Global Economic Crime Survey 2016

Adjusting the Lens on Economic Crime:
Preparation brings opportunity back into focus

  • Economic crime
  • Controls
  • Cyber threats
  • Financial technology
  • Financial crime
Economic crime

Economic crime an obstinate threat

‘Economic crime is a diversified global issue.’

  • More than one in three (36%) organisations experienced economic crime
  • Both developed and emerging markets affected
  • Company detection methods not keeping pace

What opportunities are available for countering economic crime proactively?

Controls

Controls

‘Controls must be embedded in organisational culture.’

  • Gap between internal and external fraud actor is closing
  • 1 in 5 respondents have never carried out a fraud risk assessment

What are the risks your business faces and do you actively identify vulnerable areas?

Cyber threats

Cyber threats

‘Cyber threats climb, but business preparation is not keeping pace.’

  • Cybercrime climbs to 2nd most reported economic crime affecting 32% of organisations.
  • Most companies are still not adequately prepared for – or even understand the risks faced: Only 37% of organisations have a cyber incident response plan.
  • Engagement of leadership is critical, but less than half of board members request information about their organisation’s state of cyber-readiness.

How will your cyber-response plan stand up to reality?

Financial technology

Financial technology

‘Disconnect between tone at the top and reality on the ground.’

  • 1 in 5 respondents not aware of the existence of a formal ethics and compliance programme and many are confused about who owns it internally.
  • Almost half the incidents of serious economic crimes were perpetrated by internal parties.
  • Employee morale (44%) and reputational harm (32%) cited as top forms of damage.

How is your business strategy aligned with and led by your organisational values?

Financial crime

Financial crime

‘Anti-money laundering continues to confound.’

  • 1 in 5 banks have experienced enforcement actions by a regulator – failure to curb illicit business practices may lead to personal liability.
  • More than a quarter of financial services firms have not conducted AML/CFT risk assessments across their global footprint.
  • Data quality cited by 33% of respondents as a significant technical challenge.
  • Lack of experienced AML/CFT staff is a major issue

How would your organisation fare in the face of regulatory scrutiny?

Economic crime continuing strong in 2016

More than a third of organisations have experienced economic crime in the past 24 months, as reported by over 6,000 respondents to PwC’s Global Economic Crime Survey 2016. This year’s results show that the incidence of economic crime has come down, for the first time since the global financial crisis of 2008-9 (albeit marginally by 1%).​ 

At first glance, this could be evidence of a return on the investments in the preventative measures which organisations have been making over the past few years. But as we look at the data more closely, it is possible that this small decrease is actually masking a worrying trend: that economic crime is changing significantly, but that detection and controls programmes are not keeping up with the pace of change. What’s more, the financial cost of each fraud is on the rise.​ 

This year’s report illustrates how economic crime has evolved over the last two years, morphing into different forms depending on industrial sector and region.​ 

Despite this evolving threat, we have seen a decrease in the detection of criminal activity by methods within management’s control, with detection through corporate controls down by 7%. What’s more, one in five organisations (22%) have not carried out a single fraud risk assessment in the last 24 months. When looked at in the context of the findings in PwC’s 19th Annual Global CEO Survey – where two-thirds of chief executives agreed that there are more threats to the growth of their company than ever before (a sharp increase, compared to 59% in 2015) – this points to a potentially worrying trend: that too much is being left to chance. In fact, our findings indicate that one in ten economic crimes are discovered by accident.​ 

Today more than ever before, a passive approach to detecting and preventing economic crime is a recipe for disaster. To underscore this fact, our survey uncovered a widespread lack of confidence in local law enforcement – a phenomenon that is not limited to regions or level of economic development. The message is clear: the burden of preventing, protecting and responding to economic crime rests firmly with organisations themselves. Our survey this year focuses on three key areas – Cybercrime, Ethics and compliance programmes and Anti-Money Laundering – and explores certain common themes, including managing the risks associated with the pervasion of technology; what it means to conduct business responsibly across a widening business landscape; and integrating ethical conduct into decision-making.​ 

In addition to highlighting specific areas of economic crime worth focusing on, we emphasise the things you can do better to tackle them – implementing more sophisticated and effective measures that can not only reduce these risks, but also bring the benefits of a more threat-aware business, confident of its defences in a changing world.​

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Andrew Gordon, Global Forensic Services Leader
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The Data Explorer is an innovative, interactive tool that allows you to customise our Global Economic Crime survey data based on your specific needs and areas of interest. We put the power of slicing the data in your hands so that you get what you need from the data when you need it.

