Financial crime is arguably the biggest concern for every business on the planet right now; its damaging impact on wider society should also be considered.
Nearly 50% of businesses were victims of financial crime in the past year, according to a recent study by Thomson Reuters.
The study, ‘The True Cost of Financial Crime’, quizzed over 2,300 senior business leaders in large companies around the world. It found that these crimes resulted in aggregate losses of US$1.45trn.
Fraud and cyber-attacks were cited to be the most common financial crimes, followed by theft, bribery and corruption, money laundering and slavery/human trafficking.
The globalisation of business and the lengthening of supply chains are cited as two key factors behind the increase in financial crime. This is because it makes it difficult for even the most well-resourced organisations to screen and monitor their ecosystems.
Counting the cost
Although the US$1.45trn figure grabs the headlines, the issues created by financial crime extend well beyond financial losses for businesses. Indeed, 30% of respondents feared political pressure if their company was a victim of financial crime, whilst 29% were most worried by the risk of reputational damage and/or a loss of clients.
There is evidence to support this concern. UK telecommunications company, TalkTalk, admitted to losing 101,000 customers after it was the victim of a cyberattack in 2015.
Interestingly, the fear of losses or reputational damage caused by a financial crime is directly impacting business strategy. The report finds that 72% of companies are de-risking by avoiding certain customers, suppliers, regions or industries that they see as being most exposed to financial crime. This is potentially impacting their ability to drive future revenue growth.
Smoke and mirrors
The survey also found that public companies were more likely to be impacted by financial crime. Only 45% of private companies said they had been a victim of financial crime.
This disparity may be due to financial crime not being reported, especially within private companies. Indeed, 41% of known instances of financial crime are not reported, either internally or externally, according to the report.
Of course, the impact of financial crime extends far beyond businesses, trickling down to hurt society as a whole.
The report cites interesting social statistics from the Education Endowment Foundation. It calculates that every billion dollars of tax revenue lost to financial crime could pay for 21,000 teachers in the US. Some 42% believed that money laundering leads to lower government revenue, impacting its ability to do social good.
Elsewhere, nearly half of respondents thought that money laundering led to higher prices for consumers.
Businesses are spending lots of time and effort fighting financial crime, however there is more work to do.
Education is clearly important. Sixty percent of respondents said that they provide formal training to employees around the world to help them notice and prevent financial crime occurring.
Ninety-four percent also said that greater collaboration is vital to winning the war against financial crime. This includes sharing of information and the creation and strengthening of public-private partnerships, the report highlighting the fact that cybercrime is not a threat that can be tackled in silos.