strong culture of compliance within an organization. Compliance training helps minimize exposure to penalties and fines incurred for regulatory violations. Training employees on what these laws require and how to spot and avoid violations is a critical component to a comprehensive compliance program.