 

Participation statistics

Participation by region

8%
North America
22%
Western Europe
5%
Middle East
17%
East Europe
18%
Latin America
10%
Africa
20%
Asia Pacific

Respondents

70%
of respondents were managing the Finance, Executive Management, Audit, Compliance and Risk Management Functions
54%
of respondents employed by organisations with more than 1,000 employees, with
48%
of these participants having more than 10,000 employees
37%
of CEOs are concerned about cyber security
59%
of respondents were from multinational organisations

More than one third (36%) of organisations have experienced economic crime in the past 24 months

Age-old crimes lead, but one pervasive enemy jumps ahead

While asset misappropriation, bribery and corruption, procurement fraud and accounting fraud – the traditional leaders in this category – all showed a slight decrease this year over 2014’s statistics, one crime has been on a steady increase everywhere since it first appeared in our survey back in 2011. Cybercrime has now jumped to second place.

Asset misappropriation has historically been regarded as the easiest of frauds to detect, and the levels of this crime reported in our survey have previously been fairly easy to predict. However, since 2011, we have seen a downward trend in the reported rates of this particular crime. This could be as a result of a tightening of organisational controls – and that organisations are getting better at preventing traditional economic crime. This in turn could mean that it is evolving into different, higher-impact types of fraud, including cybercrime.

When considered in the light of the decreased rate of detection by means under management control – and of the increased prevalence of cybercrime – we must ask ourselves: are these crimes becoming harder to detect or are we simply becoming less aware of changing threats our businesses face? And the more important question: what should we do about this? With 20% of our survey respondents on average believing that it is likely that their organisations will experience these leading economic crimes in the next 24 months, the time is right for a fresh look.

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Economic crime: a global problem, but not the same everywhere

While some regions reported lower rates of economic crime and the global trend was steady, Africa, Western Europe and the Middle East showed significant increases in our 2016 survey. The main drivers for the high and/or increased reported rates of economic crime in Africa were South Africa (69%, unchanged since 2014), followed by Kenya (61%, up 17% over 2014) and Zambia (61%, up 35% over 2014), while in the Middle East, respondents from Saudi Arabia reported that rates of economic crime more than doubled from 11% in 2014 to 24% in 2016. Western Europe was led by France (68%) and the United Kingdom (55%), both increased by 25% relative to 2014. The significant increase for France was attributable to a jump in external frauds – predominantly cybercrime, which nearly doubled, from 28% in 2014 to 53% in 2016.

In the United Kingdom, the increase was driven by an 83% increase in reported cybercrime incidents, relative to 2014. At the regional level, while most have experienced increased incidents of cybercrime, Eastern Europe reported a fall of 2% (10% lower than the global average). Cybercrime also does not feature in the top three types of economic crimes experienced in Africa, Asia Pacific and Eastern Europe. These regions, on the other hand, have higher-than-global-average incidences of bribery and corruption and procurement fraud.

While most developed countries have seen increased regulatory attention – particularly around sensitive issues such as cybercrime, money laundering and bribery and corruption – the blurring of borders through the transnational nature of criminal activities is prompting a growing level of international cooperation in regulation and enforcement. Lest an observer be tempted to fall into familiar thinking, these statistics demonstrate that economic crime is very much a diversified global issue – both in type of crime and across emerging and developed markets. Understanding these differences can help organisations focus their prevention efforts in the right areas. The opportunity thus exists for all organisations – no matter their size or geographic diversity – to take a global view and to apply international standards to their efforts to combat economic crime. However, with the market evolving toward integrated business solutions, many organisations outside financial services are taking on activities traditionally undertaken by banks.

Numerous non-financial services businesses in the automotive, retail and consumer and communications sectors, to name just a few, are either in joint arrangements with financial services companies or are in possession of banking licences of their own. Fraudsters seeking to “follow the cash” now have many more avenues to fulfil their objectives. While the financial services industry, by virtue of its highly regulated environment, has over the decades built up sophisticated control mechanisms, detection methodologies and risk management tools, the hybrids have generally yet to come into their own in managing either the risks or the fast-evolving compliance landscape they now find themselves in.

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Rising financial & collateral damage

Losses can be stiff. Nearly a quarter (22%) of respondents experienced losses of between $100,000 and $1 million, 14% of respondents suffered losses of more than $1 million, and 1% of respondents (primarily from North America and Asia-Pacific) reported losses in excess of $100 million. These are substantial sums of money and are representative of a trend of rising costs of individual frauds.

The true cost of economic crime to the global economy is difficult to estimate, especially considering that actual financial loss is often only a small component of the fallout from a serious incident. Our survey respondents consistently note wider collateral damage including business disruptions, remedial measures, investigative and preventative interventions, regulatory fines, legal fees – and, critically – damage to morale and reputation as having a significant impact on long-term business performance.

These kinds of losses, of course, while not always quantifiable, can over time dwarf the relatively shorter-term impact of financial losses. More than half of internal perpetrators still originate from middle and senior management, but junior management also contributed a great deal to the perpetration of internal fraud in some regions. This points to a potential weakness in internal controls, whereby these measures serve as check-box exercises rather than effective processes embedded into an organisation’s culture. This is further suggested by the fact that 22% of respondents have never carried out a fraud risk assessment and a further 31% only carry out such an assessment annually.

In some regions (for example Asia Pacific), senior management fraud, which is the hardest to detect and tends to have a much greater impact, has jumped significantly. At the regional level, internal actors remain the main perpetrators of fraud in Africa (7% higher than the global average), Asia Pacific (9% higher) and Latin America (9% higher), despite significant falls in respondents stating internal actors were responsible for perpetrating fraud (6% – 15% decline across these regions since 2014). Conversely, external actors were responsible for more fraud incidents in Eastern Europe (44%), Western Europe (49%) and North America (56%) compared to the global average of 41%.

The most fundamental change in perpetrator type was in North America where there was a very significant swing from internal to external perpetrators.

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Perception of law enforcement

We asked respondents to give us their views on whether they believe local law enforcement to be adequately resourced and trained to investigate and prosecute economic crime. A resounding majority – 44% to 28% – expressed doubts on this point, while a further 28% could not answer. This metric could result from several divergent factors.

These could include the countrywide rate of economic crime, the extent to which law enforcement in the respective country publicises or downplays its expertise in certain areas like cybercrime, and the extent to which law enforcement is perceived to be above political interference.

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Forewarned, forearmed, forward​

Economic crime is ever-evolving, and becoming a more complex issue for organisations and economies. The regulatory landscape, is also changing, bringing with it numerous challenges to doing business. With local law enforcement not necessarily perceived as able to make a material difference, the onus is squarely on the shoulders of the business community to protect itself, and its stakeholders, from economic crime. As we discuss in the three upcoming sections – dedicated to the strategically crucial areas of cybercrime, ethics and compliance programmes and anti-money laundering – our survey numbers can help uncover not only potentially troublesome red flags and trends. They can also serve as vitally important indicators of areas of opportunity for forward-thinking organisations to meet the challenges of a whole new world. To be forewarned is to be forearmed for success.​

Contact us

Andrew Gordon
Global Leader, United Kingdom
Tel: +44 (0) 20 7804 4187
Email

Andrew Palmer
EMEA Leader, United Kingdom
Tel: +44 (0) 20 7212 8656
Email

Erik Skramstad
US & APA Leader, United States
Tel: +1 (617) 530 6156
Email

Trevor White
Global Economic Crime Survey Leader, South Africa
Tel: +27 (31) 271 2020
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